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, 2018
ITEM 1. SEMIANNUAL REPORT TO STOCKHOLDERS.
USAA MUTUAL FUNDS TRUST - SEMIANNUAL REPORT FOR PERIOD ENDED SEPTEMBER 30, 2018
[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, 2018
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TABLE OF CONTENTS
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INVESTMENT OVERVIEW 1
FINANCIAL INFORMATION
Portfolio of Investments 3
Notes to Portfolio of Investments 10
Financial Statements 13
Notes to Financial Statements 16
Financial Highlights 28
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.
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.
(C)2018, USAA. All rights reserved.
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INVESTMENT OVERVIEW
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o TOP 10 INDUSTRIES - 9/30/18 o
(% of Net Assets)
General Obligation ....................................................... 18.1%
Appropriated Debt ........................................................ 15.6%
Hospital ................................................................. 14.0%
Water/Sewer Utility ...................................................... 13.5%
Special Assessment/Tax/Fee ............................................... 7.8%
Escrowed Bonds ........................................................... 5.8%
Real Estate Tax/Fee ...................................................... 5.4%
Toll Road ................................................................ 4.1%
Nursing/CCRC ............................................................. 3.9%
Airport/Port ............................................................. 3.8%
Refer to the Portfolio of Investments for a complete list of securities.
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INVESTMENT OVERVIEW | 1
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o PORTFOLIO RATINGS MIX - 9/30/18 o
[PIE CHART OF PORTFOLIO RATINGS MIX]
AAA 1.6%
AA 61.8%
A 23.1%
BBB 9.9%
BELOW INVESTMENT-GRADE 0.9%
UNRATED 2.7%
[END PIE 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.
Refer to the Portfolio of Investments for a complete list of securities.
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2 | USAA CALIFORNIA BOND FUND
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PORTFOLIO OF INVESTMENTS
September 30, 2018 (unaudited)
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PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
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MUNICIPAL OBLIGATIONS (99.4%)
CALIFORNIA (95.7%)
$ 1,500 Abag Finance Auth. for Nonprofit Corps. 5.00% 7/01/2042 $ 1,573
4,235 Abag Finance Auth. for Nonprofit Corps.
(NBGA - California Health Insurance
Construction Loan Insurance Program) 5.00 1/01/2033 4,652
2,000 Adelanto Public Utility Auth. (INS -
Assured Guaranty Municipal Corp.) 5.00 7/01/2039 2,253
2,000 Alameda Corridor Transportation Auth. 5.00 10/01/2037 2,179
2,000 Albany Unified School District 5.00 8/01/2043 2,253
1,500 Albany Unified School District 4.00 8/01/2046 1,544
1,500 Anaheim Public Financing Auth. 5.00 5/01/2046 1,649
3,230 Antioch Unified School District (LIQ -
Deutsche Bank A.G.) (LOC - Deutsche
Bank A.G.) (Put Date 10/05/2018)(a),(b) 1.61 8/01/2047 3,230
17,520 Association of Bay Area Governments
(INS - XL Capital Assurance) 4.75 3/01/2036 17,709
15,000 Bay Area Toll Auth. (MUNIPSA + 1.25%)
(Put Date 4/01/2027)(c) 2.81(d) 4/01/2036 15,594
3,085 Burbank Unified School District, 4.30%, 8/01/2023 0.00(e) 8/01/2033 2,739
3,000 Burbank Unified School District, 4.35%, 8/01/2023 0.00(e) 8/01/2034 2,650
5,265 Carlsbad Unified School District (PRE)
(INS - Assured Guaranty Corp.) 5.00 10/01/2034 5,436
9,500 Centinela Valley Union High School District 4.00 8/01/2050 9,666
3,000 Central Unified School District (INS - Assured
Guaranty Corp.) 5.50 8/01/2029 3,093
1,300 City of Atwater Wastewater (INS - Assured
Guaranty Municipal Corp.) 5.00 5/01/2043 1,454
5,000 City of Chula Vista 5.88 1/01/2034 5,130
2,000 City of Fillmore Wastewater 5.00 5/01/2047 2,210
7,115 City of Roseville City Electric (PRE) 5.00 2/01/2037 7,418
2,000 City of Santa Clara Electric 5.25 7/01/2032 2,173
5,710 City of Tulare Sewer (INS - Assured
Guaranty Municipal Corp.) 4.00 11/15/2041 5,845
5,000 City of Tulare Sewer (INS - Assured
Guaranty Municipal Corp.) 4.00 11/15/2044 5,109
3,000 City of Upland 4.00 1/01/2042 2,969
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PORTFOLIO OF INVESTMENTS | 3
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PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
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$ 2,000 City of Upland 5.00% 1/01/2047 $ 2,190
1,350 Corona-Norco Unified School District 5.00 9/01/2032 1,484
9,000 East Bay Municipal Utility District
Wastewater System 5.00 6/01/2038 11,038
6,000 Educational Facilities Auth. (PRE) 5.38 4/01/2034 6,319
3,100 Educational Facilities Auth. 5.00 10/01/2049 3,467
1,000 Educational Facilities Auth. 5.00 10/01/2037 1,111
13,000 El Centro Financing Auth. (LIQ - Deutsche
Bank A.G.) (LOC - Deutsche Bank A.G.)
(Put Date 10/05/2018)(a),(b),(g) 1.91 7/01/2058 13,000
1,500 Elk Grove Finance Auth. (INS - Build
America Mutual Assurance Co.) 5.00 9/01/2038 1,658
15,000 Foothill-Eastern Transportation Corridor
Agency (INS - Assured Guaranty
Municipal Corp.) (Zero Coupon) 0.00 1/15/2034 8,287
7,500 Foothill-Eastern Transportation Corridor
Agency (INS - Assured Guaranty
Municipal Corp.)(Zero Coupon) 0.00 1/15/2035 3,916
5,500 Golden State Tobacco Securitization Corp. 5.00 6/01/2035 6,138
2,400 Grass Valley School District (INS - Build
America Mutual Assurance Co.) 5.00 8/01/2045 2,667
14,000 Health Facilities Financing Auth. 4.00 11/15/2041 14,252
10,000 Health Facilities Financing Auth. 4.00 10/01/2047 10,164
8,105 Health Facilities Financing Auth. 4.00 3/01/2039 8,230
1,000 Health Facilities Financing Auth. 5.00 8/15/2042 1,104
2,000 Health Facilities Financing Auth. (PRE) 6.50 10/01/2033 2,000
1,050 Health Facilities Financing Auth. (NBGA -
California Health Insurance Construction
Loan Insurance Program) 5.00 7/01/2039 1,169
2,300 Health Facilities Financing Auth. (NBGA -
California Health Insurance Construction
Loan Insurance Program) 5.00 7/01/2044 2,545
7,805 Health Facilities Financing Auth. (NBGA -
California Health Insurance Construction
Loan Insurance Program) 5.00 6/01/2042 8,413
2,100 Health Facilities Financing Auth. 5.00 11/15/2039 2,291
5,000 Health Facilities Financing Auth. 5.00 7/01/2033 5,518
9,310 Indio Redev. Agency 5.25 8/15/2031 9,329
750 Inglewood Unified School District (INS - Build
America Mutual Assurance Co.) 5.00 8/01/2038 824
6,000 Inland Empire Tobacco Securitization Auth. 5.75 6/01/2026 6,286
1,000 Irvine Unified School District 5.00 9/01/2042 1,097
1,000 Irvine Unified School District 5.00 9/01/2047 1,094
1,000 Irvine Unified School District 5.00 9/01/2042 1,097
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4 | USAA CALIFORNIA BOND FUND
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PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
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$ 525 Irvine Unified School District 5.00% 9/01/2047 $ 574
1,000 Irvine Unified School District 5.00 9/01/2049 1,092
1,000 Irvine Unified School District 5.00 9/01/2045 1,100
2,000 Irvine Unified School District 5.00 9/01/2049 2,196
6,000 Irvine Unified School District (INS - Build
America Mutual Assurance Co.) 5.00 9/01/2056 6,621
1,000 Jurupa Public Financing Auth. 5.00 9/01/2042 1,093
1,500 Local Public Schools Funding Auth. (INS -
Build America Mutual Assurance Co.) 4.00 8/01/2052 1,517
3,875 Long Beach Bond Finance Auth. 5.00 11/15/2035 4,613
4,000 Los Angeles County Facilities, Inc. 5.00 12/01/2051 4,531
2,000 Los Angeles County Public Works Financing Auth. 5.00 12/01/2044 2,227
6,000 Los Angeles County Public Works Financing Auth. 5.00 12/01/2045 6,731
5,790 March Joint Powers Redev. Agency (INS -
Build America Mutual Assurance Co.) 4.00 8/01/2041 5,899
3,800 Modesto Irrigation District (PRE) 5.75 10/01/2034 3,875
2,200 Modesto Irrigation District 5.75 10/01/2034 2,239
3,435 Monrovia Financing Auth. 5.00 12/01/2045 3,856
2,345 Monrovia Financing Auth. (INS - Assured
Guaranty Municipal Corp.) 5.00 12/01/2045 2,596
6,500 Moreno Valley Unified School District (INS -
Assured Guaranty Municipal Corp.) 5.00 8/01/2047 7,403
3,315 Mountain View School District (INS - Build
America Mutual Assurance Co.) 5.00 8/01/2048 3,674
2,000 Mountain View Shoreline Regional Park Community 5.63 8/01/2035 2,177
1,000 Municipal Finance Auth. 5.00 7/01/2047 1,079
750 Municipal Finance Auth. 5.00 2/01/2037 824
1,000 Municipal Finance Auth. 5.00 2/01/2047 1,089
1,000 Municipal Finance Auth. 5.00 2/01/2042 1,092
1,900 Municipal Finance Auth. (NBGA - California
Health Insurance Construction
Loan Insurance Program) 4.13 5/15/2039 1,934
2,100 Municipal Finance Auth. (NBGA - California
Health Insurance Construction
Loan Insurance Program) 4.13 5/15/2046 2,133
1,000 Municipal Finance Auth. 5.00 6/01/2050 1,068
2,500 Municipal Finance Auth. (NBGA - California
Health Insurance Construction Loan
Insurance Program) 5.00 5/15/2047 2,818
1,800 Municipal Finance Auth.(f) 5.00 7/01/2049 1,865
1,500 Norco Community Redev. Agency (PRE) 5.88 3/01/2032 1,586
1,250 Norco Community Redev. Agency (PRE) 6.00 3/01/2036 1,324
5,000 Norwalk Redev. Agency (INS - National Public
Finance Guarantee Corp.) 5.00 10/01/2030 5,011
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PORTFOLIO OF INVESTMENTS | 5
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PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 3,500 Norwalk Redev. Agency (INS - National
Public Finance Guarantee Corp.) 5.00% 10/01/2035 $ 3,509
7,500 Norwalk-La Mirada Unified School District
(INS - Assured Guaranty Municipal Corp.)
(Zero Coupon) 0.00 8/01/2030 5,057
6,205 Oakdale Irrigation District (PRE) 5.50 8/01/2034 6,397
12,230 Palomar Health (INS - Assured Guaranty
Municipal Corp.) (Zero Coupon) 0.00 8/01/2031 7,631
5,500 Palomar Health (INS - National Public
Finance Guarantee Corp.) (Zero Coupon) 0.00 8/01/2026 4,260
2,000 Pittsburg Successor Agency Redev. Agency
(INS - Assured Guaranty Municipal Corp.) 5.00 9/01/2029 2,287
9,870 Pollution Control Financing Auth. 5.00 11/21/2045 9,980
4,000 Pollution Control Financing Auth.(a) 5.25 8/01/2040 4,210
1,200 Pollution Control Financing Auth. (LOC -
Mizuho Corporate Bank Ltd.)
(Put Date 10/01/2018)(b) 1.68 11/01/2026 1,200
1,500 Pomona Unified School District (INS -
Build America Mutual Assurance Co.) 5.00 8/01/2039 1,653
3,000 Public Finance Auth. 5.00 10/15/2047 3,171
1,000 Public Finance Auth. 5.00 10/15/2037 1,070
5,705 Public Works Board 5.00 4/01/2031 5,718
6,875 Public Works Board 5.00 4/01/2031 6,890
2,000 Regents of the Univ. of California Medical Center 4.00 5/15/2044 2,025
2,800 Rio Elementary School District (INS -
Assured Guaranty Municipal Corp.) 4.00 8/01/2045 2,845
1,250 Riverside County Public Financing Auth.
(INS - Build America Mutual Assurance Co.) 4.00 10/01/2036 1,282
1,625 Riverside County Public Financing Auth.
(INS - Build America Mutual Assurance Co.) 4.00 10/01/2037 1,661
5,250 Riverside County Public Financing Auth.
(LIQ - Deutsche Bank A.G.) (LOC - Deutsche
Bank A.G.) (Put Date 10/05/2018)(a),(b) 1.61 11/01/2045 5,250
2,000 Riverside County Redev. Successor
Agency (INS - Build America Mutual
Assurance Co.) 4.00 10/01/2037 2,044
2,000 Riverside County Transportation Commission (PRE) 5.25 6/01/2039 2,296
2,000 RNR School Financing Auth. (INS - Build
America Mutual Assurance Co.) 5.00 9/01/2041 2,220
2,000 Sacramento Area Flood Control Agency
(INS - Build America Mutual Assurance Co.) 5.00 10/01/2044 2,180
17,765 Sacramento City Financing Auth. (LIQ -
Deutsche Bank A.G.) (LOC - Deutsche
Bank A.G.) (Put Date 10/05/2018)(a),(b) 1.66 12/01/2033 17,765
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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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$ 1,100 Sacramento County Airport System 5.00% 7/01/2041 $ 1,230
1,020 Sacramento Unified School District (INS -
Build America Mutual Assurance Co.) 5.00 7/01/2038 1,121
2,000 San Diego County Regional Airport Auth. 5.00 7/01/2040 2,096
1,500 San Diego County Regional Airport Auth. 5.00 7/01/2047 1,680
2,500 San Diego Public Facilities Financing Auth. 5.00 10/15/2044 2,795
1,000 San Diego Public Facilities Financing Auth. (PRE) 5.25 5/15/2029 1,056
5,760 San Francisco City & County Airport
Comm-San Francisco International Airport 4.90 5/01/2029 5,937
10,000 San Jose Financing Auth. 5.00 6/01/2039 11,015
1,500 San Luis & Delta Mendota Water Auth.
(INS - Build America Mutual Assurance Co.) 5.00 3/01/2038 1,628
3,000 San Marcos Schools Financing Auth.
(PRE) (INS - Assured Guaranty Municipal Corp.) 5.00 8/15/2035 3,176
5,000 San Ramon Redev. Agency (INS - Build
America Mutual Assurance Co.) 5.00 2/01/2038 5,446
3,500 Santa Barbara Financing Auth. 5.00 7/01/2029 3,576
9,000 Santa Barbara Financing Auth. 5.00 7/01/2039 9,181
5,250 Santa Clarita CCD 4.00 8/01/2046 5,392
6,000 Santa Cruz County Redev. Agency (INS - Assured
Guaranty Municipal Corp.) 5.00 9/01/2035 6,768
1,000 Santa Rosa High School District (INS - Assured
Guaranty Municipal Corp.) 5.00 8/01/2043 1,129
1,750 School Finance Auth.(a) 5.00 8/01/2041 1,848
2,250 School Finance Auth.(a) 5.00 8/01/2046 2,369
1,370 School Finance Auth.(a) 5.00 7/01/2047 1,488
9,595 Semitropic Improvement District (LIQ - J.P.Morgan
Chase & Co.) (Put Date 10/05/2018)(a),(b) 1.71 12/01/2018 9,595
75 State 4.50 8/01/2030 75
5,000 State 5.75 4/01/2031 5,094
4,000 State 5.25 2/01/2030 4,387
9,500 State 5.00 8/01/2046 10,697
2,500 State 5.00 9/01/2045 2,820
7,000 State 5.00 11/01/2047 7,992
3,000 State 5.00 2/01/2043 3,261
2,000 Statewide Communities Dev. Auth. 5.00 5/15/2040 2,188
1,500 Statewide Communities Dev. Auth. 5.00 5/15/2042 1,585
1,500 Statewide Communities Dev. Auth. 5.00 5/15/2047 1,580
500 Statewide Communities Dev. Auth. 5.00 11/01/2043 545
3,000 Statewide Communities Dev. Auth. 4.00 8/15/2051 3,020
2,750 Statewide Communities Dev. Auth. 5.00 10/01/2046 2,978
4,000 Statewide Communities Dev. Auth.
(NBGA - California Health Insurance
Construction Loan Insurance Program) 4.00 11/01/2046 4,047
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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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$ 2,400 Statewide Communities Dev. Auth.
(NBGA - California Health Insurance
Construction Loan Insurance Program) 5.00% 8/01/2044 $ 2,636
1,000 Statewide Communities Dev. Auth. 5.00 5/15/2047 1,099
1,000 Statewide Communities Dev. Auth. 5.00 5/15/2050 1,097
4,000 Statewide Communities Dev. Auth. 5.00 7/01/2048 4,422
1,000 Statewide Communities Dev. Auth. 5.00 12/01/2053 1,111
2,500 Statewide Communities Dev. Auth. 5.00 12/01/2057 2,777
7,500 Temecula Valley Unified School District
(INS - Assured Guaranty Municipal Corp.) 4.00 8/01/2045 7,667
1,575 Temecula Valley Unified School District
Financing Auth. (INS - Build America
Mutual Assurance Co.) 5.00 9/01/2040 1,728
7,190 Tuolumne Wind Project Auth. (PRE) 5.63 1/01/2029 7,260
8,485 Twin Rivers Unified School District (INS - Assured
Guaranty Municipal Corp.) (Put Date 6/01/2020)(c) 3.20 6/01/2041 8,494
1,105 Val Verde Unified School District (INS - Build
America Mutual Assurance Co.) 5.00 8/01/2034 1,225
1,530 Val Verde Unified School District (INS - Build
America Mutual Assurance Co.) 5.00 8/01/2035 1,694
4,000 Val Verde Unified School District (INS - Assured
Guaranty Municipal Corp.) 5.00 3/01/2029 4,047
1,500 Val Verde Unified School District (INS - Assured
Guaranty Municipal Corp.) 5.13 3/01/2036 1,517
4,475 Val Verde Unified School District (INS - Assured
Guaranty Municipal Corp.) 4.00 8/01/2045 4,562
4,000 Val Verde Unified School District (INS - Build
America Mutual Assurance Co.) 5.00 8/01/2044 4,433
1,683 Vallejo Sanitation & Flood Control District
(INS - National Public Finance Guarantee Corp.) 5.00 7/01/2019 1,713
5,000 Victor Valley Union High School District
(INS - Assured Guaranty Municipal Corp.) 4.00 8/01/2037 5,146
15,190 Victorville JT Powers Finance Auth.
(LOC - BNP Paribas) (Put Date 10/05/2018)(b) 2.06 5/01/2040 15,190
1,250 Washington Township Health Care District 6.00 7/01/2029 1,279
1,000 Washington Township Health Care District 5.00 7/01/2042 1,076
4,585 West Kern Water District 5.00 6/01/2028 4,915
6,000 Western Placer Unified School District
(INS - Assured Guaranty Municipal Corp.) 4.00 8/01/2041 6,113
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653,650
-------
GUAM (2.6%)
1,570 Government (LIQ - Barclays Bank plc)
(LOC - Barclays Bank plc)
(Put Date 10/05/2018)(a),(b) 1.71 12/01/2046 1,570
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8 | USAA CALIFORNIA BOND FUND
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PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 4,000 Government Waterworks Auth. 5.50% 7/01/2043 $ 4,305
1,000 Power Auth. 5.00 10/01/2034 1,055
2,700 Power Auth. 5.00 10/01/2038 2,932
7,000 Waterworks Auth. 5.00 1/01/2046 7,529
4,000 Waterworks Auth. 5.50 7/01/2043 4,305
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17,391
----------
U.S. VIRGIN ISLANDS (1.1%)
1,365 Public Finance Auth. 4.00 10/01/2022 1,379
1,500 Public Finance Auth. 5.00 10/01/2027 1,511
3,000 Public Finance Auth.(a) 5.00 9/01/2033 3,128
1,500 Public Finance Auth. 5.00 10/01/2032 1,511
----------
7,529
----------
Total Municipal Obligations (cost: $670,631) 678,570
----------
TOTAL INVESTMENTS (COST: $670,631) $ 678,570
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($ IN 000s) VALUATION HIERARCHY
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ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
-----------------------------------------------------------------------------------------------------------------------
Municipal Obligations $- $678,570 $- $678,570
-----------------------------------------------------------------------------------------------------------------------
Total $- $678,570 $- $678,570
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Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
For the period of April 1, 2018, through September 30, 2018, there were no
transfers of securities between levels. The Fund's policy is to recognize
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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PORTFOLIO OF INVESTMENTS | 9
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NOTES TO PORTFOLIO OF INVESTMENTS
September 30, 2018 (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 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
Zero Coupon Normally issued at a significant discount from face value
and do not provide for the periodic interest payments. Income
is earned from the purchase date by accreting the purchase
discount of the security to par over the life of the security.
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
================================================================================
10 | USAA CALIFORNIA BOND FUND
================================================================================
collateral trust. The enhancements do not guarantee the market values of the
securities.
INS Principal and interest payments are insured by the name listed.
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
the name listed.
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 name listed.
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 (VRDNs) - Provide the right to sell the
security at face value on either that day or within the rate-reset
period. VRDNs will normally trade as if the maturity is the earlier put
date, even though stated maturity is longer. The interest rate is reset
on the put date at a stipulated daily, weekly, monthly, quarterly, or
other specified time interval to reflect current market conditions.
These securities do not indicate a reference rate and spread in their
description.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 11
================================================================================
(c) Put bond - provides 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.
(d) Floating-rate security - interest rate is adjusted periodically. The
interest rate disclosed represents the rate at September 30, 2018.
(e) 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.
(f) Security or a portion of the security purchased on a delayed-delivery
and/or when-issued basis.
(g) At September 30, 2018, the security, or a portion thereof, was
segregated to cover delayed-delivery and/or when-issued purchases.
See accompanying notes to financial statements.
================================================================================
12 | USAA CALIFORNIA BOND FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
September 30, 2018 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $670,631) $678,570
Receivables:
Capital shares sold 128
Interest 7,249
--------
Total assets 685,947
--------
LIABILITIES
Payables:
Securities purchased 1,870
Capital shares redeemed 502
Bank overdraft 7
Dividends on capital shares 344
Accrued management fees 158
Accrued transfer agent's fees 5
Other accrued expenses and payables 81
--------
Total liabilities 2,967
--------
Net assets applicable to capital shares outstanding $682,980
========
NET ASSETS CONSIST OF:
Paid-in capital $679,842
Distributable earnings 3,138
--------
Net assets applicable to capital shares outstanding $682,980
========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $676,189/62,390 capital shares
outstanding, no par value) $ 10.84
========
Adviser Shares (net assets of $6,791/627 capital shares
outstanding, no par value) $ 10.83
========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 13
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended September 30, 2018 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Interest income $ 12,664
--------
EXPENSES
Management fees 990
Administration and servicing fees:
Fund Shares 510
Adviser Shares 5
Transfer agent's fees:
Fund Shares 79
Adviser Shares 1
Distribution and service fees (Note 6):
Adviser Shares 9
Custody and accounting fees:
Fund Shares 62
Adviser Shares 1
Postage:
Fund Shares 6
Shareholder reporting fees:
Fund Shares 8
Trustees' fees 17
Professional fees 43
Other 13
--------
Total expenses 1,744
--------
NET INVESTMENT INCOME 10,920
--------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain 760
Change in net unrealized appreciation/(depreciation) (6,042)
--------
Net realized and unrealized loss (5,282)
--------
Increase in net assets resulting from operations $ 5,638
========
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, 2018 (unaudited), and year ended March 31,
2018
-----------------------------------------------------------------------------------------------------------------------
9/30/2018 3/31/2018
-----------------------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 10,920 $ 22,873
Net realized gain on investments 760 557
Change in net unrealized appreciation/(depreciation)
of investments (6,042) (857)
-------------------------------------
Increase in net assets resulting from operations 5,638 22,573
-------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
DISTRIBUTABLE EARNINGS:
Fund Shares (10,808) (22,632)
Adviser Shares (104) (221)
-------------------------------------
Distributions to shareholders (10,912) (22,853)
-------------------------------------
NET INCREASE IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS (NOTE 5)
Fund Shares 6,913 5,342
Adviser Shares (142) (97)
-------------------------------------
Total net increase in net assets from
capital share transactions 6,771 5,245
-------------------------------------
Net increase in net assets 1,497 4,965
NET ASSETS
Beginning of period 681,483 676,518
-------------------------------------
End of period $682,980 $681,483
=====================================
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 15
================================================================================
NOTES TO FINANCIAL STATEMENTS
September 30, 2018 (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 47 separate funds. The
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 and Liquidity Committee (the Committee), and
subject to Board oversight, the Committee administers and oversees the
================================================================================
16 | USAA CALIFORNIA BOND FUND
================================================================================
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 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
that are observable for the securities, either directly or indirectly, and
market-corroborated inputs such as market indexes.
================================================================================
18 | USAA CALIFORNIA BOND FUND
================================================================================
Level 3 - inputs to the valuation methodology are unobservable and
significant to the fair value measurement, including the Manager's own
assumptions in determining the fair value.
The inputs or methodologies used for valuing securities are not necessarily
an indication of the risks associated with investing in those securities.
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.
For the six-month period ended September 30, 2018, 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.
D. INVESTMENTS IN SECURITIES - Securities transactions are accounted for as
of 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 19
================================================================================
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. INDEMNIFICATIONS - Under the Trust's organizational documents, its
officers and trustees are indemnified against certain liabilities arising
out of the performance of their duties to the Trust. In addition, in the
normal course of business, the Trust enters into contracts that contain a
variety of representations and warranties that provide general
indemnifications. The Trust's maximum exposure under these arrangements is
unknown, as this would involve future claims that may be made against the
Trust that have not yet occurred. However, the Trust expects the risk of
loss to be remote.
G. USE OF ESTIMATES - The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts in the
financial statements.
(2) LINE OF CREDIT
The Fund participates, 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 14.0 basis
points of the amount of the committed loan agreement. Prior to September 30,
2018, the maximum annual facility fee was 13.0 basis points of the amount of the
committed loan agreement. The facility fees are
================================================================================
20 | USAA CALIFORNIA BOND FUND
================================================================================
allocated among the funds of the Trusts based on their respective average daily
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 15.0 basis points.
For the six-month period ended September 30, 2018, the Fund paid CAPCO facility
fees of $3,000, which represents 0.8% of the total fees paid to CAPCO by the
funds of the Trusts. The Fund had no borrowings under this agreement during the
six-month period ended September 30, 2018.
(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, 2019, in
accordance with applicable federal tax law.
Net investment income is accrued daily as dividends and distributed to
shareholders monthly. Distributions of realized gains from security transactions
not offset by capital losses are made annually in the succeeding fiscal year or
as otherwise required to avoid the payment of federal taxes.
At March 31, 2018, the Fund had long-term capital loss carryforwards of
$5,561,000, 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.
As of September 30, 2018, 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, 2018 were $16,109,000 and $8,170,000, respectively, resulting in net
unrealized appreciation of $7,939,000.
(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, 2018, were
$73,654,000 and $67,402,000, respectively.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 21
================================================================================
In accordance with affiliated transaction procedures approved by the Board,
purchases and sales of security transactions were executed between the Fund and
affiliated USAA Funds at the then-current market price with no brokerage
commissions incurred. The affiliated transactions executed by the Fund,
including short-term securities, during the six-month period ended September 30,
2018 were as follows:
PURCHASES SALES REALIZED GAIN/(LOSS)
--------------------------------------------------------------------------------------
$38,320,000 $22,510,000 $-
(5) CAPITAL SHARE TRANSACTIONS
At September 30, 2018, 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, 2018 MARCH 31, 2018
----------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------
FUND SHARES:
Shares sold 2,960 $ 32,309 5,757 $ 63,554
Shares issued from reinvested
dividends 787 8,592 1,607 17,703
Shares redeemed (3,113) (33,988) (6,888) (75,915)
-----------------------------------------------------------
Net increase from capital
share transactions 634 $ 6,913 476 $ 5,342
===========================================================
ADVISER SHARES:
Shares sold 55 $ 595 19 $ 207
Shares issued from reinvested
dividends 2 21 4 47
Shares redeemed (69) (758) (32) (351)
-----------------------------------------------------------
Net decrease from
capital share transactions (12) $ (142) (9) $ (97)
===========================================================
(6) TRANSACTIONS WITH MANAGER
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,
================================================================================
22 | USAA CALIFORNIA BOND 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 daily 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.
For the six-month period ended September 30, 2018, the Fund's effective
annualized base fee was 0.32% of the Fund's average daily 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 Lipper 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
daily 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 23
================================================================================
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 class had overall negative returns during the performance period.
For the six-month period ended September 30, 2018, the Fund incurred management
fees, paid or payable to the Manager, of $990,000, which included a performance
adjustment for the Fund Shares and Adviser Shares of $(115,000) and $(2,000),
respectively. For the Fund Shares and Adviser Shares, the performance
adjustments were (0.03)% and (0.05)%, respectively.
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
daily net assets for both the Fund Shares and Adviser Shares. For the six-month
period ended September 30, 2018, the Fund Shares and Adviser Shares incurred
administration and servicing fees, paid or payable to the Manager, of $510,000
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, 2018, 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.
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, 2018, the Fund Shares and Adviser Shares incurred transfer agent's
fees, paid or payable to SAS, of $79,000 and $1,000, respectively.
================================================================================
24 | USAA CALIFORNIA BOND FUND
================================================================================
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 daily 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,
2018, the Adviser Shares incurred distribution and service (12b-1) fees of
$9,000.
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,
2018, USAA and its affiliates owned 479,000 Adviser Shares, which represents
76.4% of the Adviser Shares outstanding and 0.8% 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 SEC issued Final Rule Release No. 33-10233, INVESTMENT
COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS (Liquidity Rule). The Liquidity Rule
requires funds to establish a liquidity risk management program and enhances
disclosures regarding funds' liquidity. The requirements to implement a
liquidity risk management program and establish a 15% illiquid investment limit
are effective December 1, 2018. However, in February 2018, the SEC issued
Release No. IC-33010,
================================================================================
NOTES TO FINANCIAL STATEMENTS | 25
================================================================================
INVESTMENT COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS; COMMISSION GUIDANCE FOR
IN-KIND ETFs, which delayed certain requirements related to liquidity
classification, highly liquid investment minimums, and board approval of the
liquidity risk management programs to June 1, 2019. The Manager continues to
evaluate the impact of this rule on the Fund's financial statements and various
filings.
(9) UPCOMING ACCOUNTING PRONOUNCEMENTS
(ASU) 2017-08, PREMIUM AMORTIZATION OF PURCHASED CALLABLE DEBT SECURITIES
-------------------------------------------------------------------------
In March 2017, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Update (ASU) 2017-08, Premium Amortization of Purchased Callable Debt
Securities. The amendments in the ASU shorten the premium amortization period on
a purchased callable debt security from the security's contractual life to the
earliest call date. It is anticipated that this change will enhance reporting
disclosures by reducing losses recognized when a security is called on an
earlier date. This ASU is effective for fiscal years beginning after December
15, 2018. The Manager continues to evaluate the impact this ASU will have on the
financial statements and other reporting disclosures.
(ASU) 2018-13, FAIR VALUE MEASUREMENT
-------------------------------------
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820).
The amendments in the ASU impact disclosure requirements for fair value
measurement. It is anticipated that this change will enhance the effectiveness
of disclosures in the notes to the financial statements. This ASU is effective
for fiscal years beginning after December 15, 2019. Early adoption is permitted
and can include the entire standard or certain provisions that exclude or amend
disclosures. The adoption of this ASU guidance is not expected to have a
material impact on the financial statements and other disclosures.
(10) RECENTLY ADOPTED ACCOUNTING STANDARD
In August 2018, the U.S. Securities and Exchange Commission (SEC) adopted
amendments to Regulation S-X for investment companies governing the form and
content of financial statements. The amendments to Regulation S-X took effect on
November 5, 2018, and the financial statements have been modified accordingly,
for the current and prior period.
================================================================================
26 | USAA CALIFORNIA BOND FUND
================================================================================
(11) SUBSEQUENT EVENT
On November 6, 2018, United Services Automobile Association ("USAA"), the parent
company of USAA Asset Management Company ("AMCO"), the investment adviser to the
Funds, and USAA Transfer Agency Company d.b.a. USAA Shareholder Account Services
("SAS"), the transfer agent to the Funds, announced that AMCO and SAS would be
acquired by Victory Capital Holdings, Inc. ("Victory"), a global investment
management firm headquartered in Cleveland, Ohio (the "Transaction"). The
closing of the Transaction is expected to be completed during the second quarter
of 2019, pending satisfaction of certain closing conditions and approvals,
including certain approvals of the Funds' Board of Trustees and of Fund
shareholders at a special shareholder meeting to be held in 2019.
The Transaction is not expected to result in any material changes to the Funds'
respective investment objectives and principal investment strategies.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 27
================================================================================
FINANCIAL HIGHLIGHTS
FUND SHARES (UNAUDITED)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
SEPTEMBER 30,
2018 YEAR ENDED MARCH 31,
--------------------------------------------------------------------------------------------
2018 2018 2017 2016 2015 2014
--------------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 10.92 $ 10.92 $ 11.29 $ 11.27 $ 10.83 $ 11.17
--------------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .17 .37 .37 .42 .43 .44
Net realized and
unrealized gain (loss) (.08) (.00)(a) (.37) .02 .44 (.34)
--------------------------------------------------------------------------------------------
Total from investment
operations .09 .37 .00(a) .44 .87 .10
--------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.17) (.37) (.37) (.42) (.43) (.44)
--------------------------------------------------------------------------------------------
Net asset value at
end of period $ 10.84 $ 10.92 $ 10.92 $ 11.29 $ 11.27 $ 10.83
============================================================================================
Total return (%)* .86 3.37 .01 3.98 8.14 1.03
Net assets at
end of period (000) $676,189 $674,498 $669,435 $698,731 $675,694 $631,184
Ratios to average daily
net assets:**
Expenses (%)(d) .50(b) .51 .51(c) .56(c) .57(c) .58(c)
Net investment income (%) 3.18(b) 3.32 3.34 3.74 3.85 4.12
Portfolio turnover (%) 11 6 26 9 4 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, 2018, average daily net assets
were $678,467,000.
(a) Represents less than $0.01 per share.
(b) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(c) Reflects total annual operating expenses of the Fund Shares before
reductions of any expenses paid indirectly. The Fund Shares' expenses paid
indirectly decreased the expense ratio by less than 0.01%.
(d) Does not include acquired fund fees, if any.
================================================================================
28 | USAA CALIFORNIA BOND FUND
================================================================================
ADVISER SHARES (UNAUDITED)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
SEPTEMBER 30,
2018 YEAR ENDED MARCH 31,
-------------------------------------------------------------------------------------------
2018 2018 2017 2016 2015 2014
-------------------------------------------------------------------------------------------
Net asset value at
beginning of period $10.91 $10.91 $11.28 $11.26 $10.82 $11.16
-------------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .16 .34 .35 .39 .40 .41
Net realized and
unrealized gain (loss) (.08) (.00)(a) (.37) .02 .44 (.34)
-------------------------------------------------------------------------------------------
Total from investment
operations .08 .34 (.02) .41 .84 .07
-------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.16) (.34) (.35) (.39) (.40) (.41)
Redemption fees added to
beneficial interests - - .00(a) - - -
-------------------------------------------------------------------------------------------
Net asset value at
end of period $10.83 $10.91 $10.91 $11.28 $11.26 $10.82
===========================================================================================
Total return (%)* .74 3.12 (.24) 3.73 7.86 .79
Net assets at
end of period (000) $6,791 $6,985 $7,083 $8,303 $7,948 $5,606
Ratios to average daily
net assets:**
Expenses (%)(e) .75(b) .75 .75(c) .80(c) .83(c),(d) .82(c)
Expenses, excluding
reimbursements (%)(e) .75(b) .75 .75(c) .80(c) .83(c) .82(c)
Net investment income (%) 2.93(b) 3.08 3.09 3.49 3.58 3.88
Portfolio turnover (%) 11 6 26 9 4 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, 2018, average daily net assets
were $7,066,000.
(a) Represents less than $0.01 per share.
(b) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(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 ratio by less than 0.01%.
(d) Prior to August 1, 2014, the Manager had voluntarily agreed to limit the
annual expenses of the Adviser Shares to 0.90% of the Adviser Shares'
average daily net assets.
(e) Does not include acquired fund fees, if any.
================================================================================
FINANCIAL HIGHLIGHTS | 29
================================================================================
EXPENSE EXAMPLE
September 30, 2018 (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, 2018, through
September 30, 2018.
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
================================================================================
30 | USAA CALIFORNIA BOND FUND
================================================================================
estimate the actual ending account balance or expenses you paid for the period.
You may use this information to compare the ongoing costs of investing in the
Fund and other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any direct costs, such as wire fees,
redemption fees, or low balance fees. Therefore, the line labeled "hypothetical"
is useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if these direct
costs were included, your costs would have been higher.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE APRIL 1, 2018 -
APRIL 1, 2018 SEPTEMBER 30, 2018 SEPTEMBER 30, 2018
------------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $1,008.60 $2.52
Hypothetical
(5% return before expenses) 1,000.00 1,022.56 2.54
ADVISER SHARES
Actual 1,000.00 1,007.40 3.77
Hypothetical
(5% return before expenses) 1,000.00 1,021.31 3.80
*Expenses are equal to the annualized expense ratio of 0.50% for Fund Shares and
0.75% for Adviser Shares, which are net of any reimbursements and expenses paid
indirectly, multiplied by the average account value over the period, multiplied
by 183 days/365 days (to reflect the one-half-year period). The Fund's actual
ending account values are based on its actual total returns of 0.86% for Fund
Shares and 0.74% for Adviser Shares for the six-month period of April 1, 2018,
through September 30, 2018.
================================================================================
EXPENSE EXAMPLE | 31
================================================================================
ADVISORY AGREEMENT
September 30, 2018 (unaudited)
--------------------------------------------------------------------------------
At an in-person meeting of the Board of Trustees (the Board) held on April 18,
2018, the Board, including the Trustees who are not "interested persons" (as
that term is defined in the Investment Company Act of 1940, as amended) of the
Trust (the Independent Trustees), approved for an annual period the continuance
of the Advisory Agreement between the Trust and the Manager with respect to the
Fund.
In advance of the meeting, the Trustees received and considered a variety of
information relating to the Advisory Agreement and the Manager and were given
the opportunity to ask questions and request additional information from
management. The information provided to the Board included, among other things:
(i) a separate report prepared by an independent third party, which provided a
statistical analysis comparing the Fund's investment performance, expenses, and
fees to comparable investment companies; (ii) information concerning the
services rendered to the Fund, as well as information regarding the Manager's
revenues and costs of providing services to the Fund and compensation paid to
affiliates of the Manager; and (iii) information about the Manager's operations
and personnel. Prior to voting, the Independent Trustees reviewed the proposed
continuation of the Advisory Agreement with management and with experienced
counsel retained by the Independent Trustees (Independent Counsel) and received
materials from such Independent Counsel discussing the legal standards for their
consideration of the proposed continuation of the Advisory Agreement with
respect to the Fund. The Independent Trustees also reviewed the proposed
continuation of the Advisory Agreement with respect to the Fund in private
sessions with Independent Counsel at which no representatives of management were
present.
At each regularly scheduled meeting of the Board and its committees, the Board
receives and reviews, among other things, information concerning the Fund's
performance and related services provided by the Manager. At the meeting at
which the renewal of the Advisory Agreement is considered, particular focus is
given to information concerning Fund performance, fees
================================================================================
32 | USAA CALIFORNIA BOND FUND
================================================================================
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 also considered the significant risks assumed by the Manager in
connection with the services provided to the Fund, including investment,
operational, enterprise, litigation, regulatory and compliance risks.
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 and its affiliates, 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 expense universe. The
data indicated that the Fund's total expense ratio was below the median of its
expense group and expense universe. The Board took into account the various
services provided to the Fund by
================================================================================
34 | USAA CALIFORNIA BOND FUND
================================================================================
the Manager and its affiliates. The Board also took into account the high
quality of services received by the Fund from the Manager. The Board also noted
the level and method of computing the management fee, including any performance
adjustment to such fee.
In considering the Fund's performance, the Board noted that it reviews at its
regularly scheduled meetings information about the Fund's performance results.
The Trustees also reviewed various comparative data provided to them in
connection with their consideration of the renewal of the Advisory Agreement,
including, among other information, a comparison of the Fund's average annual
total return with its Lipper index and with that of other mutual funds deemed to
be in its peer group by the independent third party in its report (the
"performance universe"). The Fund's performance universe consisted of the Fund
and all retail and institutional open-end investment companies with the same
classification/objective as the Fund regardless of asset size or primary channel
of distribution. This comparison indicated that, among other data, the Fund's
performance was below the average of its performance universe and its Lipper
index for the one- and three-year periods ended December 31, 2017 and was above
the average of its performance universe and its Lipper index for the five- and
ten-year periods ended December 31, 2017. 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, 2017, was in the top 50% of its
performance universe for the three-year period ended December 31, 2017, was in
the top 35% of its performance universe for the five-year period ended December
31, 2017, and was in the top 25% of its performance universe for the ten-year
period ended December 31, 2017. The Board took into account management's
discussion of the factors that impacted the Fund's recent performance and also
noted the Fund's strong long-term performance record.
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
================================================================================
ADVISORY AGREEMENT | 35
================================================================================
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 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 overall 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 CALIFORNIA 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, State Street Bank and Trust Company
ACCOUNTING AGENT, AND P.O. Box 1713
SUB-ADMINISTRATOR Boston, Massachusetts 02105
--------------------------------------------------------------------------------
INDEPENDENT Ernst & Young LLP
REGISTERED PUBLIC 100 West Houston St., Suite 1700
ACCOUNTING FIRM San Antonio, Texas 78205
--------------------------------------------------------------------------------
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
--------------
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================================================================================
39600-1118 (C)2018, 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, 2018
============================================================
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
INVESTMENT OVERVIEW 1
FINANCIAL INFORMATION
Portfolio of Investments 3
Notes to Portfolio of Investments 9
Financial Statements 10
Notes to Financial Statements 14
Financial Highlights 27
EXPENSE EXAMPLE 29
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.
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.
(C)2018, USAA. All rights reserved.
================================================================================
================================================================================
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
o TOP 10 HOLDINGS* - 9/30/18 o
(% of Net Assets)
Nestle S.A. ............................................................. 2.7%
Unilever N.V. ........................................................... 2.7%
Exxon Mobil Corp. ....................................................... 2.6%
Novartis AG ............................................................. 2.6%
Siemens AG .............................................................. 2.6%
Cisco Systems, Inc. ..................................................... 2.6%
Johnson & Johnson ....................................................... 2.5%
Pfizer, Inc. ............................................................ 2.3%
Merck & Co., Inc. ....................................................... 2.3%
TOTAL S.A. .............................................................. 2.1%
Refer to the Portfolio of Investments for a complete list of securities.
*Does not include money market instruments.
================================================================================
INVESTMENT OVERVIEW | 1
================================================================================
o ASSET ALLOCATION - 9/30/18 o
[CHART OF ASSET ALLOCATION]
HEALTH CARE 17.7%
CONSUMER STAPLES 15.2%
FINANCIALS 12.3%
INDUSTRIALS 10.8%
ENERGY 10.3%
UTILITIES 7.7%
COMMUNICATION SERVICES 7.6%
INFORMATION TECHNOLOGY 7.4%
CONSUMER DISCRETIONARY 7.2%
MATERIALS 3.4%
MONEY MARKET INSTRUMENTS 0.2%
[END CHART]
Percentages are of the net assets of the Fund and may not equal 100%.
Refer to the Portfolio of Investments for a complete list of securities.
================================================================================
2 | USAA GLOBAL EQUITY INCOME FUND
================================================================================
PORTFOLIO OF INVESTMENTS
September 30, 2018 (unaudited)
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
EQUITY SECURITIES (99.6%)
COMMON STOCKS (99.6%)
COMMUNICATION SERVICES (7.6%)
-----------------------------
INTEGRATED TELECOMMUNICATION SERVICES (3.5%)
49,135 AT&T, INC. $ 1,650
25,775 Verizon Communications, Inc. 1,376
-------
3,026
-------
WIRELESS TELECOMMUNICATION SERVICES (4.1%)
39,980 NTT DOCOMO, Inc. 1,075
23,425 Rogers Communications, Inc. "B" 1,205
555,125 Vodafone Group plc 1,190
-------
3,470
-------
Communication Services 6,496
-------
CONSUMER DISCRETIONARY (7.2%)
-----------------------------
ADVERTISING (0.5%)
6,050 Omnicom Group, Inc. 411
-------
APPAREL RETAIL (1.0%)
7,925 TJX Companies, Inc. 888
-------
AUTO PARTS & EQUIPMENT (0.9%)
14,710 Magna International, Inc. 773
-------
AUTOMOBILE MANUFACTURERS (0.9%)
12,850 Daimler AG 811
-------
CASINOS & GAMING (0.7%)
10,405 Las Vegas Sands Corp. 617
-------
HOME IMPROVEMENT RETAIL (0.7%)
167,460 Kingfisher plc 563
-------
HOTELS, RESORTS & CRUISE LINES (0.6%)
7,445 Carnival Corp. 475
-------
RESTAURANTS (1.9%)
9,618 McDonald's Corp. 1,609
-------
Total Consumer Discretionary 6,147
-------
================================================================================
PORTFOLIO OF INVESTMENTS | 3
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
CONSUMER STAPLES (15.2%)
------------------------
BREWERS (0.6%)
6,184 Anheuser-Busch InBev S.A. $ 540
-------
FOOD DISTRIBUTORS (0.6%)
7,300 Sysco Corp. 535
-------
HOUSEHOLD PRODUCTS (1.5%)
15,260 Procter & Gamble Co. 1,270
-------
HYPERMARKETS & SUPER CENTERS (1.6%)
14,825 Walmart, Inc. 1,392
-------
PACKAGED FOODS & MEATS (2.7%)
27,635 Nestle S.A. 2,304
-------
PERSONAL PRODUCTS (2.7%)
41,145 Unilever N.V. 2,292
-------
SOFT DRINKS (2.1%)
19,235 Coca-Cola Co. 888
8,335 PepsiCo, Inc. 932
-------
1,820
-------
TOBACCO (3.4%)
9,035 Altria Group, Inc. 545
20,947 British American Tobacco plc 978
13,590 Japan Tobacco, Inc. 355
13,035 Philip Morris International, Inc. 1,063
-------
2,941
-------
Total Consumer Staples 13,094
-------
ENERGY (10.3%)
--------------
INTEGRATED OIL & GAS (7.3%)
26,555 Exxon Mobil Corp. 2,258
32,555 Galp Energia SGPS S.A. 646
13,760 Occidental Petroleum Corp. 1,131
12,355 Royal Dutch Shell plc "A" 424
28,081 TOTAL S.A. 1,820
-------
6,279
-------
OIL & GAS EQUIPMENT & SERVICES (0.9%)
13,130 Schlumberger Ltd. 800
-------
OIL & GAS EXPLORATION & PRODUCTION (1.1%)
5,730 ConocoPhillips 443
54,725 Peyto Exploration & Development Corp. 472
-------
915
-------
================================================================================
4 | USAA GLOBAL EQUITY INCOME FUND
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
OIL & GAS REFINING & MARKETING (0.5%)
3,690 Valero Energy Corp. $ 420
-------
OIL & GAS STORAGE & TRANSPORTATION (0.5%)
15,305 Keyera Corp. 410
-------
Total Energy 8,824
-------
FINANCIALS (12.3%)
------------------
CONSUMER FINANCE (0.8%)
20,870 Synchrony Financial 649
-------
DIVERSIFIED BANKS (8.0%)
51,320 Australia & New Zealand Banking Group Ltd. 1,045
28,425 Bank of America Corp. 837
18,758 Bank of Nova Scotia 1,118
56,945 DBS Group Holdings Ltd. 1,087
91,765 HSBC Holdings plc 801
5,775 J.P. Morgan Chase & Co. 652
16,839 Royal Bank of Canada 1,350
-------
6,890
-------
FINANCIAL EXCHANGES & DATA (0.6%)
3,073 CME Group, Inc. 523
-------
MULTI-LINE INSURANCE (2.9%)
4,897 Allianz SE 1,092
53,280 AXA S.A. 1,432
-------
2,524
-------
Total Financials 10,586
-------
HEALTH CARE (17.7%)
-------------------
BIOTECHNOLOGY (2.8%)
10,875 AbbVie, Inc. 1,028
17,520 Gilead Sciences, Inc. 1,353
-------
2,381
-------
HEALTH CARE EQUIPMENT (1.1%)
9,831 Medtronic plc 967
-------
PHARMACEUTICALS (13.8%)
14,574 AstraZeneca plc 1,151
42,160 GlaxoSmithKline plc 845
15,475 Johnson & Johnson 2,138
27,370 Merck & Co., Inc. 1,942
26,245 Novartis AG 2,257
================================================================================
PORTFOLIO OF INVESTMENTS | 5
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
44,845 Pfizer, Inc. $ 1,976
6,465 Roche Holding AG 1,566
-------
11,875
-------
Total Health Care 15,223
-------
INDUSTRIALS (10.8%)
-------------------
AEROSPACE & DEFENSE (2.3%)
97,965 BAE Systems plc 804
3,385 Lockheed Martin Corp. 1,171
-------
1,975
-------
AIRLINES (0.6%)
8,390 Delta Air Lines, Inc. 485
-------
BUILDING PRODUCTS (0.8%)
19,196 Johnson Controls International plc 672
-------
CONSTRUCTION & ENGINEERING (1.5%)
13,205 Vinci S.A. 1,257
-------
CONSTRUCTION MACHINERY & HEAVY TRUCKS (0.5%)
25,375 Volvo AB "B" 449
-------
ELECTRICAL COMPONENTS & EQUIPMENT (0.9%)
8,955 Eaton Corp. plc 777
-------
ENVIRONMENTAL & FACILITIES SERVICES (0.5%)
6,350 Republic Services, Inc. 461
-------
INDUSTRIAL CONGLOMERATES (2.6%)
17,420 Siemens AG 2,232
-------
TRADING COMPANIES & DISTRIBUTORS (1.1%)
31,245 Mitsubishi Corp. 963
-------
Total Industrials 9,271
-------
INFORMATION TECHNOLOGY (7.4%)
-----------------------------
COMMUNICATIONS EQUIPMENT (2.6%)
44,990 Cisco Systems, Inc. 2,189
-------
SEMICONDUCTORS (1.9%)
25,716 Cypress Semiconductor Corp. 373
7,155 Maxim Integrated Products, Inc. 403
8,130 Texas Instruments, Inc. 872
-------
1,648
-------
SYSTEMS SOFTWARE (1.1%)
8,075 Microsoft Corp. 924
-------
================================================================================
6 | USAA GLOBAL EQUITY INCOME FUND
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (1.8%)
45,740 HP, Inc. $ 1,179
6,785 Western Digital Corp. 397
-------
1,576
-------
Total Information Technology 6,337
-------
MATERIALS (3.4%)
----------------
DIVERSIFIED CHEMICALS (0.9%)
8,995 BASF SE 799
-------
DIVERSIFIED METALS & MINING (0.5%)
7,349 Rio Tinto Ltd. 418
-------
FERTILIZERS & AGRICULTURAL CHEMICALS (0.8%)
11,067 Nutrien Ltd. 639
-------
SPECIALTY CHEMICALS (1.2%)
6,240 Albemarle Corp. 623
9,179 Johnson Matthey plc 426
-------
1,049
-------
Total Materials 2,905
-------
UTILITIES (7.7%)
----------------
ELECTRIC UTILITIES (5.3%)
13,505 Duke Energy Corp. 1,081
13,340 Edison International 903
156,055 Enel S.p.A. 799
5,125 NextEra Energy, Inc. 859
31,045 PPL Corp. 908
-------
4,550
-------
MULTI-UTILITIES (2.4%)
118,955 E.ON SE 1,213
39,090 National Grid plc 403
3,790 Sempra Energy 431
-------
2,047
-------
Total Utilities 6,597
-------
Total Common Stocks (cost: $76,038) 85,480
-------
Total Equity Securities (cost: $76,038) 85,480
-------
================================================================================
PORTFOLIO OF INVESTMENTS | 7
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS (0.2%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (0.2%)
146,875 State Street Institutional Treasury Money Market Fund Premier Class, 1.95%(a)
(cost: $147) $ 147
-------
TOTAL INVESTMENTS (COST: $76,185) $85,627
=======
---------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
---------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
---------------------------------------------------------------------------------------------------
Equity Securities:
Common Stocks $85,480 $- $- $85,480
Money Market Instruments:
Government & U.S. Treasury
Money Market Funds 147 - - 147
---------------------------------------------------------------------------------------------------
Total $85,627 $- $- $85,627
---------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
--------------------------------------------------------------------------------
FAIR VALUE LEVEL TRANSFERS
--------------------------------------------------------------------------------
For the period of April 1, 2018, through September 30, 2018, the table below
shows the transfers between Level 1, Level 2, and Level 3. The Fund's policy is
to recognize transfers in and transfers out as of the beginning of the reporting
period in which the event or circumstance that caused the transfer occurred.
TRANSFERS TRANSFERS TRANSFERS
INTO INTO INTO
(OUT OF) (OUT OF) (OUT OF)
ASSETS ($ IN 000s) LEVEL 1 LEVEL 2 LEVEL 3
--------------------------------------------------------------------------------
Common Stocks(I) $40,561 $(40,561) $-
--------------------------------------------------------------------------------
Total $40,561 $(40,561) $-
--------------------------------------------------------------------------------
(I) Transferred from Level 2 to Level 1 due to an assessment of events at the
beginning of the reporting period, these securities had adjustments to their
foreign market closing prices to reflect changes in value that occurred after
the close of foreign markets and prior to the close of the U.S. securities
markets. Such adjustments were not made at the end of the current reporting
period.
================================================================================
8 | USAA GLOBAL EQUITY INCOME FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
September 30, 2018 (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 46.6% of net assets at September 30,
2018.
o SPECIFIC NOTES
(a) Rate represents the money market fund annualized seven-day yield at
September 30, 2018.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 9
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
September 30, 2018 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $76,185) $85,627
Receivables:
Capital shares sold 26
USAA Asset Management Company (Note 6) 14
Dividends and interest 379
-------
Total assets 86,046
-------
LIABILITIES
Payables:
Capital shares redeemed 90
Bank overdraft 21
Accrued management fees 35
Accrued transfer agent's fees 7
Other accrued expenses and payables 85
-------
Total liabilities 238
-------
Net assets applicable to capital shares outstanding $85,808
=======
NET ASSETS CONSIST OF:
Paid-in capital $73,172
Distributable earnings 12,636
-------
Net assets applicable to capital shares outstanding $85,808
=======
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $80,200/7,159 capital shares
outstanding, no par value) $ 11.20
=======
Institutional Shares (net assets of $5,608/500 capital shares
outstanding, no par value) $ 11.22
=======
See accompanying notes to financial statements.
================================================================================
10 | USAA GLOBAL EQUITY INCOME FUND
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended September 30, 2018 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $113) $1,769
Interest 7
------
Total income 1,776
------
EXPENSES
Management fees 233
Administration and servicing fees:
Fund Shares 68
Institutional Shares 3
Transfer agent's fees:
Fund Shares 68
Institutional Shares 3
Custody and accounting fees:
Fund Shares 30
Institutional Shares 2
Postage:
Fund Shares 5
Shareholder reporting fees:
Fund Shares 7
Trustees' fees 18
Registration fees:
Fund Shares 14
Institutional Shares 12
Professional fees 51
Other 7
------
Total expenses 521
Expenses reimbursed:
Fund Shares (11)
Institutional Shares (8)
------
Net expenses 502
------
NET INVESTMENT INCOME 1,274
------
================================================================================
FINANCIAL STATEMENTS | 11
================================================================================
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY
Net realized gain (loss) on:
Investments $2,568
Foreign currency transactions (14)
Change in net unrealized appreciation/(depreciation) of:
Investments 229
Foreign currency translations (6)
------
Net realized and unrealized gain 2,777
------
Increase in net assets resulting from operations $4,051
======
See accompanying notes to financial statements.
================================================================================
12 | USAA GLOBAL EQUITY INCOME FUND
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended September 30, 2018 (unaudited), and year ended March
31, 2018
--------------------------------------------------------------------------------------------------------
9/30/2018 3/31/2018
--------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 1,274 $ 2,202
Net realized gain on investments 2,568 1,264
Net realized gain (loss) on foreign currency transactions (14) 26
Change in net unrealized appreciation/(depreciation) of:
Investments 229 3,726
Foreign currency translations (6) 6
-----------------------------
Increase in net assets resulting from operations 4,051 7,224
-----------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
DISTRIBUTABLE EARNINGS:
Fund Shares (1,200) (2,736)
Institutional Shares (73) (153)
-----------------------------
Distributions to shareholders (1,273) (2,889)
-----------------------------
NET INCREASE (DECREASE) IN NET ASSETS FROM
CAPITAL SHARE TRANSACTIONS (NOTE 5)
Fund Shares (18,518) 6,169
Institutional Shares - -
-----------------------------
Total net increase (decrease) in net assets from
capital share transactions (18,518) 6,169
-----------------------------
Net increase (decrease) in net assets (15,740) 10,504
NET ASSETS
Beginning of period 101,548 91,044
-----------------------------
End of period $ 85,808 $101,548
=============================
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 13
================================================================================
NOTES TO FINANCIAL STATEMENTS
September 30, 2018 (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 47 separate funds.
The 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
================================================================================
14 | USAA GLOBAL EQUITY INCOME FUND
================================================================================
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 and Liquidity 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 local market
================================================================================
NOTES TO FINANCIAL STATEMENTS | 15
================================================================================
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.
================================================================================
16 | USAA GLOBAL EQUITY INCOME FUND
================================================================================
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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 17
================================================================================
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. INVESTMENTS IN SECURITIES - Securities transactions are accounted for as of
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.
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.
================================================================================
18 | USAA GLOBAL EQUITY INCOME FUND
================================================================================
For the six-month period ended September 30, 2018, 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.
E. FOREIGN TAXATION - Foreign income and capital gains on some foreign
securities may be subject to foreign taxes, which are reflected as a
reduction to such income and realized gains. The Fund records a liability
based on unrealized gains to provide for potential foreign taxes payable
upon the sale of these securities. Foreign taxes have been provided for in
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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 19
================================================================================
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. 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 14.0 basis
points of the amount of the committed loan agreement. Prior to September 30,
2018, the maximum annual facility fee was 13.0 basis points
================================================================================
20 | USAA GLOBAL EQUITY INCOME FUND
================================================================================
of the amount of the committed loan agreement. The facility fees are allocated
among the funds of the Trusts based on their respective average daily 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 15.0 basis points.
For the six-month period ended September 30, 2018, the Fund paid CAPCO facility
fees of less than $500, which represents 0.1% of the total fees paid to CAPCO by
the funds of the Trusts. The Fund had no borrowings under this agreement during
the six-month period ended September 30, 2018.
(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, 2019, 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 taxes.
At March 31, 2018, the Fund had no capital loss carryforwards, for federal
income tax purposes.
As of September 30, 2018, 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, 2018 were $12,646,000 and $3,204,000, respectively, resulting in net
unrealized appreciation of $9,442,000.
(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, 2018, were
$7,914,000 and $25,585,000, respectively.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 21
================================================================================
(5) CAPITAL SHARE TRANSACTIONS
At September 30, 2018, 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, 2018 MARCH 31, 2018
-------------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------
FUND SHARES:
Shares sold 332 $ 3,664 1,926 $ 20,822
Shares issued from reinvested
dividends 81 882 179 1,956
Shares redeemed (2,084) (23,064) (1,513) (16,609)
----------------------------------------------------------
Net increase (decrease) from capital
share transactions (1,671) $(18,518) 592 $ 6,169
==========================================================
INSTITUTIONAL SHARES:
Shares sold - $ - - $ -
Shares issued from reinvested
dividends - - - -
Shares redeemed - - - -
----------------------------------------------------------
Net increase from capital
share transactions - $ - - $ -
==========================================================
(6) TRANSACTIONS WITH MANAGER
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 all or a portion of the
Fund's assets. For the six-month period ended September 30, 2018, the Fund had
no subadviser(s).
================================================================================
22 | USAA GLOBAL EQUITY INCOME FUND
================================================================================
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 daily 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 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)
------------------------------------------------------------------
+/- 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 Lipper index, rounded
to the nearest basis point. Average daily 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
daily 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, 2018, the Fund incurred management
fees, paid or payable to the Manager, of $233,000, which included a performance
adjustment for the Fund Shares and Institutional Shares of
================================================================================
NOTES TO FINANCIAL STATEMENTS | 23
================================================================================
$(7,000) and $(1,000), respectively. For the Fund Shares and Institutional
Shares, the performance adjustments were (0.02)% and (0.02)%, respectively.
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 daily net assets of the Fund Shares and Institutional Shares,
respectively. For the six-month period ended September 30, 2018, the Fund Shares
and Institutional Shares incurred administration and servicing fees, paid or
payable to the Manager, of $68,000 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, 2018, 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.
EXPENSE LIMITATION - The Manager agreed, through July 31, 2019, to limit the
total annual operating expenses of the Fund Shares and Institutional Shares to
1.00% and 0.90%, respectively, of their average daily 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, 2019, without approval of the Board, and may be
changed or terminated by the Manager at any time after that date. Prior to
August 1, 2018, the expense limitation for the Fund Shares and Institutional
Shares was 1.20% and 1.10%, respectively, of their average daily net assets. For
the six-month period ended September 30, 2018, the Fund Shares and Institutional
Shares incurred reimbursable expenses of $11,000 and $8,000, respectively, of
which $14,000 was receivable from the Manager.
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
================================================================================
24 | USAA GLOBAL EQUITY INCOME FUND
================================================================================
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 daily net assets,
plus out-of-pocket expenses. For the six-month period ended September 30, 2018,
the Fund Shares and Institutional Shares incurred transfer agent's fees, paid or
payable to SAS, of $68,000 and $3,000, respectively.
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,
2018, USAA and its affiliates owned 1,263,000 Fund Shares and 500,000
Institutional Shares, which represents 17.6% of the Fund Shares outstanding,
100.0% of the Institutional Shares outstanding, and 23.0% 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 SEC issued Final Rule Release No. 33-10233, INVESTMENT
COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS (Liquidity Rule). The Liquidity Rule
requires funds to establish a liquidity risk management program and enhances
disclosures regarding funds' liquidity. The requirements to implement a
liquidity risk management program and establish a 15% illiquid investment limit
are effective December 1, 2018. However, in February 2018, the SEC issued
Release No. IC-33010, INVESTMENT COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS;
COMMISSION GUIDANCE FOR IN-KIND ETFs, which delayed certain requirements related
to liquidity classification, highly liquid investment minimums, and board
approval of the liquidity risk management programs to June 1, 2019. The Manager
continues to evaluate the impact of this rule on the Fund's financial statements
and various filings.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 25
================================================================================
(9) UPCOMING ACCOUNTING PRONOUNCEMENT
(ASU) 2018-13, FAIR VALUE MEASUREMENT
-------------------------------------
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820).
The amendments in the ASU impact disclosure requirements for fair value
measurement. It is anticipated that this change will enhance the effectiveness
of disclosures in the notes to the financial statements. This ASU is effective
for fiscal years beginning after December 15, 2019. Early adoption is permitted
and can include the entire standard or certain provisions that exclude or amend
disclosures. The adoption of this ASU guidance is not expected to have a
material impact on the financial statements and other disclosures.
(10) RECENTLY ADOPTED ACCOUNTING STANDARD
In August 2018, the U.S. Securities and Exchange Commission (SEC) adopted
amendments to Regulation S-X for investment companies governing the form and
content of financial statements. The amendments to Regulation S-X took effect on
November 5, 2018, and the financial statements have been modified accordingly,
for the current and prior period.
(11) SUBSEQUENT EVENT
On November 6, 2018, United Services Automobile Association ("USAA"), the parent
company of USAA Asset Management Company ("AMCO"), the investment adviser to the
Funds, and USAA Transfer Agency Company d.b.a. USAA Shareholder Account Services
("SAS"), the transfer agent to the Funds, announced that AMCO and SAS would be
acquired by Victory Capital Holdings, Inc. ("Victory"), a global investment
management firm headquartered in Cleveland, Ohio (the "Transaction"). The
closing of the Transaction is expected to be completed during the second quarter
of 2019, pending satisfaction of certain closing conditions and approvals,
including certain approvals of the Funds' Board of Trustees and of Fund
shareholders at a special shareholder meeting to be held in 2019.
The Transaction is not expected to result in any material changes to the Funds'
respective investment objectives and principal investment strategies.
================================================================================
26 | USAA GLOBAL EQUITY INCOME FUND
================================================================================
FINANCIAL HIGHLIGHTS
FUND SHARES (UNAUDITED)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED PERIOD ENDED
SEPTEMBER 30, YEAR ENDED MARCH 31, MARCH 31,
-------------------------------------------------------------------
2018 2018 2017 2016***
-------------------------------------------------------------------
Net asset value at
beginning of period $ 10.88 $ 10.42 $ 9.39 $ 10.00
-------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .15 .23 .21 .14(a)
Net realized and unrealized
gain (loss) .32 .54 1.03 (.68)(a)
-------------------------------------------------------------
Total from investment
operations .47 .77 1.24 (.54)(a)
-------------------------------------------------------------
Less distributions from:
Net investment income (.15) (.23) (.21) (.07)
Realized capital gains - (.08) - -
-------------------------------------------------------------
Total distributions (.15) (.31) (.21) (.07)
-------------------------------------------------------------
Net asset value at
end of period $ 11.20 $ 10.88 $ 10.42 $ 9.39
=============================================================
Total return (%)* 4.33 7.41 13.33 (5.35)
Net assets at end of
period (000) $80,200 $96,101 $85,830 $42,080
Ratios to average daily net assets:**
Expenses (%)(d) 1.05(b),(c) 1.05 1.20 1.20(b)
Expenses, excluding
reimbursements (%)(d) 1.07(b) 1.05 1.26 1.37(b)
Net investment income (%) 2.66(b) 2.17 2.28 2.12(b)
Portfolio turnover (%) 8 22 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, 2018, average daily net assets
were $89,965,000.
*** 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.
(c) Prior to August 1, 2018, the Manager voluntarily agreed to limit the annual
expenses of the Fund Shares to 1.20% of the Fund Shares' average daily net
assets.
(d) Does not include acquired fund fees, if any.
================================================================================
FINANCIAL HIGHLIGHTS | 27
================================================================================
INSTITUTIONAL SHARES (UNAUDITED)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED PERIOD ENDED
SEPTEMBER 30, YEAR ENDED MARCH 31, MARCH 31,
-------------------------------------------------------------------
2018 2018 2017 2016***
-------------------------------------------------------------------
Net asset value at
beginning of period $10.89 $10.43 $ 9.39 $10.00
------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .15 .23 .23 .15(a)
Net realized and unrealized
gain (loss) .33 .54 1.02 (.68)(a)
------------------------------------------------------------
Total from investment
operations .48 .77 1.25 (.53)(a)
------------------------------------------------------------
Less distributions from:
Net investment income (.15) (.23) (.21) (.08)
Realized capital gains - (.08) - -
------------------------------------------------------------
Total distributions (.15) (.31) (.21) (.08)
------------------------------------------------------------
Net asset value at
end of period $11.22 $10.89 $10.43 $ 9.39
============================================================
Total return (%)* 4.42 7.35 13.49 (5.32)
Net assets at end of
period (000) $5,608 $5,447 $5,214 $4,695
Ratios to average daily net assets:**
Expenses (%)(d) 1.03(b),(c) 1.10 1.10 1.10(b)
Expenses, excluding
reimbursements (%)(d) 1.34(b) 1.29 1.55 1.79(b)
Net investment income (%) 2.62(b) 2.14 2.40 2.20(b)
Portfolio turnover (%) 8 22 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, 2018, average daily net assets
were $5,531,000.
*** 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.
(c) Prior to August 1, 2018, the Manager voluntarily agreed to limit the annual
expenses of the Institutional Shares to 1.10% of the Institutional Shares'
average daily net assets.
(d) Does not include acquired fund fees, if any.
================================================================================
28 | USAA GLOBAL EQUITY INCOME FUND
================================================================================
EXPENSE EXAMPLE
September 30, 2018 (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, 2018, through
September 30, 2018.
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
================================================================================
EXPENSE EXAMPLE | 29
================================================================================
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, 2018 -
APRIL 1, 2018 SEPTEMBER 30, 2018 SEPTEMBER 30, 2018
-----------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $1,043.30** $5.38**
Hypothetical
(5% return before expenses) 1,000.00 1,019.80** 5.32**
INSTITUTIONAL SHARES
Actual 1,000.00 1,044.20** 5.28**
Hypothetical
(5% return before expenses) 1,000.00 1,019.90** 5.22**
* Expenses are equal to the annualized expense ratio of 1.05% for Fund Shares
and 1.03% 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 4.33% for Fund Shares and 4.42% for Institutional Shares,
for the six-month period of April 1, 2018, through September 30, 2018.
** The Fund's annualized expense ratios of 1.05% for Fund Shares and 1.03% for
Institutional Shares above reflect a change effective August 1, 2018, in the
rate of the Manager's expense limitation for the Fund Shares from 1.20% to
1.00% and Institutional Shares from 1.10% to 0.90% of their average daily net
assets. Had the expense limitations of 1.00% for Fund Shares and 0.90% for
Institutional Shares,
================================================================================
30 | USAA GLOBAL EQUITY INCOME FUND
================================================================================
which are net of expenses paid indirectly, been in effect for the entire
six-month period of April 1, 2018, through September 30, 2018, the values in
the table above would be as shown below.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD
ACCOUNT VALUE ACCOUNT VALUE APRIL 1, 2018 -
APRIL 1, 2018 SEPTEMBER 30, 2018 SEPTEMBER 30, 2018
-----------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $1,043.30 $5.12
Hypothetical
(5% return before expenses) 1,000.00 1,020.05 5.06
INSTITUTIONAL SHARES
Actual 1,000.00 1,044.20 5.61
Hypothetical
(5% return before expenses) 1,000.00 1,020.56 5.56
================================================================================
EXPENSE EXAMPLE | 31
================================================================================
ADVISORY AGREEMENT
September 30, 2018 (unaudited)
--------------------------------------------------------------------------------
At an in-person meeting of the Board of Trustees (the Board) held on April 18,
2018, 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,
================================================================================
32 | USAA GLOBAL EQUITY INCOME FUND
================================================================================
particular focus is given to information concerning Fund performance, fees and
total expenses as compared to comparable investment companies, and the Manager's
profitability with respect to the Fund. However, the Board noted that the
evaluation process with respect to the Manager is an ongoing one. In this
regard, the Board's and its committees' consideration of the Advisory Agreement
included information previously received at such meetings.
ADVISORY AGREEMENT
After full consideration of a variety of factors, the Board, including the
Independent Trustees, voted to approve the Advisory Agreement. In approving the
Advisory Agreement, the Trustees did not identify any single factor as
controlling, and each Trustee may have attributed different weights to various
factors. Throughout their deliberations, the Independent Trustees were
represented and assisted by Independent Counsel.
NATURE, EXTENT, AND QUALITY OF SERVICES - In considering the nature, extent, and
quality of the services to be provided by the Manager under the Advisory
Agreement, the Board reviewed information provided by the Manager relating to
its operations and personnel. The Board also took into account its knowledge of
the Manager's management and the quality of the performance of the Manager's
duties through Board meetings, discussions, and reports during the preceding
year in connection with the other funds in the Trust. The Board considered the
fees to be paid to the Manager and the services to be provided to the Fund by
the Manager under the Advisory Agreement, as well as other services to be
provided by the Manager and its affiliates under other agreements, and the
personnel who would be responsible for providing these services. The Board also
took into consideration that, in addition to the investment advisory services to
be provided to the Fund, the Manager and its affiliates will provide
administrative services, compliance oversight, 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 also considered the significant risks assumed by the Manager in
connection with the services provided to the Fund, including investment,
operational, enterprise, litigation, regulatory and compliance risks.
================================================================================
ADVISORY AGREEMENT | 33
================================================================================
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 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," 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 and its affiliates, 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
================================================================================
34 | USAA GLOBAL EQUITY INCOME FUND
================================================================================
services and the effects of any performance adjustment as well as any fee
waivers or reimbursements - was below the median of its expense group and
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 below the average of its performance universe and its Lipper
index for the one-year period ended December 31, 2017. 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, 2017. The
Board noted that the Fund recently commenced operations and therefore has a
limited performance history. The Board took into account management's discussion
of the factors that impacted the Fund's 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. In
considering the profitability data with respect to the Fund, the Trustees noted
that the Manager reimbursed a portion of its
================================================================================
ADVISORY AGREEMENT | 35
================================================================================
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 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.
================================================================================
36 | 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, State Street Bank and Trust Company
ACCOUNTING AGENT, AND P.O. Box 1713
SUB-ADMINISTRATOR Boston, Massachusetts 02105
--------------------------------------------------------------------------------
INDEPENDENT Ernst & Young LLP
REGISTERED PUBLIC 100 West Houston St., Suite 1700
ACCOUNTING FIRM San Antonio, Texas 78205
--------------------------------------------------------------------------------
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
--------------
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================================================================================
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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, 2018
============================================================
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
INVESTMENT OVERVIEW 1
FINANCIAL INFORMATION
Portfolio of Investments 3
Notes to Portfolio of Investments 8
Financial Statements 11
Notes to Financial Statements 14
Financial Highlights 26
EXPENSE EXAMPLE 28
ADVISORY AGREEMENT 30
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.
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.
(C)2018, USAA. All rights reserved.
================================================================================
================================================================================
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
o TOP 10 INDUSTRIES - 9/30/18 o
(% of Net Assets)
Education ................................................................ 20.4%
Hospital ................................................................ 14.2%
Escrowed Bonds ........................................................... 12.5%
Special Assessment/Tax/Fee ............................................... 10.9%
Water/Sewer Utility ...................................................... 10.0%
Multifamily Housing ...................................................... 4.9%
General Obligation ....................................................... 4.0%
Nursing/CCRC ............................................................. 3.2%
Buildings ................................................................ 3.2%
Electric/Gas Utility ..................................................... 2.9%
Refer to the Portfolio of Investments for a complete list of securities.
================================================================================
INVESTMENT OVERVIEW | 1
================================================================================
o PORTFOLIO RATINGS MIX - 9/30/18 o
[PIE CHART OF PORTFOLIO RATINGS MIX]
AAA 10.3%
AA 32.3%
A 32.0%
BBB 15.7%
BELOW INVESTMENT-GRADE 3.5%
UNRATED 6.2%
[END CHART]
This chart reflects the highest long-term rating from a Nationally Recognized
Statistical Rating Organization (NRSRO), with the four highest long-term credit
ratings labeled, in descending order of credit quality, AAA, AA, A, and BBB.
These categories represent investment-grade quality. NRSRO ratings are shown
because they provide independent analysis of the credit quality of the Fund's
investments. USAA Asset Management Company (the Manager) also performs its own
fundamental credit analysis of each security. As part of its fundamental credit
analysis, the Manager considers various criteria, including industry specific
actions, peer comparisons, payment ranking, and structure specific
characteristics. Any of the Fund's securities that are not rated by an NRSRO
appear in the chart above as "Unrated," but these securities are analyzed and
monitored by the Manager on an ongoing basis. Government securities that are
issued or guaranteed as to principal and interest by the U.S. government and
pre-refunded and escrowed-to-maturity municipal bonds that are not rated are
treated as AAA for credit quality purposes.
Percentages are of the total market value of the Fund's investments.
Refer to the Portfolio of Investments for a complete list of securities.
================================================================================
2 | USAA NEW YORK BOND FUND
================================================================================
PORTFOLIO OF INVESTMENTS
September 30, 2018 (unaudited)
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
MUNICIPAL OBLIGATIONS (99.1%)
NEW YORK (93.4%)
$ 1,000 Albany Capital Resource Corp. (PRE) 6.00% 11/15/2025 $ 1,081
1,500 Brookhaven Local Dev. Corp. 5.25 11/01/2036 1,684
500 Buffalo & Erie County Industrial Land Dev. Corp. 6.00 10/01/2031 546
2,000 Buffalo & Erie County Industrial Land Dev. Corp. 5.00 7/01/2040 2,126
1,000 Buffalo & Erie County Industrial Land Dev. Corp. 5.00 6/01/2035 1,078
1,000 Buffalo & Erie County Industrial Land Dev. Corp. 5.00 8/01/2052 1,034
1,500 Build NYC Resource Corp. 5.00 8/01/2042 1,578
1,000 Build NYC Resource Corp. 5.50 4/01/2043 1,053
700 Build NYC Resource Corp. 5.00 6/01/2040 763
2,000 Build NYC Resource Corp. 5.00 7/01/2045 2,185
1,000 Build NYC Resource Corp. 5.00 8/01/2040 1,078
500 Build NYC Resource Corp. 5.00 7/01/2041 527
1,000 Build NYC Resource Corp. 4.00 8/01/2042 1,001
2,000 Build NYC Resource Corp. 5.00 11/01/2047 2,424
1,000 Canton Capital Resource Corp. (PRE) (INS -
Assured Guaranty Municipal Corp.) 5.00 5/01/2040 1,048
2,000 Chautauqua Tobacco Asset Securitization Corp. 5.00 6/01/2048 2,020
1,885 City of New York Health & Hospital Corp. 5.00 2/15/2025 1,890
1,000 City of New York Transitional Finance Auth. 4.00 8/01/2041 1,017
1,000 City of New York Transitional Finance Auth. 5.13 1/15/2034 1,009
1,250 City of New York Transitional Finance Auth. 5.00 7/15/2043 1,367
1,000 City of New York Transitional Finance Auth. 4.00 8/01/2041 1,021
2,000 City of New York Transitional Finance Auth. 4.00 7/15/2045 2,029
2,000 City of New York Trust for Cultural Res. 5.00 12/01/2039 2,060
1,000 City of New York Trust for Cultural Res. 5.00 8/01/2043 1,091
1,000 City of New York Trust for Cultural Res. 4.00 7/01/2046 1,010
17,090 City of New York Water & Sewer System
(Zero Coupon) 0.00 6/15/2020 16,496
2,000 City of New York Water & Sewer System 5.00 6/15/2039 2,039
825 City of Newburgh 5.00 6/15/2023 899
870 City of Newburgh 5.00 6/15/2024 945
500 Convention Center Dev. Corp. 5.00 11/15/2045 549
1,000 Convention Center Dev. Corp. (Zero Coupon) 0.00 11/15/2037 458
500 Counties Tobacco Trust VI 5.00 6/01/2045 530
1,000 Dormitory Auth. 5.00 5/01/2043 1,080
700 Dormitory Auth. (ETM) 5.30 2/15/2019 709
================================================================================
PORTFOLIO OF INVESTMENTS | 3
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
$ 3,275 Dormitory Auth. (INS - AMBAC Assurance Corp.) 5.50% 5/15/2030 $ 4,051
2,000 Dormitory Auth. (INS - AMBAC Assurance Corp.) 5.50 7/01/2040 2,530
500 Dormitory Auth. (PRE) 5.50 3/01/2039 508
2,500 Dormitory Auth. (NBGA - State of New York
Mortgage Agency) 5.00 6/01/2033 2,506
500 Dormitory Auth. (INS - Assured Guaranty Corp.) 5.00 7/01/2030 501
1,000 Dormitory Auth. 5.25 7/01/2035 1,021
1,000 Dormitory Auth. (PRE) 5.50 7/01/2040 1,061
1,300 Dormitory Auth. 5.75 7/01/2033 1,329
1,200 Dormitory Auth. (PRE) (INS - Assured Guaranty Corp.) 5.00 7/01/2034 1,228
2,000 Dormitory Auth. 5.00 7/01/2026 2,094
2,000 Dormitory Auth. (PRE) 5.25 7/01/2033 2,050
500 Dormitory Auth. (INS - Assured Guaranty
Municipal Corp.) 5.63 11/01/2032 540
2,000 Dormitory Auth. (PRE) 5.00 5/01/2041 2,152
500 Dormitory Auth. 5.00 5/01/2039 535
1,000 Dormitory Auth. 5.00 7/01/2031 1,069
500 Dormitory Auth. 5.00 7/01/2034 552
250 Dormitory Auth. 5.00 7/01/2042 265
500 Dormitory Auth. 5.00 5/01/2038 531
1,000 Dormitory Auth. 5.75 7/01/2043 1,113
1,500 Dormitory Auth. 5.00 7/01/2044 1,617
1,000 Dormitory Auth. 4.00 7/01/2041 1,025
2,000 Dormitory Auth. 4.00 7/01/2043 2,008
1,300 Dormitory Auth.(a) 5.00 12/01/2037 1,406
1,895 Dormitory Auth. (PRE) 5.00 2/15/2034 1,917
105 Dormitory Auth. 5.00 2/15/2034 106
1,000 Dormitory Auth. 4.00 7/01/2047 1,023
1,000 Dormitory Auth. 4.00 8/01/2038 990
1,000 Dormitory Auth.(b) 5.00 7/01/2048 1,123
1,000 Dutchess County IDA (INS - Assured Guaranty Corp.) 5.50 4/01/2030 1,061
1,250 Dutchess County Local Dev. Corp. 5.75 7/01/2040 1,334
1,000 Dutchess County Local Dev. Corp. 5.00 7/01/2044 1,076
2,000 Dutchess County Local Dev. Corp. 5.00 7/01/2045 2,195
2,000 Dutchess County Local Dev. Corp. 4.00 7/01/2041 2,000
600 Dutchess County Local Dev. Corp. 5.00 7/01/2046 648
980 East Rochester Housing Auth. (LOC - Citizens
Financial Group) (Put Date 10/05/2018)(c) 1.71 12/01/2036 980
4,600 Energy Research & Dev. Auth. (LOC - Mizuho Bank
Ltd.) (Put Date 10/05/2018)(c),(d) 1.58 5/01/2039 4,600
1,000 Environmental Facilities Corp. 4.00 8/15/2046 1,022
250 Erie County IDA 5.25 5/01/2032 268
600 Hempstead Town Local Dev. Corp. 5.00 7/01/2047 664
1,000 Housing Dev. Corp. 5.00 11/01/2042 1,038
================================================================================
4 | USAA NEW YORK BOND FUND
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
$ 5,300 Housing Finance Agency (LOC - Landesbank Hessen-
Thuringen) (Put Date 10/01/2018)(c) 1.68% 5/01/2042 $ 5,300
5 Housing Finance Agency (INS - Assured Guaranty
Municipal Corp.) 6.13 11/01/2020 5
2,000 Hudson Yards Infrastructure Corp. 4.00 2/15/2044 2,006
1,000 Jefferson County Civic Facility Dev. Corp. 4.00 11/01/2047 941
2,500 Liberty Dev. Corp. 5.25 10/01/2035 3,042
1,000 Liberty Dev. Corp.(a) 5.00 11/15/2044 1,041
560 Liberty Dev. Corp. 5.50 10/01/2037 700
2,000 Long Island Power Auth. 5.00 9/01/2044 2,192
1,000 Long Island Power Auth. 5.00 9/01/2041 1,107
2,000 Long Island Power Auth. (PRE) 5.00 5/01/2038 2,152
965 Monroe County IDA (LOC - Citizens Financial
Group) (Put Date 10/05/2018)(c) 1.71 7/01/2027 965
2,100 Monroe County IDC (NBGA - Federal Housing
Administration) 5.50 8/15/2040 2,255
500 Monroe County IDC (PRE) 5.25 10/01/2031 546
1,000 Monroe County IDC 5.00 12/01/2037 1,068
2,000 Monroe County IDC 5.00 12/01/2042 2,122
500 Monroe County IDC (INS - Assured Guaranty
Municipal Corp.) 5.00 1/15/2038 540
1,000 Monroe County IDC 5.00 12/01/2046 1,083
1,000 Monroe County IDC 4.00 7/01/2043 1,023
1,000 Monroe County IDC 4.00 10/01/2047 983
2,000 Mortgage Agency 3.80 10/01/2048 1,934
3,000 MTA 5.00 11/15/2035 3,321
1,500 MTA (PRE) 5.25 11/15/2038 1,649
1,000 MTA 5.25 11/15/2057 1,123
2,000 MTA (MUNIPSA + 0.45%) (Put Date 11/15/2022)(e) 2.01(f) 11/15/2044 1,997
1,000 Nassau County (INS - Assured Guaranty Municipal
Corp.) 5.00 4/01/2038 1,083
1,000 Nassau County 5.00 1/01/2038 1,097
1,000 Nassau County Local Economic Assistance Corp. 5.00 7/01/2037 1,050
800 New York City (LIQ - J.P.Morgan Chase & Co.) (Put
Date 10/01/2018)(c),(d) 1.67 8/01/2038 800
2,000 Niagara Area Dev. Corp.(a) 3.50 11/01/2024 2,002
750 Niagara Tobacco Asset Securitization Corp. 5.25 5/15/2040 797
1,500 Onondaga Civic Dev. Corp. 5.38 7/01/2040 1,557
1,000 Onondaga Civic Dev. Corp. 5.00 7/01/2042 1,045
1,000 Onondaga Civic Dev. Corp. 5.00 10/01/2040 1,054
740 Onondaga Civic Dev. Corp. 5.00 1/01/2043 804
1,000 Onondaga County Trust for Cultural Res. 5.00 12/01/2036 1,075
800 Onondaga County Trust for Cultural Res. 5.00 5/01/2040 866
1,265 Rockland County 3.75 10/01/2025 1,281
================================================================================
PORTFOLIO OF INVESTMENTS | 5
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
$ 600 Rockland County 5.00% 12/15/2021 $ 639
1,000 Southold Local Dev. Corp. 5.00 12/01/2045 1,033
500 St. Lawrence County IDA 4.00 7/01/2043 498
1,770 St. Lawrence County IDA 5.00 9/01/2047 1,938
1,000 State 5.00 2/15/2039 1,011
250 Suffolk County EDC 5.00 7/01/2033 270
220 Suffolk County EDC (PRE) 5.00 7/01/2028 237
1,280 Suffolk County EDC 5.00 7/01/2028 1,368
1,020 Suffolk Tobacco Asset Securitization Corp. 5.38 6/01/2028 1,011
1,450 Suffolk Tobacco Asset Securitization Corp. 5.00 6/01/2032 1,547
1,000 Thruway Auth. 4.00 1/01/2056 1,001
1,000 Thruway Auth. (PRE) 5.00 4/01/2028 1,000
1,500 Tompkins County Dev. Corp. 5.00 7/01/2044 1,590
1,000 Tompkins County Dev. Corp. (PRE) (INS - Assured
Guaranty Municipal Corp.) 5.50 7/01/2033 1,076
1,000 Triborough Bridge & Tunnel Auth. (Zero Coupon) 0.00 11/15/2032 598
2,265 Triborough Bridge & Tunnel Auth. (PRE) 5.00 11/15/2029 2,274
1,410 Triborough Bridge & Tunnel Auth. 5.00 11/15/2029 1,415
1,850 Triborough Bridge & Tunnel Auth. (PRE) 5.00 11/15/2031 1,857
1,150 Triborough Bridge & Tunnel Auth. 5.00 11/15/2031 1,154
2,000 Troy Capital Resource Corp. 5.00 9/01/2030 2,089
1,000 TSASC, Inc. 5.00 6/01/2041 1,070
2,000 Urban Dev. Corp. (PRE) 5.00 3/15/2036 2,029
870 Westchester County Health Care Corp. (PRE) 6.00 11/01/2030 940
130 Westchester County Health Care Corp. 6.00 11/01/2030 139
1,500 Westchester County Local Dev. Corp. 5.00 1/01/2034 1,593
1,000 Westchester County Local Dev. Corp. 5.00 11/01/2046 1,052
1,000 Westchester County Local Dev. Corp. 5.00 6/01/2047 1,086
500 Westchester Tobacco Asset Securitization 5.00 6/01/2041 534
1,000 Yonkers (ETM) (INS - Assured Guaranty Municipal
Corp.) 5.00 10/01/2024 1,088
665 Yonkers (INS - Assured Guaranty Municipal Corp.) 3.00 7/01/2025 677
--------
198,582
--------
GUAM (4.2%)
1,000 Antonio B. Won Pat International Airport Auth.
(INS - Assured Guaranty Municipal Corp.) 5.75 10/01/2043 1,120
500 Government 5.00 12/01/2046 542
500 Government 5.00 1/01/2037 519
1,000 Government 5.00 11/15/2039 1,076
1,000 Government Waterworks Auth. 5.50 7/01/2043 1,076
1,000 Government Waterworks Auth. 5.00 7/01/2029 1,084
500 Government Waterworks Auth. 5.00 7/01/2035 535
1,000 Power Auth. (INS - Assured Guaranty Municipal Corp.) 5.00 10/01/2030 1,092
================================================================================
6 | USAA NEW YORK BOND FUND
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
$ 500 Power Auth. (INS - Assured Guaranty Municipal Corp.) 5.00% 10/01/2039 $ 541
1,165 Power Auth. 5.00 10/01/2037 1,268
--------
8,853
--------
PUERTO RICO (0.6%)
1,390 Industrial, Tourist, Educational, Medical and
Environmental Control Facilities Financing Auth. 5.13 4/01/2032 1,279
--------
U.S. VIRGIN ISLANDS (0.9%)
2,000 Public Finance Auth. 5.00 10/01/2032 2,015
--------
Total Municipal Obligations (cost: $206,080) 210,729
--------
UNITS
--------------------------------------------------------------------------------------------------------
LIQUIDATING TRUST (0.3%)
200 Center for Medical Science, Inc.(g),(h),(i) (cost: $499) 580
--------
TOTAL INVESTMENTS (COST: $206,579) $211,309
========
--------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
--------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
--------------------------------------------------------------------------------------------------------
Municipal Obligations $- $210,729 $ - $210,729
Liquidating Trust - - 580 580
--------------------------------------------------------------------------------------------------------
Total $- $210,729 $580 $211,309
--------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
For the period of April 1, 2018, through September 30, 2018, there were no
transfers of securities between levels. The Fund's policy is to recognize
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 | 7
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
September 30, 2018 (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 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
MUNIPSA Securities Industry and Financial Markets Association (SIFMA)
Municipal Swap Index
PRE Pre-refunded to a date prior to maturity
Zero Coupon Normally issued at a significant discount from face value
and do not provide for periodic interest payments. Income is
earned from the purchase date by accreting the purchase
discount of the security to par over the life of the security.
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
================================================================================
8 | USAA NEW YORK BOND FUND
================================================================================
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 the name listed.
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
the name listed.
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 name listed.
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) Security or a portion of the security purchased on a delayed-delivery
and/or when-issued basis.
(c) 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. VRDNs will normally trade as if the maturity is the earlier put
date, even though stated maturity is longer. The interest rate is reset
on the put date at a stipulated daily, weekly, monthly, quarterly,
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 9
================================================================================
or other specified time interval to reflect current market conditions.
These securities do not indicate a reference rate and spread in their
description.
(d) At September 30, 2018, the security, or a portion thereof, was
segregated to cover delayed-delivery and/or when-issued purchases.
(e) Put bond - provides 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.
(f) Floating-rate security - interest rate is adjusted periodically.
The interest rate disclosed represents the rate at September 30, 2018.
(g) Security deemed illiquid by USAA Asset Management Company, under
liquidity guidelines approved by USAA Mutual Funds Trust's Board of
Trustees.
(h) Security was classified as Level 3.
(i) Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
10 | USAA NEW YORK BOND FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
September 30, 2018 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $206,579) $211,309
Cash 288
Receivables:
Capital shares sold 135
Interest 2,481
--------
Total assets 214,213
--------
LIABILITIES
Payables:
Securities purchased 1,116
Capital shares redeemed 202
Dividends on capital shares 111
Accrued management fees 56
Accrued transfer agent's fees 2
Other accrued expenses and payables 63
--------
Total liabilities 1,550
--------
Net assets applicable to capital shares outstanding $212,663
========
NET ASSETS CONSIST OF:
Paid-in capital $211,298
Distributable earnings 1,365
--------
Net assets applicable to capital shares outstanding $212,663
========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $206,666/17,742 capital
shares outstanding, no par value) $ 11.65
========
Adviser Shares (net assets of $5,997/516 capital
shares outstanding, no par value) $ 11.62
========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 11
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended September 30, 2018 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Interest income $ 4,377
--------
EXPENSES
Management fees 349
Administration and servicing fees:
Fund Shares 158
Adviser Shares 4
Transfer agent's fees:
Fund Shares 24
Distribution and service fees (Note 6):
Adviser Shares 7
Custody and accounting fees:
Fund Shares 43
Adviser Shares 1
Postage:
Fund Shares 3
Shareholder reporting fees:
Fund Shares 8
Trustees' fees 18
Registration fees:
Fund Shares 1
Adviser Shares 1
Professional fees 34
Other 9
--------
Total expenses 660
--------
NET INVESTMENT INCOME 3,717
--------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain 10
Change in net unrealized appreciation/(depreciation) (2,034)
--------
Net realized and unrealized loss (2,024)
--------
Increase in net assets resulting from operations $ 1,693
========
See accompanying notes to financial statements.
================================================================================
12 | USAA NEW YORK BOND FUND
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended September 30, 2018 (unaudited), and year ended March 31,
2018
--------------------------------------------------------------------------------------------------------
9/30/2018 3/31/2018
--------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 3,717 $ 7,559
Net realized gain on investments 10 60
Change in net unrealized appreciation/(depreciation)
of investments (2,034) (2,382)
-------------------------------
Increase in net assets resulting from operations 1,693 5,237
-------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
DISTRIBUTABLE EARNINGS:
Fund Shares (3,621) (7,360)
Adviser Shares (95) (198)
-------------------------------
Distributions to shareholders (3,716) (7,558)
-------------------------------
NET INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS (NOTE 5)
Fund Shares (7,457) 9,838
Adviser Shares 82 (271)
-------------------------------
Total net increase (decrease) in net assets from capital
share transactions (7,375) 9,567
-------------------------------
Net increase (decrease) in net assets (9,398) 7,246
NET ASSETS
Beginning of period 222,061 214,815
-------------------------------
End of period $ 212,663 $ 222,061
===============================
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 13
================================================================================
NOTES TO FINANCIAL STATEMENTS
September 30, 2018 (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 47 separate funds.
The 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.
================================================================================
14 | USAA NEW YORK BOND FUND
================================================================================
A. SECURITY VALUATION - The Trust's Board of Trustees (the Board) has
established the Valuation and Liquidity 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 | 15
================================================================================
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:
LEVEL 1 - inputs to the valuation methodology are quoted prices (unadjusted)
in active markets for identical securities.
================================================================================
16 | USAA NEW YORK BOND 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.
C. INVESTMENTS IN SECURITIES - Securities transactions are accounted for as
of the date the securities are purchased or sold (trade date). Gains or
losses from sales of investment securities are computed on the identified
cost basis. Interest income is recorded daily on the accrual basis.
Premiums and discounts are amortized over the life of the respective
securities, using the effective yield method for long-term securities and
the straight-line method for short-term securities. The Fund concentrates
its investments in New York tax-exempt securities and, therefore, may be
exposed to more credit risk than portfolios with a broader geographical
diversification.
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.
For the six-month period ended September 30, 2018, 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.
E. SECURITIES PURCHASED ON A DELAYED-DELIVERY OR WHEN-ISSUED BASIS - Delivery
and payment for securities that have been purchased by the Fund on a
================================================================================
NOTES TO FINANCIAL STATEMENTS | 17
================================================================================
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. INDEMNIFICATIONS - Under the Trust's organizational documents, its officers
and trustees are indemnified against certain liabilities arising out of the
performance of their duties to the Trust. In addition, in the normal course
of business, the Trust enters into contracts that contain a variety of
representations and warranties that provide general indemnifications. The
Trust's maximum exposure under these arrangements is unknown, as this would
involve future claims that may be made against the Trust that have not yet
occurred. However, the Trust expects the risk of loss to be remote.
G. USE OF ESTIMATES - The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts in the
financial statements.
(2) LINE OF CREDIT
The Fund participates, 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.
================================================================================
18 | USAA NEW YORK BOND FUND
================================================================================
The Trusts are also assessed facility fees by CAPCO in the amount of 14.0 basis
points of the amount of the committed loan agreement. Prior to September 30,
2018, the maximum annual facility fee was 13.0 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 daily 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 15.0 basis points.
For the six-month period ended September 30, 2018, the Fund paid CAPCO facility
fees of $1,000, which represents 0.3% of the total fees paid to CAPCO by the
funds of the Trusts. The Fund had no borrowings under this agreement during the
six-month period ended September 30, 2018.
(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, 2019, in
accordance with applicable federal tax law.
Net investment income is accrued daily as dividends and distributed to
shareholders monthly. Distributions of realized gains from security transactions
not offset by capital losses are made annually in the succeeding fiscal year or
as otherwise required to avoid the payment of federal taxes.
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, 2018, 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 19
================================================================================
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 2,559,000
-------- ----------
Total $816,000 $2,559,000
======== ==========
As of September 30, 2018, 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, 2018, were $6,376,000 and $1,646,000, respectively, resulting in net
unrealized appreciation of $4,730,000.
(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, 2018, were
$9,235,000 and $14,935,000, respectively.
In accordance with affiliated transaction procedures approved by the Board,
purchases and sales of security transactions were executed between the Fund and
affiliated USAA Funds at the then-current market price with no brokerage
commissions incurred. The affiliated transactions executed by the Fund,
including short-term securities, during the six-month period ended September 30,
2018 were as follows:
PURCHASES SALES REALIZED GAIN/(LOSS)
--------------------------------------------------------------------------------
$19,400,000 $13,200,000 $-
(5) CAPITAL SHARE TRANSACTIONS
At September 30, 2018, there were an unlimited number of shares of capital stock
at no par value authorized for the Fund.
================================================================================
20 | USAA NEW YORK BOND FUND
================================================================================
Capital share transactions for all classes were as follows, in thousands:
SIX-MONTH PERIOD ENDED YEAR ENDED
SEPTEMBER 30, 2018 MARCH 31, 2018
--------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------
FUND SHARES:
Shares sold 698 $ 8,186 1,844 $ 21,991
Shares issued from
reinvested dividends 251 2,951 509 6,065
Shares redeemed (1,586) (18,594) (1,528) (18,218)
------------------------------------------------------
Net increase (decrease) from
capital share transactions (637) $ (7,457) 825 $ 9,838
======================================================
ADVISER SHARES:
Shares sold 11 $ 133 4 $ 56
Shares issued from
reinvested dividends 1 15 3 35
Shares redeemed (5) (66) (30) (362)
------------------------------------------------------
Net increase (decrease) from
capital share transactions 7 $ 82 (23) $ (271)
======================================================
(6) TRANSACTIONS WITH MANAGER
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 daily 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.
For the six-month period ended September 30, 2018, the Fund's effective
annualized base fee was 0.37% of the Fund's average daily 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 21
================================================================================
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 Lipper index, rounded
to the nearest basis point. Average daily 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
daily 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 New York 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, 2018, the Fund incurred management
fees, paid or payable to the Manager, of $349,000, which included a performance
adjustment for the Fund Shares and Adviser Shares of $(50,000) and $(2,000),
respectively. For the Fund Shares and Adviser Shares, the performance
adjustments were (0.05)% and (0.05)%, respectively.
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
daily net assets for both the Fund Shares and Adviser
================================================================================
22 | USAA NEW YORK BOND FUND
================================================================================
Shares. For the six-month period ended September 30, 2018, the Fund Shares and
Adviser Shares incurred administration and servicing fees, paid or payable to
the Manager, of $158,000 and $4,000, 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, 2018, the Fund reimbursed the Manager $2,000 for these
compliance and legal services. These expenses are included in the professional
fees on the Fund's Statement of Operations.
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, 2018, the Fund Shares and Adviser Shares incurred transfer agent's
fees, paid or payable to SAS, of $24,000 and less than $500, respectively.
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 daily 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,
2018, the Adviser Shares incurred distribution and service (12b-1) fees of
$7,000.
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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 23
================================================================================
(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,
2018, USAA and its affiliates owned 420,000 Adviser Shares, which represents
81.4% of the Adviser Shares outstanding and 2.3% of the Fund's total outstanding
shares.
Certain trustees and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Fund.
(8) UPCOMING REGULATORY MATTERS
In October 2016, the SEC issued Final Rule Release No. 33-10233, INVESTMENT
COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS (Liquidity Rule). The Liquidity Rule
requires funds to establish a liquidity risk management program and enhances
disclosures regarding funds' liquidity. The requirements to implement a
liquidity risk management program and establish a 15% illiquid investment limit
are effective December 1, 2018. However, in February 2018, the SEC issued
Release No. IC-33010, INVESTMENT COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS;
COMMISSION GUIDANCE FOR IN-KIND ETFs, which delayed certain requirements related
to liquidity classification, highly liquid investment minimums, and board
approval of the liquidity risk management programs to June 1, 2019. The Manager
continues to evaluate the impact of this rule on the Fund's financial statements
and various filings.
(9) UPCOMING ACCOUNTING PRONOUNCEMENTS
(ASU) 2017-08, PREMIUM AMORTIZATION OF PURCHASED CALLABLE DEBT SECURITIES
-------------------------------------------------------------------------
In March 2017, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Update (ASU) 2017-08, Premium Amortization of Purchased Callable Debt
Securities. The amendments in the ASU shorten the premium amortization period on
a purchased callable debt security from the security's contractual life to the
earliest call date. It is anticipated that this change will enhance reporting
disclosures by reducing losses recognized when a security is called on an
earlier date. This ASU is effective for fiscal years beginning after December
15, 2018. The Manager continues to evaluate the impact this ASU will have on the
financial statements and other reporting disclosures.
================================================================================
24 | USAA NEW YORK BOND FUND
================================================================================
(ASU) 2018-13, FAIR VALUE MEASUREMENT
-------------------------------------
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820).
The amendments in the ASU impact disclosure requirements for fair value
measurement. It is anticipated that this change will enhance the effectiveness
of disclosures in the notes to the financial statements. This ASU is effective
for fiscal years beginning after December 15, 2019. Early adoption is permitted
and can include the entire standard or certain provisions that exclude or amend
disclosures. The adoption of this ASU guidance is not expected to have a
material impact on the financial statements and other disclosures.
(10) RECENTLY ADOPTED ACCOUNTING STANDARD
In August 2018, the U.S. Securities and Exchange Commission (SEC) adopted
amendments to Regulation S-X for investment companies governing the form and
content of financial statements. The amendments to Regulation S-X took effect on
November 5, 2018, and the financial statements have been modified accordingly,
for the current and prior period.
(11) SUBSEQUENT EVENT
On November 6, 2018, United Services Automobile Association ("USAA"), the parent
company of USAA Asset Management Company ("AMCO"), the investment adviser to the
Funds, and USAA Transfer Agency Company d.b.a. USAA Shareholder Account Services
("SAS"), the transfer agent to the Funds, announced that AMCO and SAS would be
acquired by Victory Capital Holdings, Inc. ("Victory"), a global investment
management firm headquartered in Cleveland, Ohio (the "Transaction"). The
closing of the Transaction is expected to be completed during the second quarter
of 2019, pending satisfaction of certain closing conditions and approvals,
including certain approvals of the Funds' Board of Trustees and of Fund
shareholders at a special shareholder meeting to be held in 2019.
The Transaction is not expected to result in any material changes to the Funds'
respective investment objectives and principal investment strategies.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 25
================================================================================
FINANCIAL HIGHLIGHTS
FUND SHARES (UNAUDITED)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
SEPTEMBER 30, YEAR ENDED MARCH 31,
------------------------------------------------------------------------------------------
2018 2018 2017 2016 2015 2014
------------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 11.76 $ 11.88 $ 12.28 $ 12.29 $ 11.93 $ 12.47
----------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .20 .41 .42 .43 .44 .45
Net realized and
unrealized gain (loss) (.11) (.12) (.41) (.01) .36 (.54)
----------------------------------------------------------------------------------------
Total from investment
operations .09 .29 .01 .42 .80 (.09)
----------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.20) (.41) (.41) (.43) (.44) (.45)
----------------------------------------------------------------------------------------
Net asset value at
end of period $ 11.65 $ 11.76 $ 11.88 $ 12.28 $ 12.29 $ 11.93
========================================================================================
Total return (%)* .78 2.45 .10 3.50 6.76 (.63)
Net assets at end of
period (000) $206,666 $216,090 $208,513 $211,136 $211,634 $194,083
Ratios to average daily
net assets:**
Expenses (%)(c) .60(a) .59 .61(b) .66(b) .66(b) .67(b)
Net investment
income (%) 3.44(a) 3.43 3.41 3.53 3.58 3.80
Portfolio turnover (%) 5 6 10 10 5 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, 2018, average daily net assets
were $210,262,000.
(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 ratio by less than 0.01%.
(c) Does not include acquired fund fees, if any.
================================================================================
26 | USAA NEW YORK BOND FUND
================================================================================
ADVISER SHARES (UNAUDITED)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
SEPTEMBER 30, YEAR ENDED MARCH 31,
----------------------------------------------------------------------------------------
2018 2018 2017 2016 2015 2014
----------------------------------------------------------------------------------------
Net asset value at
beginning of period $11.73 $11.85 $12.25 $12.26 $11.90 $12.47
--------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .19 .38 .39 .41 .41 .42
Net realized and
unrealized gain (loss) (.11) (.12) (.40) (.01) .36 (.57)
--------------------------------------------------------------------------------------
Total from investment
operations .08 .26 (.01) .40 .77 (.15)
--------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.19) (.38) (.39) (.41) (.41) (.42)
--------------------------------------------------------------------------------------
Net asset value at
end of period $11.62 $11.73 $11.85 $12.25 $12.26 $11.90
======================================================================================
Total return (%)* .66 2.19 (.13) 3.30 6.51 (1.10)
Net assets at end of
period (000) $5,997 $5,971 $6,302 $5,856 $5,638 $5,339
Ratios to average daily
net assets:**
Expenses (%)(d) .85(a) .84 .83(b) .85(b) .90(b),(c) .89(b)
Expenses, excluding
reimbursements (%)(d) .85(a) .84 .83(b) .85(b) .90(b),(c) .89(b)
Net investment
income (%) 3.19(a) 3.18 3.19 3.34 3.34 3.57
Portfolio turnover (%) 5 6 10 10 5 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, 2018, average daily net assets
were $5,943,000.
(a) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(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 ratio by less than
0.01%.
(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 daily net assets.
(d) Does not include acquired fund fees, if any.
================================================================================
FINANCIAL HIGHLIGHTS | 27
================================================================================
EXPENSE EXAMPLE
September 30, 2018 (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, 2018, through
September 30, 2018.
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
================================================================================
28 | 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, 2018 -
APRIL 1, 2018 SEPTEMBER 30, 2018 SEPTEMBER 30, 2018
---------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $1,007.80 $3.02
Hypothetical
(5% return before expenses) 1,000.00 1,022.06 3.04
ADVISER SHARES
Actual 1,000.00 1,006.60 4.28
Hypothetical
(5% return before expenses) 1,000.00 1,020.81 4.31
*Expenses are equal to the annualized expense ratio of 0.60% for Fund Shares
and 0.85% for Adviser Shares, which are net of any reimbursements and expenses
paid indirectly, multiplied by the average account value over the period,
multiplied by 183 days/365 days (to reflect the one-half-year period). The
Fund's actual ending account values are based on its actual total returns of
0.78% for Fund Shares and 0.66% for Adviser Shares for the six-month period of
April 1, 2018, through September 30, 2018.
================================================================================
EXPENSE EXAMPLE | 29
================================================================================
ADVISORY AGREEMENT
September 30, 2018 (unaudited)
--------------------------------------------------------------------------------
At an in-person meeting of the Board of Trustees (the Board) held on April 18,
2018, the Board, including the Trustees who are not "interested persons" (as
that term is defined in the Investment Company Act of 1940, as amended) of the
Trust (the Independent Trustees), approved for an annual period the continuance
of the Advisory Agreement between the Trust and the Manager with respect to the
Fund.
In advance of the meeting, the Trustees received and considered a variety of
information relating to the Advisory Agreement and the Manager and were given
the opportunity to ask questions and request additional information from
management. The information provided to the Board included, among other things:
(i) a separate report prepared by an independent third party, which provided a
statistical analysis comparing the Fund's investment performance, expenses, and
fees to comparable investment companies; (ii) information concerning the
services rendered to the Fund, as well as information regarding the Manager's
revenues and costs of providing services to the Fund and compensation paid to
affiliates of the Manager; and (iii) information about the Manager's operations
and personnel. Prior to voting, the Independent Trustees reviewed the proposed
continuation of the Advisory Agreement with management and with experienced
counsel retained by the Independent Trustees (Independent Counsel) and received
materials from such Independent Counsel discussing the legal standards for their
consideration of the proposed continuation of the Advisory Agreement with
respect to the Fund. The Independent Trustees also reviewed the proposed
continuation of the Advisory Agreement with respect to the Fund in private
sessions with Independent Counsel at which no representatives of management were
present.
At each regularly scheduled meeting of the Board and its committees, the Board
receives and reviews, among other things, information concerning the Fund's
performance and related services provided by the Manager. At the meeting at
which the renewal of the Advisory Agreement is considered, particular focus is
given to information concerning Fund performance,
================================================================================
30 | USAA NEW YORK BOND FUND
================================================================================
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 also considered the significant risks assumed by the Manager in
connection with the services provided to the Fund, including investment,
operational, enterprise, litigation, regulatory and compliance risks.
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 | 31
================================================================================
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 and its affiliates, 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 below the median of its expense group and its expense
universe. The Board
================================================================================
32 | USAA NEW YORK BOND FUND
================================================================================
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 periods ended December 31, 2017, and was above
the average of its performance universe and its Lipper index for the five- and
ten-year periods ended December 31, 2017. The Board also noted that the Fund's
percentile performance ranking was in the bottom 50%% of its performance
universe for the one- and three-year periods ended December 31, 2017, was in the
top 50% of its performance universe for the five-year period ended December 31,
2017, and was in the top 20% of its performance universe for the ten-year period
ended December 31, 2017.
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
================================================================================
ADVISORY AGREEMENT | 33
================================================================================
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.
================================================================================
34 | 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, State Street Bank and Trust Company
ACCOUNTING AGENT, AND P.O. Box 1713
SUB-ADMINISTRATOR Boston, Massachusetts 02105
--------------------------------------------------------------------------------
INDEPENDENT Ernst & Young LLP
REGISTERED PUBLIC 100 West Houston St., Suite 1700
ACCOUNTING FIRM San Antonio, Texas 78205
--------------------------------------------------------------------------------
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
--------------
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[LOGO OF USAA]
USAA We know what it means to serve.(R)
================================================================================
39608-1118 (C)2018, 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, 2018
==============================================================
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
INVESTMENT OVERVIEW 1
FINANCIAL INFORMATION
Portfolio of Investments 3
Notes to Portfolio of Investments 36
Financial Statements 39
Notes to Financial Statements 42
Financial Highlights 54
EXPENSE EXAMPLE 56
ADVISORY AGREEMENT 58
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.
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.
(C)2018, USAA. All rights reserved.
================================================================================
================================================================================
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
o TOP 10 INDUSTRIES - 9/30/18 o
(% of Net Assets)
Hospital .......................................................... 18.7%
General Obligation ................................................ 12.2%
Special Assessment/Tax/Fee ........................................ 9.4%
Education ......................................................... 9.0%
Toll Road ......................................................... 7.1%
Escrowed Bonds .................................................... 6.6%
Appropriated Debt ................................................. 5.7%
Electric Utilities ................................................ 5.2%
Airport/Port ...................................................... 4.2%
Electric/Gas Utility .............................................. 3.6%
Refer to the Portfolio of Investments for a complete list of securities.
================================================================================
INVESTMENT OVERVIEW | 1
================================================================================
o PORTFOLIO RATINGS MIX - 9/30/18 o
[PIE CHART OF PORTFOLIO RATINGS MIX]
AAA 2.3%
AA 30.4%
A 41.3%
BBB 18.2%
BELOW INVESTMENT-GRADE 2.2%
UNRATED 5.6%
[END PIE 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.
Refer to the Portfolio of Investments for a complete list of securities.
================================================================================
2 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
PORTFOLIO OF INVESTMENTS
September 30, 2018 (unaudited)
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
MUNICIPAL OBLIGATIONS (99.1%)
ALABAMA (1.5%)
$ 8,000 Infirmary Health System Special Care
Facilities Financing Auth. of Mobile 5.00% 2/01/2036 $ 8,625
5,000 Lower Alabama Gas District 5.00 9/01/2027 5,697
7,000 Lower Alabama Gas District 5.00 9/01/2028 8,012
35,000 Lower Alabama Gas District 5.00 9/01/2034 40,388
5,955 Montgomery Medical Clinic Board 5.00 3/01/2033 6,353
1,750 Montgomery Medical Clinic Board 5.00 3/01/2036 1,850
----------
70,925
----------
ARIZONA (2.8%)
20,310 Apache County IDA 4.50 3/01/2030 21,481
3,270 City of Phoenix Civic Improvement Corp.
(INS - National Public Finance Guarantee Corp.) 5.50 7/01/2024 3,769
2,115 City of Phoenix Civic Improvement Corp.
(INS - National Public Finance Guarantee Corp.) 5.50 7/01/2025 2,478
6,585 City of Phoenix IDA(a) 3.75 7/01/2024 6,727
11,100 City of Phoenix IDA(a) 5.00 7/01/2034 11,729
1,675 City of Phoenix IDA 5.00 7/01/2036 1,774
4,250 City of Phoenix IDA 5.00 10/01/2036 4,605
6,000 Health Facilities Auth. 5.00 2/01/2027 6,446
16,000 Health Facilities Auth. (MUNIPSA + 1.85%)
(Put Date 2/05/2020)(b) 3.41(c) 2/01/2048 16,179
30,000 Health Facilities Auth. (MUNIPSA + 1.85%)
(Put Date 2/01/2023)(b) 3.41(c) 2/01/2048 31,163
2,680 Pima County IDA 4.50 6/01/2030 2,845
910 Pima County IDA(a) 4.00 6/15/2022 917
4,900 Pima County IDA(a) 4.13 6/15/2029 4,813
2,000 Pinal County IDA (INS - ACA Financial
Guaranty Corp.) 5.25 10/01/2020 2,002
1,250 Pinal County IDA (INS - ACA Financial
Guaranty Corp.) 5.25 10/01/2022 1,251
2,000 Pinal County IDA (INS - ACA Financial
Guaranty Corp.) 4.50 10/01/2025 1,985
3,540 State (INS - Assured Guaranty Municipal Corp.) 5.00 10/01/2019 3,646
7,275 State (INS - Assured Guaranty Municipal Corp.) 5.25 10/01/2020 7,501
----------
131,311
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 3
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
ARKANSAS (0.7%)
$29,000 Dev. Finance Auth. (MUNIPSA + 1.55%)
(Put Date 9/01/2022)(b) 3.11%(c) 9/01/2044 $ 29,593
4,290 Pulaski Technical College (INS - Build
America Mutual Assurance Co.) 5.00 9/01/2030 4,839
----------
34,432
----------
CALIFORNIA (8.4%)
4,500 Alameda Corridor Transportation Auth. 5.00 10/01/2035 4,938
500 Anaheim Public Financing Auth. 5.00 5/01/2028 566
500 Anaheim Public Financing Auth. 5.00 5/01/2029 564
1,000 Anaheim Public Financing Auth. 5.00 5/01/2030 1,126
17,000 Bay Area Toll Auth. (MUNIPSA + 1.10%)
(Put Date 4/01/2024)(b) 2.66(c) 4/01/2045 17,549
10,000 Bay Area Toll Auth. (MUNIPSA + 0.90%)
(Put Date 5/01/2023)(b) 2.46(c) 4/01/2045 10,224
1,510 Cerritos CCD (Zero Coupon) 0.00 8/01/2025 1,253
1,000 Cerritos CCD (Zero Coupon) 0.00 8/01/2027 769
1,000 Cerritos CCD (Zero Coupon) 0.00 8/01/2028 738
1,520 Chula Vista Municipal Financing Auth. 5.00 9/01/2027 1,720
1,700 Chula Vista Municipal Financing Auth. 5.00 9/01/2028 1,909
1,785 Chula Vista Municipal Financing Auth. 5.00 9/01/2029 1,996
2,635 Chula Vista Municipal Financing Auth. 5.00 9/01/2030 2,937
2,095 Chula Vista Municipal Financing Auth. 5.00 9/01/2031 2,326
1,000 City of Irvine 5.00 9/02/2029 1,086
1,605 City of Tulare Sewer (INS - Assured
Guaranty Municipal Corp.) 5.00 11/15/2032 1,816
1,570 City of Tulare Sewer (INS - Assured
Guaranty Municipal Corp.) 5.00 11/15/2033 1,770
3,655 City of Tulare Sewer (INS - Assured
Guaranty Municipal Corp.) 5.00 11/15/2034 4,103
2,340 City of Tulare Sewer (INS - Assured
Guaranty Municipal Corp.) 5.00 11/15/2035 2,620
10,000 City of Upland (PRE) 6.00 1/01/2026 10,897
2,000 Coronado Community Dev. Agency
(INS-AMBAC Assurance Corp.) 5.00 9/01/2024 2,000
6,810 El Camino CCD (Zero Coupon) 0.00 8/01/2026 5,507
7,665 El Camino CCD (Zero Coupon) 0.00 8/01/2027 5,960
5,500 El Camino CCD (Zero Coupon) 0.00 8/01/2028 4,108
12,910 El Centro Financing Auth. (LIQ - Deutsche
Bank A.G.) (LOC - Deutsche Bank A.G.)
(Put Date 10/05/2018)(a),(e),(f) 1.91 7/01/2058 12,910
5,500 Foothill-Eastern Transportation Corridor
Agency (INS - Assured Guaranty
Municipal Corp.) (Zero Coupon) 0.00 1/15/2035 2,872
================================================================================
4 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 1,000 Fresno Joint Powers Financing Auth.
(INS - Assured Guaranty Municipal Corp.) 5.00% 4/01/2032 $ 1,137
1,000 Fresno Joint Powers Financing Auth.
(INS - Assured Guaranty Municipal Corp.) 5.00 4/01/2035 1,121
420 Fresno Joint Powers Financing Auth.
(INS - Assured Guaranty Municipal Corp.) 5.00 4/01/2036 468
46,605 Golden State Tobacco Securitization Corp.
(INS - Assured Guaranty Municipal Corp.)
(Zero Coupon) 0.00 6/01/2025 39,003
2,540 Health Facilities Financing Auth. 4.00 3/01/2033 2,658
2,700 Health Facilities Financing Auth. 4.00 3/01/2034 2,813
8,500 Health Facilities Financing Auth.
(Put Date 10/01/2025)(b) 2.00 10/01/2036 8,186
5,000 Health Facilities Financing Auth. 5.25 8/15/2031 5,426
2,000 Health Facilities Financing Auth. 5.00 8/15/2027 2,160
5,000 Irvine Unified School District (INS - Assured
Guaranty Municipal Corp.) 5.25 9/01/2019 5,162
2,500 Irvine Unified School District (INS - Assured
Guaranty Municipal Corp.) 4.50 9/01/2020 2,558
1,300 Los Angeles County 5.00 3/01/2023 1,470
3,500 Pittsburg Successor Agency Redev. Agency
(INS - Assured Guaranty Municipal Corp.) 5.00 9/01/2027 4,051
2,640 Pittsburg Successor Agency Redev. Agency
(INS - Assured Guaranty Municipal Corp.) 5.00 9/01/2028 3,033
10,000 Public Works Board 5.00 4/01/2028 10,920
5,000 Public Works Board 5.00 4/01/2029 5,451
3,000 Public Works Board 5.13 3/01/2023 3,136
2,500 Public Works Board 5.25 3/01/2024 2,616
2,000 Public Works Board 5.38 3/01/2025 2,095
6,400 Public Works Board (PRE) 5.50 4/01/2021 6,522
6,755 Public Works Board (PRE) 5.60 4/01/2022 6,887
3,130 Public Works Board (PRE) 5.75 4/01/2023 3,194
1,185 Public Works Board 5.00 11/01/2023 1,322
2,000 Public Works Board 5.00 11/01/2024 2,229
7,000 Public Works Board 5.00 11/01/2028 7,741
1,250 Public Works Board 5.00 3/01/2025 1,395
1,365 Public Works Board 5.00 3/01/2026 1,518
11,465 Public Works Board 5.00 10/01/2031 13,011
5,355 Sacramento City Financing Auth. (LIQ - Deutsche
Bank A.G.) (LOC - Deutsche Bank A.G.)
(Put Date 10/05/2018)(a),(f) 1.67 12/01/2030 5,355
1,635 San Diego Public Facilities Financing Auth. 5.00 10/15/2033 1,864
1,000 San Diego Public Facilities Financing Auth. 5.00 10/15/2034 1,137
1,250 San Diego Public Facilities Financing Auth. 5.00 10/15/2035 1,417
================================================================================
PORTFOLIO OF INVESTMENTS | 5
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 775 San Diego Public Facilities Financing Auth. 5.00% 10/15/2030 $ 893
1,000 San Diego Public Facilities Financing Auth. 5.00 10/15/2031 1,148
1,000 San Diego Public Facilities Financing Auth. 5.00 10/15/2032 1,145
980 San Diego Tobacco Settlement Revenue Funding Corp. 4.00 6/01/2032 1,004
5,000 San Francisco City & County Airport
Comm-San Francisco International Airport 5.25 5/01/2022 5,100
7,000 San Francisco City & County Airport
Comm-San Francisco International Airport 5.25 5/01/2023 7,139
4,800 San Francisco City & County Airport
Comm-San Francisco International Airport 4.90 5/01/2029 4,947
500 School Finance Auth.(a) 5.00 8/01/2031 540
1,600 School Finance Auth.(a) 5.00 8/01/2036 1,705
27,445 State 5.75 4/01/2027 27,971
20,000 State 5.25 10/01/2022 20,683
10,240 State 5.00 8/01/2032 11,686
10,000 State University 5.00 11/01/2029 11,487
10,000 State University 5.00 11/01/2033 11,501
1,000 Statewide Communities Dev. Auth. 5.13 5/15/2031 1,055
1,250 Statewide Communities Dev. Auth. 5.00 5/15/2032 1,397
2,000 Statewide Communities Dev. Auth. 5.00 5/15/2033 2,229
1,250 Statewide Communities Dev. Auth. 5.00 5/15/2034 1,389
2,000 Statewide Communities Dev. Auth. 5.00 5/15/2035 2,215
4,415 Tobacco Securitization Auth. of Southern California 4.75 6/01/2025 4,435
3,470 Tuolumne Wind Project Auth. (PRE) 5.00 1/01/2022 3,498
4,600 Victorville JT Powers Finance Auth. (LOC - BNP
Paribas) (Put Date 10/05/2018)(f) 2.06 5/01/2040 4,600
2,000 Washington Township Health Care District 5.75 7/01/2024 2,044
3,500 Washington Township Health Care District 5.00 7/01/2025 3,626
----------
394,757
----------
COLORADO (2.2%)
5,000 Adams & Arapahoe Joint School District
28J Aurora (Zero Coupon) 0.00 12/01/2022 4,507
7,355 Denver Health & Hospital Auth.(a) 5.00 12/01/2034 8,026
2,310 Health Facilities Auth. 5.00 6/01/2031 2,507
2,000 Health Facilities Auth. 5.00 6/01/2032 2,166
2,470 Health Facilities Auth. 5.00 6/01/2033 2,668
6,385 Health Facilities Auth. 5.00 6/01/2034 6,879
3,385 Health Facilities Auth. 5.00 6/01/2035 3,638
2,750 Health Facilities Auth. 5.00 6/01/2028 2,964
1,000 Health Facilities Auth. 5.00 12/01/2028 1,085
4,000 Health Facilities Auth. 5.00 12/01/2035 4,261
1,500 Health Facilities Auth. 5.00 12/01/2029 1,620
4,455 Health Facilities Auth. 5.00 6/01/2034 4,888
================================================================================
6 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 2,000 Health Facilities Auth. 5.00% 6/01/2035 $ 2,188
4,000 Health Facilities Auth. 5.00 6/01/2036 4,367
1,250 Park Creek Metropolitan District 5.00 12/01/2032 1,396
1,000 Park Creek Metropolitan District 5.00 12/01/2034 1,110
7,585 Regional Transportation District 5.00 6/01/2029 8,310
14,175 Regional Transportation District 5.00 6/01/2030 15,523
15,005 Regional Transportation District 5.00 6/01/2031 16,397
9,135 Regional Transportation District (PRE) 5.00 6/01/2025 9,573
865 Regional Transportation District 5.00 6/01/2025 902
----------
104,975
----------
CONNECTICUT (3.3%)
335 City of Bridgeport (ETM) 5.00 8/15/2027 395
4,665 City of Bridgeport 5.00 8/15/2027 5,191
1,000 City of New Haven (INS - Assured Guaranty
Municipal Corp.) 5.00 8/15/2030 1,121
1,000 City of New Haven (INS - Assured Guaranty
Municipal Corp.) 5.00 8/15/2032 1,115
1,000 City of New Haven (INS - Assured Guaranty
Municipal Corp.) 5.00 8/15/2033 1,111
1,350 City of New Haven (INS - Assured Guaranty
Municipal Corp.) 5.00 8/15/2034 1,495
1,000 City of New Haven 5.00 8/01/2028 1,093
1,000 City of New Haven 5.50 8/01/2030 1,123
1,200 City of New Haven 5.50 8/01/2032 1,339
1,810 City of New Haven 5.50 8/01/2036 1,989
400 City of West Haven 5.00 11/01/2032 419
350 City of West Haven 5.00 11/01/2037 359
10,000 Harbor Point Infrastructure Improvement District(a) 5.00 4/01/2030 10,819
750 Hartford County Metropolitan District 5.00 7/15/2033 858
1,000 Hartford County Metropolitan District 5.00 7/15/2034 1,139
750 Hartford County Metropolitan District 5.00 7/15/2035 850
1,000 Hartford County Metropolitan District 5.00 7/15/2036 1,128
1,000 Hartford County Metropolitan District 4.00 7/15/2037 1,023
10,000 Health & Educational Facilities Auth. 5.00 7/01/2034 10,785
1,950 Health & Educational Facilities Auth. 5.00 7/01/2032 2,156
725 Health & Educational Facilities Auth. 5.00 7/01/2034 796
1,170 Health & Educational Facilities Auth. 5.00 7/01/2035 1,279
1,125 Health & Educational Facilities Auth. 5.00 7/01/2036 1,226
1,275 Health & Educational Facilities Auth. 5.00 7/01/2037 1,381
8,178 Mashantucket (Western) Pequot Tribe(g),(h) 6.05(i) 7/01/2031 286
5,000 State 5.00 11/15/2035 5,400
5,000 State 5.00 4/15/2033 5,531
5,575 State 5.00 4/15/2034 6,139
5,000 State 5.00 4/15/2035 5,485
================================================================================
PORTFOLIO OF INVESTMENTS | 7
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 1,100 State 5.00% 6/15/2033 $ 1,218
2,625 State 5.00 6/15/2034 2,894
2,500 State 5.00 6/15/2035 2,746
2,000 State 5.00 9/15/2035 2,201
2,000 State 5.00 9/15/2037 2,182
20,000 State Special Tax 5.00 1/01/2034 22,185
20,000 State Special Tax 5.00 1/01/2035 22,102
1,200 Town of Hamden (INS - Build America Mutual
Assurance Co.) 5.00 8/15/2030 1,347
6,805 University of Connecticut 5.00 4/15/2034 7,516
6,500 University of Connecticut 5.00 4/15/2035 7,152
11,175 University of Connecticut 5.00 4/15/2036 12,239
----------
156,813
----------
DISTRICT OF COLUMBIA (0.8%)
3,870 District 5.63 10/01/2025 4,071
5,000 District 5.75 10/01/2026 5,258
6,000 District (PRE) 5.75 10/01/2027 6,539
375 District (ETM) 5.00 7/01/2023 408
1,280 District (PRE) 6.00 7/01/2033 1,496
20,560 District (LIQ - Deutsche Bank A.G.) (LOC - Deutsche
Bank A.G.) (Put Date 10/05/2018)(a),(f) 1.81 10/01/2041 20,560
----------
38,332
----------
FLORIDA (5.2%)
2,500 Broward County Airport System 5.00 10/01/2024 2,571
1,485 City of Cape Coral Water & Sewer 4.00 10/01/2035 1,526
1,400 City of Cape Coral Water & Sewer 4.00 10/01/2036 1,433
3,000 City of Cape Coral Water & Sewer 4.00 10/01/2037 3,045
3,500 City of Jacksonville 5.00 10/01/2028 3,816
1,000 City of Port St. Lucie 4.00 9/01/2031 1,048
3,195 City of Port St. Lucie 4.00 7/01/2031 3,344
2,000 City of Port St. Lucie 4.00 7/01/2032 2,084
2,785 City of Port St. Lucie 4.00 7/01/2033 2,886
2,325 Halifax Hospital Medical Center 5.00 6/01/2035 2,531
2,750 Halifax Hospital Medical Center 5.00 6/01/2036 3,006
1,250 Lake County School Board (INS - Assured
Guaranty Municipal Corp.) 5.00 6/01/2029 1,377
2,225 Lake County School Board (INS - Assured
Guaranty Municipal Corp.) 5.00 6/01/2030 2,444
2,500 Lee County 5.00 10/01/2023 2,804
2,700 Lee County 5.00 10/01/2024 3,069
4,000 Lee County Airport 5.00 10/01/2033 4,451
7,245 Lee County IDA 5.00 10/01/2028 7,502
3,750 Lee County School Board 5.00 8/01/2028 4,212
================================================================================
8 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 6,560 Miami Beach Health Facilities Auth. 5.00% 11/15/2029 $ 6,955
2,000 Miami-Dade County 5.00 10/01/2025 2,193
6,440 Miami-Dade County Aviation 5.00 10/01/2026 6,781
7,000 Miami-Dade County Aviation 5.00 10/01/2027 7,367
2,000 Miami-Dade County Expressway Auth. 5.00 7/01/2030 2,230
2,000 Miami-Dade County Expressway Auth. 5.00 7/01/2031 2,224
10,000 Miami-Dade County Expressway Auth. 5.00 7/01/2028 10,844
7,000 Miami-Dade County Expressway Auth. 5.00 7/01/2029 7,588
1,000 Miami-Dade County Expressway Auth. 5.00 7/01/2029 1,117
1,610 Miami-Dade County Expressway Auth. 5.00 7/01/2030 1,795
1,255 Miami-Dade County Expressway Auth. 5.00 7/01/2031 1,396
2,000 Miami-Dade County Expressway Auth. 5.00 7/01/2032 2,220
2,000 Miami-Dade County Expressway Auth. 5.00 7/01/2033 2,214
2,000 Miami-Dade County Expressway Auth. 5.00 7/01/2034 2,207
4,750 Miami-Dade County Health Facilities Auth. 5.00 8/01/2027 5,188
4,950 Miami-Dade County Health Facilities Auth. 5.00 8/01/2028 5,392
5,250 Miami-Dade County Health Facilities Auth. 5.00 8/01/2029 5,701
3,500 Miami-Dade County Health Facilities Auth. 5.00 8/01/2030 3,791
5,780 Miami-Dade County Health Facilities Auth. 5.00 8/01/2031 6,245
7,500 Miami-Dade County IDA 3.75 12/01/2018 7,518
12,000 Orange County Health Facilities Auth. 5.25 10/01/2022 12,381
5,000 Orange County Health Facilities Auth. 5.38 10/01/2023 5,168
4,000 Orange County Health Facilities Auth. 5.00 10/01/2035 4,410
3,055 Osceola County School Board 5.00 6/01/2028 3,334
7,595 Palm Beach County Health Facilities Auth. 5.00 11/15/2023 8,188
2,615 Pinellas County Educational Facilities Auth. 6.50 10/01/2031 2,830
2,045 Pinellas County Educational Facilities Auth. 5.38 10/01/2026 2,155
1,995 Pinellas County Educational Facilities Auth. 5.00 10/01/2021 2,091
1,080 Pinellas County Educational Facilities Auth. 4.00 10/01/2022 1,102
1,415 Pinellas County Educational Facilities Auth. 4.00 10/01/2023 1,438
1,895 Pinellas County Educational Facilities Auth. 5.00 10/01/2027 1,981
10,000 School Board of Miami-Dade County (PRE)
(INS - Assured Guaranty Corp.) 5.00 2/01/2024 10,105
2,000 School District of Broward County 5.00 7/01/2029 2,261
2,000 School District of Broward County 5.00 7/01/2030 2,249
3,195 Southeast Overtown Park West
Community Redev. Agency(a) 5.00 3/01/2030 3,469
1,800 St. Lucie County (Put Date 10/01/2018)(f) 1.70 9/01/2028 1,800
7,370 St. Lucie County Sales Tax Revenue (INS - Assured
Guaranty Municipal Corp.) 5.00 10/01/2028 8,110
2,045 St. Lucie County School Board 5.00 7/01/2025 2,254
1,500 St. Lucie County School Board 5.00 7/01/2026 1,651
5,525 Sunshine State Governmental Financing Commission 5.00 9/01/2020 5,825
================================================================================
PORTFOLIO OF INVESTMENTS | 9
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 8,970 Sunshine State Governmental Financing Commission 5.00% 9/01/2019 $ 9,217
1,055 Sunshine State Governmental Financing Commission
(INS - Assured Guaranty Municipal Corp.) 5.00 9/01/2021 1,136
1,000 Volusia County Educational Facility Auth. 5.00 10/15/2028 1,123
1,000 Volusia County Educational Facility Auth. 5.00 10/15/2029 1,119
1,500 Volusia County Educational Facility Auth. 5.00 10/15/2030 1,676
1,560 Volusia County Educational Facility Auth. 5.00 10/15/2032 1,735
----------
242,923
----------
GEORGIA (1.0%)
19,040 Burke County Dev. Auth. (Put Date 10/01/2018)(f) 1.93 7/01/2049 19,040
13,900 Burke County Dev. Auth. (Put Date 10/01/2018)(f) 1.94 10/01/2032 13,900
8,280 Floyd County Dev. Auth. (Put Date 10/01/2018)(f) 1.94 9/01/2026 8,280
3,000 Private Colleges & Universities Auth. 5.25 10/01/2027 3,195
2,000 Private Colleges & Universities Auth. 5.25 10/01/2027 2,144
----------
46,559
----------
GUAM (0.4%)
1,500 Government 5.00 12/01/2030 1,671
2,000 Government 5.00 12/01/2031 2,217
1,000 Government Waterworks Auth. 5.00 7/01/2028 1,074
3,000 Government Waterworks Auth. 5.25 7/01/2033 3,226
750 Government Waterworks Auth. 5.00 7/01/2023 825
600 Government Waterworks Auth. 5.00 7/01/2024 667
750 Government Waterworks Auth. 5.00 7/01/2025 828
1,000 Government Waterworks Auth. 5.00 7/01/2029 1,085
1,250 Government Waterworks Auth. 5.00 7/01/2036 1,360
1,000 Government Waterworks Auth. 5.00 7/01/2036 1,097
1,000 Power Auth. (INS - Assured Guaranty
Municipal Corp.) 5.00 10/01/2027 1,094
1,000 Power Auth. (INS - Assured Guaranty
Municipal Corp.) 5.00 10/01/2030 1,092
1,000 Power Auth. 5.00 10/01/2029 1,085
1,000 Power Auth. 5.00 10/01/2030 1,082
695 Power Auth. 5.00 10/01/2031 750
1,000 Power Auth. (INS - Assured Guaranty
Municipal Corp.) 5.00 10/01/2032 1,092
----------
20,245
----------
IDAHO (0.3%)
5,805 Health Facilities Auth. 5.00 3/01/2035 6,447
4,085 Health Facilities Auth. 5.00 3/01/2036 4,526
3,000 Health Facilities Auth. 5.00 3/01/2037 3,305
----------
14,278
----------
================================================================================
10 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
ILLINOIS (14.7%)
$ 7,000 Chicago Board of Education (LIQ - Deutsche
Bank A.G.) (LOC - Deutsche Bank A.G.)
(Put Date 10/05/2018)(a),(f) 1.89% 12/01/2039 $ 7,000
6,525 Chicago Midway International Airport 5.00 1/01/2027 7,112
1,635 Chicago Midway International Airport 5.25 1/01/2033 1,783
11,750 Chicago Midway International Airport 5.00 1/01/2029 12,841
5,175 Chicago Midway International Airport 5.00 1/01/2030 5,637
6,000 Chicago Midway International Airport 5.00 1/01/2032 6,509
8,910 Chicago Midway International Airport 5.00 1/01/2031 9,683
3,500 Chicago Midway International Airport 4.00 1/01/2034 3,566
3,000 Chicago Midway International Airport 4.00 1/01/2035 3,047
9,000 Chicago O'Hare International Airport 5.25 1/01/2024 9,333
3,620 Chicago O'Hare International Airport
(INS - Assured Guaranty Municipal Corp.) 5.00 1/01/2028 3,947
1,500 Chicago O'Hare International Airport
(INS - Assured Guaranty Municipal Corp.) 5.00 1/01/2029 1,632
2,150 Chicago O'Hare International Airport
(INS - Assured Guaranty Municipal Corp.) 5.13 1/01/2030 2,349
13,480 Chicago O'Hare International Airport 5.25 1/01/2029 14,861
11,560 Chicago O'Hare International Airport 5.00 1/01/2033 12,633
5,675 Chicago O'Hare International Airport 5.00 1/01/2034 6,185
10,200 Chicago Park District (INS - Build America
Mutual Assurance Co.) (LIQ - Citigroup, Inc.)
(Put Date 10/05/2018)(a),(f) 1.86 1/01/2022 10,200
30,000 City of Chicago (INS - National Public
Finance Guarantee Corp.) (Zero Coupon) 0.00 1/01/2023 25,976
2,535 City of Chicago 6.63 12/01/2022 2,540
1,000 City of Chicago Wastewater Transmission 5.00 1/01/2031 1,077
1,000 City of Chicago Wastewater Transmission 5.00 1/01/2032 1,071
3,500 City of Chicago Wastewater Transmission 5.00 1/01/2033 3,754
1,000 City of Chicago Wastewater Transmission 5.00 1/01/2034 1,070
1,250 City of Chicago Wastewater Transmission 5.00 1/01/2035 1,336
8,000 City of Chicago Wastewater Transmission 5.00 1/01/2035 8,627
2,000 City of Chicago Waterworks 5.00 11/01/2031 2,166
2,000 City of Chicago Waterworks 5.00 11/01/2033 2,157
1,500 City of Chicago Waterworks 5.00 11/01/2028 1,674
725 City of Chicago Waterworks 5.00 11/01/2029 805
2,000 City of Chicago Waterworks 5.00 11/01/2030 2,214
1,000 City of Chicago Waterworks 5.00 11/01/2029 1,112
1,000 City of Chicago Waterworks 5.00 11/01/2031 1,102
2,105 City of Chicago Waterworks (INS - Assured
Guaranty Municipal Corp.) 5.25 11/01/2034 2,386
================================================================================
PORTFOLIO OF INVESTMENTS | 11
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 1,635 City of Chicago Waterworks (INS - Assured
Guaranty Municipal Corp.) 5.25% 11/01/2035 $ 1,846
2,665 City of Chicago Waterworks 5.00 11/01/2036 2,913
3,145 City of Chicago Waterworks (INS - Assured
Guaranty Municipal Corp.) 5.00 11/01/2036 3,458
2,500 City of Chicago Waterworks (INS - Assured
Guaranty Municipal Corp.) 5.00 11/01/2037 2,741
8,500 City of Springfield 5.00 12/01/2030 9,352
3,000 City of Springfield Electric (INS - Assured
Guaranty Municipal Corp.) 5.00 3/01/2034 3,271
2,500 Cook County 5.00 11/15/2031 2,784
2,000 Cook County 5.00 11/15/2034 2,207
2,000 Cook County 5.00 11/15/2035 2,201
3,750 Cook County Sales Tax 4.00 11/15/2034 3,842
7,000 Cook County Sales Tax 5.00 11/15/2035 7,837
5,000 Cook County Sales Tax 5.00 11/15/2036 5,573
4,500 Educational Facilities Auth. 4.45 11/01/2036 4,622
9,750 Educational Facilities Auth. 4.00 11/01/2036 9,700
2,220 Educational Facilities Auth. 3.90 11/01/2036 2,155
3,700 Finance Auth. 5.00 11/15/2034 4,008
4,000 Finance Auth. 5.00 8/15/2035 4,305
1,400 Finance Auth. 5.00 5/15/2036 1,458
1,000 Finance Auth. 5.00 8/15/2034 1,077
2,000 Finance Auth. 5.00 4/01/2023 2,001
4,165 Finance Auth. 5.00 4/01/2025 4,166
750 Finance Auth. 5.25 4/01/2022 752
1,750 Finance Auth. 5.40 4/01/2027 1,750
3,400 Finance Auth. (PRE) (INS - National Public
Finance Guarantee Corp.) 5.00 11/01/2023 3,409
2,080 Finance Auth. (ETM) 5.00 2/15/2020 2,163
1,710 Finance Auth. (PRE) 5.00 2/15/2022 1,778
7,140 Finance Auth. (PRE) 5.13 2/15/2025 7,437
20,000 Finance Auth. 3.90 3/01/2030 20,433
3,000 Finance Auth. 5.00 11/15/2035 3,240
1,875 Finance Auth. 5.00 5/15/2031 1,974
2,055 Finance Auth. 3.25 5/15/2022 2,068
3,065 Finance Auth. 4.00 5/15/2027 3,119
7,665 Finance Auth. 5.38 8/15/2026 8,232
8,210 Finance Auth. 4.50 5/15/2025 8,661
8,250 Finance Auth. 5.50 7/01/2028 9,106
1,000 Finance Auth. 5.00 5/15/2030 1,065
1,100 Finance Auth. 5.00 5/15/2035 1,156
3,385 Finance Auth. 5.00 9/01/2034 3,734
3,500 Finance Auth. 5.00 12/01/2034 3,833
================================================================================
12 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 5,000 Finance Auth. 4.00% 12/01/2035 $ 4,902
3,000 Finance Auth. 4.00 12/01/2036 2,932
18,000 Finance Auth. 4.00 2/15/2036 18,372
1,000 Finance Auth. 4.00 10/01/2031 1,033
1,000 Finance Auth. 4.00 10/01/2032 1,029
1,000 Finance Auth. 4.00 10/01/2034 1,021
1,500 Finance Auth. 5.00 8/15/2032 1,626
1,155 Finance Auth. 5.00 8/15/2033 1,248
1,000 Finance Auth. 5.00 2/15/2037 1,080
7,650 Finance Auth. 5.00 2/15/2027 7,812
2,800 Kane Cook & DuPage Counties School District
No. U-46 5.00 1/01/2032 3,081
4,000 Kane Cook & DuPage Counties School District
No. U-46 5.00 1/01/2033 4,392
5,000 Kendall Kane & Will Counties Community
Unit School District No. 308 5.00 2/01/2035 5,488
6,000 Kendall Kane & Will Counties Community
Unit School District No. 308 5.00 2/01/2036 6,565
1,210 Madison County Community Unit School District
No. 7 (INS - Build America Mutual Assurance Co.) 5.00 12/01/2028 1,323
1,250 Madison County Community Unit School District
No. 7 (INS - Build America Mutual Assurance Co.) 5.00 12/01/2029 1,363
1,000 Madison-Macoupin Etc Counties CCD No. 536
(INS - Assured Guaranty Municipal Corp.) 5.00 11/01/2031 1,107
2,000 Madison-Macoupin Etc Counties CCD No. 536
(INS - Assured Guaranty Municipal Corp.) 5.00 11/01/2032 2,205
750 Madison-Macoupin Etc Counties CCD No. 536
(INS - Assured Guaranty Municipal Corp.) 5.00 11/01/2033 824
5,000 Metropolitan Pier & Exposition Auth. (INS - Assured
Guaranty Municipal Corp.) (Zero Coupon) 0.00 6/15/2026 3,699
14,650 Municipal Electric Agency 4.00 2/01/2033 15,127
1,800 Northern Illinois Municipal Power Agency 4.00 12/01/2031 1,842
2,100 Northern Illinois Municipal Power Agency 4.00 12/01/2032 2,144
4,000 Northern Illinois Municipal Power Agency 4.00 12/01/2033 4,070
5,000 Northern Illinois Municipal Power Agency 4.00 12/01/2035 5,052
10,000 Railsplitter Tobacco Settlement Auth. (PRE) 5.50 6/01/2023 10,860
23,160 Regional Transportation Auth. 4.00 7/01/2034 23,796
11,650 Regional Transportation Auth. 4.00 7/01/2035 11,882
3,700 Sangamon County School District No. 186
(INS - Build America Mutual Assurance Co.) 5.00 2/01/2024 4,118
7,200 Sangamon County School District No. 186
(INS - Build America Mutual Assurance Co.) 5.00 2/01/2025 7,882
4,215 Sangamon County School District No. 186
(INS - Build America Mutual Assurance Co.) 5.00 2/01/2026 4,720
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 5,000 Sports Facilities Auth. (INS - Assured Guaranty
Municipal Corp.) 5.25% 6/15/2031 $ 5,443
3,000 Sports Facilities Auth. (INS - Assured Guaranty
Municipal Corp.) 5.25 6/15/2030 3,274
5,000 Sports Facilities Auth. (INS - Assured Guaranty
Municipal Corp.) 5.25 6/15/2032 5,430
5,000 State (INS - Assured Guaranty Municipal Corp.) 5.00 1/01/2021 5,151
7,000 State (INS - Assured Guaranty Municipal Corp.) 4.00 2/01/2030 7,179
10,000 State 5.00 11/01/2032 10,390
10,000 State (INS - Assured Guaranty Municipal Corp.) 5.00 4/01/2029 10,666
9,000 State 5.25 2/01/2031 9,495
2,990 State (LIQ - Deutsche Bank A.G.) (LOC - Deutsche
Bank A.G.) (Put Date 10/05/2018)(a),(f) 1.81 4/01/2037 2,990
25,995 State (LIQ - Deutsche Bank A.G.) (LOC - Deutsche
Bank A.G.) (Put Date 10/05/2018)(a),(f) 1.81 2/01/2039 25,995
10,000 State (INS - Build America Mutual Assurance Co.) 5.00 11/01/2025 11,039
5,870 State Toll Highway Auth. 5.00 1/01/2034 6,525
5,600 State Toll Highway Auth. 5.00 1/01/2035 6,196
7,000 State Toll Highway Auth. 5.00 1/01/2036 7,710
5,000 State Toll Highway Auth. 5.00 12/01/2032 5,595
6,000 State Toll Highway Auth. 5.00 1/01/2033 6,766
2,500 State Toll Highway Auth. 5.00 1/01/2034 2,797
2,000 State Toll Highway Auth. 5.00 1/01/2035 2,234
12,475 University of Illinois 4.00 4/01/2033 12,572
1,750 Village of Bolingbrook (INS - Assured Guaranty
Municipal Corp.) 5.00 1/01/2029 1,979
1,500 Village of Bolingbrook (INS - Assured Guaranty
Municipal Corp.) 5.00 1/01/2030 1,690
2,400 Village of Bolingbrook (INS - Assured Guaranty
Municipal Corp.) 5.00 1/01/2031 2,692
2,350 Village of Bolingbrook (INS - Assured Guaranty
Municipal Corp.) 5.00 1/01/2032 2,624
1,450 Village of Bolingbrook (INS - Assured Guaranty
Municipal Corp.) 5.00 1/01/2033 1,613
1,500 Village of Bolingbrook (INS - Assured Guaranty
Municipal Corp.) 5.00 1/01/2038 1,637
5,225 Village of Gilberts (INS - Build America Mutual
Assurance Co.) 5.00 3/01/2030 5,582
2,010 Village of Rosemont (INS - Assured Guaranty
Municipal Corp.) 5.00 12/01/2025 2,244
2,110 Village of Rosemont (INS - Assured Guaranty
Municipal Corp.) 5.00 12/01/2026 2,376
1,250 Volo Village Special Service Area No. 3 & 6
(INS - Assured Guaranty Municipal Corp.) 4.00 3/01/2036 1,221
================================================================================
14 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 2,997 Volo Village Special Service Area No. 3 & 6
(INS - Assured Guaranty Municipal Corp.) 5.00% 3/01/2034 $ 3,268
1,835 Williamson, Jackson, Etc Counties Community
Unit School District No. 4 (INS - Assured
Guaranty Municipal Corp.) 5.00 12/01/2028 1,972
1,925 Williamson, Jackson, Etc Counties
Community Unit School District No. 4
(INS - Assured Guaranty Municipal Corp.) 5.00 12/01/2029 2,061
2,025 Williamson, Jackson, Etc Counties Community
Unit School District No. 4 (INS - Assured
Guaranty Municipal Corp.) 5.00 12/01/2030 2,159
6,000 Williamson, Jackson, Etc Counties Community
Unit School District No. 4 (INS - Assured
Guaranty Municipal Corp.) 5.00 12/01/2034 6,328
----------
692,300
----------
INDIANA (1.1%)
5,750 City of Rockport 3.05 6/01/2025 5,736
10,500 Finance Auth. 5.00 6/01/2032 10,479
1,470 Finance Auth. 5.00 5/01/2024 1,629
1,200 Finance Auth. 5.00 5/01/2027 1,315
6,000 Finance Auth. 3.13 12/01/2024 6,069
1,250 Finance Auth. 5.00 9/01/2030 1,410
1,500 Finance Auth. 5.00 9/01/2031 1,685
8,000 Finance Auth. (Put Date 12/03/2018)(f) 1.85 5/01/2028 7,997
1,165 Hammond Multi-School Building Corp. 5.00 7/15/2033 1,314
1,000 Hammond Multi-School Building Corp. 5.00 7/15/2034 1,124
1,250 Hammond Multi-School Building Corp. 5.00 7/15/2035 1,403
3,000 Hammond Multi-School Building Corp. 5.00 7/15/2038 3,344
3,000 Jasper County (INS - National Public Finance
Guarantee Corp.) 5.85 4/01/2019 3,055
6,500 Richmond Hospital Auth. 5.00 1/01/2035 7,031
----------
53,591
----------
IOWA (0.7%)
5,425 Finance Auth. 4.00 8/15/2035 5,477
16,305 Finance Auth. 4.00 8/15/2036 16,408
2,475 Waterloo Community School District (PRE) 5.00 7/01/2024 2,532
2,775 Waterloo Community School District (PRE) 5.00 7/01/2025 2,839
4,510 Waterloo Community School District (PRE) 5.00 7/01/2027 4,614
----------
31,870
----------
KANSAS (0.3%)
10,000 City of Wichita 4.63 9/01/2033 9,769
3,000 City of Wichita 4.20 9/01/2027 2,978
----------
12,747
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 15
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
KENTUCKY (2.1%)
$ 2,410 City of Ashland 4.00% 2/01/2036 $ 2,380
3,725 City of Pikeville 5.75 3/01/2026 3,947
5,025 Economic Dev. Finance Auth. (Put Date 12/03/2018)(f) 1.85 4/01/2031 5,023
6,750 Economic Dev. Finance Auth. 5.00 5/15/2026 7,328
7,205 Economic Dev. Finance Auth. 5.00 5/15/2031 7,620
2,500 Economic Dev. Finance Auth. 5.00 5/15/2036 2,614
6,130 Economic Dev. Finance Auth. (Zero Coupon) 0.00 10/01/2024 5,043
15,720 Economic Dev. Finance Auth. (LIQ - Deutsche
Bank A.G.) (LOC - Deutsche Bank A.G.)
(Put Date 10/05/2018)(a),(f) 1.73 1/01/2045 15,720
2,760 Louisville/Jefferson County Metropolitan Gov't 5.00 12/01/2023 2,971
7,160 Louisville/Jefferson County Metropolitan Gov't 5.00 12/01/2024 7,687
3,830 Louisville/Jefferson County Metropolitan Gov't 5.00 12/01/2022 4,138
7,000 Municipal Power Agency (Put Date 3/01/2026)(b) 3.45 9/01/2042 6,923
2,000 State Property & Building Commission 5.00 2/01/2032 2,198
2,250 State Property & Building Commission 5.00 2/01/2033 2,463
1,000 State Property & Building Commission 5.00 5/01/2035 1,108
1,000 State Property & Building Commission 5.00 5/01/2036 1,104
3,000 State Property & Building Commission 5.00 5/01/2037 3,297
15,000 Trimble County 3.75 6/01/2033 14,916
----------
96,480
----------
LOUISIANA (5.2%)
2,000 City of New Orleans Aviation Board (INS - Assured
Guaranty Municipal Corp.)(d) 5.00 10/01/2037 2,224
700 City of New Orleans Sewerage Service 5.00 6/01/2031 779
1,150 City of New Orleans Sewerage Service 5.00 6/01/2032 1,278
1,500 City of New Orleans Sewerage Service 5.00 6/01/2034 1,658
1,500 City of New Orleans Water System 5.00 12/01/2033 1,664
1,500 City of New Orleans Water System 5.00 12/01/2035 1,653
5,330 City of Shreveport Water & Sewer (INS - Build
America Mutual Assurance Co.) 5.00 12/01/2031 5,897
5,125 City of Shreveport Water & Sewer (INS - Build
America Mutual Assurance Co.) 5.00 12/01/2032 5,661
1,515 City of Shreveport Water & Sewer (INS - Assured
Guaranty Municipal Corp.) 5.00 12/01/2033 1,691
1,500 City of Shreveport Water & Sewer (INS - Assured
Guaranty Municipal Corp.) 5.00 12/01/2034 1,672
1,510 City of Shreveport Water & Sewer (INS - Assured
Guaranty Municipal Corp.) 5.00 12/01/2035 1,680
1,000 City of Shreveport Water & Sewer (INS - Build
America Mutual Assurance Co.) 5.00 12/01/2030 1,156
================================================================================
16 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 2,000 City of Shreveport Water & Sewer (INS - Build
America Mutual Assurance Co.) 5.00% 12/01/2031 $ 2,301
2,750 Jefferson Parish Hospital Service District No. 1
(PRE) (INS - Assured Guaranty Municipal Corp.) 5.50 1/01/2026 2,952
3,000 Jefferson Parish Hospital Service District No. 1
(PRE) (INS - Assured Guaranty Municipal Corp.) 5.38 1/01/2031 3,212
3,750 Local Government Environmental Facilities &
Community Dev. Auth. 6.50 8/01/2029 4,038
18,750 Local Government Environmental Facilities &
Community Dev. Auth. 3.50 11/01/2032 18,180
2,000 Public Facilities Auth. (INS - Assured Guaranty
Municipal Corp.) 5.00 6/01/2036 2,198
14,000 Public Facilities Auth. 3.50 6/01/2030 14,045
2,735 Public Facilities Auth. 4.00 12/15/2032 2,873
3,095 Public Facilities Auth. 4.00 12/15/2033 3,238
1,745 Public Facilities Auth. 5.00 7/01/2028 1,999
1,695 Public Facilities Auth. 5.00 7/01/2030 1,914
750 Public Facilities Auth. 5.00 7/01/2033 832
2,975 Public Facilities Auth. 5.00 5/15/2034 3,288
2,000 Public Facilities Auth. 5.00 5/15/2035 2,203
1,560 Public Facilities Auth. 5.00 5/15/2036 1,712
25 Public Facilities Auth. (PRE) 5.00 5/15/2034 29
35 Public Facilities Auth. (PRE) 4.00 5/15/2035 38
2,225 Public Facilities Auth. 5.00 5/15/2034 2,448
3,465 Public Facilities Auth. 4.00 5/15/2035 3,488
15 Public Facilities Auth. (PRE) 4.00 5/15/2036 16
1,485 Public Facilities Auth. 4.00 5/15/2036 1,488
55 Public Facilities Auth. (PRE) 5.00 7/01/2033 64
85 Public Facilities Auth. (PRE) 5.00 7/01/2034 98
8,940 Public Facilities Auth. 5.00 7/01/2033 9,824
13,465 Public Facilities Auth. 5.00 7/01/2034 14,762
16,750 St. Charles Parish (Put Date 6/01/2022)(b) 4.00 12/01/2040 17,564
35,100 St. James Parish (Put Date 10/05/2018)(f) 1.70 11/01/2040 35,100
34,000 St. James Parish (Put Date 10/05/2018)(f) 1.70 11/01/2040 34,000
1,000 State University & Agricultural & Mechanical College 4.00 7/01/2031 1,036
1,000 State University & Agricultural & Mechanical College 4.00 7/01/2032 1,034
1,000 State University & Agricultural & Mechanical College 4.00 7/01/2033 1,030
875 Terrebonne Parish Hospital Service District No. 1 (PRE) 5.00 4/01/2022 913
925 Terrebonne Parish Hospital Service District No. 1 (PRE) 5.00 4/01/2023 965
720 Terrebonne Parish Hospital Service District No. 1 (PRE) 4.65 4/01/2024 748
1,535 Terrebonne Parish Hospital Service District No. 1 (PRE) 5.00 4/01/2028 1,602
1,565 Terrebonne Parish Hospital Service District No. 1 5.00 4/01/2022 1,627
1,645 Terrebonne Parish Hospital Service District No. 1 5.00 4/01/2023 1,709
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 1,280 Terrebonne Parish Hospital Service District No. 1 4.65% 4/01/2024 $ 1,317
2,715 Terrebonne Parish Hospital Service District No. 1 5.00 4/01/2028 2,796
5,000 Tobacco Settlement Financing Corp. 5.00 5/15/2023 5,514
10,000 Tobacco Settlement Financing Corp. 5.25 5/15/2031 10,612
----------
241,820
----------
MAINE (0.3%)
11,500 Health & Higher Educational Facilities Auth. 6.00 7/01/2026 12,049
1,635 Health & Higher Educational Facilities Auth. 5.00 7/01/2024 1,756
1,000 Health & Higher Educational Facilities Auth. 5.00 7/01/2026 1,066
1,000 Health & Higher Educational Facilities Auth. 5.00 7/01/2027 1,063
----------
15,934
----------
MARYLAND (1.1%)
3,000 City of Gaithersburg(d) 5.00 1/01/2033 3,294
1,000 City of Gaithersburg(d) 5.00 1/01/2036 1,090
2,500 EDC 6.20 9/01/2022 2,542
1,250 EDC 5.00 6/01/2030 1,410
1,000 EDC 5.00 6/01/2031 1,123
1,000 EDC 5.00 6/01/2032 1,116
2,000 EDC 5.00 6/01/2035 2,210
1,000 Health & Higher Educational Facilities Auth. 5.00 7/01/2033 1,094
1,000 Health & Higher Educational Facilities Auth. 5.00 7/01/2034 1,089
1,310 Health & Higher Educational Facilities Auth. 5.00 7/01/2035 1,420
1,000 Health & Higher Educational Facilities Auth. 5.00 7/01/2036 1,079
1,415 Health & Higher Educational Facilities Auth. 5.50 1/01/2029 1,635
1,750 Health & Higher Educational Facilities Auth. 5.50 1/01/2030 2,014
1,585 Health & Higher Educational Facilities Auth. 5.50 1/01/2031 1,813
5,000 Health & Higher Educational Facilities Auth. 5.50 1/01/2036 5,623
1,000 Health & Higher Educational Facilities Auth. 5.00 7/01/2033 1,087
2,200 Health & Higher Educational Facilities Auth. 5.00 7/01/2034 2,386
2,500 Health & Higher Educational Facilities Auth. 5.00 7/01/2034 2,710
3,190 Health & Higher Educational Facilities Auth. 5.00 7/01/2031 3,492
6,505 Health & Higher Educational Facilities Auth. 5.00 7/01/2032 7,101
3,600 Health & Higher Educational Facilities Auth. 5.00 7/01/2033 3,916
----------
49,244
----------
MASSACHUSETTS (1.7%)
110 Clean Water Trust 4.75 8/01/2025 110
6,000 Dev. Finance Agency (PRE) 5.75 12/01/2042 6,134
2,000 Dev. Finance Agency 5.00 7/01/2030 2,082
640 Dev. Finance Agency 5.00 7/01/2020 669
1,480 Dev. Finance Agency 5.00 7/01/2022 1,605
1,720 Dev. Finance Agency 5.00 7/01/2027 1,832
================================================================================
18 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 450 Dev. Finance Agency 5.00% 1/01/2031 $ 496
645 Dev. Finance Agency 5.00 1/01/2032 708
535 Dev. Finance Agency 5.00 1/01/2033 586
2,155 Dev. Finance Agency 5.00 4/15/2033 2,292
700 Dev. Finance Agency 5.00 1/01/2034 764
735 Dev. Finance Agency 5.00 1/01/2035 799
1,000 Dev. Finance Agency 5.00 1/01/2036 1,083
2,000 Dev. Finance Agency 5.00 7/01/2030 2,223
1,675 Dev. Finance Agency 5.00 7/01/2031 1,853
2,000 Dev. Finance Agency 5.00 7/01/2036 2,176
1,250 Dev. Finance Agency 5.00 7/01/2032 1,386
1,250 Dev. Finance Agency 5.00 7/01/2033 1,381
1,000 Dev. Finance Agency 5.00 7/01/2034 1,101
5,780 Dev. Finance Agency (PRE) 6.00 7/01/2024 5,956
3,220 Dev. Finance Agency 6.00 7/01/2024 3,304
1,500 Dev. Finance Agency 5.00 7/01/2035 1,627
1,000 Dev. Finance Agency 5.00 7/01/2036 1,080
3,600 Dev. Finance Agency(a) 4.00 10/01/2032 3,570
1,000 Dev. Finance Agency(a) 5.00 10/01/2037 1,066
2,700 Dev. Finance Agency (PRE) 6.25 1/01/2027 2,948
1,800 Dev. Finance Agency 6.25 1/01/2027 1,951
5,375 Dev. Finance Agency 5.00 7/01/2035 5,919
4,415 Dev. Finance Agency 5.00 7/01/2036 4,843
5,285 Dev. Finance Agency 5.00 7/01/2037 5,770
5,000 Dev. Finance Agency 5.00 7/01/2038 5,446
4,000 Health & Educational Facilities Auth. 5.00 7/15/2027 4,034
3,110 Health & Educational Facilities Auth. 5.00 7/01/2019 3,173
----------
79,967
----------
MICHIGAN (2.0%)
2,000 Finance Auth. (NBGA - Michigan School
Bond Qualification & Loan Program) 5.00 5/01/2024 2,248
1,700 Finance Auth. (NBGA - Michigan School
Bond Qualification & Loan Program) 5.00 5/01/2025 1,936
8,200 Finance Auth. 5.00 12/01/2034 9,196
4,600 Finance Auth. 5.00 12/01/2035 5,129
6,000 Finance Auth. 4.00 11/15/2035 6,016
1,000 Finance Auth. 4.00 11/15/2036 999
1,000 Finance Auth. 5.00 11/01/2034 1,145
1,000 Finance Auth. 5.00 11/01/2035 1,140
1,000 Finance Auth. 5.00 11/01/2036 1,136
1,250 Finance Auth. 5.00 11/01/2037 1,410
10,000 Grand Traverse County Hospital Finance Auth. 5.00 7/01/2029 10,764
13,560 Great Lakes Water Auth. Water Supply System 4.00 7/01/2032 13,776
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$12,000 Kent Hospital Finance Auth. 5.00% 11/15/2029 $ 12,872
2,775 Livonia Public Schools School District
(INS - Assured Guaranty Municipal Corp.) 5.00 5/01/2032 3,109
2,875 Livonia Public Schools School District
(INS - Assured Guaranty Municipal Corp.) 5.00 5/01/2033 3,204
2,965 Livonia Public Schools School District
(INS - Assured Guaranty Municipal Corp.) 5.00 5/01/2034 3,288
3,065 Livonia Public Schools School District
(INS - Assured Guaranty Municipal Corp.) 5.00 5/01/2035 3,382
2,770 Livonia Public Schools School District
(INS - Assured Guaranty Municipal Corp.) 5.00 5/01/2036 3,046
3,000 State Building Auth. 5.00 10/15/2029 3,342
3,000 State Trunk Line Revenue 5.00 11/01/2019 3,099
2,000 State Trunk Line Revenue 5.00 11/01/2020 2,066
----------
92,303
----------
MINNESOTA (0.2%)
5,000 City of Minneapolis(d) 5.00 11/15/2036 5,584
1,750 City of St. Paul Housing & Redev. Auth. (PRE) 5.00 11/15/2029 2,032
1,275 City of St. Paul Housing & Redev. Auth. (PRE) 5.00 11/15/2030 1,481
----------
9,097
----------
MISSISSIPPI (0.2%)
7,000 Dev. Bank (INS - Assured Guaranty Municipal Corp.) 5.00 9/01/2030 7,524
2,000 Dev. Bank 5.00 4/01/2028 2,176
1,800 Jackson County (Put Date 10/01/2018)(f) 1.75 6/01/2023 1,800
----------
11,500
----------
MISSOURI (0.6%)
2,570 Cape Girardeau County IDA 6.00 3/01/2033 2,890
1,780 Cape Girardeau County IDA 5.00 6/01/2025 1,925
2,555 Cape Girardeau County IDA 5.00 6/01/2027 2,748
500 Cape Girardeau County IDA 5.00 3/01/2032 541
750 Cape Girardeau County IDA 5.00 3/01/2036 800
1,000 Dev. Finance Board 5.00 6/01/2030 1,092
4,215 Dev. Finance Board 5.00 6/01/2031 4,596
2,350 Health & Educational Facilities Auth. 5.25 5/01/2033 2,536
2,310 Health & Educational Facilities Auth. 5.00 5/01/2030 2,526
1,380 St. Louis County IDA 5.00 9/01/2023 1,462
2,750 St. Louis County IDA 5.50 9/01/2033 3,037
2,075 Stoddard County IDA 6.00 3/01/2037 2,315
----------
26,468
----------
MONTANA (0.2%)
8,500 City of Forsyth 3.90 3/01/2031 8,645
----------
================================================================================
20 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
NEBRASKA (0.2%)
$ 3,550 Central Plains Energy Project 5.00% 9/01/2036 $ 4,095
1,250 Douglas County Hospital Auth. No. 3 5.00 11/01/2028 1,407
1,600 Douglas County Hospital Auth. No. 3 5.00 11/01/2030 1,783
2,400 Public Power Generation Agency 5.00 1/01/2037 2,644
----------
9,929
----------
NEVADA (2.0%)
620 City of Carson 5.00 9/01/2029 697
1,000 City of Carson 5.00 9/01/2031 1,117
1,000 City of Carson 5.00 9/01/2033 1,109
1,950 City of Carson 5.00 9/01/2037 2,130
1,870 City of North Las Vegas (INS - Assured
Guaranty Municipal Corp.)(d) 4.00 6/01/2035 1,897
7,345 City of North Las Vegas (INS - Assured
Guaranty Municipal Corp.)(d) 4.00 6/01/2037 7,380
6,135 City of North Las Vegas (INS - Assured
Guaranty Municipal Corp.)(d) 4.00 6/01/2038 6,149
20,470 Clark County Department of Aviation 5.00 7/01/2032 22,570
10,845 Clark County Department of Aviation 5.00 7/01/2033 11,922
3,660 Clark County Department of Aviation 5.00 7/01/2026 4,264
2,220 Clark County Department of Aviation 5.00 7/01/2027 2,614
18,000 Humboldt County 5.15 12/01/2024 18,463
2,000 Las Vegas Convention & Visitors Auth. 4.00 7/01/2033 2,063
4,560 Las Vegas Convention & Visitors Auth. 4.00 7/01/2034 4,688
5,075 Las Vegas Convention & Visitors Auth. 4.00 7/01/2035 5,201
----------
92,264
----------
NEW HAMPSHIRE (0.2%)
2,880 Health & Education Facilities Auth. 5.00 8/01/2034 3,219
2,700 Health & Education Facilities Auth. 5.00 8/01/2035 3,001
2,000 Health & Education Facilities Auth. 5.00 8/01/2036 2,212
1,500 Health & Education Facilities Auth. 5.00 8/01/2037 1,649
----------
10,081
----------
NEW JERSEY (6.3%)
400 Building Auth. (PRE) 4.00 6/15/2030 440
600 Building Auth. 4.00 6/15/2030 607
1,000 Casino Reinvestment Dev. Auth. (INS - Assured
Guaranty Municipal Corp.) 5.00 11/01/2029 1,075
1,000 Casino Reinvestment Dev. Auth. (INS - Assured
Guaranty Municipal Corp.) 5.00 11/01/2030 1,072
630 City of Atlantic City (INS - Build America Mutual
Assurance Co.) 5.00 3/01/2032 700
================================================================================
PORTFOLIO OF INVESTMENTS | 21
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 750 City of Atlantic City (INS - Build America
Mutual Assurance Co.) 5.00% 3/01/2037 $ 816
1,660 City of Atlantic City (INS - Assured Guaranty
Municipal Corp.) 5.00 3/01/2032 1,849
1,250 City of Atlantic City (INS - Assured Guaranty
Municipal Corp.) 5.00 3/01/2037 1,367
1,135 City of Bayonne (INS - Build America Mutual
Assurance Co.) 5.00 7/01/2034 1,247
1,000 City of Bayonne (INS - Build America Mutual
Assurance Co.) 5.00 7/01/2035 1,097
4,750 City of Newark(e) 2.50 11/30/2018 4,752
8,000 City of Union(e) 2.50 3/21/2019 8,015
10,000 EDA (MUNIPSA + 1.60%) 3.16(c) 3/01/2028 9,901
10,000 EDA (INS - Assured Guaranty Municipal Corp.) 5.00 6/15/2025 11,041
9,000 EDA 5.25 6/15/2033 9,832
7,300 EDA (PRE) 5.25 9/01/2022 7,831
7,300 EDA (ETM) 5.25 9/01/2019 7,510
2,700 EDA 5.25 9/01/2022 2,855
2,700 EDA 5.25 9/01/2019 2,771
3,500 EDA 4.45 6/01/2023 3,617
5,125 EDA 5.00 6/15/2025 5,655
2,500 EDA 5.00 6/15/2026 2,659
18,410 EDA 5.00 3/01/2025 19,795
10,000 EDA (MUNIPSA + 1.55%) 3.11(c) 9/01/2027 9,930
1,500 EDA 3.13 7/01/2029 1,453
1,000 EDA 3.38 7/01/2030 978
5,740 Educational Facilities Auth. 5.50 9/01/2028 6,540
4,000 Educational Facilities Auth. 5.50 9/01/2029 4,537
3,000 Educational Facilities Auth. 5.50 9/01/2030 3,403
4,590 Educational Facilities Auth. 5.50 9/01/2031 5,189
8,075 Educational Facilities Auth. 5.50 9/01/2032 9,105
3,000 Educational Facilities Auth. (INS - Assured
Guaranty Municipal Corp.) 5.00 7/01/2034 3,385
3,350 Educational Facilities Auth. (INS - Assured
Guaranty Municipal Corp.) 5.00 7/01/2035 3,763
1,800 Educational Facilities Auth. (INS - Assured
Guaranty Municipal Corp.) 4.00 7/01/2036 1,824
500 Educational Facilities Auth. 4.00 7/01/2033 519
750 Educational Facilities Auth. 4.00 7/01/2034 776
1,250 Educational Facilities Auth. 4.00 7/01/2035 1,289
4,535 Essex County Improvement Auth. (INS - Assured
Guaranty Municipal Corp.) 6.00 11/01/2025 4,848
1,500 Health Care Facilities Financing Auth.
(INS - Assured Guaranty Municipal Corp.) 5.00 7/01/2030 1,671
================================================================================
22 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 2,000 Health Care Facilities Financing Auth.
(INS - Assured Guaranty Municipal Corp.) 5.00% 7/01/2027 $ 2,254
2,000 Health Care Facilities Financing Auth. 5.00 10/01/2033 2,193
2,000 Health Care Facilities Financing Auth. 5.00 10/01/2034 2,183
2,620 Health Care Facilities Financing Auth. 5.00 10/01/2035 2,849
16,840 Morris County Improvement Auth. (LIQ - Deutsche
Bank A.G.) (LOC - Deutsche
Bank A.G.) (Put Date 10/05/2018)(a),(f) 1.96 10/01/2047 16,840
1,455 New Brunswick Parking Auth. (INS - Build America
Mutual Assurance Co.) 5.00 9/01/2035 1,625
2,000 New Brunswick Parking Auth. (INS - Build America
Mutual Assurance Co.) 5.00 9/01/2036 2,226
500 Newark Housing Auth. (INS - Assured Guaranty
Municipal Corp.) 4.00 12/01/2029 515
750 Newark Housing Auth. (INS - Assured Guaranty
Municipal Corp.) 4.00 12/01/2030 769
500 Newark Housing Auth. (INS - Assured Guaranty
Municipal Corp.) 4.00 12/01/2031 511
500 South Jersey Transportation Auth. LLC 5.00 11/01/2030 546
750 South Jersey Transportation Auth. LLC 5.00 11/01/2031 818
1,085 South Jersey Transportation Auth. LLC 5.00 11/01/2034 1,174
5,000 Tobacco Settlement Financing Corp. 5.00 6/01/2036 5,524
5,000 Transportation Trust Fund Auth. (INS - AMBAC
Assurance Corp.) 5.25 12/15/2022 5,495
3,000 Transportation Trust Fund Auth. 5.00 6/15/2030 3,308
10,000 Transportation Trust Fund Auth.
(MUNIPSA + 1.20%) (Put Date 12/15/2021)(b) 2.76(c) 6/15/2034 10,079
2,000 Transportation Trust Fund Auth. 5.25 6/15/2033 2,185
3,000 Transportation Trust Fund Auth. 5.25 6/15/2034 3,268
20,000 Transportation Trust Fund Auth. (Zero Coupon) 0.00 12/15/2025 15,132
3,000 Transportation Trust Fund Auth. 5.00 6/15/2031 3,293
10,000 Turnpike Auth. 5.00 1/01/2034 11,059
7,675 Turnpike Auth. 5.00 1/01/2034 8,599
4,725 Turnpike Auth. 5.00 1/01/2035 5,277
3,500 Turnpike Auth. 4.00 1/01/2035 3,629
7,000 Turnpike Auth. (PRE) 5.00 1/01/2021 7,055
13,000 Turnpike Auth. (PRE) 5.00 1/01/2021 13,103
----------
297,223
----------
NEW MEXICO (1.1%)
20,000 City of Farmington (Put Date 6/01/2020)(b) 5.20 6/01/2040 20,887
20,000 City of Farmington 4.70 5/01/2024 21,010
12,000 City of Farmington (Put Date 10/01/2021)(b) 1.88 4/01/2033 11,730
----------
53,627
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 23
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
NEW YORK (4.7%)
$ 3,700 Chautauqua Tobacco Asset Securitization Corp. 5.00% 6/01/2034 $ 3,872
5,000 City of New York 5.13 11/15/2022 5,020
5,000 City of New York 5.25 11/15/2024 5,021
3,500 City of New York Transitional Finance Auth.
Building Aid 5.00 1/15/2022 3,531
15,350 City of New York Transitional Finance Auth.
Building Aid 5.00 7/15/2034 17,059
4,000 City of New York Transitional Finance Auth.
Building Aid 5.00 7/15/2035 4,534
25,000 City of New York Transitional Finance Auth.
Future Tax Secured (PRE) 5.00 5/01/2026 25,452
575 City of Newburgh 5.00 6/15/2023 626
5,415 City of Oyster Bay 4.00 2/15/2024 5,690
9,750 City of Oyster Bay 4.00 2/15/2025 10,277
3,000 City of Oyster Bay 4.00 2/15/2026 3,169
2,600 City of Yonkers (INS - Assured Guaranty
Municipal Corp.) 5.00 10/01/2023 2,829
4,405 Dormitory Auth. (ETM) 5.30 2/15/2019 4,462
1,000 Dormitory Auth. (INS - Assured Guaranty
Municipal Corp.) 5.00 10/01/2027 1,126
1,000 Dormitory Auth. (INS - Assured Guaranty
Municipal Corp.) 5.00 10/01/2028 1,122
1,300 Dormitory Auth. (INS - Assured Guaranty
Municipal Corp.) 5.00 10/01/2029 1,455
15 Dormitory Auth. (ETM) 5.00 5/01/2023 17
15 Dormitory Auth. (PRE) 5.00 5/01/2024 17
25 Dormitory Auth. (PRE) 5.00 5/01/2025 28
20 Dormitory Auth. (PRE) 5.00 5/01/2026 22
735 Dormitory Auth. 5.00 5/01/2023 808
735 Dormitory Auth. 5.00 5/01/2024 804
1,175 Dormitory Auth. 5.00 5/01/2025 1,281
980 Dormitory Auth. 5.00 5/01/2026 1,064
600 Dormitory Auth.(a) 5.00 12/01/2035 654
20,000 Dormitory Auth. 5.00 2/15/2032 22,475
2,000 Erie County IDA 5.00 5/01/2028 2,222
3,150 Hempstead Union Free School District 2.75 6/27/2019 3,159
2,500 Hudson Yards Infrastructure Corp. 5.00 2/15/2037 2,812
17,075 Long Island Power Auth. (PRE) 5.00 4/01/2023 17,341
5,000 Monroe County IDC (NBGA - Federal Housing
Administration) 5.75 8/15/2030 5,434
10,000 MTA 5.00 11/15/2034 11,104
2,000 MTA 5.00 11/15/2035 2,214
2,000 MTA 5.00 11/15/2034 2,221
================================================================================
24 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 3,000 MTA 5.00% 11/15/2035 $ 3,321
8,000 MTA (PRE) 6.25 11/15/2023 8,043
80 MTA (PRE) 6.25 11/15/2023 80
1,920 MTA 6.25 11/15/2023 1,930
18,340 MTA 4.00 11/15/2035 18,871
1,100 Nassau County 5.00 1/01/2035 1,217
1,150 Nassau County 5.00 1/01/2036 1,269
1,670 Niagara Falls City School District (INS - Assured
Guaranty Municipal Corp.) 5.00 6/15/2023 1,850
1,450 Niagara Falls City School District (INS - Assured
Guaranty Municipal Corp.) 5.00 6/15/2024 1,628
1,670 Niagara Falls City School District (INS - Assured
Guaranty Municipal Corp.) 5.00 6/15/2025 1,862
1,585 Rockland County 3.50 10/01/2021 1,614
1,190 Rockland County 3.63 10/01/2022 1,211
1,560 Rockland County 3.63 10/01/2023 1,584
1,665 Rockland County 3.63 10/01/2024 1,686
790 Saratoga County Capital Resource Corp. 5.00 12/01/2028 869
220 Suffolk County EDC (PRE) 5.00 7/01/2028 237
1,280 Suffolk County EDC 5.00 7/01/2028 1,368
1,350 Westchester County Local Dev. Corp. 5.00 1/01/2028 1,451
----------
219,013
----------
NORTH CAROLINA (0.6%)
5,500 Capital Facilities Finance Agency
(Put Date 12/03/2018)(f) 1.85 7/01/2034 5,498
5,000 Eastern Municipal Power Agency (PRE) 5.00 1/01/2026 5,040
1,500 Medical Care Commission 5.00 10/01/2025 1,636
4,805 Medical Care Commission 6.38 7/01/2026 5,183
1,850 Medical Care Commission 5.00 10/01/2030 1,948
3,600 Turnpike Auth. (PRE) (INS - Assured Guaranty Corp.) 5.00 1/01/2022 3,628
3,330 Turnpike Auth. (PRE) (INS - Assured Guaranty Corp.) 5.13 1/01/2024 3,357
----------
26,290
----------
NORTH DAKOTA (0.3%)
11,085 City of Grand Forks 5.00 12/01/2029 11,684
4,000 Ward County 5.00 6/01/2034 4,368
----------
16,052
----------
OHIO (2.8%)
5,000 Allen County Hospital Facilities 4.00 8/01/2036 5,035
10,800 Allen County Hospital Facilities 4.00 8/01/2037 10,825
3,000 American Municipal Power, Inc. (PRE) 5.00 2/15/2021 3,120
2,760 American Municipal Power, Inc. (PRE) 5.00 2/15/2022 2,870
6,850 Buckeye Tobacco Settlement Financing Auth. 5.13 6/01/2024 6,792
================================================================================
PORTFOLIO OF INVESTMENTS | 25
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 2,250 City of Centerville 5.25% 11/01/2037 $ 2,375
2,000 City of Cleveland Airport System 5.00 1/01/2030 2,132
1,000 City of Cleveland Airport System 5.00 1/01/2031 1,069
280 City of Fairview Park (INS - National Public
Finance Guarantee Corp.) 4.13 12/01/2020 280
7,430 Cuyahoga County 4.00 2/15/2029 7,318
4,000 Cuyahoga County 5.00 2/15/2037 4,227
2,805 Dayton City School District 5.00 11/01/2028 3,282
3,655 Dayton City School District 5.00 11/01/2029 4,294
3,160 Dayton City School District 5.00 11/01/2030 3,726
2,000 Dayton City School District 5.00 11/01/2031 2,370
1,350 Hamilton County 5.00 1/01/2031 1,451
1,400 Hamilton County 5.00 1/01/2036 1,486
4,365 Hamilton County Sales Tax (INS - AMBAC
Assurance Corp.) (Zero Coupon) 0.00 12/01/2025 3,521
9,000 Hancock County (PRE) 6.50 12/01/2030 10,018
1,000 Higher Educational Facility Commission 5.00 5/01/2031 1,095
500 Higher Educational Facility Commission 5.00 5/01/2033 545
750 Southeastern Ohio Port Auth. 5.00 12/01/2035 777
750 Southeastern Ohio Port Auth. 5.50 12/01/2029 814
6,000 State 5.00 1/15/2035 6,534
3,070 State 5.00 1/15/2036 3,333
7,210 State 5.00 1/15/2034 7,876
5,000 State (Put Date 12/03/2018)(f) 1.85 11/01/2035 4,998
2,000 Turnpike & Infrastructure Commission 5.25 2/15/2029 2,219
1,500 Village of Bluffton 5.00 12/01/2031 1,680
1,500 Village of Bluffton 4.00 12/01/2032 1,519
1,600 Village of Bluffton 4.00 12/01/2033 1,616
1,795 Village of Bluffton 4.00 12/01/2034 1,806
30,000 Water Dev. Auth. (Put Date 6/03/2019)
acquired 3/11/2014; cost $30,000(b),(g),(j) 4.00 12/01/2033 20,287
----------
131,290
----------
OKLAHOMA (0.8%)
5,000 Chickasaw Nation(a) 6.00 12/01/2025 5,028
2,020 Comanche County Hospital Auth. 5.00 7/01/2021 2,075
4,100 Dev. Finance Auth. 5.00 8/15/2033 4,559
8,300 Garfield County Industrial Auth. (Put Date
10/05/2018)(f) 1.66 1/01/2025 8,300
15,310 Muskogee Industrial Trust (Put Date 10/05/2018)(f) 1.60 1/01/2025 15,310
940 Tulsa County Industrial Auth. 5.00 11/15/2028 1,033
1,780 Tulsa County Industrial Auth. 5.00 11/15/2030 1,940
----------
38,245
----------
================================================================================
26 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
OREGON (0.0%)
$ 500 Clackamas County Hospital Facility Auth. 5.00% 11/15/2032 $ 546
500 Clackamas County Hospital Facility Auth. 5.00 11/15/2037 537
----------
1,083
----------
PENNSYLVANIA (7.3%)
1,410 Allegheny County Higher Education
Building Auth. (PRE) 5.13 3/01/2025 1,510
7,315 Allegheny County Hospital Dev. Auth. 5.00 4/01/2035 8,040
8,000 Allegheny County Hospital Dev. Auth. 5.00 4/01/2036 8,759
630 Allegheny County IDA 5.00 9/01/2021 631
1,220 Allegheny County IDA 5.10 9/01/2026 1,222
1,500 Allegheny County Sanitary Auth. (INS - Assured
Guaranty Municipal Corp.) 4.00 12/01/2033 1,558
1,475 Allegheny County Sanitary Auth. (INS - Assured
Guaranty Municipal Corp.) 4.00 12/01/2034 1,527
2,890 Beaver County (INS - Build America Mutual
Assurance Co.) 4.00 4/15/2028 3,096
2,500 Beaver County (INS - Build America Mutual
Assurance Co.) 4.00 4/15/2029 2,661
5,000 Beaver County (INS - Build America Mutual
Assurance Co.) 4.00 4/15/2030 5,297
1,300 Berks County IDA 4.00 11/01/2033 1,319
2,000 Berks County IDA 5.00 11/01/2034 2,213
3,000 Berks County IDA 5.00 11/01/2035 3,308
11,000 Berks County Municipal Auth. (MUNIPSA
+ 1.50%) (Put Date 7/01/2022)(b) 3.06(c) 11/01/2039 11,168
3,000 Bethlehem Auth. (INS - Build America
Mutual Assurance Co.) 5.00 11/15/2030 3,261
1,250 Bucks County IDA 5.00 10/01/2037 1,364
325 Bucks County IDA 5.00 10/01/2030 359
450 Bucks County IDA 5.00 10/01/2031 496
790 Bucks County IDA 5.00 10/01/2032 869
1,885 Butler County Hospital Auth. 5.00 7/01/2035 2,043
1,000 Chester County IDA 5.00 10/01/2034 1,062
2,750 Chester County IDA 5.13 10/15/2037 2,814
5,000 Commonwealth Financing Auth. 5.00 6/01/2034 5,527
1,250 Commonwealth Financing Auth. 5.00 6/01/2033 1,403
2,000 Commonwealth Financing Auth. 5.00 6/01/2034 2,234
6,500 Cumberland County Municipal Auth. 4.00 12/01/2026 6,593
2,000 Dauphin County General Auth. 4.00 6/01/2030 2,062
1,000 Dauphin County General Auth. 4.00 6/01/2031 1,027
1,000 Delaware County Auth. 5.00 10/01/2025 1,052
3,000 Delaware River Joint Toll Bridge Commission 5.00 7/01/2034 3,439
================================================================================
PORTFOLIO OF INVESTMENTS | 27
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 2,720 Delaware River Port Authority 5.00% 1/01/2025 $ 2,960
13,000 Economic Dev. Finance Auth. 4.00 10/01/2023 13,457
1,625 Higher Educational Facilities Auth. (PRE) 5.00 7/01/2032 1,788
1,730 Higher Educational Facilities Auth. 5.25 7/15/2025 1,870
2,020 Higher Educational Facilities Auth. 5.25 7/15/2026 2,164
2,125 Higher Educational Facilities Auth. 5.25 7/15/2027 2,275
2,245 Higher Educational Facilities Auth. 5.25 7/15/2028 2,405
1,965 Higher Educational Facilities Auth. 5.25 7/15/2033 2,099
2,415 Higher Educational Facilities Auth. 5.00 7/15/2030 2,567
5,000 Luzerne County (INS - Assured Guaranty
Municipal Corp.) 5.00 11/15/2029 5,579
1,750 Montgomery County Higher Education & Health Auth. 5.00 9/01/2034 1,965
1,850 Montgomery County Higher Education & Health Auth. 5.00 9/01/2035 2,067
1,750 Montgomery County Higher Education & Health Auth. 5.00 9/01/2037 1,939
1,200 Montgomery County IDA 5.00 11/15/2023 1,298
2,750 Montgomery County IDA 5.00 11/15/2024 2,961
1,000 Montour School District (INS - Assured
Guaranty Municipal Corp.) 5.00 4/01/2033 1,121
1,500 Montour School District (INS - Assured
Guaranty Municipal Corp.) 5.00 4/01/2034 1,677
1,500 Montour School District (INS - Assured
Guaranty Municipal Corp.) 5.00 4/01/2035 1,672
4,645 Northampton County General Purpose Auth.
(70% of 1 mo. LIBOR + 1.04%) (Put Date
8/15/2024)(b) 2.52(c) 8/15/2048 4,656
1,525 Northeastern Pennsylvania Hospital & Education Auth. 5.00 3/01/2037 1,616
9,895 Philadelphia School District 5.00 9/01/2031 10,971
5,000 Philadelphia School District 5.00 9/01/2032 5,525
4,000 Philadelphia School District 5.00 9/01/2033 4,406
5,100 Philadelphia School District 5.00 9/01/2034 5,599
1,000 Philadelphia School District 5.00 9/01/2034 1,111
1,000 Philadelphia School District 5.00 9/01/2035 1,107
1,000 Philadelphia School District 5.00 9/01/2036 1,103
1,000 Philadelphia School District 5.00 9/01/2037 1,097
2,000 Reading School District (INS - Assured Guaranty
Municipal Corp.) 5.00 3/01/2036 2,228
1,500 Reading School District (INS - Assured Guaranty
Municipal Corp.) 5.00 3/01/2037 1,663
1,000 Scranton School District (INS - Build America
Mutual Assurance Co.) 5.00 12/01/2032 1,115
1,600 Scranton School District (INS - Build America
Mutual Assurance Co.) 5.00 12/01/2033 1,779
750 Scranton School District (INS - Build America
Mutual Assurance Co.) 5.00 12/01/2035 828
================================================================================
28 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 1,350 State 5.00% 7/01/2034 $ 1,495
750 State 5.00 7/01/2035 827
800 State 5.00 7/01/2037 875
20,000 State 4.00 3/01/2036 20,393
1,250 State Public School Building Auth. 5.00 4/01/2023 1,341
10,000 State Public School Building Auth. 5.00 6/01/2029 11,170
6,100 State Public School Building Auth. (INS -Assured
Guaranty Municipal Corp.) 5.00 6/01/2031 6,781
15,380 State Public School Building Auth. (INS - Assured
Guaranty Municipal Corp.) 4.00 12/01/2031 15,833
1,500 Turnpike Commission 5.00 12/01/2032 1,645
4,345 Turnpike Commission 5.00 12/01/2033 4,751
7,145 Turnpike Commission 5.00 12/01/2033 7,828
6,250 Turnpike Commission 5.00 12/01/2034 6,823
5,700 Turnpike Commission 5.00 12/01/2035 6,207
3,500 Turnpike Commission 5.00 12/01/2032 3,846
2,000 Turnpike Commission 5.00 12/01/2034 2,229
2,000 Turnpike Commission 5.00 12/01/2035 2,221
10,655 Turnpike Commission 5.00 6/01/2035 11,603
8,255 Turnpike Commission 5.00 6/01/2036 8,962
3,000 Turnpike Commission 5.00 12/01/2034 3,275
3,320 Turnpike Commission 5.00 12/01/2035 3,615
3,690 Turnpike Commission 5.00 12/01/2036 4,006
25,000 Turnpike Commission 4.00 6/01/2034 25,147
5,750 Turnpike Commission 5.00 6/01/2036 6,273
----------
341,728
----------
PUERTO RICO (0.1%)
2,600 Industrial, Tourist, Educational, Medical &
Environmental Control Facilities Financing Auth. 5.00 4/01/2027 2,496
----------
RHODE ISLAND (0.3%)
2,000 Health & Educational Building Corp. (PRE) 6.00 9/01/2033 2,340
2,000 Tobacco Settlement Financing Corp. 5.00 6/01/2028 2,207
2,000 Tobacco Settlement Financing Corp. 5.00 6/01/2029 2,190
2,500 Tobacco Settlement Financing Corp. 5.00 6/01/2030 2,724
1,350 Turnpike & Bridge Auth. 5.00 10/01/2033 1,507
4,345 Turnpike & Bridge Auth. 5.00 10/01/2035 4,820
----------
15,788
----------
SOUTH CAROLINA (1.3%)
1,000 Lexington County Health Services District, Inc. 4.00 11/01/2031 1,025
1,000 Lexington County Health Services District, Inc. 4.00 11/01/2032 1,023
20,000 Patriots Energy Group Financing Agency (67% of
1 mo. LIBOR + 0.86%) (Put Date 2/01/2024)(b) 2.28(c) 10/01/2048 19,990
================================================================================
PORTFOLIO OF INVESTMENTS | 29
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 7,200 Piedmont Municipal Power Agency (INS - Assured
Guaranty Corp.) 5.00% 1/01/2028 $ 7,657
2,700 Piedmont Municipal Power Agency (INS - Assured
Guaranty Corp.) 5.00 1/01/2028 2,871
9,835 Public Service Auth. 5.00 12/01/2034 10,640
8,500 Public Service Auth. 5.00 12/01/2036 9,161
7,000 Public Service Auth. 5.00 12/01/2035 7,559
----------
59,926
----------
SOUTH DAKOTA (0.0%)
1,700 Health & Educational Facilities Auth. 5.00 11/01/2024 1,750
----------
TENNESSEE (0.7%)
14,150 Chattanooga Health Educational & Housing Facility
Board (Put Date 10/05/2018)(f) 1.83 5/01/2039 14,150
1,890 City of Jackson 5.25 4/01/2023 1,895
3,500 Greeneville Health & Educational Facilities Board 5.00 7/01/2037 3,863
2,710 Greeneville Health & Educational Facilities Board 5.00 7/01/2035 3,017
3,000 Greeneville Health & Educational Facilities Board 5.00 7/01/2036 3,327
5,000 Metropolitan Gov't Nashville & Davidson
County Health & Educational Facilities Bd 5.00 7/01/2035 5,530
----------
31,782
----------
TEXAS (10.6%)
1,105 Austin Convention Enterprises, Inc. 5.00 1/01/2034 1,224
550 Austin Convention Enterprises, Inc. 5.00 1/01/2034 595
2,740 Board of Managers Joint Guadalupe
County-City of Seguin Hospital 5.00 12/01/2025 2,892
2,990 Board of Managers Joint Guadalupe
County-City of Seguin Hospital 5.00 12/01/2027 3,153
1,640 Board of Managers Joint Guadalupe
County-City of Seguin Hospital 5.00 12/01/2028 1,723
1,600 Board of Managers Joint Guadalupe
County-City of Seguin Hospital 5.00 12/01/2029 1,671
1,700 Board of Managers Joint Guadalupe
County-City of Seguin Hospital 5.00 12/01/2030 1,772
5,150 Board of Managers Joint Guadalupe
County-City of Seguin Hospital 5.25 12/01/2035 5,426
4,240 Boerne School District (NBGA - Texas
Permanent School Fund) (Zero Coupon) 0.00 2/01/2026 3,294
2,500 Central Texas Regional Mobility Auth. (PRE) 5.75 1/01/2025 2,614
885 Central Texas Regional Mobility Auth. (Zero Coupon) 0.00 1/01/2022 813
7,000 Central Texas Regional Mobility Auth. (Zero Coupon) 0.00 1/01/2024 5,978
2,535 Central Texas Regional Mobility Auth. (Zero Coupon) 0.00 1/01/2026 1,991
500 Central Texas Regional Mobility Auth. 5.00 1/01/2023 548
3,500 Central Texas Regional Mobility Auth. 5.00 1/01/2033 3,748
================================================================================
30 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 700 Central Texas Regional Mobility Auth. 5.00% 1/01/2021 $ 741
500 Central Texas Regional Mobility Auth. 5.00 1/01/2022 539
1,250 Central Texas Regional Mobility Auth. 5.00 1/01/2034 1,378
1,100 Central Texas Regional Mobility Auth. 5.00 1/01/2035 1,210
8,500 Central Texas Turnpike System 5.00 8/15/2034 9,166
10,000 Central Texas Turnpike System 5.00 8/15/2033 10,811
1,500 City of Arlington (INS - Build America Mutual
Assurance Co.) 5.00 2/15/2034 1,696
1,500 City of Arlington (INS - Build America Mutual
Assurance Co.) 5.00 2/15/2035 1,687
3,100 City of Arlington (INS - Build America Mutual
Assurance Co.) 5.00 2/15/2036 3,469
3,305 City of Arlington (INS - Build America Mutual
Assurance Co.) 5.00 2/15/2037 3,676
4,380 City of Arlington (INS - Build America Mutual
Assurance Co.) 5.00 2/15/2038 4,853
1,800 City of Corpus Christi Utility System 4.00 7/15/2032 1,883
1,100 City of Corpus Christi Utility System 4.00 7/15/2033 1,146
1,050 City of Corpus Christi Utility System 4.00 7/15/2034 1,088
1,000 City of Corpus Christi Utility System 4.00 7/15/2035 1,032
2,300 City of Houston 5.00 9/01/2029 2,542
1,000 City of Houston 5.00 9/01/2030 1,103
5,615 City of Houston 5.00 9/01/2032 6,168
5,345 City of Houston 5.00 9/01/2033 5,859
2,150 City of Houston 5.00 9/01/2034 2,353
1,575 City of Houston 5.00 9/01/2035 1,721
740 City of Laredo Waterworks & Sewer System 4.00 3/01/2032 767
1,000 City of Laredo Waterworks & Sewer System 4.00 3/01/2033 1,032
1,000 City of Laredo Waterworks & Sewer System 4.00 3/01/2034 1,028
1,500 City of Laredo Waterworks & Sewer System 4.00 3/01/2036 1,531
1,300 Clifton Higher Education Finance Corp.
(NBGA - Texas Permanent School Fund) 4.00 8/15/2032 1,363
2,000 Dallas/Fort Worth International Airport 5.25 11/01/2028 2,241
7,500 Dallas/Fort Worth International Airport 5.25 11/01/2029 8,379
1,000 Decatur Hospital Auth. 5.25 9/01/2029 1,086
1,000 Decatur Hospital Auth. 5.00 9/01/2034 1,060
1,215 Downtown Redev. Auth. (INS - Build America
Mutual Assurance Co.) 5.00 9/01/2029 1,372
1,380 Downtown Redev. Auth. (INS - Build America
Mutual Assurance Co.) 5.00 9/01/2030 1,553
2,000 Downtown Redev. Auth. (INS - Build America
Mutual Assurance Co.) 5.00 9/01/2031 2,243
1,500 Downtown Redev. Auth. (INS - Build America
Mutual Assurance Co.) 5.00 9/01/2032 1,677
================================================================================
PORTFOLIO OF INVESTMENTS | 31
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 2,680 Downtown Redev. Auth. (INS - Build America
Mutual Assurance Co.) 5.00% 9/01/2033 $ 2,988
7,500 Gulf Coast IDA (Put Date 10/01/2018)(e),(f) 1.60 11/01/2041 7,500
1,400 Harris County Cultural Education Facilities
Finance Corp. 5.00 6/01/2028 1,486
4,710 Harris County Cultural Education Facilities
Finance Corp. 5.00 12/01/2027 5,138
40,000 Harris County IDC (PRE) 5.00 2/01/2023 41,368
750 Harris County Municipal Utility District No. 165
(INS - Build America Mutual Assurance Co.) 5.00 3/01/2030 834
2,030 Harris County Municipal Utility District No. 165
(INS - Build America Mutual Assurance Co.) 5.00 3/01/2031 2,250
2,500 Harris County Municipal Utility District No.
165 (INS - Build America Mutual Assurance Co.) 5.00 3/01/2032 2,764
3,850 Houston Higher Education Finance Corp. 5.25 9/01/2031 4,208
4,075 Houston Higher Education Finance Corp. 5.25 9/01/2032 4,454
4,000 Karnes County Hospital District 5.00 2/01/2029 4,227
4,000 Karnes County Hospital District 5.00 2/01/2034 4,171
3,100 Mesquite Health Facility Dev. Corp. 5.00 2/15/2026 3,298
1,075 Mesquite Health Facility Dev. Corp. 5.00 2/15/2035 1,110
2,155 New Braunfels ISD (NBGA - Texas Permanent
School Fund) (Zero Coupon) 0.00 2/01/2023 1,905
7,500 New Hope Cultural Education Facilities Finance Corp. 5.00 7/01/2030 6,623
9,000 New Hope Cultural Education Facilities Finance Corp. 5.00 7/01/2035 7,932
1,000 New Hope Cultural Education Facilities Finance Corp. 5.00 11/01/2031 1,086
1,475 New Hope Cultural Education Facilities Finance Corp. 4.00 11/01/2036 1,451
1,635 Newark Higher Education Finance Corp. 4.00 4/01/2032 1,669
2,000 Newark Higher Education Finance Corp. 4.00 4/01/2033 2,031
4,470 Newark Higher Education Finance Corp. 4.00 4/01/2034 4,525
1,650 Newark Higher Education Finance Corp. 4.00 4/01/2035 1,662
2,150 Newark Higher Education Finance Corp. 4.00 4/01/2036 2,156
7,000 North East Texas Regional Mobility Auth. 5.00 1/01/2036 7,587
5,485 North East Texas Regional Mobility Auth. 5.00 1/01/2036 5,909
20,000 North Texas Tollway Auth. (INS - Assured
Guaranty Corp.) (Zero Coupon) 0.00 1/01/2029 14,215
1,500 North Texas Tollway Auth. 5.00 1/01/2031 1,649
8,000 North Texas Tollway Auth. 5.00 1/01/2032 8,881
7,500 North Texas Tollway Auth. 5.00 1/01/2034 8,326
1,515 North Texas Tollway Auth. 5.00 1/01/2034 1,691
12,195 North Texas Tollway Auth. (PRE) 6.00 1/01/2025 12,318
2,805 North Texas Tollway Auth. 6.00 1/01/2025 2,831
2,000 North Texas Tollway Auth. (INS - Assured
Guaranty Municipal Corp.) 4.00 1/01/2035 2,067
1,695 North Texas Tollway Auth. (INS - Assured
Guaranty Municipal Corp.) 4.00 1/01/2036 1,742
================================================================================
32 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 2,230 Permanent University Fund - University of
Texas System 5.00% 7/01/2032 $ 2,549
3,250 Permanent University Fund - University of
Texas System 5.00 7/01/2033 3,704
2,500 Permanent University Fund - University of
Texas System 5.00 7/01/2034 2,839
37,575 Port of Port Arthur Navigation District (Put Date
10/01/2018)(f) 1.80 4/01/2040 37,575
29,670 Port of Port Arthur Navigation District (Put Date
10/01/2018)(f) 1.80 4/01/2040 29,670
17,450 Port of Port Arthur Navigation District (Put Date
10/01/2018)(f) 1.85 4/01/2040 17,450
32,220 Port of Port Arthur Navigation District (Put Date
10/05/2018)(f) 1.80 11/01/2040 32,220
14,935 San Antonio Housing Trust Finance Corp.
(NBGA - Federal Home Loan Mortgage Corp.
(Put Date 10/01/2028)(b) 3.50 4/01/2043 15,015
5,000 Tarrant County Cultural Education
Facilities Finance Corp. 6.63 11/15/2037 5,479
2,000 Tarrant County Cultural Education
Facilities Finance Corp. 3.88 11/15/2022 1,991
2,145 Tarrant County Cultural Education
Facilities Finance Corp. 5.00 11/15/2030 2,352
2,250 Tarrant County Cultural Education
Facilities Finance Corp. 5.00 11/15/2031 2,449
2,365 Tarrant County Cultural Education
Facilities Finance Corp. 5.00 11/15/2032 2,557
2,175 Tarrant County Cultural Education
Facilities Finance Corp. 5.00 11/15/2037 2,311
7,235 Transportation Commission State Highway Fund 5.00 10/01/2026 8,493
6,960 Trophy Club Public Improvement District
No. 1 (INS - Assured Guaranty Municipal Corp.) 5.00 6/01/2033 7,649
10,000 Tyler Health Facilities Dev. Corp. (PRE) 5.50 7/01/2027 10,858
----------
496,108
----------
U.S. VIRGIN ISLANDS (0.1%)
6,500 Public Finance Auth.(a) 5.00 9/01/2030 6,833
----------
UTAH (0.1%)
4,767 Jordanelle Special Service District(a) 12.00 8/01/2030 4,767
----------
VERMONT (0.3%)
9,000 EDA 5.00 12/15/2020 9,505
2,500 Educational & Health Buildings Financing Agency 5.00 12/01/2036 2,752
----------
12,257
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 33
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
VIRGINIA (1.0%)
$ 1,440 College Building Auth. 5.00% 6/01/2021 $ 1,440
11,280 College Building Auth. 5.00 6/01/2026 11,251
10,000 College Building Auth. 4.00 2/01/2034 10,513
5,000 College Building Auth. 4.00 2/01/2036 5,212
2,150 Fairfax County EDA 5.00 10/01/2036 2,366
10,000 Roanoke EDA 5.00 7/01/2025 10,512
750 Stafford County EDA 5.00 6/15/2033 826
2,620 Stafford County EDA 5.00 6/15/2034 2,876
1,930 Stafford County EDA 5.00 6/15/2035 2,112
----------
47,108
----------
WASHINGTON (0.4%)
3,090 Health Care Facilities Auth. 5.00 8/15/2033 3,401
3,470 Health Care Facilities Auth. 5.00 8/15/2034 3,805
2,355 Health Care Facilities Auth. 5.00 7/01/2035 2,624
2,250 Health Care Facilities Auth. 5.00 7/01/2036 2,498
3,125 Health Care Facilities Auth. 4.00 7/01/2037 3,137
5,000 Tobacco Settlement Auth. 5.25 6/01/2031 5,218
----------
20,683
----------
WEST VIRGINIA (0.3%)
1,850 Hospital Finance Auth. 5.00 6/01/2033 2,060
2,970 Hospital Finance Auth. 5.00 6/01/2034 3,296
2,405 Hospital Finance Auth. 5.00 6/01/2035 2,655
2,360 Hospital Finance Auth. 5.00 1/01/2034 2,620
2,920 Hospital Finance Auth. 5.00 1/01/2035 3,233
----------
13,864
----------
WISCONSIN (0.6%)
2,000 Health & Educational Facilities Auth. (PRE) 5.00 7/15/2028 2,158
1,500 Health & Educational Facilities Auth. (PRE) 5.00 8/15/2026 1,648
1,935 Health & Educational Facilities Auth. (PRE) 5.00 8/15/2029 2,127
5,000 Health & Educational Facilities Auth. (PRE) 5.13 4/15/2031 5,626
1,000 Health & Educational Facilities Auth. 5.00 8/15/2034 1,088
9,830 Health & Educational Facilities Auth. 4.00 11/15/2036 10,044
1,000 Public Finance Auth.(a) 5.25 5/15/2037 1,083
1,500 Public Finance Auth. 4.05 11/01/2030 1,510
1,250 Public Finance Auth.(a) 3.95 11/15/2024 1,262
----------
26,546
----------
Total Municipal Obligations (cost: $4,606,752) 4,654,249
----------
TOTAL INVESTMENTS (COST: $4,606,752) $4,654,249
==========
================================================================================
34 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
-----------------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
-----------------------------------------------------------------------------------------------------------------------
Municipal Obligations $- $4,654,249 $- $4,654,249
-----------------------------------------------------------------------------------------------------------------------
Total $- $4,654,249 $- $4,654,249
-----------------------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
For the period of April 1, 2018, through September 30, 2018, there were no
transfers of securities between levels. The Fund's policy is to recognize
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 | 35
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
September 30, 2018 (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 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.
ISD Independent School District
LIBOR London Interbank Offered Rate
MTA Metropolitan Transportation Authority
MUNIPSA Securities Industry and Financial Markets Association (SIFMA)
Municipal Swap Index
PRE Pre-refunded to a date prior to maturity
Zero Coupon Normally issued at a significant discount from face value and do
not provide for periodic interest payments. Income is earned
from the purchase date by accreting the purchase discount of the
security to par over the life of the security.
================================================================================
36 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
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 the name listed.
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 the name
listed.
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 name listed.
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) Put bond - provides 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.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 37
================================================================================
(c) Floating-rate security - interest rate is adjusted periodically. The
interest rate disclosed represents the rate at September 30, 2018.
(d) Security or a portion of the security purchased on a delayed-delivery
and/or when-issued basis.
(e) At September 30, 2018, the security, or a portion thereof, was segregated
to cover delayed-delivery and/or when-issued purchases.
(f) 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.
VRDNs will normally trade as if the maturity is the earlier put date, even
though stated maturity is longer. The interest rate is reset on the put
date at a stipulated daily, weekly, monthly, quarterly, or other specified
time interval to reflect current market conditions. These securities do
not indicate a reference rate and spread in their description.
(g) Security deemed illiquid by USAA Asset Management Company, under liquidity
guidelines approved by USAA Mutual Funds Trust's Board of Trustees.
(h) Payment-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.
(i) Up to 6.05% of the coupon may be PIK.
(j) Restricted security that is not registered under the Securities Act of
1933. The aggregate market value of these securities at September 30,
2018, was $20,287,000, which represented 0.4% of the Fund's net assets.
See accompanying notes to financial statements.
================================================================================
38 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
September 30, 2018 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $4,606,752) $4,654,249
Receivables:
Capital shares sold 2,331
USAA Asset Management Company (Note 6) 1
Interest 51,940
Securities sold 22,102
----------
Total assets 4,730,623
----------
LIABILITIES
Payables:
Securities purchased 27,629
Capital shares redeemed 3,460
Bank overdraft 83
Dividends on capital shares 1,746
Accrued management fees 1,227
Accrued transfer agent's fees 76
Other accrued expenses and payables 183
----------
Total liabilities 34,404
----------
Net assets applicable to capital shares outstanding $4,696,219
==========
NET ASSETS CONSIST OF:
Paid-in capital $4,721,293
Distributable earnings loss (25,074)
----------
Net assets applicable to capital shares outstanding $4,696,219
==========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $4,671,765/358,075 capital shares
outstanding, no par value) $ 13.05
==========
Adviser Shares (net assets of $24,454/1,875 capital shares
outstanding, no par value) $ 13.04
==========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 39
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended September 30, 2018 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Interest income $ 83,325
--------
EXPENSES
Management fees 7,439
Administration and servicing fees:
Fund Shares 3,495
Adviser Shares 19
Transfer agent's fees:
Fund Shares 732
Adviser Shares 9
Distribution and service fees (Note 6):
Adviser Shares 32
Custody and accounting fees:
Fund Shares 259
Adviser Shares 1
Postage:
Fund Shares 37
Adviser Shares 1
Shareholder reporting fees:
Fund Shares 17
Trustees' fees 18
Registration fees:
Fund Shares 156
Adviser Shares 13
Professional fees 92
Other 22
--------
Total expenses 12,342
Expenses reimbursed:
Adviser Shares (16)
--------
Net expenses 12,326
--------
NET INVESTMENT INCOME 70,999
--------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Net realized loss (23,463)
Change in net unrealized appreciation/(depreciation) (3,860)
--------
Net realized and unrealized loss (27,323)
--------
Increase in net assets resulting from operations $ 43,676
========
See accompanying notes to financial statements.
================================================================================
40 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended September 30, 2018 (unaudited), and year ended March 31,
2018
---------------------------------------------------------------------------------------------
9/30/2018 3/31/2018
---------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 70,999 $ 138,494
Net realized loss on investments (23,463) (3,778)
Change in net unrealized appreciation/(depreciation)
of investments (3,860) 15,286
--------------------------
Increase in net assets resulting from operations 43,676 150,002
--------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
DISTRIBUTABLE EARNINGS:
Fund Shares (69,927) (138,321)
Adviser Shares (355) (921)
--------------------------
Distributions to shareholders (70,282) (139,242)
--------------------------
NET INCREASE IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS (NOTE 5)
Fund Shares 92,688 314,175
Adviser Shares (1,803) (11,238)
--------------------------
Total net increase in net assets from capital
share transactions 90,885 302,937
--------------------------
Net increase in net assets 64,279 313,697
NET ASSETS
Beginning of period 4,631,940 4,318,243
--------------------------
End of period $4,696,219 $4,631,940
==========================
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 41
================================================================================
NOTES TO FINANCIAL STATEMENTS
September 30, 2018 (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 47 separate funds.
The 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 and Liquidity Committee (the Committee), and
subject to Board oversight, the Committee administers and oversees
================================================================================
42 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
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 extent the valuations include significant unobservable
inputs, the securities would be categorized in Level 3.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 43
================================================================================
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
that are observable for the securities, either directly or indirectly, and
market-corroborated inputs such as market indexes.
================================================================================
44 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
Level 3 - inputs to the valuation methodology are unobservable and
significant to the fair value measurement, including the Manager's own
assumptions in determining the fair value.
The inputs or methodologies used for valuing securities are not necessarily
an indication of the risks associated with investing in those securities.
C. INVESTMENTS IN SECURITIES - Securities transactions are accounted for as of
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.
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.
For the six-month period ended September 30, 2018, 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.
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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 45
================================================================================
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. INDEMNIFICATIONS - Under the Trust's organizational documents, its officers
and trustees are indemnified against certain liabilities arising out of the
performance of their duties to the Trust. In addition, in the normal course
of business, the Trust enters into contracts that contain a variety of
representations and warranties that provide general indemnifications. The
Trust's maximum exposure under these arrangements is unknown, as this would
involve future claims that may be made against the Trust that have not yet
occurred. However, the Trust expects the risk of loss to be remote.
G. USE OF ESTIMATES - The preparation of financial statements in conformity with
U.S. generally accepted accounting principles requires management to make
estimates and assumptions that may affect the reported amounts in the
financial statements.
(2) LINE OF CREDIT
The Fund participates, 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 14.0 basis
points of the amount of the committed loan agreement. Prior to September 30,
2018, the maximum annual facility fee was 13.0 basis points of the amount of the
committed loan agreement. The facility fees are allocated
================================================================================
46 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
among the funds of the Trusts based on their respective average daily 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 15.0 basis points.
For the six-month period ended September 30, 2018, the Fund paid CAPCO facility
fees of $18,000, which represents 5.6% of the total fees paid to CAPCO by the
funds of the Trusts. The Fund had no borrowings under this agreement during the
six-month period ended September 30, 2018.
(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, 2019, in
accordance with applicable federal tax law.
Net investment income is accrued daily as dividends and distributed to
shareholders monthly. Distributions of realized gains from security transactions
not offset by capital losses are made annually in the succeeding fiscal year or
as otherwise required to avoid the payment of federal taxes.
At March 31, 2018, the Fund had net capital loss carryforwards of $49,038,000,
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 $20,671,000
Long-Term 28,367,000
-----------
Total $49,038,000
===========
================================================================================
NOTES TO FINANCIAL STATEMENTS | 47
================================================================================
As of September 30, 2018, 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, 2018, were $97,771,000 and $50,274,000, respectively, resulting in net
unrealized appreciation of $47,497,000.
(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, 2018, were
$260,399,000 and $124,190,000, respectively.
In accordance with affiliated transaction procedures approved by the Board,
purchases and sales of security transactions were executed between the Fund and
affiliated USAA Funds at the then-current market price with no brokerage
commissions incurred. The affiliated transactions executed by the Fund,
including short-term securities, during the six-month period ended September 30,
2018 were as follows:
PURCHASES SALES REALIZED GAIN/(LOSS)
---------------------------------------------------------------------------------
$74,830,000 $44,510,000 $-
(5) CAPITAL SHARE TRANSACTIONS
At September 30, 2018, there were an unlimited number of shares of capital stock
at no par value authorized for the Fund.
================================================================================
48 | 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, 2018 MARCH 31, 2018
-------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------
FUND SHARES:
Shares sold 32,972 $ 432,567 67,023 $ 889,832
Shares issued from
reinvested dividends 4,531 59,429 9,160 121,446
Shares redeemed (30,441) (399,308) (52,578) (697,103)
------------------------------------------------
Net increase from
capital share transactions 7,062 $ 92,688 23,605 $ 314,175
================================================
ADVISER SHARES:
Shares sold 77 $ 1,015 168 $ 2,229
Shares issued from
reinvested dividends 25 323 59 777
Shares redeemed (239) (3,141) (1,072) (14,244)
------------------------------------------------
Net decrease from
capital share transactions (137) $ (1,803) (845) $ (11,238)
================================================
(6) TRANSACTIONS WITH MANAGER
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 daily 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 49
================================================================================
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 Lipper index, rounded
to the nearest basis point. Average daily 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
daily 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, 2018, the Fund incurred management
fees, paid or payable to the Manager, of $7,439,000, which included a
performance adjustment of 0.04% for the Fund Shares of $878,000. The Advisor
Shares did not incur any performance adjustment.
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
daily net assets for both the Fund Shares and Adviser Shares. For the six-month
period ended September 30, 2018, the Fund
================================================================================
50 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
Shares and Adviser Shares incurred administration and servicing fees, paid or
payable to the Manager, of $3,495,000 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, 2018, the Fund reimbursed the Manager $40,000 for these
compliance and legal services. These expenses are included in the professional
fees on the Fund's Statement of Operations.
EXPENSE LIMITATION - The Manager agreed, through July 31, 2019, to limit the
total annual operating expenses of the Adviser Shares to 0.75% of its average
daily 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, 2019, 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, 2018, the Adviser Shares incurred
reimbursable expenses of $16,000, of which $1,000 was receivable from the
Manager.
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, 2018, the Fund Shares and Adviser Shares incurred transfer agent's
fees, paid or payable to SAS, of $732,000 and $9,000, respectively.
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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 51
================================================================================
daily and paid monthly at an annual rate of 0.25% of the Adviser Shares' average
daily 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, 2018, the Adviser Shares incurred distribution and
service (12b-1) fees of $32,000.
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) UPCOMING REGULATORY MATTERS
In October 2016, the SEC issued Final Rule Release No. 33-10233, INVESTMENT
COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS (Liquidity Rule). The Liquidity Rule
requires funds to establish a liquidity risk management program and enhances
disclosures regarding funds' liquidity. The requirements to implement a
liquidity risk management program and establish a 15% illiquid investment limit
are effective December 1, 2018. However, in February 2018, the SEC issued
Release No. IC-33010, INVESTMENT COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS;
COMMISSION GUIDANCE FOR IN-KIND ETFs, which delayed certain requirements related
to liquidity classification, highly liquid investment minimums, and board
approval of the liquidity risk management programs to June 1, 2019. The Manager
continues to evaluate the impact of this rule on the Fund's financial statements
and various filings.
(8) UPCOMING ACCOUNTING PRONOUNCEMENTS
(ASU) 2017-08, PREMIUM AMORTIZATION OF PURCHASED CALLABLE DEBT SECURITIES
-------------------------------------------------------------------------
In March 2017, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Update (ASU) 2017-08, Premium Amortization of Purchased Callable Debt
Securities. The amendments in the ASU shorten the premium amortization period on
a purchased callable debt security from the security's contractual life to the
earliest call date. It is anticipated that this change will enhance reporting
disclosures by reducing losses recognized when a security is called on an
earlier date. This ASU is effective for fiscal years beginning after December
15, 2018. The Manager continues to evaluate the impact this ASU will have on the
financial statements and other reporting disclosures.
================================================================================
52 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
(ASU) 2018-13, FAIR VALUE MEASUREMENT
-------------------------------------
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement
(Topic 820). The amendments in the ASU impact disclosure requirements for
fair value measurement. It is anticipated that this change will enhance the
effectiveness of disclosures in the notes to the financial statements. This ASU
is effective for fiscal years beginning after December 15, 2019. Early
adoption is permitted and can include the entire standard or certain
provisions that exclude or amend disclosures. The adoption of this ASU
guidance is not expected to have a material impact on the financial
statements and other disclosures.
(9) RECENTLY ADOPTED ACCOUNTING STANDARD
In August 2018, the U.S. Securities and Exchange Commission (SEC) adopted
amendments to Regulation S-X for investment companies governing the form and
content of financial statements. The amendments to Regulation S-X took effect on
November 5, 2018, and the financial statements have been modified accordingly,
for the current and prior period.
(10) SUBSEQUENT EVENT
On November 6, 2018, United Services Automobile Association ("USAA"), the parent
company of USAA Asset Management Company ("AMCO"), the investment adviser to the
Funds, and USAA Transfer Agency Company d.b.a. USAA Shareholder Account Services
("SAS"), the transfer agent to the Funds, announced that AMCO and SAS would be
acquired by Victory Capital Holdings, Inc. ("Victory"), a global investment
management firm headquartered in Cleveland, Ohio (the "Transaction"). The
closing of the Transaction is expected to be completed during the second quarter
of 2019, pending satisfaction of certain closing conditions and approvals,
including certain approvals of the Funds' Board of Trustees and of Fund
shareholders at a special shareholder meeting to be held in 2019.
The Transaction is not expected to result in any material changes to the Funds'
respective investment objectives and principal investment strategies.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 53
================================================================================
FINANCIAL HIGHLIGHTS
FUND SHARES (UNAUDITED)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
SEPTEMBER 30, YEAR ENDED MARCH 31,
-------------------------------------------------------------------------------------
2018 2018 2017 2016 2015 2014
-------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 13.12 $ 13.08 $ 13.61 $ 13.59 $ 13.36 $ 13.75
-------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .20 .41 .42 .44 .45 .50
Net realized and
unrealized gain (loss) (.07) .04 (.53) .02 .23 (.39)
-------------------------------------------------------------------------------------
Total from investment
operations .13 .45 (.11) .46 .68 .11
-------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.20) (.41) (.42) (.44) (.45) (.50)
Redemption fees added
to beneficial interests - - .00(a) - - -
-------------------------------------------------------------------------------------
Net asset value at
end of period $ 13.05 $ 13.12 $ 13.08 $ 13.61 $ 13.59 $ 13.36
=====================================================================================
Total return (%)* .97 3.47 (.84) 3.48 5.14 .85
Net assets at end
of period (000) $4,671,765 $4,605,543 $4,280,892 $4,332,360 $3,894,482 $3,381,571
Ratios to average daily
net assets:**
Expenses (%)(d) .52(b) .51 .52(c) .54(c) .55(c) .55(c)
Net investment
income (%) 3.03(b) 3.09 3.13 3.28 3.31 3.72
Portfolio turnover (%) 3 11 16 10 4 10
* 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, 2018, average daily net assets
were $4,648,332,000.
(a) Represents less than $0.01 per share.
(b) Annualized. The ratio is not necessarily indicative of 12 months
operations.
(c) Reflects total annual operating expenses of the Fund Shares before
reductions of any expenses paid indirectly. The Fund Shares' expenses paid
indirectly decreased the expense ratio by less than 0.01%.
(d) Does not include acquired fund fees, if any.
================================================================================
54 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
ADVISER SHARES (UNAUDITED)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
SEPTEMBER 30, YEAR ENDED MARCH 31,
-----------------------------------------------------------------------------------
2018 2018 2017 2016 2015 2014
-----------------------------------------------------------------------------------
Net asset value at
beginning of period $ 13.12 $ 13.07 $ 13.61 $ 13.58 $ 13.36 $ 13.75
----------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .18(a) .38 .38 .41 .42 .47
Net realized and
unrealized gain (loss) (.08) .05 (.54) .03 .22 (.39)
----------------------------------------------------------------------------------
Total from investment
operations .10 .43 (.16) .44 .64 .08
----------------------------------------------------------------------------------
Less distributions from:
Net investment income (.18) (.38) (.38) (.41) (.42) (.47)
Redemption fees added
to beneficial interests - - .00(a) .00(a) - -
----------------------------------------------------------------------------------
Net asset value at
end of period $ 13.04 $ 13.12 $ 13.07 $ 13.61 $ 13.58 $ 13.36
==================================================================================
Total return (%)* .86 3.28 (1.19) 3.28 4.81 .64
Net assets at end
of period (000) $24,454 $26,397 $37,351 $42,054 $36,848 $20,166
Ratios to average daily
net assets:**
Expenses (%)(f) .75(b) .77(c) .80(d) .80(d) .79(d),(e) .75(d)
Expenses, excluding
reimbursements (%)(f) .88(b) .85 .83(d) .88(d) .88(d) .96(d)
Net investment income (%) 2.81(b) 2.83 2.84 3.02 3.06 3.51
Portfolio turnover (%) 3 11 16 10 4 10
* 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, 2018, average daily net assets
were $25,490,000.
(a) Represents less than $0.01 per share.
(b) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(c) Effective August 1, 2017, the Manager voluntarily agreed to limit the annual
expenses of the Adviser Shares to 0.75% of the Adviser Shares' average daily
net assets. Prior to this date, the voluntary expense limit was 0.80%.
(d) 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 ratio by less than 0.01%.
(e) Effective August 1, 2014, the Manager voluntarily agreed to limit the annual
expenses of the Adviser Shares to 0.80% of the Adviser Shares' average daily
net assets. Prior to this date, the voluntary expense limit was 0.75%.
(f) Does not include acquired fund fees, if any.
================================================================================
FINANCIAL HIGHLIGHTS | 55
================================================================================
EXPENSE EXAMPLE
September 30, 2018 (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, 2018, through
September 30, 2018.
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
================================================================================
56 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
return. The hypothetical account values and expenses may not be used to estimate
the actual ending account balance or expenses you paid for the period. You may
use this information to compare the ongoing costs of investing in the Fund and
other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any direct costs, such as wire fees,
redemption fees, or low balance fees. Therefore, the line labeled "hypothetical"
is useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if these direct
costs were included, your costs would have been higher.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE APRIL 1, 2018 -
APRIL 1, 2018 SEPTEMBER 30, 2018 SEPTEMBER 30, 2018
-------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $1,009.70 $2.62
Hypothetical
(5% return before expenses) 1,000.00 1,022.46 2.64
ADVISER SHARES
Actual 1,000.00 1,008.60 3.78
Hypothetical
(5% return before expenses) 1,000.00 1,021.31 3.80
*Expenses are equal to the annualized expense ratio of 0.52% for Fund Shares
and 0.75% for Adviser Shares, which are net of any reimbursements and expenses
paid indirectly, multiplied by the average account value over the period,
multiplied by 183 days/365 days (to reflect the one-half-year period). The
Fund's actual ending account values are based on its actual total returns of
0.97% for Fund Shares and 0.86% for Adviser Shares for the six-month period of
April 1, 2018, through September 30, 2018.
================================================================================
EXPENSE EXAMPLE | 57
================================================================================
ADVISORY AGREEMENT
September 30, 2018 (unaudited)
--------------------------------------------------------------------------------
At an in-person meeting of the Board of Trustees (the Board) held on April 18,
2018, the Board, including the Trustees who are not "interested persons" (as
that term is defined in the Investment Company Act of 1940, as amended) of the
Trust (the Independent Trustees), approved for an annual period the continuance
of the Advisory Agreement between the Trust and the Manager with respect to the
Fund.
In advance of the meeting, the Trustees received and considered a variety of
information relating to the Advisory Agreement and the Manager and were given
the opportunity to ask questions and request additional information from
management. The information provided to the Board included, among other things:
(i) a separate report prepared by an independent third party, which provided a
statistical analysis comparing the Fund's investment performance, expenses, and
fees to comparable investment companies; (ii) information concerning the
services rendered to the Fund, as well as information regarding the Manager's
revenues and costs of providing services to the Fund and compensation paid to
affiliates of the Manager; and (iii) information about the Manager's operations
and personnel. Prior to voting, the Independent Trustees reviewed the proposed
continuation of the Advisory Agreement with management and with experienced
counsel retained by the Independent Trustees (Independent Counsel) and received
materials from such Independent Counsel discussing the legal standards for their
consideration of the proposed continuation of the Advisory Agreement with
respect to the Fund. The Independent Trustees also reviewed the proposed
continuation of the Advisory Agreement with respect to the Fund in private
sessions with their Independent Counsel at which no representatives of
management were present.
At each regularly scheduled meeting of the Board and its committees, the Board
receives and reviews, among other things, information concerning the Fund's
performance and related services provided by the Manager. At the meeting at
which the renewal of the Advisory Agreement is considered,
================================================================================
58 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
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 also considered the significant risks assumed by the Manager in
connection with the services provided to the Fund, including investment,
operational, enterprise, litigation, regulatory and compliance risks.
The Board considered the Manager's management style and the performance of its
duties under the Advisory Agreement. The Board considered the level
================================================================================
ADVISORY AGREEMENT | 59
================================================================================
and depth of knowledge of the Manager, including the professional experience and
qualifications of its senior and investment personnel, as well as current
staffing levels. The allocation of the Fund's brokerage, including the Manager's
process for monitoring "best execution," also was considered. The Manager's role
in coordinating the activities of the Fund's other service providers also was
considered. The Board also considered the Manager's risk management processes.
The Board considered the Manager's financial condition and that it had the
financial wherewithal to continue to provide the same scope and high quality of
services under the Advisory Agreement. In reviewing the Advisory Agreement, the
Board focused on the experience, resources, and strengths of the Manager and its
affiliates in managing the Fund, as well as the other funds in the Trust.
The Board also reviewed the compliance and administrative services provided to
the Fund by the Manager and its affiliates, 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
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
================================================================================
60 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
================================================================================
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 took into
account management's discussion of the Fund's expenses. The Board also noted the
level and method of computing the management fee, including any performance
adjustment to such fee. In considering the Fund's performance, the Board noted
that it reviews at its regularly scheduled meetings information about the Fund's
performance results. The Trustees also reviewed various comparative data
provided to them in connection with their consideration of the renewal of the
Advisory Agreement, including, among other information, a comparison of the
Fund's average annual total return with its Lipper index and with that of other
mutual funds deemed to be in its peer group by the independent third party in
its report (the "performance universe"). The Fund's performance universe
consisted of the Fund and all retail and institutional open-end investment
companies with the same classification/objective as the Fund regardless of asset
size or primary channel of distribution. This comparison indicated that, among
other data, the Fund's performance was above the average of its performance
universe and its Lipper index for the one-, three-, five-, and ten-year periods
ended December 31, 2017. The Board also noted that the Fund's percentile
performance ranking was in the top 20% of its performance universe for the one-,
three- and five-year periods ended December 31, 2017 and was in the top 10% of
its performance universe for the ten-year period ended December 31, 2017.
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
================================================================================
ADVISORY AGREEMENT | 61
================================================================================
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.
================================================================================
62 | 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, State Street Bank and Trust Company
ACCOUNTING AGENT, AND P.O. BOX 1713
SUB-ADMINISTRATOR Boston, Massachusetts 02105
--------------------------------------------------------------------------------
INDEPENDENT Ernst & Young LLP
REGISTERED PUBLIC 100 West Houston St., Suite 1700
ACCOUNTING FIRM San Antonio, Texas 78205
--------------------------------------------------------------------------------
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 HTTTP://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
--------------
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================================================================================
39594-1118 (C)2018, 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, 2018
==============================================================
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
INVESTMENT OVERVIEW 1
FINANCIAL INFORMATION
Portfolio of Investments 3
Notes to Portfolio of Investments 22
Financial Statements 25
Notes to Financial Statements 28
Financial Highlights 41
EXPENSE EXAMPLE 43
ADVISORY AGREEMENT 45
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.
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.
(C)2018, USAA. All rights reserved.
================================================================================
================================================================================
INVESTMENT OVERVIEW
-------------------------------------------------------------------------------
o TOP 10 INDUSTRIES - 9/30/18 o
(% of Net Assets)
Hospital ............................................................... 14.5%
Education ............................................................. 12.5%
General Obligation .................................................... 10.6%
Special Assessment/Tax/Fee ............................................. 9.4%
Escrowed Bonds ........................................................ 8.3%
Electric Utilities .................................................... 6.3%
Toll Road ............................................................. 5.8%
Nursing/CCRC .......................................................... 5.7%
Airport/Port .......................................................... 4.1%
Water/Sewer Utility .................................................... 3.9%
Refer to the Portfolio of Investments for a complete list of securities.
================================================================================
INVESTMENT OVERVIEW | 1
================================================================================
o PORTFOLIO RATINGS MIX - 9/30/18 o
[PIE CHART OF PORTFOLIO RATINGS MIX]
AAA 4.0%
AA 29.7%
A 36.8%
BBB 18.8%
BELOW INVESTMENT-GRADE 4.2%
UNRATED 6.5%
[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.
Refer to the Portfolio of Investments for a complete list of securities.
================================================================================
2 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
PORTFOLIO OF INVESTMENTS
September 30, 2018 (unaudited)
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
MUNICIPAL OBLIGATIONS (99.2%)
ALABAMA (1.5%)
$ 4,245 Chatom IDB (INS - Assured Guaranty
Municipal Corp.) 5.00% 8/01/2037 $ 4,420
7,000 Docks Department (PRE) 6.00 10/01/2035 7,547
4,500 Homewood Educational Building Auth. 5.00 12/01/2047 4,875
11,500 Lower Alabama Gas District 5.00 9/01/2046 13,444
1,750 Montgomery Medical Clinic Board 5.00 3/01/2036 1,850
2,000 Selma IDB 5.80 5/01/2034 2,113
----------
34,249
----------
ARIZONA (2.8%)
5,000 Apache County IDA 4.50 3/01/2030 5,288
5,000 City of Goodyear 5.63 7/01/2039 5,288
1,000 City of Phoenix Civic Improvement Corp.
(INS - National Public Finance Guarantee Corp.) 5.50 7/01/2029 1,220
1,500 City of Phoenix Civic Improvement Corp.
(INS - National Public Finance Guarantee Corp.) 5.50 7/01/2030 1,847
6,000 Health Facilities Auth. 5.00 2/01/2042 6,305
5,000 Health Facilities Auth. (MUNIPSA + 1.85%)
(Put Date 2/01/2023)(a) 3.41(b) 2/01/2048 5,194
1,725 IDA 5.00 7/01/2052 1,867
1,600 Maricopa County IDA 5.00 7/01/2047 1,651
7,000 Maricopa County Pollution Control Corp. 5.00 6/01/2035 7,287
6,000 Phoenix IDA(c) 5.00 7/01/2044 6,255
1,200 Phoenix IDA 5.00 7/01/2041 1,261
1,250 Phoenix IDA 5.00 7/01/2042 1,351
3,000 Pima County IDA 5.25 10/01/2040 3,168
2,685 Pima County IDA 4.50 6/01/2030 2,850
3,000 Pima County IDA 4.00 9/01/2029 3,118
2,000 Pima County IDA(c) 5.00 6/15/2052 2,003
10,000 Pinal County Electrical District No. 3 4.00 7/01/2041 10,153
----------
66,106
----------
ARKANSAS (0.2%)
1,000 Dev. Finance Auth. (INS - AMBAC Assurance Corp.)
(Zero Coupon) 0.00 7/01/2028 726
1,165 Dev. Finance Auth. (INS - AMBAC Assurance Corp.)
(Zero Coupon) 0.00 7/01/2029 808
================================================================================
PORTFOLIO OF INVESTMENTS | 3
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 1,150 Dev. Finance Auth. (INS - AMBAC Assurance Corp.)
(Zero Coupon) 0.00% 7/01/2030 $ 763
2,500 Dev. Finance Auth. (INS - AMBAC Assurance Corp.)
(Zero Coupon) 0.00 7/01/2036 1,192
----------
3,489
----------
CALIFORNIA (8.5%)
1,000 Cerritos CCD (Zero Coupon) 0.00 8/01/2031 645
2,500 Cerritos CCD (Zero Coupon) 0.00 8/01/2032 1,541
2,175 Cerritos CCD (Zero Coupon) 0.00 8/01/2033 1,278
1,000 Cerritos CCD (Zero Coupon) 0.00 8/01/2034 559
1,500 Cerritos CCD (Zero Coupon) 0.00 8/01/2035 799
2,200 Cerritos CCD (Zero Coupon) 0.00 8/01/2036 1,116
8,500 Coachella Valley Unified School District
(INS - Assured Guaranty Municipal Corp.)
(Zero Coupon) 0.00 8/01/2041 3,320
6,700 Corona-Norco Unified School District (PRE)
(INS - Assured Guaranty Municipal Corp.) 5.50 8/01/2039 6,910
3,000 El Camino CCD (Zero Coupon) 0.00 8/01/2034 1,719
3,000 El Camino CCD (Zero Coupon) 0.00 8/01/2038 1,359
20,000 El Centro Financing Auth. (LIQ - Deutsche
Bank A.G.) (LOC - Deutsche Bank A.G.)
(Put Date 10/05/2018)(c),(d),(e) 1.91 7/01/2058 20,000
10,000 El Monte Union HSD (INS - Assured Guaranty
Municipal Corp.) (Zero Coupon) 0.00 6/01/2042 3,620
2,500 Escondido Union HSD (INS - Assured Guaranty
Municipal Corp.) 5.00 6/01/2037 2,597
2,000 Golden State Tobacco Securitization Corp. 5.00 6/01/2030 2,203
1,000 Health Facilities Financing Auth. 5.00 11/15/2056 1,115
5,000 Indio Redev. Agency 5.25 8/15/2035 5,010
17,025 Inland Empire Tobacco Securitization Auth. 5.75 6/01/2026 17,835
2,000 Jurupa Public Financing Auth. (INS - Assured
Guaranty Municipal Corp.) 5.00 9/01/2033 2,094
1,200 Los Alamitos Unified School District, 5.95%,
8/01/2024 0.00(f) 8/01/2034 1,106
4,500 Los Alamitos Unified School District, 6.05%,
8/01/2024 0.00(f) 8/01/2042 4,041
3,000 Monterey Peninsula Unified School District (PRE)
(INS - Assured Guaranty Municipal Corp.) 5.50 8/01/2034 3,307
1,860 Paramount Unified School District (Zero Coupon) 0.00 8/01/2034 1,009
2,000 Paramount Unified School District (Zero Coupon) 0.00 8/01/2035 1,025
2,750 Paramount Unified School District (Zero Coupon) 0.00 8/01/2037 1,266
2,750 Paramount Unified School District (Zero Coupon) 0.00 8/01/2036 1,336
5,920 Pollution Control Financing Auth. 5.00 11/21/2045 5,986
4,940 Pollution Control Financing Auth.(c) 5.00 7/01/2037 4,972
================================================================================
4 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 1,110 Public Works Board (PRE) 5.00% 10/01/2031 $ 1,213
2,000 Public Works Board (PRE) 5.00 10/01/2030 2,185
2,000 Public Works Board 5.00 12/01/2031 2,172
2,500 Public Works Board 5.00 12/01/2029 2,723
2,950 Public Works Board 5.00 6/01/2031 3,266
3,500 Public Works Board 5.00 10/01/2039 3,912
2,000 Sacramento City Schools Joint Powers Financing Auth.
(INS - Build America Mutual Assurance Co.) 5.00 3/01/2040 2,183
2,560 Sacramento City Schools Joint Powers Financing Auth.
(INS - Build America Mutual Assurance Co.) 5.00 3/01/2036 2,805
2,500 San Diego Public Facilities Financing Auth. 5.00 10/15/2044 2,795
3,000 San Marcos Schools Financing Auth. (PRE)
(INS - Assured Guaranty Municipal Corp.) 5.00 8/15/2040 3,176
13,605 San Ysidro School District (INS - Assured Guaranty
Municipal Corp.) (Zero Coupon) 0.00 8/01/2036 6,506
14,285 San Ysidro School District (INS - Assured Guaranty
Municipal Corp.) (Zero Coupon) 0.00 8/01/2037 6,459
15,000 Santa Ana Unified School District (INS - Assured
Guaranty Municipal Corp.) (Zero Coupon) 0.00 4/01/2029 10,177
5,000 Southern California Public Power Auth. 5.00 7/01/2040 5,231
300 State 4.50 8/01/2030 300
5,000 State 5.75 4/01/2031 5,094
6,750 State 5.00 2/01/2038 7,363
8,000 State 5.25 4/01/2035 8,769
5,000 State 5.00 10/01/2047 5,603
8,885 Stockton Unified School District (INS - Assured
Guaranty Municipal Corp.) (Zero Coupon) 0.00 8/01/2034 4,866
2,500 Victor Elementary School District (PRE)
(INS - Assured Guaranty Municipal Corp.) 5.13 8/01/2034 2,570
5,180 Washington Township Health Care Dist. 5.25 7/01/2030 5,408
5,000 Washington Township Health Care Dist. 5.50 7/01/2038 5,220
----------
197,764
----------
COLORADO (1.8%)
10,000 E-470 Public Highway Auth. (INS - National Public
Finance Guarantee Corp.) (Zero Coupon) 0.00 9/01/2035 4,739
2,000 E-470 Public Highway Auth. 5.38 9/01/2026 2,122
2,500 Educational & Cultural Facilities Auth. 5.25 4/01/2043 2,676
750 Educational & Cultural Facilities Auth. 5.00 4/01/2053 811
2,500 Educational & Cultural Facilities Auth. 4.00 12/01/2048 2,423
6,000 Health Facilities Auth. 5.00 6/01/2045 6,351
5,000 Health Facilities Auth. 5.00 12/01/2042 5,231
1,250 Health Facilities Auth. 5.00 6/01/2047 1,340
1,000 Park Creek Metropolitan District 5.00 12/01/2045 1,085
2,500 Park Creek Metropolitan District 5.00 12/01/2046 2,711
================================================================================
PORTFOLIO OF INVESTMENTS | 5
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 2,000 Park Creek Metropolitan District 5.00% 12/01/2051 $ 2,162
4,000 Rampart Range Metropolitan District No. 1
(INS - Assured Guaranty Municipal Corp.) 5.00 12/01/2047 4,407
5,000 Regional Transportation District 5.00 6/01/2044 5,396
1,000 Southlands Metropolitan District No. 1 5.00 12/01/2047 1,049
----------
42,503
----------
CONNECTICUT (0.4%)
2,000 Health & Educational Facilities Auth. (PRE) 5.00 7/01/2035 2,103
57,790 Mashantucket (Western) Pequot Tribe(g),(h) 6.05(i) 7/01/2031 2,023
5,500 State 5.00 4/15/2038 5,964
----------
10,090
----------
DELAWARE (0.2%)
4,000 EDA 5.40 2/01/2031 4,212
----------
DISTRICT OF COLUMBIA (2.2%)
1,500 District of Columbia 5.00 7/01/2042 1,605
1,305 District of Columbia 5.00 7/01/2036 1,399
1,700 District of Columbia (PRE) 6.00 7/01/2043 1,986
1,450 District of Columbia (PRE) 6.00 7/01/2048 1,694
7,500 Metropolitan Washington Airports Auth. 5.13 10/01/2034 7,500
10,000 Metropolitan Washington Airports Auth. 5.63 10/01/2039 10,000
5,000 Metropolitan Washington Airports Auth. 5.00 10/01/2039 5,250
10,000 Metropolitan Washington Airports Auth.
Dulles Toll Road Revenue 5.00 10/01/2053 10,514
10,000 Washington Convention & Sports Auth. 5.00 10/01/2040 10,434
----------
50,382
----------
FLORIDA (8.1%)
2,000 Brevard County Health Facilities Auth. (PRE) 7.00 4/01/2039 2,051
350 Broward County School Board (PRE)
(INS - Assured Guaranty Corp.) 5.25 7/01/2027 359
1,500 Broward County Water & Sewer Utility (PRE) 5.25 10/01/2034 1,500
7,000 City of Atlantic Beach 5.63 11/15/2043 7,654
2,000 City of Clearwater (PRE) 5.25 12/01/2039 2,076
3,950 City of Gainesville 5.25 10/01/2034 4,181
2,270 City of Jacksonville 5.00 10/01/2029 2,472
500 City of Lakeland 5.00 9/01/2037 523
1,000 City of Lakeland 5.00 9/01/2042 1,040
13,125 City of Miami (INS - Assured Guaranty
Municipal Corp.) 5.25 7/01/2035 13,768
4,000 City of Miami (INS - Assured Guaranty
Municipal Corp.) 5.25 7/01/2039 4,194
2,000 City of Miami Beach 5.00 9/01/2040 2,090
1,500 City of Miami Beach (INS - Assured Guaranty Corp.) 5.00 10/01/2034 1,539
5,675 Department of Children & Families 5.00 10/01/2025 5,688
================================================================================
6 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 1,500 Escambia County 6.25% 11/01/2033 $ 1,568
1,000 Escambia County Housing Finance Auth. (PRE)
(INS - Assured Guaranty Municipal Corp.) 5.75 6/01/2031 1,025
3,000 Halifax Hospital Medical Center 5.00 6/01/2046 3,185
600 Higher Educational Facilities Financial Auth. 5.00 4/01/2032 644
1,500 Higher Educational Facilities Financial Auth. 5.25 4/01/2042 1,620
4,000 Lee County IDA 5.75 10/01/2042 4,247
5,000 Lee County IDA 5.50 10/01/2047 5,329
525 Miami-Dade County Aviation (PRE) 5.00 10/01/2029 555
6,350 Miami-Dade County Aviation 5.00 10/01/2029 6,676
18,330 Miami-Dade County Aviation (PRE) 5.38 10/01/2035 19,502
4,875 Miami-Dade County Aviation 5.38 10/01/2035 5,162
5,000 Miami-Dade County Expressway Auth. 5.00 7/01/2040 5,210
5,000 Miami-Dade County Expressway Auth. 5.00 7/01/2039 5,469
2,000 Miami-Dade County Health Facilities Auth. 4.00 8/01/2047 1,953
1,750 Miami-Dade County Rickenbacker Causeway 5.00 10/01/2043 1,909
5,000 Miami-Dade County School Board (PRE)
(INS - Assured Guaranty Corp.) 5.25 2/01/2027 5,057
3,950 Miami-Dade County Water & Sewer System (PRE) 5.00 10/01/2034 4,182
2,500 Municipal Loan Council (INS - Assured Guaranty
Municipal Corp.) 5.25 10/01/2033 2,692
3,000 Orange County Health Facilities Auth. (PRE) 5.25 10/01/2035 3,000
1,500 Orange County Health Facilities Auth. 4.00 10/01/2045 1,464
10,000 Orange County School Board (PRE)
(INS - Assured Guaranty Corp.) 5.50 8/01/2034 10,296
2,000 Orlando-Orange County Expressway Auth. (PRE) 5.00 7/01/2035 2,098
4,745 Orlando-Orange County Expressway Auth. (PRE) 5.00 7/01/2035 4,982
1,255 Orlando-Orange County Expressway Auth. (PRE) 5.00 7/01/2035 1,318
5,000 Palm Beach County Health Facilities Auth. 5.00 5/15/2041 5,202
2,000 Palm Beach County Health Facilities Auth. 5.00 11/15/2045 2,177
155 Palm Beach County Solid Waste Auth. (PRE) 5.00 10/01/2031 168
9,845 Palm Beach County Solid Waste Auth. 5.00 10/01/2031 10,611
3,650 Pinellas County Educational Facilities Auth. 6.00 10/01/2041 3,858
1,000 Pinellas County Educational Facilities Auth. 5.00 10/01/2027 1,045
1,000 Pinellas County Educational Facilities Auth. 5.25 10/01/2030 1,047
1,835 Sarasota County Health Facilities Auth. 5.00 5/15/2048 1,989
1,000 Sarasota County Public Hospital District (PRE) 5.63 7/01/2039 1,027
3,000 St. Petersburg Health Facilities Auth. (PRE) 6.50 11/15/2039 3,148
2,200 Tampa Housing Auth. 4.85 7/01/2036 2,204
3,050 Tampa-Hillsborough County Expressway Auth. (PRE) 5.00 7/01/2042 3,357
2,350 Volusia County Educational Facilities Auth. (PRE)
(INS - Assured Guaranty Municipal Corp.) 5.00 10/15/2029 2,549
2,000 Volusia County Educational Facility Auth. 5.00 10/15/2045 2,184
----------
188,844
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 7
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
GEORGIA (1.8%)
$ 26,600 Appling County Dev. Auth. (Put Date 10/01/2018)(e) 1.94% 9/01/2041 $ 26,600
3,500 City of Atlanta Department of Aviation 5.00 1/01/2035 3,617
4,000 Dahlonega Downtown Dev. Auth. (PRE)
(INS - Assured Guaranty Municipal Corp.) 5.00 7/01/2040 4,204
1,500 Glynn-Brunswick Memorial Hospital Auth. 5.00 8/01/2047 1,612
600 Heard County Dev. Auth. (Put Date 10/01/2018)(e) 1.87 9/01/2029 600
1,600 Private Colleges & Universities Auth. 5.00 10/01/2032 1,662
1,250 Thomasville Hospital Auth. (PRE) 5.38 11/01/2040 1,333
1,000 Thomasville Hospital Auth. (PRE) 5.25 11/01/2035 1,064
----------
40,692
----------
HAWAII (0.3%)
6,000 Department of Budget & Finance 6.50 7/01/2039 6,188
----------
IDAHO (0.1%)
1,500 Health Facilities Auth. (PRE) (INS - Assured
Guaranty Municipal Corp.) 5.00 7/01/2035 1,578
----------
ILLINOIS (16.4%)
1,530 Bureau County Township HSD No. 502
(INS - Build America Mutual Assurance Co.) 5.00 12/01/2037 1,692
1,555 Bureau County Township HSD No. 502
(INS - Build America Mutual Assurance Co.) 5.00 12/01/2038 1,717
1,400 Bureau County Township HSD No. 502
(INS - Build America Mutual Assurance Co.) 5.00 12/01/2039 1,543
10,000 Chicago Board of Education (INS - Assured
Guaranty Municipal Corp.)(LIQ - Deutsche
Bank A.G.) (LOC - Deutsche Bank A.G.)
(Put Date 10/05/2018)(c),(e) 1.89 12/01/2039 10,000
5,000 Chicago Board of Education (LIQ - Deutsche
Bank A.G.) (LOC - Deutsche Bank A.G.)
(Put Date 10/05/2018)(c),(e) 1.89 12/01/2039 5,000
17,740 Chicago Board of Education (LIQ - Barclays
Bank plc) (LOC - Barclays Bank plc)
(Put Date 10/05/2018)(c),(e),(j) 1.74 4/01/2046 17,740
5,000 Chicago Board of Education 5.00 12/01/2036 5,133
6,000 Chicago Midway International Airport 5.00 1/01/2046 6,480
5,000 Chicago O'Hare International Airport 5.00 1/01/2041 5,503
4,200 Chicago O'Hare International Airport (PRE) 5.75 1/01/2039 4,536
800 Chicago O'Hare International Airport 5.75 1/01/2039 852
5,000 Chicago O'Hare International Airport 5.75 1/01/2043 5,578
3,000 Chicago Park District 5.00 1/01/2040 3,206
3,945 City of Chicago 6.75 12/01/2032 3,965
3,000 City of Chicago 5.00 11/01/2044 3,182
================================================================================
8 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 4,000 City of Chicago Wastewaster Transmission 5.00% 1/01/2044 $ 4,234
3,000 City of Chicago Wastewaster Transmission 5.00 1/01/2039 3,190
3,000 City of Chicago Wastewaster Transmission 5.00 1/01/2047 3,183
3,000 City of Springfield (INS - Assured Guaranty
Municipal Corp.) 5.00 3/01/2040 3,244
9,500 Cook County CCD No. 508 (INS - Build America
Mutual Assurance Co.) 5.00 12/01/2047 10,087
7,750 Cook County Sales Tax 5.00 11/15/2038 8,619
2,000 Finance Auth. 5.00 8/15/2044 2,119
2,000 Finance Auth. 5.00 4/01/2026 2,000
4,500 Finance Auth. 5.00 4/01/2031 4,434
7,000 Finance Auth. 5.00 4/01/2036 6,731
8,000 Finance Auth. (PRE) 6.00 10/01/2032 8,747
7,065 Finance Auth. 5.50 4/01/2032 7,064
2,500 Finance Auth. (PRE) (INS - National Public
Finance Guarantee Corp.) 5.75 11/01/2028 2,508
5,000 Finance Auth. (PRE) 7.25 11/01/2030 5,022
6,000 Finance Auth. 4.00 2/01/2033 6,119
14,000 Finance Auth. 3.90 3/01/2030 14,303
5,000 Finance Auth. (PRE) 5.75 10/01/2035 5,000
1,205 Finance Auth. 5.25 10/01/2039 1,225
700 Finance Auth. 5.00 5/15/2037 732
1,155 Finance Auth. 5.00 5/15/2047 1,200
5,000 Finance Auth. 6.00 7/01/2043 5,473
4,500 Finance Auth. 4.00 12/01/2046 4,238
5,000 Finance Auth. 4.00 7/01/2038 4,847
11,000 Finance Auth. 4.00 2/15/2041 11,117
2,000 Finance Auth. 4.00 3/01/2038 2,026
12,395 Finance Auth. 4.00 10/01/2040 12,463
750 Finance Auth. 5.00 8/01/2042 802
750 Finance Auth. 5.00 8/01/2047 798
2,000 Finance Auth. 5.00 12/01/2047 2,053
1,000 Finance Auth. 5.00 2/15/2047 1,069
500 Finance Auth. 5.00 2/15/2050 533
10,000 Metropolitan Pier & Exposition Auth.
(LIQ - Deutsche Bank A.G.) (LOC - Deutsche
Bank A.G.) (Put Date 10/05/2018)(c),(e) 1.89 6/15/2050 10,000
660 Metropolitan Pier & Exposition Auth.
(INS - National Public Finance Guarantee Corp.) 5.50 6/15/2020 665
1,045 Metropolitan Pier & Exposition Auth.
(INS - National Public Finance Guarantee Corp.) 5.55 6/15/2021 1,052
9,000 Northern Illinois Municipal Power Agency 4.00 12/01/2041 8,866
================================================================================
PORTFOLIO OF INVESTMENTS | 9
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$10,000 Railsplitter Tobacco Settlement Auth. (PRE) 5.50% 6/01/2023 $ 10,860
23,980 Regional Transportation Auth. (INS - Assured
Guaranty Municipal Corp.) 5.75 6/01/2020 25,359
37,550 Regional Transportation Auth. (INS - National
Public Finance Guarantee Corp.) 6.50 7/01/2030 47,687
2,000 Sangamon County Water Reclamation District 5.75 1/01/2053 2,225
16,500 State (LIQ - Deutsche Bank A.G.) (LOC - Deutsche
Bank A.G.) (Put Date 10/05/2018)(c),(e) 1.81 3/01/2033 16,500
1,000 State (INS - Assured Guaranty Municipal Corp.) 4.00 2/01/2031 1,021
1,000 State (INS - Assured Guaranty Municipal Corp.) 4.00 2/01/2032 1,016
8,000 State (INS - Assured Guaranty Municipal Corp.) 5.00 4/01/2029 8,533
12,630 State (LIQ - Deutsche Bank A.G.) (LOC - Deutsche
Bank A.G.) (Put Date 10/05/2018)(c),(e) 1.81 7/01/2031 12,630
2,000 State 5.00 10/01/2033 2,091
1,000 University of Illinois 5.13 4/01/2036 1,044
10,000 Village of Rosemont (INS - Assured Guaranty
Municipal Corp.) 5.00 12/01/2046 10,806
----------
381,662
----------
INDIANA (1.7%)
5,540 Evansville Redev. Auth. (INS - Build America
Mutual Assurance Co.) 4.00 2/01/2038 5,646
3,605 Evansville Redev. Auth. (INS - Build America
Mutual Assurance Co.) 4.00 2/01/2039 3,669
5,000 Finance Auth. 5.00 6/01/2039 4,987
4,000 Finance Auth. 5.00 10/01/2044 4,176
5,000 Finance Auth. 5.50 4/01/2046 5,318
1,495 Finance Auth. 5.00 2/01/2040 1,614
1,175 Local Public Improvement Bond Bank (PRE)
(INS - Assured Guaranty Corp.) 5.50 1/01/2038 1,186
4,825 Local Public Improvement Bond Bank (INS - Assured
Guaranty Corp.) 5.50 1/01/2038 4,869
7,000 Richmond Hospital Auth. 5.00 1/01/2039 7,515
----------
38,980
----------
IOWA (0.3%)
6,235 Finance Auth. 5.00 5/15/2041 6,487
----------
KANSAS (0.5%)
2,500 City of Coffeyville (INS - National Public Finance
Guarantee Corp.)(c) 5.00 6/01/2042 2,672
5,000 City of Lawrence 5.00 7/01/2048 5,455
2,000 Wyandotte County/Kansas City Unified 5.00 9/01/2045 2,199
----------
10,326
----------
================================================================================
10 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
KENTUCKY (0.6%)
$ 1,000 City of Ashland 5.00% 2/01/2040 $ 1,055
3,000 Economic Dev. Finance Auth. 5.00 8/15/2041 3,185
5,500 Economic Dev. Finance Auth. 5.00 5/15/2046 5,686
500 Economic Dev. Finance Auth. (INS - Assured
Guaranty Municipal Corp.) 4.00 12/01/2041 502
2,000 Economic Dev. Finance Auth. (INS - Assured
Guaranty Municipal Corp.) 5.00 12/01/2045 2,196
2,000 Owen County 6.25 6/01/2039 2,056
----------
14,680
----------
LOUISIANA (3.7%)
2,100 City of Shreveport (INS - Assured Guaranty
Municipal Corp.) 5.00 12/01/2041 2,329
1,000 City of Shreveport 5.00 12/01/2040 1,099
1,100 City of Shreveport (INS - Build America
Mutual Assurance Co.) 4.00 12/01/2037 1,128
5,500 City of Shreveport 5.00 12/01/2041 5,979
2,500 Lafayette Public Trust Financing Auth. (PRE)
(INS - Assured Guaranty Municipal Corp.) 5.50 10/01/2035 2,668
3,750 Local Government Environmental
Facilities & Community Dev. Auth. 6.50 8/01/2029 4,038
8,210 Local Government Environmental
Facilities & Community Dev. Auth.
(INS - Assured Guaranty Municipal Corp.) 4.00 10/01/2046 8,216
1,685 Local Government Environmental
Facilities & Community Dev. Auth.
(INS - Assured Guaranty Municipal Corp.) 5.00 10/01/2039 1,858
6,250 Local Government Environmental
Facilities & Community Dev. Auth. 3.50 11/01/2032 6,060
5,000 Local Government Environmental
Facilities & Community Dev. Auth.
(INS - Assured Guaranty Municipal Corp.) 5.00 10/01/2048 5,410
6,000 Public Facilities Auth. 5.00 11/01/2045 6,374
5,000 Public Facilities Auth. (INS - Build America
Mutual Assurance Co.) 5.25 6/01/2051 5,399
1,500 Public Facilities Auth. 5.00 7/01/2037 1,648
5,000 Public Facilities Auth. 5.00 5/15/2046 5,392
9,000 Public Facilities Auth. 4.00 1/01/2056 8,965
2,000 Public Facilities Auth. 5.00 7/01/2057 2,116
400 Public Facilities Auth. 5.00 7/01/2052 425
15 Public Facilities Auth. (PRE) 4.00 5/15/2041 17
1,235 Public Facilities Auth. 4.00 5/15/2041 1,213
1,000 Public Facilities Auth. 4.00 12/15/2050 987
================================================================================
PORTFOLIO OF INVESTMENTS | 11
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 6,750 St. Charles Parish (Put Date 6/01/2022)(a) 4.00% 12/01/2040 $ 7,078
6,000 State 5.00 5/01/2045 6,690
1,500 Tobacco Settlement Financing Corp. 5.25 5/15/2035 1,605
----------
86,694
----------
MAINE (0.4%)
9,000 Health & Higher Education Facilities Auth. 4.00 7/01/2046 8,509
----------
MARYLAND (0.1%)
2,500 EDC 6.20 9/01/2022 2,542
----------
MASSACHUSETTS (1.9%)
3,000 Dev. Finance Agency 5.00 7/01/2044 3,194
4,000 Dev. Finance Agency 5.50 7/01/2044 4,288
1,000 Dev. Finance Agency 5.00 4/15/2040 1,052
1,000 Dev. Finance Agency 5.00 7/01/2046 1,072
6,385 Dev. Finance Agency (PRE) 6.25 7/01/2030 6,591
3,615 Dev. Finance Agency 6.25 7/01/2030 3,716
3,370 Dev. Finance Agency 4.00 10/01/2046 3,191
2,280 Dev. Finance Agency 5.00 7/01/2047 2,440
1,000 Dev. Finance Agency 4.00 7/01/2038 980
3,000 Dev. Finance Agency 5.00 7/01/2044 3,236
10,000 Dev. Finance Agency 5.00 7/01/2053 10,741
3,500 Health & Educational Facilities Auth. 5.00 7/15/2032 3,529
500 Health & Educational Facilities Auth. 5.00 7/15/2037 504
----------
44,534
----------
MICHIGAN (1.5%)
2,500 Downriver Utility Wastewater Auth. (INS - Assured
Guaranty Municipal Corp.) 5.00 4/01/2043 2,731
1,000 Finance Auth. 5.00 11/01/2043 1,117
2,000 Genesee County (INS - Build America
Mutual Assurance Co.) 4.00 2/01/2041 2,028
2,900 Genesee County (INS - Build America
Mutual Assurance Co.) 5.00 2/01/2046 3,159
6,000 Jackson Public Schools (NBGA - Michigan School
Bond Qualification & Loan Program) 5.00 5/01/2045 6,640
3,000 Jackson Public Schools (NBGA - Michigan School
Bond Qualification & Loan Program) 5.00 5/01/2048 3,297
2,750 Karegnondi Water Auth. 5.00 11/01/2045 2,979
4,500 Lansing Board of Water & Light 5.00 7/01/2037 4,788
4,000 Livonia Public Schools School District
(INS - Assured Guaranty Municipal Corp.) 5.00 5/01/2045 4,360
3,000 Strategic Fund 5.63 7/01/2020 3,164
----------
34,263
----------
================================================================================
12 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
MINNESOTA (0.1%)
$ 2,500 Higher Education Facilities Auth. (PRE) 5.00% 10/01/2039 $ 2,574
----------
MISSISSIPPI (0.1%)
3,000 Warren County 5.38 12/01/2035 3,269
----------
MISSOURI (2.1%)
2,575 Cape Girardeau County IDA 6.00 3/01/2033 2,896
1,000 Cape Girardeau County IDA (PRE) 5.75 6/01/2039 1,025
750 Cape Girardeau County IDA 5.00 3/01/2036 800
17,775 Dev. Finance Board 4.00 6/01/2046 17,482
3,000 Hannibal IDA 5.00 10/01/2047 3,227
6,000 Health & Educational Facilities Auth. (PRE) 5.50 11/15/2033 6,026
1,500 Health & Educational Facilities Auth. 5.50 11/15/2033 1,506
1,000 Health & Educational Facilities Auth. 5.00 11/15/2043 1,102
5,000 St. Louis County IDA 5.88 9/01/2043 5,589
2,000 St. Louis County IDA 5.00 9/01/2048 2,135
3,065 St. Louis Municipal Finance Corp. (INS - Assured
Guaranty Municipal Corp.) 5.00 10/01/2038 3,407
2,075 Stoddard County IDA 6.00 3/01/2037 2,315
----------
47,510
----------
MONTANA (0.4%)
5,000 City of Forsyth 5.00 5/01/2033 5,278
4,000 City of Forsyth 3.90 3/01/2031 4,068
----------
9,346
----------
NEBRASKA (0.3%)
2,000 Central Plains Energy Project 5.00 9/01/2042 2,313
3,400 Douglas County Hospital Auth. 5.00 11/01/2048 3,666
----------
5,979
----------
NEVADA (1.7%)
2,775 City of Carson 5.00 9/01/2047 3,001
4,000 Clark County Department of Aviation
(INS - Assured Guaranty Municipal Corp.) 5.00 7/01/2026 4,088
11,000 Clark County Department of Aviation 5.13 7/01/2034 11,396
5,000 Clark County Department of Aviation
(INS - Assured Guaranty Municipal Corp.) 5.25 7/01/2039 5,190
4,400 Las Vegas Convention & Visitors Auth. 4.00 7/01/2041 4,423
12,140 Las Vegas Convention & Visitors Auth. 4.00 7/01/2046 12,163
----------
40,261
----------
NEW JERSEY (4.5%)
20,000 EDA (MUNIPSA + 1.60%) 3.16(b) 3/01/2028 19,802
10,000 EDA 5.00 6/15/2040 10,474
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 3,000 EDA 5.25% 6/15/2040 $ 3,226
4,000 EDA 5.00 6/15/2041 4,237
6,000 EDA 5.00 9/01/2024 6,280
2,000 EDA 5.00 6/15/2028 2,116
1,200 EDA (INS - Assured Guaranty Municipal Corp.) 5.00 6/01/2042 1,301
3,000 EDA 5.00 6/15/2047 3,177
5,000 Educational Facilities Auth. 5.00 9/01/2036 5,353
3,000 Educational Facilities Auth. 5.00 7/01/2047 3,176
1,250 Health Care Facilities Financing Auth.
(INS - Assured Guaranty Municipal Corp.) 5.00 7/01/2046 1,354
15,000 Health Care Facilities Financing Auth. (PRE) 5.63 7/01/2032 16,420
2,250 Health Care Facilities Financing Auth. 5.00 10/01/2038 2,421
20,000 Morris County Improvement Auth. (LIQ - Deutsche
Bank A.G.) (LOC - Deutsche Bank A.G.)
(Put Date 10/05/2018)(c),(e),(j) 1.96 10/01/2047 20,000
3,000 Tobacco Settlement Financing Corp. 5.00 6/01/2046 3,226
2,000 Transportation Trust Fund Auth. 5.25 6/15/2041 2,149
----------
104,712
----------
NEW MEXICO (0.2%)
5,000 City of Farmington 5.90 6/01/2040 5,311
----------
NEW YORK (2.1%)
2,040 Buffalo & Erie County Industrial Land Dev. Corp. 5.38 10/01/2041 2,185
60 City of New York 5.88 8/01/2019 60
2,250 Dormitory Auth. 5.25 7/01/2029 2,293
16,130 Liberty Dev. Corp. 5.25 10/01/2035 19,630
5,000 MTA (Zero Coupon) 0.00 11/15/2032 2,951
2,000 Thruway Auth. 5.00 1/01/2051 2,183
2,500 Triborough Bridge & Tunnel Auth. (Zero Coupon) 0.00 11/15/2032 1,494
5,000 Triborough Bridge & Tunnel Auth. (Zero Coupon) 0.00 11/15/2031 3,103
3,000 Triborough Bridge & Tunnel Auth. (Zero Coupon) 0.00 11/15/2032 1,780
6,170 Triborough Bridge & Tunnel Auth. (PRE) 5.00 11/15/2031 6,194
3,830 Triborough Bridge & Tunnel Auth. 5.00 11/15/2031 3,845
2,000 Troy Capital Resource Corp. 5.00 9/01/2030 2,089
1,000 TSASC, Inc. 5.00 6/01/2041 1,070
----------
48,877
----------
NORTH CAROLINA (0.8%)
10,000 Capital Facilities Finance Agency 4.63 11/01/2040 10,346
3,750 Charlotte-Mecklenburg Hospital Auth. 5.25 1/15/2034 3,784
5,000 Columbus County Industrial Facilities & Pollution
Control Financing Auth. 6.25 11/01/2033 5,226
----------
19,356
----------
================================================================================
14 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
NORTH DAKOTA (0.7%)
$ 4,685 City of Fargo 6.25% 11/01/2031 $ 5,255
2,500 McLean County 4.88 7/01/2026 2,583
7,500 Ward County 5.00 6/01/2053 7,935
----------
15,773
----------
OHIO (1.8%)
6,000 Air Quality Dev. Auth. acquired 8/11/2009;
cost $6,000(g),(k) 5.70 8/01/2020 4,058
10,000 Buckeye Tobacco Settlement Financing Auth. 5.88 6/01/2030 10,050
10,000 Buckeye Tobacco Settlement Financing Auth. 5.75 6/01/2034 10,000
2,700 City of Centerville 5.25 11/01/2047 2,815
1,000 City of Cleveland (INS - Assured Guaranty
Municipal Corp.) 5.00 1/01/2031 1,075
9,000 Cuyahoga County 4.75 2/15/2047 9,061
2,500 Hamilton County 5.00 1/01/2051 2,622
320 Lake County 5.63 8/15/2029 321
2,000 Turnpike & Infrastructure Commission 5.25 2/15/2033 2,211
----------
42,213
----------
OKLAHOMA (1.1%)
4,200 Comanche County Hospital Auth. 5.00 7/01/2032 4,305
4,500 Dev. Finance Auth. 5.25 8/01/2057 4,306
4,250 Dev. Finance Auth. 5.50 8/15/2057 4,692
10,000 Municipal Power Auth. 4.00 1/01/2047 10,062
2,000 Tulsa County Industrial Auth. 5.25 11/15/2045 2,180
----------
25,545
----------
OREGON (0.2%)
1,030 City of Keizer 5.20 6/01/2031 1,032
2,000 Deschutes County Hospital Facilities Auth. 4.00 1/01/2046 1,987
1,000 Salem Hospital Facility Auth.(d) 5.00 5/15/2048 1,069
1,180 Yamhill County Hospital Auth. 5.00 11/15/2051 1,236
----------
5,324
----------
PENNSYLVANIA (5.0%)
750 Allegheny County Higher Education
Building Auth. (PRE) 5.50 3/01/2031 810
6,500 Allegheny County Hospital Dev. Auth. 5.00 4/01/2047 7,004
355 Allegheny County IDA 5.13 9/01/2031 355
4,000 Allegheny County Sanitary Auth. (INS - Assured
Guaranty Municipal Corp.) 5.00 6/01/2040 4,201
3,170 Allegheny County Sanitary Auth. 5.00 6/01/2043 3,532
5,000 Allentown Commercial & IDA(c) 6.25 7/01/2047 4,857
300 Altoona Area School District (INS - Build America
Mutual Assurance Co.) 5.00 12/01/2048 327
================================================================================
PORTFOLIO OF INVESTMENTS | 15
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 1,000 Altoona Area School District (INS - Build America
Mutual Assurance Co.) 5.00% 12/01/2045 $ 1,094
8,500 Berks County IDA 5.00 11/01/2050 9,162
1,000 Berks County IDA 5.00 5/15/2048 1,056
3,250 Chester County IDA 5.25 10/15/2047 3,324
500 Commonwealth Financing Auth. 5.00 6/01/2035 556
5,000 Delaware River JT Toll Bridge Commission 5.00 7/01/2047 5,605
7,000 Economic Dev. Finance Auth. 4.00 10/01/2023 7,246
480 Erie Parking Auth. (PRE) (INS - Assured Guaranty
Municipal Corp.) 5.13 9/01/2032 508
595 Erie Parking Auth. (PRE) (INS - Assured Guaranty
Municipal Corp.) 5.20 9/01/2035 630
1,390 Erie Parking Auth. (INS - Assured Guaranty
Municipal Corp.) 5.13 9/01/2032 1,457
1,700 Erie Parking Auth. (INS - Assured Guaranty
Municipal Corp.) 5.20 9/01/2035 1,782
1,970 Higher Educational Facilities Auth. 5.25 7/15/2033 2,104
2,750 Higher Educational Facilities Auth. 5.50 7/15/2038 2,929
4,000 Northampton County General Purpose Auth. 4.00 8/15/2040 3,948
2,440 Northampton County General Purpose Auth. 5.00 8/15/2048 2,664
1,000 Philadelphia School District 5.00 9/01/2037 1,086
2,000 Philadelphia School District 5.00 9/01/2038 2,167
2,500 Philadelphia School District 5.00 9/01/2043 2,720
1,025 Scranton School District (INS - Build America
Mutual Assurance Co.) 4.00 12/01/2037 1,025
1,000 State 5.00 7/01/2043 1,085
10,000 Turnpike Commission 5.25 12/01/2044 11,056
3,000 Turnpike Commission 5.00 12/01/2046 3,202
8,000 Turnpike Commission 5.00 6/01/2039 8,660
4,000 Turnpike Commission 5.00 6/01/2042 4,311
4,000 Turnpike Commission 5.00 12/01/2047 4,391
1,000 Turnpike Commission 5.00 12/01/2037 1,094
5,000 Turnpike Commission 5.00 12/01/2043 5,524
1,250 Turnpike Commission, 5.00%, 12/01/2018 0.00(f) 12/01/2033 1,374
3,200 Washington County IDA (PRE) 5.00 11/01/2036 3,352
----------
116,198
----------
PUERTO RICO (0.1%)
2,000 Industrial, Tourist, Educational, Medical,
Environmental Control Facilities Financing Auth. 5.38 4/01/2042 1,800
----------
RHODE ISLAND (0.1%)
2,000 Health & Educational Building Corp. (PRE) 6.00 9/01/2033 2,340
180 Housing & Mortgage Finance Corp. 6.85 10/01/2024 180
----------
2,520
----------
================================================================================
16 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
SOUTH CAROLINA (0.4%)
$ 2,250 Greenwood County (PRE) 5.38% 10/01/2039 $ 2,324
7,000 Public Service Auth. 5.25 12/01/2055 7,518
----------
9,842
----------
SOUTH DAKOTA (0.3%)
500 Educational Enhancement Funding Corp. 5.00 6/01/2027 540
2,500 Health & Educational Facilities Auth. 5.25 11/01/2029 2,576
4,000 Health & Educational Facilities Auth. 5.00 7/01/2042 4,210
----------
7,326
----------
TENNESSEE (1.5%)
23,390 Chattanooga Health Educational & Housing
Facility Board (Put Date 10/05/2018)(e) 1.83 5/01/2039 23,390
1,145 City of Jackson 5.50 4/01/2033 1,148
2,000 Greeneville Health & Educational Facilities Board 5.00 7/01/2044 2,189
2,000 Johnson City Health & Educational Facilities Board 5.00 8/15/2042 2,090
4,000 Metropolitan Government of Nashville & Davidson
County Health & Educational Facilities Board 5.00 7/01/2046 4,336
1,500 Metropolitan Government of Nashville & Davidson
County Health & Educational Facilities Board 5.00 10/01/2045 1,600
----------
34,753
----------
TEXAS (16.1%)
3,000 Arlington Higher Education Finance Corp.
(NBGA - Texas Permanent School Fund) 5.00 2/15/2046 3,286
7,200 Arlington Higher Education Finance Corp.
(NBGA - Texas Permanent School Fund) 5.00 12/01/2053 7,859
5,340 Bell County Health Facilities Dev. Corp. (ETM) 6.50 7/01/2019 5,522
8,450 Bexar County Health Facilities Dev. Corp. 4.00 7/15/2045 8,127
600 Bexar County Health Facilities Dev. Corp. 5.00 7/15/2042 640
6,000 Central Texas Regional Mobility Auth. (PRE) 5.75 1/01/2031 6,466
2,500 Central Texas Regional Mobility Auth. 5.00 1/01/2042 2,655
3,500 Central Texas Regional Mobility Auth. 5.00 1/01/2045 3,804
5,000 Central Texas Regional Mobility Auth. 4.00 1/01/2041 4,963
6,500 Central Texas Turnpike System 5.00 8/15/2042 6,921
18,530 Central Texas Turnpike System (INS - AMBAC
Assurance Corp.) (Zero Coupon) 0.00 8/15/2030 12,189
3,850 Central Texas Turnpike System 5.00 8/15/2041 4,113
7,500 City of Arlington (INS - Assured Guaranty
Municipal Corp.) 5.00 2/15/2048 8,329
5,900 City of Corpus Christi Utility System 4.00 7/15/2039 5,999
9,000 City of Fort Worth (PRE) 6.00 3/01/2029 9,150
8,085 City of Fort Worth (PRE) 6.25 3/01/2033 8,231
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 3,715 City of Houston 5.00% 9/01/2040 $ 4,014
2,390 City of Irving 5.00 8/15/2043 2,401
700 City of Laredo Waterworks & Sewer System 4.00 3/01/2041 706
1,000 Clifton Higher Education Finance Corp. 6.00 8/15/2033 1,116
2,750 Clifton Higher Education Finance Corp. 6.00 8/15/2043 3,028
4,250 Clifton Higher Education Finance Corp.
(NBGA - Texas Permanent School Fund) 5.00 8/15/2039 4,642
10,000 Clifton Higher Education Finance Corp.
(NBGA - Texas Permanent School Fund)(d) 5.00 8/15/2048 11,136
4,000 Dallas/Fort Worth International Airport 5.00 11/01/2034 4,198
6,500 Del Mar College District 5.00 8/15/2048 7,151
4,000 Harris County Cultural Education Facilities
Finance Corp. 5.25 10/01/2029 4,122
6,100 Harris County Cultural Education Facilities
Finance Corp. 5.00 6/01/2038 6,407
1,500 Harris County Health Facilities Dev. Corp. (PRE) 7.25 12/01/2035 1,513
15,000 Harris County Hospital District 4.00 2/15/2042 14,753
7,000 Harris County IDC (PRE) 5.00 2/01/2023 7,239
10,000 Houston Higher Education Finance Corp. 5.00 9/01/2042 10,726
6,000 Karnes County Hospital District 5.00 2/01/2044 6,152
1,900 Kerrville Health Facilities Dev. Corp. 5.00 8/15/2035 2,026
3,000 Laredo CCD (PRE) (INS - Assured Guaranty
Municipal Corp.) 5.25 8/01/2035 3,170
15,000 Little Elm ISD (NBGA - Texas Permanent
School Fund) 5.00 8/15/2046 16,937
5,300 Matagorda County Navigation District No. 1 6.30 11/01/2029 5,566
9,615 Matagorda County Navigation District No. 1 4.00 6/01/2030 9,933
6,000 Matagorda County Navigation District No. 1 4.00 6/01/2030 6,199
15,000 Midlothian ISD (NBGA - Texas Permanent
School Fund) 5.00 2/15/2047 16,689
1,250 New Hope Cultural Education Facilities Finance Corp. 5.00 4/01/2048 1,265
1,000 New Hope Cultural Education Facilities Finance Corp. 5.00 7/01/2047 1,013
1,000 New Hope Cultural Education Facilities Finance Corp. 5.00 7/01/2047 969
6,000 New Hope Cultural Education Facilities Finance Corp. 5.00 7/01/2047 5,271
1,000 New Hope Cultural Education Facilities Finance Corp.
(INS - Assured Guaranty Municipal Corp.) 5.00 7/01/2048 1,073
5,000 North Fort Bend Water Auth. 5.00 12/15/2036 5,357
3,000 North Texas Tollway Auth. (PRE) (Zero Coupon) 0.00 9/01/2037 1,268
5,000 North Texas Tollway Auth. 5.00 1/01/2045 5,444
5,000 North Texas Tollway Auth. (INS - National Public
Finance Guarantee Corp.) 5.00 1/01/2048 5,466
4,500 Port of Port Arthur Navigation District
(Put Date 10/01/2018)(e) 1.80 4/01/2040 4,500
================================================================================
18 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 2,200 Port of Port Arthur Navigation District
(Put Date 10/01/2018)(e) 1.80% 4/01/2040 $ 2,200
9,520 Port of Port Arthur Navigation District
(Put Date 10/01/2018)(e) 1.85 4/01/2040 9,520
30,000 Port of Port Arthur Navigation District
(Put Date 10/05/2018)(e) 1.81 11/01/2040 30,000
7,000 Princeton Independent School District
(NBGA - Texas Permanent School Fund) 5.00 2/15/2048 7,868
2,000 Red River Education Finance Corp. 4.00 6/01/2041 1,930
3,000 Red River Education Finance Corp. 5.50 10/01/2046 3,301
4,500 Tarrant County Cultural Education Facilities
Finance Corp. 5.00 11/15/2045 4,638
6,315 Tarrant County Cultural Education Facilities
Finance Corp. 5.63 11/15/2027 5,357
4,000 Tarrant County Cultural Education Facilities
Finance Corp. 5.75 11/15/2037 3,386
3,600 Tarrant County Cultural Education Facilities
Finance Corp. 5.00 11/15/2036 3,731
7,000 Tarrant County Cultural Education Facilities
Finance Corp. 5.00 11/15/2046 7,337
2,500 Tarrant County Cultural Education Facilities
Finance Corp. 6.75 11/15/2047 2,750
4,000 Tarrant County Cultural Education Facilities
Finance Corp. 6.75 11/15/2052 4,385
1,000 Tarrant County Cultural Education Facilities
Finance Corp. 5.00 11/15/2046 1,053
1,000 Uptown Dev. Auth. (PRE) 5.50 9/01/2029 1,031
1,645 Uptown Dev. Auth. 5.00 9/01/2039 1,782
4,770 Wood County Central Hospital District (PRE) 6.00 11/01/2041 5,269
----------
375,242
----------
VERMONT (0.1%)
3,000 Educational & Health Buildings Financing Agency 5.00 10/15/2046 3,190
----------
VIRGINIA (1.2%)
5,000 Alexandria IDA 5.00 10/01/2050 5,430
5,000 College Building Auth. 5.00 6/01/2029 4,951
11,280 College Building Auth. 5.00 6/01/2026 11,251
3,634 Lewistown Commerce Center Community Dev. Auth. 6.05 3/01/2044 3,499
1,752 Lewistown Commerce Center Community Dev. Auth. 6.05 3/01/2044 1,687
5,697 Lewistown Commerce Center Community Dev. Auth.(g) 6.05 3/01/2054 1,040
869 Watkins Centre Community Dev. Auth. 5.40 3/01/2020 870
----------
28,728
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
WASHINGTON (1.4%)
$ 22,000 Health Care Facilities Auth. (LIQ - Deutsche
Bank A.G.) (LOC - Deutsche Bank A.G.)
(Put Date 10/05/2018)(c),(e) 1.73% 1/01/2035 $ 22,000
2,500 Health Care Facilities Auth. (PRE) (INS - Assured
Guaranty Corp.) 6.00 8/15/2039 2,586
5,500 Health Care Facilities Auth. 4.00 7/01/2042 5,475
3,055 Housing Finance Commission 5.00 1/01/2043 3,311
----------
33,372
----------
WEST VIRGINIA (0.2%)
2,000 EDA 5.38 12/01/2038 2,119
2,000 Hospital Finance Auth. 5.00 1/01/2043 2,183
----------
4,302
----------
WISCONSIN (1.4%)
7,800 City of Kaukauna (INS - Assured Guaranty
Municipal Corp.) 5.00 12/15/2035 8,463
5,000 Health & Educational Facilities Auth. 5.75 11/15/2030 5,115
2,500 Health & Educational Facilities Auth. (PRE) 5.38 8/15/2037 2,616
1,000 Health & Educational Facilities Auth. 5.00 9/15/2045 1,034
5,000 Health & Educational Facilities Auth. 5.00 9/15/2050 5,184
2,200 Public Finance Auth.(c) 5.25 5/15/2042 2,375
1,000 Public Finance Auth. 5.00 7/01/2047 1,027
1,000 Public Finance Auth. 5.00 7/01/2052 1,022
6,000 Public Finance Auth. 5.00 7/01/2044 6,633
----------
33,469
----------
WYOMING (0.3%)
6,000 Sweetwater County 5.25 7/15/2026 6,159
----------
Total Municipal Obligations (cost: $2,291,462) 2,307,725
----------
TOTAL INVESTMENTS (COST: $2,291,462) $2,307,725
==========
================================================================================
20 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
-------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
-------------------------------------------------------------------------------------------------------------
Municipal Obligations $- $2,307,725 $- $2,307,725
-------------------------------------------------------------------------------------------------------------
Total $- $2,307,725 $- $2,307,725
-------------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
-------------------------------------------------------------------------------------------------------------
RECONCILIATION OF LEVEL 3 INVESTMENTS
-------------------------------------------------------------------------------------------------------------
($ IN 000s) MUNICIPAL OBLIGATIONS
-------------------------------------------------------------------------------------------------------------
Balance as of March 31, 2018 $ 4,175
Purchases -
Sales (3,885)
Transfers into Level 3 -
Transfers out of Level 3 -
Net realized gain (loss) on investments (7,697)
Change in net unrealized appreciation/(depreciation) of investments 7,407
-------------------------------------------------------------------------------------------------------------
Balance as of September 30, 2018 $ -
-------------------------------------------------------------------------------------------------------------
For the period of April 1, 2018, through September 30, 2018, there were no
transfers of securities between levels. The Fund's policy is to recognize
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 | 21
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
September 30, 2018 (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 PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS
CCD Community College District
EDA Economic Development Authority
EDC Economic Development Corp.
ETM Escrowed to final maturity
HSD High School District
IDA Industrial Development Authority/Agency
IDB Industrial Development Board
IDC Industrial Development Corp.
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
Zero Coupon Normally issued at a significant discount from face value
and do not provide for periodic interest payments. Income is
earned from the purchase date by accreting the purchase
discount of the security to par over the life of the
security.
================================================================================
22 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
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 the name listed.
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 the
name listed.
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 name listed.
o SPECIFIC NOTES
(a) Put bond - provides 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.
(b) Floating-rate security - interest rate is adjusted periodically. The
interest rate disclosed represents the rate at September 30, 2018.
(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.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 23
================================================================================
(d) Security or a portion of the security purchased on a delayed-delivery
and/or when-issued basis.
(e) 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. VRDNs will normally trade as if the maturity is the earlier put
date, even though stated maturity is longer. The interest rate is reset
on the put date at a stipulated daily, weekly, monthly, quarterly, or
other specified time interval to reflect current market conditions.
These securities do not indicate a reference rate and spread in their
description.
(f) 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.
(g) Security deemed illiquid by USAA Asset Management Company, under
liquidity guidelines approved by USAA Mutual Funds Trust's Board of
Trustees.
(h) Payment-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.
(i) Up to 6.05% of the coupon may be PIK.
(j) At September 30, 2018, the security, or a portion thereof, was
segregated to cover delayed-delivery and/or when-issued purchases.
(k) Restricted security that is not registered under the Securities Act of
1933. The aggregate market value of these securities at September 30,
2018, was $4,058,000, which represented 0.2% of the Fund's net assets.
See accompanying notes to financial statements.
================================================================================
24 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
September 30, 2018 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $2,291,462) $2,307,725
Receivables:
Capital shares sold 698
Interest 28,868
Securities sold 20,003
----------
Total assets 2,357,294
----------
LIABILITIES
Payables:
Securities purchased 28,180
Capital shares redeemed 1,461
Bank overdraft 270
Dividends on capital shares 1,379
Accrued management fees 537
Accrued transfer agent's fees 19
Other accrued expenses and payables 147
----------
Total liabilities 31,993
----------
Net assets applicable to capital shares outstanding $2,325,301
==========
NET ASSETS CONSIST OF:
Paid-in capital $2,370,003
Distributable earnings loss (44,702)
----------
Net assets applicable to capital shares outstanding $2,325,301
==========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $2,317,229/177,875 capital shares
outstanding, no par value) $ 13.03
==========
Adviser Shares (net assets of $8,072/620 capital shares
outstanding, no par value) $ 13.01
==========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 25
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended September 30, 2018 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Interest income $ 49,689
--------
EXPENSES
Management fees 3,297
Administration and servicing fees:
Fund Share 1,761
Adviser Shares 6
Transfer agent's fees:
Fund Shares 346
Adviser Shares.. 1
Distribution and service fees (Note 6):
Adviser Shares 10
Custody and accounting fees:
Fund Shares. 153
Adviser Shares 1
Postage:
Fund Shares 21
Shareholder reporting fees:
Fund Shares 17
Trustees' fees 18
Registration fees:
Fund Shares 24
Adviser Shares 13
Professional fees 57
Other 21
--------
Total expenses 5,746
Expenses reimbursed:
Adviser Shares (13)
--------
Net expenses 5,733
--------
NET INVESTMENT INCOME 43,956
--------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Net realized loss (6,265)
Change in net unrealized appreciation/(depreciation) (25,856)
--------
Net realized and unrealized loss (32,121)
--------
Increase in net assets resulting from operations $ 11,835
========
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, 2018 (unaudited), and year ended March 31,
2018
--------------------------------------------------------------------------------------------------------
9/30/2018 3/31/2018
--------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 43,956 $ 91,467
Net realized gain (loss) on investments (6,265) 4,042
Change in net unrealized appreciation/(depreciation)
of investments (25,856) (10,384)
-----------------------------------
Increase in net assets resulting from operations 11,835 85,125
-----------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM DISTRIBUTABLE EARNINGS:
Fund Shares (43,698) (92,056)
Adviser Shares (147) (335)
-----------------------------------
Distributions to shareholders (43,845) (92,391)
-----------------------------------
NET INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS (NOTE 5)
Fund Shares (9,829) 23,051
Adviser Shares (392) (2,394)
-----------------------------------
Total net increase (decrease) in net assets from
capital share transactions (10,221) 20,657
-----------------------------------
Net increase (decrease) in net assets (42,231) 13,391
NET ASSETS
Beginning of period 2,367,532 2,354,141
-----------------------------------
End of period $2,325,301 $2,367,532
===================================
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 27
================================================================================
NOTES TO FINANCIAL STATEMENTS
September 30, 2018 (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 47 separate funds. The
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 and Liquidity Committee (the Committee), and
subject to Board oversight, the Committee administers and oversees
================================================================================
28 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
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 extent the
================================================================================
NOTES TO FINANCIAL STATEMENTS | 29
================================================================================
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.
================================================================================
30 | USAA TAX EXEMPT LONG-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.
C. INVESTMENTS IN SECURITIES - Securities transactions are accounted for as of
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.
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.
For the six-month period ended September 30, 2018, 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.
E. SECURITIES PURCHASED ON A DELAYED-DELIVERY OR WHEN-ISSUED BASIS - Delivery
and payment for securities that have been purchased by the Fund on a
================================================================================
NOTES TO FINANCIAL STATEMENTS | 31
================================================================================
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. INDEMNIFICATIONS - Under the Trust's organizational documents, its officers
and trustees are indemnified against certain liabilities arising out of the
performance of their duties to the Trust. In addition, in the normal course
of business, the Trust enters into contracts that contain a variety of
representations and warranties that provide general indemnifications. The
Trust's maximum exposure under these arrangements is unknown, as this would
involve future claims that may be made against the Trust that have not yet
occurred. However, the Trust expects the risk of loss to be remote.
G. USE OF ESTIMATES - The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts in the
financial statements.
(2) LINE OF CREDIT
The Fund participates, 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.
================================================================================
32 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
The Trusts are also assessed facility fees by CAPCO in the amount of 14.0 basis
points of the amount of the committed loan agreement. Prior to September 30,
2018, the maximum annual facility fee was 13.0 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 daily 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 15.0 basis points.
For the six-month period ended September 30, 2018, the Fund paid CAPCO facility
fees of $9,000, which represents 2.8% of the total fees paid to CAPCO by the
funds of the Trusts. The Fund had no borrowings under this agreement during the
six-month period ended September 30, 2018.
(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, 2019, in
accordance with applicable federal tax law.
Net investment income is accrued daily as dividends and distributed to
shareholders monthly. Distributions of realized gains from security transactions
not offset by capital losses are made annually in the succeeding fiscal year or
as otherwise required to avoid the payment of federal taxes.
At March 31, 2018, the Fund had net capital loss carryforwards of $54,200,000,
for federal income tax purposes as shown in the table below. It is unlikely that
the Board will authorize a distribution of capital gains realized in the future
until the capital loss carryforwards have been used.
CAPITAL LOSS CARRYFORWARDS
--------------------------------------
TAX CHARACTER
--------------------------------------
(NO EXPIRATION) BALANCE
--------------- -----------
Short-Term $11,875,000
Long-Term 42,325,000
-----------
Total $54,200,000
===========
================================================================================
NOTES TO FINANCIAL STATEMENTS | 33
================================================================================
As of September 30, 2018, 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, 2018 were $82,679,000 and $66,416,000, respectively, resulting in net
unrealized appreciation of $16,263,000.
(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, 2018, were
$158,458,000 and $143,271,000, respectively.
In accordance with affiliated transaction procedures approved by the Board,
purchases and sales of security transactions were executed between the Fund and
affiliated USAA Funds at the then-current market price with no brokerage
commissions incurred. The affiliated transactions executed by the Fund,
including short-term securities, during the six-month period ended September 30,
2018 were as follows:
PURCHASES SALES REALIZED GAIN/(LOSS)
--------------------------------------------------------------------------------
$23,150,000 $73,095,000 $-
(5) CAPITAL SHARE TRANSACTIONS
At September 30, 2018, there were an unlimited number of shares of capital stock
at no par value authorized for the Fund.
================================================================================
34 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
Capital share transactions for all classes were as follows, in thousands:
SIX-MONTH PERIOD ENDED YEAR ENDED
SEPTEMBER 30, 2018 MARCH 31, 2018
--------------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------
FUND SHARES:
Shares sold 6,518 $ 85,805 14,867 $ 198,709
Shares issued from reinvested
dividends 2,622 34,492 5,392 71,973
Shares redeemed (9,887) (130,126) (18,535) (247,631)
-----------------------------------------------------------------
Net increase (decrease) from
capital share transactions (747) $ (9,829) 1,724 $ 23,051
=================================================================
ADVISER SHARES:
Shares sold 8 $ 108 23 $ 305
Shares issued from reinvested
dividends 4 47 10 129
Shares redeemed (42) (547) (212) (2,828)
-----------------------------------------------------------------
Net increase (decrease) from
capital share transactions (30) $ (392 ) (179) $ (2,394)
=================================================================
(6) TRANSACTIONS WITH MANAGER
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 daily net assets.
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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 35
================================================================================
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 Lipper index, rounded
to the nearest basis point. Average daily 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
daily 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, 2018, the Fund incurred management
fees, paid or payable to the Manager, of $3,297,000, which included a
performance adjustment of (0.04)% for the Adviser Shares of $2,000. The Fund
Shares did not incur any performance adjustment.
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
daily net assets for both the Fund Shares and Adviser Shares. For the six-month
period ended September 30, 2018, the Fund
================================================================================
36 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
Shares and Adviser Shares incurred administration and servicing fees, paid or
payable to the Manager, of $1,761,000 and $6,000, respectively.
In addition to the services provided under its Administration and Servicing
Agreement with the Fund, the Manager also provides certain compliance and legal
services for the benefit of the Fund. The Board has approved the reimbursement
of a portion of these expenses incurred by the Manager. For the six-month period
ended September 30, 2018, 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.
EXPENSE LIMITATION - The Manager agreed, through July 31, 2019, to limit the
total annual operating expenses of the Adviser Shares to 0.70% of its average
daily 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, 2019, 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, 2018, the Adviser Shares incurred
reimbursable expenses of $13,000.
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, 2018, the Fund Shares and Adviser Shares incurred transfer agent's
fees, paid or payable to SAS, of $346,000 and $1,000, respectively.
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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 37
================================================================================
daily and paid monthly at an annual rate of 0.25% of the Adviser Shares' average
daily 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, 2018, the Adviser Shares incurred distribution and
service (12b-1) fees of $10,000.
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,
2018, USAA and its affiliates owned 377,000 Adviser Shares, which represents
60.8% 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 SEC issued Final Rule Release No. 33-10233, INVESTMENT
COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS (Liquidity Rule). The Liquidity Rule
requires funds to establish a liquidity risk management program and enhances
disclosures regarding funds' liquidity. The requirements to implement a
liquidity risk management program and establish a 15% illiquid investment limit
are effective December 1, 2018. However, in February 2018, the SEC issued
Release No. IC-33010, INVESTMENT COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS;
COMMISSION GUIDANCE FOR IN-KIND ETFs, which delayed certain requirements related
to liquidity classification, highly liquid investment minimums, and board
approval of the liquidity risk management programs to June 1, 2019. The Manager
continues to evaluate the impact of this rule on the Fund's financial statements
and various filings.
================================================================================
38 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
(9) UPCOMING ACCOUNTING PRONOUNCEMENTS
(ASU) 2017-08, PREMIUM AMORTIZATION OF PURCHASED CALLABLE DEBT SECURITIES
-------------------------------------------------------------------------
In March 2017, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Update (ASU) 2017-08, Premium Amortization of Purchased Callable Debt
Securities. The amendments in the ASU shorten the premium amortization period on
a purchased callable debt security from the security's contractual life to the
earliest call date. It is anticipated that this change will enhance reporting
disclosures by reducing losses recognized when a security is called on an
earlier date. This ASU is effective for fiscal years beginning after December
15, 2018. The Manager continues to evaluate the impact this ASU will have on the
financial statements and other reporting disclosures.
(ASU) 2018-13, FAIR VALUE MEASUREMENT
-------------------------------------
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820).
The amendments in the ASU impact disclosure requirements for fair value
measurement. It is anticipated that this change will enhance the effectiveness
of disclosures in the notes to the financial statements. This ASU is effective
for fiscal years beginning after December 15, 2019. Early adoption is permitted
and can include the entire standard or certain provisions that exclude or amend
disclosures. The adoption of this ASU guidance is not expected to have a
material impact on the financial statements and other disclosures.
(10) RECENTLY ADOPTED ACCOUNTING STANDARD
In August 2018, the U.S. Securities and Exchange Commission (SEC) adopted
amendments to Regulation S-X for investment companies governing the form and
content of financial statements. The amendments to Regulation S-X took effect on
November 5, 2018, and the financial statements have been modified accordingly,
for the current and prior period.
(11) SUBSEQUENT EVENT
On November 6, 2018, United Services Automobile Association ("USAA"), the parent
company of USAA Asset Management Company ("AMCO"), the investment adviser to the
Funds, and USAA Transfer Agency Company d.b.a.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 39
================================================================================
USAA Shareholder Account Services ("SAS"), the transfer agent to the Funds,
announced that AMCO and SAS would be acquired by Victory Capital Holdings, Inc.
("Victory"), a global investment management firm headquartered in Cleveland,
Ohio (the "Transaction"). The closing of the Transaction is expected to be
completed during the second quarter of 2019, pending satisfaction of certain
closing conditions and approvals, including certain approvals of the Funds'
Board of Trustees and of Fund shareholders at a special shareholder meeting to
be held in 2019.
The Transaction is not expected to result in any material changes to the Funds'
respective investment objectives and principal investment strategies.
================================================================================
40 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
FINANCIAL HIGHLIGHTS
FUND SHARES (UNAUDITED)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
SEPTEMBER 30, YEAR ENDED MARCH 31,
-----------------------------------------------------------------------------------------------
2018 2018 2017 2016 2015 2014
-----------------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 13.21 $ 13.25 $ 13.73 $ 13.78 $ 13.45 $ 13.91
-----------------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .25 .51 .54 .58 .58 .56
Net realized and
unrealized gain (loss) (.18) (.03) (.48) (.05) .32 (.46)
-----------------------------------------------------------------------------------------------
Total from investment
operations .07 .48 .06 .53 .90 .10
-----------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.25) (.52) (.54) (.58) (.57) (.56)
-----------------------------------------------------------------------------------------------
Net asset value at
end of period $ 13.03 $ 13.21 $ 13.25 $ 13.73 $ 13.78 $ 13.45
===============================================================================================
Total return (%)* .49 3.62 .41 3.94 6.79 .83
Net assets at end
of period (000) $2,317,229 $2,358,955 $2,343,165 $2,421,551 $2,386,904 $2,251,219
Ratios to average daily
net assets:**
Expenses (%)(c) .49(a) .47 .48(b) .51(b) .55(b) .54(b)
Net investment
income (%) 3.73(a) 3.83 3.97 4.23 4.22 4.19
Portfolio turnover (%) 7 14 15 6 7 7
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from
the Lipper reported return. Total returns for periods of less than one year
are not annualized.
** For the six-month period ended September 30, 2018, average daily net assets
were $2,341,089,000.
(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 ratio by 0.01%.
(c) Does not include acquired fund fees, if any.
================================================================================
FINANCIAL HIGHLIGHTS | 41
================================================================================
ADVISER SHARES (UNAUDITED)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
SEPTEMBER 30, YEAR ENDED MARCH 31,
----------------------------------------------------------------------------------------
2018 2018 2017 2016 2015 2014
----------------------------------------------------------------------------------------
Net asset value at
beginning of period $13.19 $ 13.23 $ 13.71 $ 13.76 $ 13.43 $13.91
--------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .23 .48 .49 .54 .54 .51
Net realized and
unrealized gain (loss) (.18) (.04) (.48) (.05) .32 (.47)
--------------------------------------------------------------------------------------
Total from investment
operations .05 .44 .01 .49 .86 .04
--------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.23) (.48) (.49) (.54) (.53) (.52)
--------------------------------------------------------------------------------------
Net asset value at
end of period $13.01 $ 13.19 $ 13.23 $ 13.71 $ 13.76 $13.43
======================================================================================
Total return (%)* .39 3.36 .07 3.65 6.52 .37
Net assets at end of
period (000) $8,072 $ 8,577 $10,976 $11,249 $10,896 $7,145
Ratios to average daily net
assets:**
Expenses (%)(e) .70(a) .74(b) .80(c) .80(c) .81(c),(d) .85(c)
Expenses, excluding
reimbursements (%)(e) 1.00(a) .92 .87(c) .90(c) .99(c) 1.07(c)
Net investment income (%) 3.52(a) 3.57 3.64 3.94 3.94 3.88
Portfolio turnover (%) 7 14 15 6 7 7
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from
the Lipper reported return. Total returns for periods of less than one year
are not annualized.
** For the six-month period ended September 30, 2018, average daily net assets
were $8,370,000.
(a) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(b) Prior to August 1, 2017, the Manager voluntarily agreed to reimburse the
Adviser Shares for expenses in excess of 0.80% of their annual average daily
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 ratio by 0.01%.
(d) Prior to August 1, 2014, the Manager voluntarily agreed to reimburse the
Adviser Shares for expenses in excess of 0.85% of their annual average daily
net assets.
(e) Does not include acquired fund fees, if any.
================================================================================
42 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
EXPENSE EXAMPLE
September 30, 2018 (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, 2018, through
September 30, 2018.
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 | 43
================================================================================
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, 2018 -
APRIL 1, 2018 SEPTEMBER 30, 2018 SEPTEMBER 30, 2018
------------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $1,004.90 $2.46
Hypothetical
(5% return before expenses) 1,000.00 1,022.61 2.48
ADVISER SHARES
Actual 1,000.00 1,003.90 3.52
Hypothetical
(5% return before expenses) 1,000.00 1,021.56 3.55
*Expenses are equal to the annualized expense ratio of 0.49% for Fund Shares and
0.70% for Adviser Shares, which are net of any reimbursements and expenses paid
indirectly, multiplied by the average account value over the period, multiplied
by 183 days/365 days (to reflect the one-half-year period). The Fund's actual
ending account values are based on its actual total returns of 0.49% for Fund
Shares and 0.39% for Adviser Shares for the six-month period of April 1, 2018,
through September 30, 2018.
================================================================================
44 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
ADVISORY AGREEMENT
September 30, 2018 (unaudited)
--------------------------------------------------------------------------------
At an in-person meeting of the Board of Trustees (the Board) held on April 18,
2018, 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
================================================================================
ADVISORY AGREEMENT | 45
================================================================================
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 also considered the significant risks assumed by the Manager in
connection with the services provided to the Fund, including investment,
operational, enterprise, litigation, regulatory and compliance risks.
================================================================================
46 | USAA TAX EXEMPT LONG-TERM FUND
================================================================================
The Board considered the Manager's management style and the performance of its
duties under the Advisory Agreement. The Board considered the level and depth of
knowledge of the Manager, including the professional experience and
qualifications of its senior and investment personnel, as well as current
staffing levels. The allocation of the Fund's brokerage, including the Manager's
process for monitoring "best execution," also was considered. The Manager's
role in coordinating the activities of the Fund's other service providers also
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 and its affiliates, 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
================================================================================
ADVISORY AGREEMENT | 47
================================================================================
median of its expense group and its expense universe. The data indicated that
the Fund's total expense ratio was below the median of its expense group and its
expense universe. The Board took into account the various services provided to
the Fund by the Manager and its affiliates, including the high quality of
services provided by the Manager. The Board also noted the level and method of
computing the management fee, including any performance adjustment to such fee.
In considering the Fund's performance, the Board noted that it reviews at its
regularly scheduled meetings information about the Fund's performance results.
The Trustees also reviewed various comparative data provided to them in
connection with their consideration of the renewal of the Advisory Agreement,
including, among other information, a comparison of the Fund's average annual
total return with its Lipper index and with that of other mutual funds deemed to
be in its peer group by the independent third party in its report (the
"performance universe"). The Fund's performance universe consisted of the Fund
and all retail and institutional open-end investment companies with the same
classification/objective as the Fund regardless of asset size or primary channel
of distribution. This comparison indicated that, among other data, the Fund's
performance was above the average of its performance universe and its Lipper
index for the one-, three-, five-, and ten-year periods ended December 31,
2017. 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, 2017, was in the top 30% of its performance universe for the three-year
period ended December 31, 2017, was in the top 25% of its performance universe
for the five-year period ended December 31, 2017, and was in the top 20% of its
performance universe for the ten-year period ended December 31, 2017.
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
================================================================================
48 | USAA TAX EXEMPT LONG-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 | 49
================================================================================
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, State Street Bank and Trust Company
ACCOUNTING AGENT, AND P.O. Box 1713
SUB-ADMINISTRATOR Boston, Massachusetts 02105
--------------------------------------------------------------------------------
INDEPENDENT Ernst & Young LLP
REGISTERED PUBLIC 100 West Houston St., Suite 1700
ACCOUNTING FIRM San Antonio, Texas 78205
--------------------------------------------------------------------------------
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
--------------
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================================================================================
39596-1118 (C)2018, USAA. All rights reserved.
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USAA(R)
[GRAPHIC OF USAA TAX EXEMPT MONEY MARKET FUND]
==============================================================
SEMIANNUAL REPORT
USAA TAX EXEMPT MONEY MARKET FUND (USEXX)
SEPTEMBER 30, 2018
==============================================================
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
INVESTMENT OVERVIEW 1
FINANCIAL INFORMATION
Portfolio of Investments 2
Notes to Portfolio of Investments 12
Financial Statements 14
Notes to Financial Statements 17
Financial Highlights 25
EXPENSE EXAMPLE 26
ADVISORY AGREEMENT 28
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.
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.
(C)2018, USAA. All rights reserved.
================================================================================
================================================================================
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
o TOP 10 INDUSTRIES - 9/30/18 o
(% of Net Assets)
Education ............................................................... 15.1%
Electric Utilities ...................................................... 12.3%
General Obligation ...................................................... 8.9%
Hospital ................................................................ 8.0%
Community Service ....................................................... 5.4%
Nursing/CCRC ............................................................ 4.0%
Sales Tax ............................................................... 3.9%
Agricultural Products ................................................... 3.7%
Special Assessment/Tax/Fee .............................................. 3.6%
Steel ................................................................... 3.5%
Refer to the Portfolio of Investments for a complete list of securities.
================================================================================
INVESTMENT OVERVIEW | 1
================================================================================
PORTFOLIO OF INVESTMENTS
September 30, 2018 (unaudited)
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PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
MUNICIPAL OBLIGATIONS (99.4%)
ALABAMA (4.3%)
$ 30,000 City of Mobile IDB (Put Date 10/05/2018)(a) 1.58% 6/01/2034 $ 30,000
10,000 Columbia IDB (Put Date 10/05/2018)(a) 1.58 12/01/2037 10,000
860 Huntsville-Oakwood College Educational
Building Auth. (LOC - BB&T Corp.)
(Put Date 10/05/2018)(a) 1.51 12/01/2022 860
25,500 Mobile County IDA (LOC - Swedbank AB)
(Put Date 10/05/2018)(a) 1.59 7/01/2040 25,500
5,190 West Jefferson IDB (Put Date 10/05/2018)(a) 1.66 6/01/2028 5,190
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71,550
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ARKANSAS (0.3%)
5,175 City of Texarkana (LOC - PNC Financial Services
Group) (Put Date 10/05/2018)(a) 1.71 3/01/2021 5,175
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CALIFORNIA (8.6%)
3,250 Alameda County IDA (LOC - Comerica Bank, N.A.)
(Put Date 10/05/2018)(a) 1.58 12/01/2040 3,250
3,700 Alameda County IDA (LOC - BNP Paribas)
(Put Date 10/05/2018)(a) 1.58 12/01/2040 3,700
7,000 Antioch Unified School District (LIQ - Deutsche
Bank A.G.) (LOC - Deutsche Bank A.G.)
(Put Date 10/05/2018)(a),(b) 1.61 8/01/2047 7,000
5,885 City of Los Angeles (LOC - U.S. Bancorp) (Put Date
10/05/2018)(a) 1.49 8/01/2035 5,885
10,000 Enterprise Dev. Auth. (LOC - Federal Home Loan
Bank of San Francisco) (Put Date 10/05/2018)(a),(b) 1.61 12/01/2042 10,000
4,765 Infrastructure & Economic Dev. Bank (LOC - Federal
Home Loan Bank of San Francisco) (Put Date
10/05/2018)(a),(b) 1.52 12/01/2040 4,765
1,120 Pollution Control Financing Auth. (LOC - Comerica
Bank, N.A.) (Put Date 10/05/2018)(a) 1.57 12/01/2030 1,120
3,200 Pollution Control Financing Auth. (LOC - BNP
Paribas) (Put Date 10/05/2018)(a) 1.59 11/01/2019 3,200
11,300 Sacramento City Financing Auth. (LIQ - Deutsche
Bank A.G.) (LOC - Deutsche Bank A.G.)
(Put Date 10/05/2018)(a),(b) 1.66 12/01/2033 11,300
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2 | USAA TAX EXEMPT MONEY MARKET FUND
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PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 26,900 San Diego County Water Auth. 1.35% 10/02/2018 $ 26,900
22,000 San Diego County Water Auth. 1.45 10/02/2018 22,000
16,000 State (LIQ - Deutsche Bank A.G.) (Put Date
10/05/2018)(a),(b) 1.66 11/01/2044 16,000
4,725 Statewide Communities Dev. Auth. (LOC - Federal
Home Loan Bank of Des Moines) (LOC - Federal
Home Loan Bank of San Francisco) (Put Date
10/05/2018)(a) 1.52 3/01/2057 4,725
4,805 Statewide Communities Dev. Auth. (LIQ - J.P.
Morgan Chase & Co.) (Put Date 10/05/2018)(a),(b) 1.56 10/01/2020 4,805
20,000 Statewide Communities Dev. Auth. 1.45 12/05/2018 20,000
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144,650
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COLORADO (0.5%)
8,700 Sheridan Redev. Agency (LOC - J.P.Morgan
Chase & Co.) (Put Date 10/05/2018)(a) 1.65 12/01/2029 8,700
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CONNECTICUT (0.3%)
5,000 Health & Educational Facilities Auth. (LOC - Bank
of America Corp.) (Put Date 10/05/2018)(a) 1.59 7/01/2030 5,000
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DISTRICT OF COLUMBIA (0.9%)
1,200 District of Columbia (LOC - Bank of America Corp.)
(Put Date 10/05/2018)(a) 1.71 7/01/2022 1,200
13,900 Metropolitan Washington Airports Auth.
(LOC - Sumitomo Mitsui Banking Corp.)
(Put Date 10/05/2018)(a) 1.54 10/01/2039 13,900
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15,100
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FLORIDA (4.0%)
2,600 City of Jacksonville (Put Date 10/01/2018)(a) 1.68 5/01/2029 2,600
4,435 Dade County IDA (Put Date 10/01/2018)(a) 1.68 4/01/2020 4,435
19,000 Escambia County (Put Date 10/01/2018)(a) 1.73 4/01/2039 19,000
11,825 Grove Resort Community Dev. District (LIQ -
Deutsche Bank A.G.) (LOC - Deutsche Bank A.G.)
(Put Date 10/05/2018)(a),(b) 1.86 4/15/2022 11,825
2,050 Lee County IDA (LOC - Fifth Third Bank)
(Put Date 10/05/2018)(a) 1.77 6/01/2025 2,050
27,360 St. Lucie County (Put Date 10/01/2018)(a) 1.70 9/01/2028 27,360
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67,270
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GEORGIA (0.7%)
12,600 Roswell Housing Auth. (LOC - Northern Trust
Corp.) (Put Date 10/05/2018)(a) 1.62 9/01/2027 12,600
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PORTFOLIO OF INVESTMENTS | 3
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PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
ILLINOIS (6.7%)
$ 10,900 City of Galesburg (LOC - PNC Financial Services
Group) (Put Date 10/05/2018)(a) 1.57% 3/01/2031 $ 10,900
2,780 Dev. Finance Auth. (LOC - Bank of America Corp.)
(Put Date 10/05/2018)(a) 1.53 9/01/2032 2,780
16,000 Dev. Finance Auth. (LOC - Fifth Third Bank)
(Put Date 10/05/2018)(a) 1.70 2/01/2033 16,000
9,100 Dev. Finance Auth. (LOC - PNC Financial Services
Group) (Put Date 10/05/2018)(a) 1.55 3/01/2032 9,100
3,490 Educational Facilities Auth. (LOC - Huntington
National Bank) (Put Date 10/05/2018)(a) 1.60 10/01/2032 3,490
1,370 Educational Facilities Auth. (LOC - Fifth Third
Bank) (Put Date 10/05/2018)(a) 1.75 7/01/2024 1,370
8,600 Finance Auth. (LOC - Key Bank, N.A.) (Put Date
10/05/2018)(a) 1.60 11/01/2039 8,600
7,600 Finance Auth. (LOC - Huntington National Bank)
(Put Date 10/05/2018)(a) 1.68 10/01/2033 7,600
4,640 Finance Auth. (LOC - Northern Trust Corp.)
(Put Date 10/05/2018)(a) 1.63 4/01/2033 4,640
15,635 Finance Auth. (LOC - PNC Financial Services Group)
(Put Date 10/05/2018)(a) 1.57 4/01/2037 15,635
10,600 Kane County (LOC - Fifth Third Bank) (Put Date
10/05/2018)(a) 1.70 2/01/2028 10,600
22,490 Metropolitan Pier & Exposition Auth. (LIQ -
Deutsche Bank A.G.) (LOC - Deutsche Bank A.G.)
(Put Date 10/05/2018)(a),(b) 1.89 6/15/2050 22,490
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113,205
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INDIANA (1.2%)
5,225 City of Berne (LOC - Federal Home Loan Bank of
Indianapolis) (Put Date 10/05/2018)(a) 1.60 10/01/2033 5,225
3,130 City of Evansville (LOC - Fifth Third Bank)
(Put Date 10/05/2018)(a) 1.75 1/01/2025 3,130
8,030 Finance Auth. (LOC - Federal Home Loan Bank of
Indianapolis) (Put Date 10/05/2018)(a) 1.62 7/01/2029 8,030
3,985 Finance Auth. (LOC - Fifth Third Bank) (Put Date
10/05/2018)(a) 1.77 9/01/2031 3,985
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20,370
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IOWA (7.5%)
6,850 City of Chillicothe (Put Date 10/05/2018)(a) 1.56 1/01/2023 6,850
12,750 City of Council Bluffs (Put Date 10/05/2018)(a) 1.56 1/01/2025 12,750
14,180 City of Hills (LIQ - Deutsche Bank A.G.) (LOC -
Deutsche Bank A.G.) (Put Date 10/05/2018)(a),(b) 1.91 6/01/2035 14,180
41,763 Finance Auth. (Put Date 10/05/2018)(a) 1.60 9/01/2036 41,763
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4 | USAA TAX EXEMPT MONEY MARKET FUND
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PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
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$ 9,600 Finance Auth. (Put Date 10/05/2018)(a) 1.60% 6/01/2039 $ 9,600
7,150 Finance Auth. (Put Date 10/05/2018)(a) 1.58 9/01/2036 7,150
33,400 Louisa County (Put Date 10/05/2018)(a) 1.59 10/01/2024 33,400
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125,693
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KENTUCKY (1.3%)
11,170 City of Georgetown (LOC - Fifth Third Bank)
(Put Date 10/05/2018)(a) 1.75 11/15/2029 11,170
2,295 Lexington-Fayette Urban County (LOC - Federal
Home Loan Bank of Cincinnati) (Put Date
10/05/2018)(a) 1.81 12/01/2027 2,295
8,430 Lexington-Fayette Urban County (LOC - Fifth
Third Bank) (Put Date 10/05/2018)(a) 1.75 1/01/2033 8,430
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21,895
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LOUISIANA (3.1%)
4,625 City of New Orleans (LOC - Capital One, N.A.)
(Put Date 10/05/2018)(a) 1.76 8/01/2024 4,625
7,500 Environmental Facilities & Community Dev. Auth.
(Put Date 10/05/2018)(a) 1.63 12/01/2030 7,500
1,420 Hammond Area Economic & Industrial Dev. District
(LOC - Federal Home Loan Bank of Dallas)
(Put Date 10/05/2018)(a) 1.59 3/01/2033 1,420
32,755 St. James Parish (Put Date 10/05/2018)(a) 1.70 11/01/2040 32,755
5,800 St. Tammany Parish (LOC - Federal Home Loan
Bank of Dallas) (Put Date 10/05/2018)(a) 1.59 3/01/2033 5,800
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52,100
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MARYLAND (1.4%)
9,120 City of Williamsport (LOC - Manufacturers &
Traders Trust Co.) (Put Date 10/05/2018)(a) 1.61 11/01/2037 9,120
15,000 Health & Higher Educational Facilities Auth. 1.46 10/04/2018 15,000
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24,120
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MICHIGAN (1.8%)
1,000 Finance Auth. (LOC - Fifth Third Bank)
(Put Date 10/05/2018)(a) 1.70 12/01/2032 1,000
4,500 Finance Auth. (LOC - Fifth Third Bank)
(Put Date 10/05/2018)(a) 1.70 12/01/2032 4,500
20,430 Higher Educational Facilities Auth. (LOC -
Comerica Bank, N.A.) (Put Date 10/01/2018)(a) 1.72 11/01/2036 20,430
835 Strategic Fund (LOC - Fifth Third Bank)
(Put Date 10/05/2018)(a) 1.70 10/01/2027 835
3,000 Strategic Fund (LOC - Fifth Third Bank)
(Put Date 10/05/2018)(a) 1.77 3/01/2037 3,000
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29,765
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PORTFOLIO OF INVESTMENTS | 5
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PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
MINNESOTA (0.4%)
$ 1,815 Canby Community Hospital District No.1 (Put
Date 10/05/2018)(a) 1.94% 11/01/2026 $ 1,815
4,430 City of New Ulm (LOC - Federal Home Loan
Bank of Chicago) (Put Date 10/05/2018)(a) 1.65 10/01/2040 4,430
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6,245
----------
MISSISSIPPI (0.2%)
4,090 Business Finance Corp. (LOC - Federal Home
Loan Bank of Dallas) (Put Date 10/05/2018)(a) 1.59 3/01/2033 4,090
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MISSOURI (1.3%)
1,300 Health & Educational Facilities Auth. (LOC - Fifth
Third Bank) (Put Date 10/05/2018)(a) 1.70 11/01/2020 1,300
20,000 Jackson County IDA (LOC - Commerce Bank, N.A.)
(Put Date 10/05/2018)(a) 1.63 7/01/2025 20,000
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21,300
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MONTANA (1.5%)
5,000 Board of Investments (NBGA - Montana Board
of Investments Intercap Program) (Put Date
3/01/2019)(a) 1.65 3/01/2025 5,000
10,000 Board of Investments (NBGA - Montana Board
of Investments Intercap Program) (Put Date
3/01/2019)(a) 1.65 3/01/2028 10,000
10,000 Board of Investments (NBGA - Montana Board
of Investments Intercap Program) (Put Date
3/01/2019)(a) 1.65 3/01/2029 10,000
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25,000
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NEBRASKA (1.2%)
10,000 Central Plains Energy Project (LIQ - Royal Bank
of Canada) (LOC - Royal Bank of Canada)
(Put Date 10/05/2018)(a),(b) 1.62 3/01/2020 10,000
10,000 Washington County (Put Date 10/05/2018)(a) 1.60 12/01/2040 10,000
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20,000
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NEVADA (1.4%)
23,870 Clark County (LOC - Bank of America Corp.)
(Put Date 10/05/2018)(a) 2.76 12/01/2041 23,870
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NEW HAMPSHIRE (2.5%)
34,990 Business Finance Auth. (LOC - Landesbank Hessen-
Thuringen) (Put Date 10/05/2018)(a) 1.62 9/01/2030 34,990
7,080 Health & Educational Facilities Auth. (LOC -
Toronto-Dominion Bank) (Put Date 10/05/2018)(a) 1.59 10/01/2030 7,080
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42,070
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================================================================================
6 | USAA TAX EXEMPT MONEY MARKET FUND
================================================================================
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PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
NEW JERSEY (1.1%)
$ 2,945 EDA (LOC - Bank of America Corp.) (Put Date
10/05/2018)(a) 1.62% 11/01/2027 $ 2,945
15,000 Morris County Improvement Auth. (LIQ - Deutsche
Bank A.G.) (LOC - Deutsche Bank A.G.)
(Put Date 10/05/2018)(a),(b) 1.96 10/01/2047 15,000
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17,945
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NEW MEXICO (0.3%)
5,000 Hospital Equipment Loan Council (LOC - Fifth
Third Bank) (Put Date 10/05/2018)(a) 1.70 7/01/2025 5,000
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NEW YORK (13.2%)
5,840 Build NYC Resource Corp. (LOC - Toronto-
Dominion Bank) (Put Date 10/05/2018)(a) 1.66 12/01/2045 5,840
1,920 Chautauqua County IDA (LOC - Citizens Financial
Group) (Put Date 10/05/2018)(a) 1.68 8/01/2027 1,920
9,835 Chautauqua Lake CSD 2.50 6/27/2019 9,880
9,700 Chenango Forks CSD 2.50 6/18/2019 9,741
7,500 City of New York Capital Resources Corp.
(LOC - Manufacturers & Traders Trust Co.)
(Put Date 10/05/2018)(a) 1.68 12/01/2040 7,500
26,795 City of New York IDA (LOC - Key Bank, N.A.)
(Put Date 10/05/2018)(a) 1.68 7/01/2038 26,795
705 City of New York IDA (LOC - Toronto-Dominion
Bank) (Put Date 10/05/2018)(a) 1.66 12/01/2027 705
10,000 Elmira CSD 2.50 6/27/2019 10,042
620 Erie County IDA (LOC - Key Bank, N.A.)
(Put Date 10/05/2018)(a) 1.65 6/01/2022 620
990 Erie County IDA (LOC - Key Bank, N.A.)
(Put Date 10/05/2018)(a) 1.65 6/01/2022 990
3,245 Guilderland IDA (LOC - Key Bank, N.A.)
(Put Date 10/05/2018)(a) 1.65 7/01/2032 3,245
3,105 Holley CSD 2.50 6/25/2019 3,117
4,500 Hornell CSD 2.50 6/26/2019 4,519
22,400 Hudson Yards Infrastructure Corp. (LIQ - Royal
Bank of Canada) (LOC - Royal Bank of Canada)
(Put Date 10/05/2018)(a),(b) 1.61 2/15/2019 22,400
15,000 Liberty Dev. Corp. (LIQ - Royal Bank of Canada)
(LOC - Royal Bank of Canada) (Put Date
10/05/2018)(a),(b) 1.61 11/15/2019 15,000
15,705 Maine Endwell CSD 2.50 6/28/2019 15,777
8,800 Marcellus CSD 2.50 6/28/2019 8,839
510 Niagara County IDA (LOC - Key Bank, N.A.)
(Put Date 10/05/2018)(a) 1.65 9/01/2021 510
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PORTFOLIO OF INVESTMENTS | 7
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PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 3,935 Oneida County IDA (LOC - Citizens Financial
Group) (Put Date 10/05/2018)(a) 1.57% 7/01/2037 $ 3,935
6,290 Onondaga County IDA (LOC - Manufacturers &
Traders Trust Co.) (Put Date 10/05/2018)(a) 1.61 12/01/2031 6,290
9,840 Ramapo Housing Auth. (LOC - Manufacturers &
Traders Trust Co.) (Put Date 10/05/2018)(a) 1.66 12/01/2029 9,840
5,000 Salmon River CSD 2.50 6/28/2019 5,019
4,600 Schuylerville CSD 2.50 6/28/2019 4,621
1,155 Seneca County IDA (LOC - Key Bank, N.A.)
(Put Date 10/05/2018)(a) 1.65 4/01/2020 1,155
1,995 St. Lawrence County IDA (LOC - Citizens Financial
Group) (Put Date 10/05/2018)(a) 1.80 7/01/2037 1,995
32,100 State Dormitory Auth. (LOC - Citizens Financial
Group) (Put Date 10/05/2018)(a) 1.76 6/01/2038 32,100
3,230 Syracuse IDA (LOC - Key Bank, N.A.) (Put Date
10/05/2018)(a) 1.65 1/01/2033 3,230
5,399 Union Endicott CSD 2.50 6/28/2019 5,424
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221,049
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OHIO (1.2%)
2,200 Cincinnati & Hamilton County Port Auth.
(LOC - Fifth Third Bank) (Put Date 10/01/2018)(a) 1.75 9/01/2025 2,200
3,350 Hamilton County (LOC - Fifth Third Bank)
(Put Date 10/05/2018)(a) 1.75 12/01/2024 3,350
1,030 Highland County Joint Township Hospital District
(LOC - Fifth Third Bank) (Put Date 10/05/2018)(a) 1.77 8/01/2024 1,030
2,465 Lorain Port Auth. (LOC - Key Bank, N.A.)
(Put Date 10/05/2018)(a) 1.77 7/01/2028 2,465
10,515 Pike County Health Care Facilities (LOC - Bank of
America Corp.) (Put Date 10/05/2018)(a) 1.61 11/01/2033 10,515
1,035 Wayne County (LOC - Fifth Third Bank)
(Put Date 10/05/2018)(a) 1.76 9/01/2021 1,035
----------
20,595
----------
OKLAHOMA (4.1%)
5,925 Edmond EDA (LOC - Bank of Oklahoma, N.A.)
(Put Date 10/05/2018)(a) 1.71 6/01/2031 5,925
28,700 Garfield County Industrial Auth. (Put Date
10/05/2018)(a) 1.66 1/01/2025 28,700
26,000 Muskogee Industrial Trust (Put Date 10/05/2018)(a) 1.62 6/01/2027 26,000
7,715 Tulsa Industrial Auth. (LOC - Bank of Oklahoma,
N.A.) (Put Date 10/05/2018)(a) 1.71 11/01/2026 7,715
----------
68,340
----------
================================================================================
8 | USAA TAX EXEMPT MONEY MARKET FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
PENNSYLVANIA (2.7%)
$ 2,650 Allegheny County Hospital Dev. Auth. (LOC - PNC
Financial Services Group) (Put Date 10/05/2018)(a) 1.57% 6/01/2035 $ 2,650
8,300 Allegheny County Hospital Dev. Auth. (LIQ - Royal
Bank of Canada) (LOC - Royal Bank of Canada)
(Put Date 10/01/2018)(a),(b) 1.70 4/01/2022 8,300
16,450 Bucks County IDA (LOC - PNC Financial Services
Group) (Put Date 10/05/2018)(a) 1.56 7/01/2039 16,450
7,495 Delaware Valley Regional Finance Auth. (LOC -
PNC Financial Services Group) (Put Date
10/05/2018)(a) 1.55 6/01/2042 7,495
10,060 Derry Township Industrial & Commercial Dev. Auth.
(LOC - PNC Financial Services Group) (Put Date
10/05/2018)(a) 1.57 11/01/2030 10,060
----------
44,955
----------
RHODE ISLAND (0.5%)
3,950 Commerce Corp. (LOC - Citizens Financial Group)
(Put Date 10/05/2018)(a) 1.62 3/01/2038 3,950
3,995 Health & Educational Building Corp. (LOC - Citizens
Financial Group) (Put Date 10/01/2018)(a) 1.75 6/01/2035 3,995
----------
7,945
----------
SOUTH CAROLINA (0.9%)
15,055 Jobs EDA (LIQ - Deutsche Bank A.G.) (LOC -
Deutsche Bank A.G.) (Put Date 10/05/2018)(a),(b) 1.63 11/01/2029 15,055
----------
SOUTH DAKOTA (0.8%)
4,610 Health & Educational Facilities Auth. (Put Date
10/05/2018)(a) 1.94 11/01/2027 4,610
2,250 Health & Educational Facilities Auth. (Put Date
10/05/2018)(a) 1.94 11/01/2025 2,250
5,975 Health & Educational Facilities Auth. (Put Date
10/05/2018)(a) 1.94 11/01/2020 5,975
----------
12,835
----------
TENNESSEE (1.7%)
17,720 Chattanooga Health Educational & Housing Facility
Board (LIQ - Deutsche Bank A.G.) (LOC - Deutsche
Bank A.G.) (Put Date 10/05/2018)(a),(b) 1.74 1/01/2045 17,720
10,375 Metropolitan Government of Nashville & Davidson
County (LOC - Fifth Third Bank) (Put Date
10/05/2018)(a) 1.75 12/01/2024 10,375
----------
28,095
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 9
================================================================================
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PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
TEXAS (15.8%)
$ 32,200 Atascosa County IDC (NBGA - National Rural Utility
Corp.) (Put Date 10/05/2018)(a) 1.59% 6/30/2020 $ 32,200
7,200 Brazos Harbor IDC (Put Date 10/05/2018)(a) 1.63 7/01/2022 7,200
23,700 Brooks Dev. Auth. (LIQ - Deutsche Bank A.G.) (LOC -
Deutsche Bank A.G.) (Put Date 10/05/2018)(a),(b) 1.86 8/15/2052 23,700
10,000 City of Dallas 1.75 10/23/2018 10,000
10,000 City of Houston (LOC - Citigroup, Inc.) 1.79 12/20/2018 10,000
10,000 City of Houston (LOC - Barclays Bank plc) 1.69 10/11/2018 10,000
10,000 City of Houston (LOC - Barclays Bank plc) 1.70 10/04/2018 10,000
10,000 City of Houston (LOC - Barclays Bank plc) 1.70 11/08/2018 10,000
20,000 Dallas Area Rapid Transit 1.68 10/16/2018 20,000
35,000 Dallas Area Rapid Transit 1.71 10/10/2018 35,000
16,000 Port Arthur IDC (Put Date 10/05/2018)(a) 1.63 12/01/2040 16,000
25,000 Port Arthur IDC (Put Date 10/05/2018)(a) 1.63 6/01/2041 25,000
16,195 Port of Port Arthur Navigation District (Put Date
10/01/2018)(a) 1.80 4/01/2040 16,195
20,600 Port of Port Arthur Navigation District (Put Date
10/05/2018)(a) 1.80 11/01/2040 20,600
19,000 University of Texas System 1.64 11/01/2018 19,000
----------
264,895
----------
VIRGINIA (4.8%)
1,260 Alexandria IDA (LOC - Bank of America Corp.)
(Put Date 10/05/2018)(a) 1.77 7/01/2026 1,260
2,800 College Building Auth. (LIQ - J.P.Morgan Chase &
Co.) (Put Date 10/05/2018)(a),(b) 1.59 2/01/2021 2,800
6,775 Commonwealth Transportation Board (LIQ - Royal
Bank of Canada) (LOC - Royal Bank of Canada)
(Put Date 10/05/2018)(a),(b) 1.59 5/15/2020 6,775
1,400 Fairfax County EDA (LOC - SunTrust Bank) (Put
Date 10/05/2018)(a) 1.61 6/01/2037 1,400
7,415 Fairfax County IDA (Put Date 10/05/2018)(a) 1.58 5/15/2042 7,415
7,000 Loudoun County EDA (LOC - Northern Trust
Corp.) (Put Date 10/05/2018)(a) 1.60 6/01/2034 7,000
2,225 Loudoun County EDA (Put Date 10/05/2018)(a) 1.59 2/15/2038 2,225
8,500 Loudoun County EDA (Put Date 10/05/2018)(a) 1.55 2/15/2038 8,500
12,700 Loudoun County EDA (Put Date 10/05/2018)(a) 1.59 2/15/2038 12,700
9,375 Norfolk EDA (Put Date 10/05/2018)(a) 1.55 11/01/2034 9,375
2,640 Roanoke County EDA (LOC - BB&T Corp.)
(Put Date 10/05/2018)(a) 1.65 10/01/2028 2,640
17,585 Stafford & Staunton County IDA (LOC - Bank of
America Corp.) 1.68 10/04/2018 17,585
----------
79,675
----------
================================================================================
10 | USAA TAX EXEMPT MONEY MARKET FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
WASHINGTON (0.6%)
$ 9,475 Higher Education Facilities Auth. (Put Date
10/05/2018)(a) 1.63% 10/01/2031 $ 9,475
----------
WEST VIRGINIA (0.6%)
9,630 Marshall County (Put Date 10/05/2018)(a) 1.61 3/01/2026 9,630
----------
WISCONSIN (0.0%)
530 Health & Educational Facilities Auth. (LOC - J.P.
Morgan Chase & Co.) (Put Date 10/05/2018)(a) 1.64 5/01/2026 530
----------
Total Municipal Obligations (cost: $1,665,787) 1,665,787
----------
TOTAL INVESTMENTS (COST: $1,665,787) $1,665,787
==========
-------------------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
-------------------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
-------------------------------------------------------------------------------------------------------------------------
Municipal Obligations $- $1,665,787 $- $1,665,787
-------------------------------------------------------------------------------------------------------------------------
Total $- $1,665,787 $- $1,665,787
-------------------------------------------------------------------------------------------------------------------------
================================================================================
PORTFOLIO OF INVESTMENTS | 11
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
September 30, 2018 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
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 PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS
CSD Central School District
EDA Economic Development Authority
IDA Industrial Development Authority/Agency
IDB Industrial Development Board
IDC Industrial Development Corp.
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.
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.
================================================================================
12 | USAA TAX EXEMPT MONEY MARKET FUND
================================================================================
In order to qualify as an eligible security, 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
the name listed.
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 name listed.
o SPECIFIC NOTES
(a) 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. VRDNs will normally trade as if the maturity is the earlier put
date, even though stated maturity is longer. The interest rate is reset
on the put date at a stipulated daily, weekly, monthly, quarterly, or
other specified time interval to reflect current market conditions.
These securities do not indicate a reference rate and spread in their
description.
(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 under liquidity guidelines approved by USAA Mutual Funds
Trust's Board of Trustees, unless otherwise noted as illiquid.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 13
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
September 30, 2018 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (amortized cost
approximates market value) $1,665,787
Receivables:
Capital shares sold 4,546
Interest 3,191
Securities sold 7,740
----------
Total assets 1,681,264
----------
LIABILITIES
Payables:
Capital shares redeemed 3,784
Bank overdraft 268
Dividends on capital shares 32
Accrued management fees 387
Other accrued expenses and payables 142
----------
Total liabilities 4,613
----------
Net assets applicable to capital shares outstanding $1,676,651
==========
NET ASSETS CONSIST OF:
Paid-in capital $1,676,660
Distributable earnings loss (9)
----------
Net assets applicable to capital shares outstanding $1,676,651
==========
Capital shares outstanding, no par value 1,676,652
==========
Net asset value, redemption price, and offering price per share $ 1.00
==========
See accompanying notes to financial statements.
================================================================================
14 | USAA TAX EXEMPT MONEY MARKET FUND
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended September 30, 2018 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Interest income $12,995
-------
EXPENSES
Management fees 2,431
Administration and servicing fees 868
Transfer agent's fees 1,302
Custody and accounting fees 108
Postage 71
Shareholder reporting fees 21
Trustees' fees 17
Registration fees 25
Professional fees 50
Other 17
-------
Total expenses 4,910
-------
NET INVESTMENT INCOME 8,085
=======
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 15
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended September 30, 2018 (unaudited), and year ended March 31,
2018
-----------------------------------------------------------------------------------------
9/30/2018 3/31/2018
-----------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 8,085 $ 9,474
Net realized loss on investments - (9)
--------------------------
Increase in net assets resulting from operations 8,085 9,465
--------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
DISTRIBUTABLE EARNINGS: (8,066) (9,493)
--------------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 588,357 1,223,278
Reinvested dividends 7,986 9,432
Cost of shares redeemed (681,360) (1,478,124)
--------------------------
Decrease in net assets from capital share transactions (85,017) (245,414)
--------------------------
Net decrease in net assets (84,998) (245,442)
NET ASSETS
Beginning of period 1,761,649 2,007,091
--------------------------
End of period $1,676,651 $ 1,761,649
==========================
CHANGE IN SHARES OUTSTANDING
Shares sold 588,357 1,223,278
Shares issued for dividends reinvested 7,986 9,432
Shares redeemed (681,360) (1,478,124)
--------------------------
Decrease in shares outstanding (85,017) (245,414)
==========================
See accompanying notes to financial statements.
================================================================================
16 | USAA TAX EXEMPT MONEY MARKET FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
September 30, 2018 (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 47 separate funds.
The 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. 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. In addition, the Fund may, or in certain circumstances
must, impose a fee upon the sale of shares or may temporarily suspend
redemptions if the Fund's weekly liquid assets fall below required minimums
because of market conditions or other factors.
A. SECURITY VALUATION - The Trust's Board of Trustees (the Board) has
established the Valuation and Liquidity 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 17
================================================================================
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.
Level 2 - inputs to the valuation methodology are other significant
observable inputs, including quoted prices for similar securities, inputs
================================================================================
18 | USAA TAX EXEMPT MONEY MARKET 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.
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. INVESTMENTS IN SECURITIES - Securities transactions are accounted for as of
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.
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.
For the six-month period ended September 30, 2018, 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.
E. SECURITIES PURCHASED ON A DELAYED-DELIVERY OR WHEN-ISSUED BASIS - Delivery
and payment for securities that have been purchased by the Fund on a
================================================================================
NOTES TO FINANCIAL STATEMENTS | 19
================================================================================
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. INDEMNIFICATIONS - Under the Trust's organizational documents, its officers
and trustees are indemnified against certain liabilities arising out of
the performance of their duties to the Trust. In addition, in the normal
course of business, the Trust enters into contracts that contain a variety
of representations and warranties that provide general indemnifications.
The Trust's maximum exposure under these arrangements is unknown, as this
would involve future claims that may be made against the Trust that have
not yet occurred. However, the Trust expects the risk of loss to be remote.
G. USE OF ESTIMATES - The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts in the
financial statements.
(2) LINE OF CREDIT
The Fund participates, 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 14.0 basis
points of the amount of the committed loan agreement. Prior to September 30,
2018, the maximum annual facility fee was 13.0 basis points of the amount of
================================================================================
20 | USAA TAX EXEMPT MONEY MARKET FUND
================================================================================
the committed loan agreement. The facility fees are allocated among the funds of
the Trusts based on their respective average daily 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 15.0 basis points.
For the six-month period ended September 30, 2018, the Fund paid CAPCO facility
fees of $7,000, which represents 2.1% of the total fees paid to CAPCO by the
funds of the Trusts. The Fund had no borrowings under this agreement during the
six-month period ended September 30, 2018.
(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, 2019, in
accordance with applicable federal tax law.
Net investment income is accrued daily as dividends and distributed to
shareholders monthly. Distributions of realized gains from security transactions
not offset by capital losses are made annually in the succeeding fiscal year or
as otherwise required to avoid the payment of federal taxes.
At March 31, 2018, the Fund had net capital loss carryforwards of $9,000, 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.
(4) INVESTMENT TRANSACTIONS
In accordance with affiliated transaction procedures approved by the Board,
purchases and sales of security transactions were executed between the Fund
and affiliated USAA Funds at the then-current market price with no brokerage
commissions incurred. The affiliated transactions executed by the Fund,
including short-term securities, during the six-month period ended September 30,
2018 were as follows:
PURCHASES SALES REALIZED GAIN/(LOSS)
--------------------------------------------------------------------------------
$24,045,000 $38,605,000 $-
================================================================================
NOTES TO FINANCIAL STATEMENTS | 21
================================================================================
(5) TRANSACTIONS WITH MANAGER
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 daily net assets. For the
six-month period ended September 30, 2018, the Fund incurred management fees,
paid or payable to the Manager, of $2,431,000.
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 daily net assets. For the six-month period ended September 30, 2018, the
Fund incurred administration and servicing fees, paid or payable to the Manager,
of $868,000.
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, 2018, the Fund reimbursed the Manager $15,000 for these
compliance and legal services. These expenses are included in the professional
fees on the Fund's Statement of Operations.
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 daily 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 period ended September 30, 2018, the
Fund incurred transfer agent's fees, paid or payable to SAS, of $1,302,000.
UNDERWRITING SERVICES - USAA Investment Management Company provides exclusive
underwriting and distribution of the Fund's shares on a continuing
================================================================================
22 | USAA TAX EXEMPT MONEY MARKET FUND
================================================================================
best-efforts basis and receives no fee or other compensation for these services.
(6) 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.
(7) UPCOMING REGULATORY MATTERS
In October 2016, the SEC issued Final Rule Release No. 33-10233, INVESTMENT
COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS (Liquidity Rule). The Liquidity Rule
requires funds to establish a liquidity risk management program and enhances
disclosures regarding funds' liquidity. The requirements to implement a
liquidity risk management program and establish a 15% illiquid investment limit
are effective December 1, 2018. However, in February 2018, the SEC issued
Release No. IC-33010, INVESTMENT COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS;
COMMISSION GUIDANCE FOR IN-KIND ETFs, which delayed certain requirements related
to liquidity classification, highly liquid investment minimums, and board
approval of the liquidity risk management programs to June 1, 2019. The Manager
continues to evaluate the impact of this rule on the Fund's financial statements
and various filings.
(8) UPCOMING ACCOUNTING PRONOUNCEMENTS
(ASU) 2017-08, PREMIUM AMORTIZATION OF PURCHASED CALLABLE DEBT SECURITIES
-------------------------------------------------------------------------
In March 2017, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Update (ASU) 2017-08, Premium Amortization of Purchased Callable Debt
Securities. The amendments in the ASU shorten the premium amortization period on
a purchased callable debt security from the security's contractual life to the
earliest call date. It is anticipated that this change will enhance reporting
disclosures by reducing losses recognized when a security is called on an
earlier date. This ASU is effective for fiscal years beginning after December
15, 2018. The Manager continues to evaluate the impact this ASU will have on the
financial statements and other reporting disclosures.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 23
================================================================================
(ASU) 2018-13, FAIR VALUE MEASUREMENT
-------------------------------------
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820).
The amendments in the ASU impact disclosure requirements for fair value
measurement. It is anticipated that this change will enhance the effectiveness
of disclosures in the notes to the financial statements. This ASU is effective
for fiscal years beginning after December 15, 2019. Early adoption is permitted
and can include the entire standard or certain provisions that exclude or amend
disclosures. The adoption of this ASU guidance is not expected to have a
material impact on the financial statements and other disclosures.
(9) RECENTLY ADOPTED ACCOUNTING STANDARD
In August 2018, the U.S. Securities and Exchange Commission (SEC) adopted
amendments to Regulation S-X for investment companies governing the form and
content of financial statements. The amendments to Regulation S-X took effect on
November 5, 2018, and the financial statements have been modified accordingly,
for the current and prior period.
(10) SUBSEQUENT EVENT
On November 6, 2018, United Services Automobile Association ("USAA"), the parent
company of USAA Asset Management Company ("AMCO"), the investment adviser to the
Funds, and USAA Transfer Agency Company d.b.a. USAA Shareholder Account Services
("SAS"), the transfer agent to the Funds, announced that AMCO and SAS would be
acquired by Victory Capital Holdings, Inc. ("Victory"), a global investment
management firm headquartered in Cleveland, Ohio (the "Transaction"). The
closing of the Transaction is expected to be completed during the second quarter
of 2019, pending satisfaction of certain closing conditions and approvals,
including certain approvals of the Funds' Board of Trustees and of Fund
shareholders at a special shareholder meeting to be held in 2019.
The Transaction is not expected to result in any material changes to the Funds'
respective investment objectives and principal investment strategies.
================================================================================
24 | USAA TAX EXEMPT MONEY MARKET FUND
================================================================================
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED MARCH 31,
------------------------------------------------------------------------------------------
2018 2018 2017 2016 2015 2014
------------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------------------------------------------------------------------------------------
Income (loss) from
investment operations
Net investment income .00(a) .01 .00(a) .00(a) .00(a) .00(a)
Net realized and
unrealized gain (loss)(a) (.00) .00 .00 .00 .00 .00
------------------------------------------------------------------------------------------
Total from investment
operations .00(a) .01 .00(a) .00(a) .00(a) .00(a)
------------------------------------------------------------------------------------------
Less distributions from
Net investment income (.00)(a) (.01) (.00)(a) (.00)(a) (.00)(a) (.00)(a)
Realized capital gains - - (.00)(a) (.00)(a) (.00)(a) (.00)(a)
------------------------------------------------------------------------------------------
Total distributions (.00)(a) (.01) (.00)(a) (.00)(a) (.00)(a) (.00)(a)
------------------------------------------------------------------------------------------
Net asset value at
end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
==========================================================================================
Total return (%)* .47 .51(b) .23 .02 .01 .02
Net assets at end
of period (000) $1,676,651 $1,761,649 $2,007,091 $2,634,454 $2,676,708 $2,747,771
Ratios to average daily
net assets**
Expenses (%)(e) .57(c) .56(b) .54(d) .17(d) .15(d) .21(d)
Expenses, excluding
reimbursements (%)(e) .57(c) .56 .58(d) .58(d) .58(d) .56(d)
Net investment income (%) .93(c) .50 .11 .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, 2018, average daily net assets
were $1,730,352,000.
(a) Represents less than $0.01 per share.
(b) Prior to August 1, 2017, the Manager voluntarily agreed, on a temporary
basis, to reimburse management, administrative, or other fees to limit the
Fund's expenses and attempt to prevent a negative yield.
(c) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(d) Reflects total annual operating expenses of the Fund before reductions of
any expenses paid indirectly. The Fund's expenses paid indirectly decreased
the expense ratios by less than 0.01%.
(e) Does not include acquired fund fees, if any.
================================================================================
FINANCIAL HIGHLIGHTS | 25
================================================================================
EXPENSE EXAMPLE
September 30, 2018 (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, 2018, through
September 30, 2018.
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
================================================================================
26 | USAA TAX EXEMPT MONEY MARKET FUND
================================================================================
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, 2018 -
APRIL 1, 2018 SEPTEMBER 30, 2018 SEPTEMBER 30, 2018
------------------------------------------------------------------
Actual $1,000.00 $1,004.70 $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 reimbursements and expenses paid indirectly, multiplied by the
average account value over the period, multiplied by 183 days/365 days (to
reflect the one-half-year period). The Fund's actual ending account value is
based on its actual total return of 0.47% for the six-month period of April 1,
2018, through September 30, 2018.
================================================================================
EXPENSE EXAMPLE | 27
================================================================================
ADVISORY AGREEMENT
September 30, 2018 (unaudited)
--------------------------------------------------------------------------------
At an in-person meeting of the Board of Trustees (the Board) held on April 18,
2018, 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,
================================================================================
28 | USAA TAX EXEMPT MONEY MARKET FUND
================================================================================
particular focus is given to information concerning Fund performance, fees and
total expenses as compared to comparable investment companies, and the Manager's
profitability with respect to the Fund. However, the Board noted that the
evaluation process with respect to the Manager is an ongoing one. In this
regard, the Board's and its committees' consideration of the Advisory Agreement
included information previously received at such meetings.
ADVISORY AGREEMENT
After full consideration of a variety of factors, the Board, including the
Independent Trustees, voted to approve the Advisory Agreement. In approving the
Advisory Agreement, the Trustees did not identify any single factor as
controlling, and each Trustee may have attributed different weights to various
factors. Throughout their deliberations, the Independent Trustees were
represented and assisted by Independent Counsel.
NATURE, EXTENT, AND QUALITY OF SERVICES - In considering the nature, extent, and
quality of the services 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 also considered the significant risks assumed by the Manager in
connection with the services provided to the Fund, including investment,
operational, enterprise, litigation, regulatory and compliance risks.
The Board considered the Manager's management style and the performance of the
Manager's duties under the Advisory Agreement. The Board
================================================================================
ADVISORY AGREEMENT | 29
================================================================================
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 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 - was above the
median of its expense group and its expense universe. The data indicated that
the Fund's total expense ratio 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
================================================================================
30 | USAA TAX EXEMPT MONEY MARKET FUND
================================================================================
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.
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 below the average of its performance universe and its Lipper
index for the one-, three- and five-year periods ended December 31, 2017, and
was above the average of its performance universe and its Lipper index for the
ten-year period ended December 31, 2017. The Board also noted that the Fund's
percentile performance ranking was in the bottom 50% of its performance universe
for the one-, three- and five- year periods ended December 31, 2017, and was in
the top 20% of its performance universe for the ten-year period ended December
31, 2017. The Board took into account the relatively narrow range of the
performance returns of the funds in the performance universe.
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 | 31
================================================================================
servicing and administrative services to the Fund for which they receive
compensation. The Board also considered the possible direct and indirect
benefits to the Manager from its relationship with the Trust, including that the
Manager may derive reputational and other benefits from its association with the
Fund. The Board also took into account the high quality of the services received
by the Fund from the Manager as well as the type of fund. The Trustees
recognized that the Manager should be entitled to earn a reasonable level of
profits in exchange for the level of services it provides to the Fund and the
entrepreneurial 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.
================================================================================
32 | USAA TAX EXEMPT MONEY MARKET 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, State Street Bank and Trust Company
ACCOUNTING AGENT, AND P.O. Box 1713
SUB-ADMINISTRATOR Boston, Massachusetts 02105
--------------------------------------------------------------------------------
INDEPENDENT Ernst & Young LLP
REGISTERED PUBLIC 100 West Houston St., Suite 1700
ACCOUNTING FIRM San Antonio, Texas 78205
--------------------------------------------------------------------------------
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
--------------
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[LOGO OF USAA]
USAA We know what it means to serve.(R)
================================================================================
39598-1118 (C)2018, 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, 2018
==============================================================
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
INVESTMENT OVERVIEW 1
FINANCIAL INFORMATION
Portfolio of Investments 3
Notes to Portfolio of Investments 15
Financial Statements 18
Notes to Financial Statements 21
Financial Highlights 33
EXPENSE EXAMPLE 35
ADVISORY AGREEMENT 38
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.
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.
(C)2018, USAA. All rights reserved.
================================================================================
================================================================================
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
o TOP 10 INDUSTRIES - 9/30/18 o
(% of Net Assets)
General Obligation ...................................................... 27.8%
Hospital ................................................................ 16.6%
Electric Utilities ...................................................... 10.3%
Education ............................................................... 7.2%
Special Assessment/Tax/Fee .............................................. 5.8%
Toll Road ............................................................... 4.7%
Appropriated Debt ....................................................... 4.6%
Electric/Gas Utility .................................................... 3.5%
Oil & Gas Refining & Marketing .......................................... 2.6%
Sales Tax ............................................................... 2.0%
Refer to the Portfolio of Investments for a complete list of securities.
================================================================================
INVESTMENT OVERVIEW | 1
================================================================================
o PORTFOLIO RATINGS MIX - 9/30/18 o
[PIE CHART OF PORTFOLIO RATINGS MIX]
AAA 0.6%
AA 23.6%
A 43.8%
BBB 22.6%
BELOW INVESTMENT-GRADE 1.1%
UNRATED 8.3%
[END PIE 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.
Refer to the Portfolio of Investments for a complete list of securities.
================================================================================
2 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
PORTFOLIO OF INVESTMENTS
September 30, 2018 (unaudited)
-------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------------------
MUNICIPAL OBLIGATIONS (99.9%)
ALABAMA (0.6%)
$ 10,000 Black Belt Energy Gas District (67% of 1 mo.
LIBOR + 0.90%) (Put Date 12/01/2023)(a) 2.32%(b) 12/01/2048 $ 10,000
----------
ALASKA (1.0%)
15,000 Industrial Dev. & Export Auth. 3.50 12/01/2020 15,141
----------
ARIZONA (4.7%)
16,000 Health Facilities Auth. (MUNIPSA + 1.85%)
(Put Date 2/05/2020)(a) 3.41(b) 2/01/2048 16,179
25,000 Health Facilities Auth. (MUNIPSA + 1.85%)
(Put Date 2/01/2023)(a) 3.41(b) 2/01/2048 25,969
20,000 Phoenix IDA (LIQ - Barclays Bank plc)
(LOC - Barclays Bank plc) (Put Date 10/05/2018)(c),(d) 1.60 6/01/2036 20,000
8,000 Verrado Western Overlay Community Facilities District
(LOC - Compass Bank) (Put Date 10/05/2018)(d) 1.64 7/01/2029 8,000
1,000 Yavapai County IDA 5.00 8/01/2019 1,022
1,105 Yavapai County IDA 5.00 8/01/2020 1,156
----------
72,326
----------
ARKANSAS (1.4%)
22,000 Dev. Finance Auth. (MUNIPSA + 1.10%)
(Put Date 9/01/2019)(a) 2.66(b) 9/01/2044 22,040
----------
CALIFORNIA (5.3%)
500 Anaheim Public Financing Auth. 5.00 5/01/2022 554
250 Anaheim Public Financing Auth. 5.00 5/01/2024 289
15,000 Bay Area Toll Auth. (MUNIPSA + 0.70%)
(Put Date 10/01/2019)(a) 2.26(b) 4/01/2047 15,039
1,125 City of Irvine 5.00 9/02/2021 1,221
15,000 Foothill-Eastern Transportation Corridor Agency
(Put Date 1/15/2020)(a) 5.00 1/15/2053 15,334
8,000 Infrastructure & Economic Dev. Bank
(MUNIPSA + 1.20%) (Put Date 6/01/2022)(a) 2.76(b) 8/01/2037 8,193
500 Los Angeles County 5.00 3/01/2021 539
1,000 Los Angeles County 5.00 9/01/2021 1,092
2,000 Public Works Board 5.00 4/01/2019 2,034
1,000 Public Works Board 5.00 4/01/2020 1,048
================================================================================
PORTFOLIO OF INVESTMENTS | 3
================================================================================
-------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------------------
$ 1,500 Public Works Board 5.00% 4/01/2021 $ 1,616
2,700 Public Works Board 5.00 11/01/2019 2,797
20,000 Sacramento City Financing Auth.
(LIQ - Deutsche Bank A.G.) (LOC - Deutsche
Bank A.G.) (Put Date 10/05/2018)(c),(d) 1.66 12/01/2033 20,000
10,940 Victorville JT Powers Finance Auth.
(LOC - BNP Paribas) (Put Date 10/05/2018)(d) 2.06 5/01/2040 10,940
----------
80,696
----------
COLORADO (1.1%)
7,780 Arista Metropolitan District (LOC - Compass Bank)
(Put Date 10/05/2018)(d) 1.64 12/01/2030 7,780
2,000 E-470 Public Highway Auth. (67% of 1 mo.
LIBOR + 0.90%) (Put Date 9/01/2019)(a) 2.40(b) 9/01/2039 2,004
1,250 Health Facilities Auth. 4.00 12/01/2019 1,274
5,000 Health Facilities Auth. (LIQ - J.P.Morgan Chase & Co.)
(Put Date 10/05/2018)(c),(d) 1.91 2/01/2019 5,000
275 Southlands Metropolitan District No. 1 3.00 12/01/2022 273
1,000 Southlands Metropolitan District No. 1 3.50 12/01/2027 983
----------
17,314
----------
CONNECTICUT (1.3%)
3,450 City of Bridgeport 5.00 8/15/2026 3,848
1,190 City of New Haven 5.00 8/01/2022 1,269
1,000 City of New Haven 5.00 8/01/2024 1,077
580 City of New Haven 5.00 8/01/2025 627
580 City of New Haven 5.00 8/01/2026 630
1,000 City of New Haven 5.00 8/01/2027 1,090
2,235 City of West Haven (INS - Assured
Guaranty Municipal Corp.) 5.00 8/01/2020 2,329
215 City of West Haven 3.00 11/01/2018 215
300 City of West Haven 3.00 11/01/2019 299
800 City of West Haven 4.00 11/01/2021 810
800 City of West Haven 5.00 11/01/2023 844
815 City of West Haven 5.00 11/01/2024 862
650 City of West Haven 5.00 11/01/2027 692
4,385 Harbor Point Infrastructure Improvement District(c) 5.00 4/01/2022 4,659
----------
19,251
----------
DISTRICT OF COLUMBIA (1.3%)
20,000 District (LIQ - Deutsche Bank A.G.)
(LOC - Deutsche Bank A.G.)
(Put Date 10/05/2018)(c),(d) 1.81 10/01/2041 20,000
----------
================================================================================
4 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
-------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------------------
FLORIDA (4.1%)
$ 4,500 City of Gulf Breeze 3.10% 12/01/2020 $ 4,571
1,000 City of Jacksonville 5.00 10/01/2019 1,030
4,580 City of Jacksonville 5.00 10/01/2020 4,841
13,040 City of Jacksonville (Put Date 10/01/2018)(d) 1.68 5/01/2029 13,040
10,600 Escambia County (Put Date 10/01/2018)(d) 1.73 4/01/2039 10,600
1,385 Higher Educational Facilities Financial Auth. 5.00 4/01/2021 1,472
3,165 Lee County IDA 4.75 10/01/2022 3,366
1,250 Miami Beach Health Facilities Auth. 5.00 11/15/2020 1,314
1,775 Miami Beach Health Facilities Auth. 5.00 11/15/2019 1,823
7,500 Miami-Dade County IDA 3.75 12/01/2018 7,518
2,820 Pinellas County Educational Facilities Auth. 4.00 10/01/2020 2,862
1,325 Southeast Overtown Park West Community
Redev. Agency(c) 5.00 3/01/2020 1,378
1,000 Southeast Overtown Park West Community
Redev. Agency(c) 5.00 3/01/2023 1,096
7,300 St. Lucie County (Put Date 10/01/2018)(d) 1.70 9/01/2028 7,300
----------
62,211
----------
GEORGIA (1.8%)
10,000 Appling County Dev. Auth. (Put Date 4/01/2020)(a) 2.40 1/01/2038 9,939
6,500 Appling County Dev. Auth. (Put Date 10/01/2018)(d) 1.94 9/01/2029 6,500
2,000 Burke County Dev. Auth. (Put Date 10/01/2018)(d) 1.93 7/01/2049 2,000
3,415 Private Colleges & Universities Auth. 5.00 10/01/2018 3,415
1,265 Private Colleges & Universities Auth. 5.00 10/01/2019 1,296
3,770 Private Colleges & Universities Auth. 5.00 10/01/2020 3,943
1,255 Private Colleges & Universities Auth. 5.00 10/01/2019 1,285
----------
28,378
----------
GUAM (0.5%)
1,500 Government 5.00 12/01/2023 1,658
2,000 Government 5.00 12/01/2024 2,233
860 Government Waterworks Auth. 5.00 7/01/2020 897
1,000 Power Auth. (INS - Assured Guaranty Municipal Corp.) 5.00 10/01/2019 1,028
1,500 Power Auth. (INS - Assured Guaranty Municipal Corp.) 5.00 10/01/2020 1,580
----------
7,396
----------
IDAHO (2.4%)
19,885 American Falls Reservoir District
(Put Date 10/05/2018)(d) 1.64 2/01/2025 19,885
11,265 Housing & Finance Association
(Put Date 10/05/2018)(a),(e) 1.74 1/01/2038 11,265
5,000 Nez Perce County 2.75 10/01/2024 4,917
----------
36,067
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 5
================================================================================
-------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------------------
ILLINOIS (8.5%)
$ 16,480 Chicago Board of Education (INS - Assured Guaranty
Municipal Corp.) (LIQ - Citigroup, Inc.)
(Put Date 10/05/2018)(c),(d) 2.01% 12/01/2024 $ 16,480
10,000 Chicago Board of Education (LIQ - Deutsche
Bank A.G.) (LOC - Deutsche Bank A.G.)
(Put Date 10/05/2018)(c),(d) 1.89 12/01/2039 10,000
1,720 Chicago Transit Auth. 5.00 6/01/2025 1,915
1,000 Chicago Transit Auth. 5.00 6/01/2026 1,123
4,000 Chicago Waterworks Revenue 5.00 11/01/2025 4,480
1,000 Chicago Waterworks Revenue 5.00 11/01/2026 1,130
2,000 Chicago Waterworks Revenue 5.00 11/01/2025 2,240
2,500 Chicago Waterworks Revenue 4.00 11/01/2026 2,636
1,735 City of Rosemont (INS - Assured Guaranty
Municipal Corp.) 5.00 12/01/2022 1,878
1,825 City of Rosemont (INS - Assured Guaranty
Municipal Corp.) 5.00 12/01/2023 1,999
1,915 City of Rosemont (INS - Assured Guaranty
Municipal Corp.) 5.00 12/01/2024 2,119
11,160 Cook County (LIQ - J.P.Morgan Chase & Co.)
(Put Date 10/05/2018)(c),(d) 1.79 11/15/2020 11,160
1,205 Cook County 3.00 11/15/2018 1,206
1,980 Finance Auth. (ETM) 5.00 2/15/2019 2,003
1,000 Finance Auth. 5.00 7/01/2019 1,019
1,420 Finance Auth. 5.00 7/01/2020 1,482
10,000 Finance Auth. 4.00 2/15/2025 10,835
1,235 Madison County Community Unit School District
No. 7 (INS - Build America Mutual Assurance Co.) 4.00 12/01/2018 1,239
2,085 Madison County Community Unit School District
No. 7 (INS - Build America Mutual Assurance Co.) 4.00 12/01/2020 2,145
4,160 Railsplitter Tobacco Settlement Auth. 5.25 6/01/2020 4,352
1,090 Railsplitter Tobacco Settlement Auth. 5.25 6/01/2021 1,168
17,390 Sports Facilities Auth. (LIQ - Deutsche Bank A.G.)
(LOC - Deutsche Bank A.G.)
(Put Date 10/05/2018)(c),(d) 1.74 6/15/2032 17,390
10,000 State 5.00 11/01/2018 10,019
15,000 State (INS - Build America Mutual Assurance Co.) 5.00 11/01/2025 16,558
3,000 State 5.00 10/01/2023 3,157
----------
129,733
----------
INDIANA (1.0%)
5,000 Finance Auth. 2.95 10/01/2022 5,087
10,000 Hammond Local Public Improvement Bond Bank 2.38 12/31/2018 9,992
----------
15,079
----------
================================================================================
6 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
-------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------------------
IOWA (0.3%)
$ 4,500 Finance Auth. (Put Date 10/05/2018)(d),(f) 1.58% 9/01/2036 $ 4,500
----------
KANSAS (0.1%)
1,455 City of Wichita 3.00 9/01/2023 1,442
----------
KENTUCKY (0.8%)
3,020 Economic Dev. Finance Auth. (Put Date 12/03/2018)(d) 1.85 4/01/2031 3,019
8,650 Economic Dev. Finance Auth. (Put Date 10/05/2018)(d) 1.70 5/01/2034 8,650
----------
11,669
----------
LOUISIANA (3.1%)
10,000 Louisiana Public Facilities Auth. (MUNIPSA + 0.65%)
(Put Date 9/01/2023)(a) 2.21(b) 9/01/2057 10,004
4,000 St. Charles Parish (Put Date 6/01/2022)(a) 4.00 12/01/2040 4,195
14,000 St. James Parish (Put Date 10/05/2018)(d) 1.70 11/01/2040 14,000
14,400 St. James Parish (Put Date 10/05/2018)(d) 1.70 11/01/2040 14,400
5,000 Tobacco Settlement Financing Corp. 5.00 5/15/2022 5,435
----------
48,034
----------
MARYLAND (0.4%)
1,500 EDC 5.00 6/01/2025 1,674
2,000 EDC 5.00 6/01/2026 2,249
1,340 EDC 5.00 6/01/2027 1,517
----------
5,440
----------
MASSACHUSETTS (1.1%)
1,250 Dev. Finance Agency 5.00 7/01/2025 1,398
1,500 Dev. Finance Agency 5.00 7/01/2026 1,689
835 Dev. Finance Agency (ETM) 5.00 1/01/2019 842
560 Dev. Finance Agency 5.00 1/01/2019 563
12,000 Dev. Finance Agency (MUNIPSA + 0.48%)
(Put Date 1/29/2020)(a) 2.04(b) 7/01/2050 12,013
----------
16,505
----------
MICHIGAN (0.2%)
2,625 Grand Traverse County Hospital Finance Auth. 5.00 7/01/2019 2,683
----------
MINNESOTA (0.7%)
1,250 City of St. Paul Housing & Redev. Auth. (ETM) 5.00 11/15/2020 1,325
1,575 City of St. Paul Housing & Redev. Auth. (ETM) 5.00 11/15/2021 1,710
7,000 Kanabec Hospital 2.75 12/01/2019 6,985
----------
10,020
----------
MISSISSIPPI (2.9%)
3,620 Business Finance Corp. (Put Date 10/01/2018)(d) 1.59 12/01/2030 3,620
10,000 Hospital Equipment & Facilities Auth. 5.00 9/01/2024 10,991
7,000 Hospital Equipment & Facilities Auth.
(MUNIPSA + 1.30%) (Put Date 8/15/2020)(a) 2.86(b) 8/15/2036 7,058
================================================================================
PORTFOLIO OF INVESTMENTS | 7
================================================================================
-------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------------------
$20,100 Perry County Pollution Control
(NBGA - Georgia-Pacific LLC)
(Put Date 10/05/2018)(c),(d) 1.77% 2/01/2022 $ 20,100
2,000 Warren County (Put Date 9/01/2023)(a) 2.90 9/01/2032 1,999
----------
43,768
----------
MISSOURI (0.3%)
5,000 Sikeston Electric System Revenue
(INS - Build America Mutual Assurance Co.) 5.00 6/01/2020 5,248
----------
MONTANA (0.6%)
6,000 City of Forsyth 2.00 8/01/2023 5,811
3,500 State Board of Regents (MUNIPSA + 0.45%)
(Put Date 9/01/2023)(a) 2.01(b) 11/15/2035 3,501
----------
9,312
----------
NEVADA (0.3%)
4,400 Washoe County (Put Date 6/01/2022)(a) 3.00 3/01/2036 4,459
----------
NEW JERSEY (17.7%)
7,828 Borough of Collingswood 2.50 3/20/2019 7,851
5,110 Borough of Eatontown 3.00 9/27/2019 5,149
7,193 Borough of Flemington 2.50 1/15/2019 7,200
7,095 Borough of Roselle 2.00 2/27/2019 7,093
400 Building Auth. (ETM) 3.00 6/15/2023 412
1,595 Building Auth. (ETM) 5.00 6/15/2024 1,817
600 Building Auth. 3.00 6/15/2023 596
2,405 Building Auth. 5.00 6/15/2024 2,635
1,000 Casino Reinvestment Dev. Auth. (INS - Assured
Guaranty Municipal Corp.) 5.00 11/01/2024 1,094
6,495 City of Kearny 2.75 4/25/2019 6,508
18,063 City of Newark 2.50 11/30/2018 18,069
10,000 City of Newark 3.00 7/31/2019 10,052
14,825 City of Newark(g) 3.50 10/09/2019 14,982
8,598 City of Union 2.50 3/21/2019 8,614
20,000 EDA 5.00 6/15/2022 21,449
7,000 EDA 5.00 6/15/2023 7,593
8,000 EDA 5.00 6/15/2020 8,327
7,000 EDA 5.00 6/15/2021 7,426
1,750 EDA (LOC - Valley National Bank)
(Put Date 10/05/2018)(d) 1.87 3/01/2031 1,750
8,515 EDA (LOC - Valley National Bank)
(Put Date 10/05/2018)(d) 1.85 11/01/2040 8,515
11,100 EDA (LOC - Valley National Bank)
(Put Date 10/05/2018)(d) 1.85 11/01/2040 11,100
7,300 EDA (ETM) 5.25 9/01/2019 7,510
================================================================================
8 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
-------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------------------
$ 2,700 EDA 5.25% 9/01/2019 $ 2,771
4,735 Educational Facilities Auth. 5.00 9/01/2022 5,091
4,730 Educational Facilities Auth. 4.00 9/01/2024 4,909
4,000 Educational Facilities Auth. 5.00 9/01/2023 4,348
2,000 Health Care Facilities Financing Auth. 5.00 7/01/2019 2,043
2,000 Health Care Facilities Financing Auth. 5.00 7/01/2020 2,099
15,000 Kearny Board of Education 2.25 10/05/2018 15,000
6,721 Kearny Board of Education(g) 2.75 7/10/2019 6,737
6,000 Lyndhurst Township School District 3.00 9/13/2019 6,046
2,000 Tobacco Settlement Financing Corp. 3.20 6/01/2027 1,997
12,846 Township of Belleville 3.00 5/24/2019 12,894
4,275 Township of Harmony 2.50 4/18/2019 4,283
7,538 Township of Vernon 2.50 3/22/2019 7,560
3,160 Transportation Trust Fund Auth.
(INS - National Public Finance Guarantee Corp.) 5.50 12/15/2020 3,370
5,000 Transportation Trust Fund Auth.
(INS - Assured Guaranty Municipal Corp.) 5.25 12/15/2020 5,305
1,500 Transportation Trust Fund Auth. 5.00 6/15/2022 1,611
3,835 Transportation Trust Fund Auth. 5.00 6/15/2023 4,174
5,095 Transportation Trust Fund Auth. 5.00 6/15/2024 5,620
10,000 Transportation Trust Fund Auth.
(MUNIPSA + 1.20%) (Put Date 12/15/2021)(a) 2.76(b) 6/15/2034 10,079
----------
271,679
----------
NEW MEXICO (1.6%)
5,000 City of Farmington (Put Date 4/01/2020)(a) 1.88 4/01/2029 4,952
5,000 City of Farmington (Put Date 4/01/2020)(a) 1.88 4/01/2029 4,951
7,000 City of Farmington (Put Date 4/01/2020)(a) 1.88 4/01/2029 6,932
6,000 City of Farmington (Put Date 10/01/2021)(a) 1.88 4/01/2033 5,865
2,000 City of Farmington (Put Date 6/01/2022)(a) 2.13 6/01/2040 1,957
----------
24,657
----------
NEW YORK (13.5%)
18,291 City of Long Beach 2.00 2/14/2019 18,289
4,000 City of Long Beach 2.50 6/21/2019 4,006
12,980 City of New York (LOC - Mizuho Bank Ltd.)
(Put Date 10/01/2018)(d),(f) 1.70 10/01/2040 12,980
12,000 City of New York (MUNIPSA + 0.58%) 2.14(b) 8/01/2027 12,013
5,297 City of Newburgh 2.75 8/02/2019 5,311
3,000 City of Oyster Bay 2.00 2/15/2019 2,993
1,820 City of Poughkeepsie 4.00 5/03/2019 1,830
5,540 City of Watertown 2.25 4/18/2019 5,539
7,310 City of Yonkers (ETM) 5.00 10/01/2018 7,310
1,200 Dormitory Auth.(c) 5.00 12/01/2024 1,335
================================================================================
PORTFOLIO OF INVESTMENTS | 9
================================================================================
-------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------------------
$ 1,200 Dormitory Auth.(c) 5.00% 12/01/2025 $ 1,348
16,000 East Ramapo CSD 2.50 10/30/2018 16,008
6,000 Energy Research & Dev. Auth. (Put Date 5/01/2020)(a) 2.00 2/01/2029 5,967
10,000 Hempstead Union Free School District 2.75 6/27/2019 10,028
7,500 Housing Finance Agency (LOC - Landesbank
Hessen-Thuringen) (Put Date 10/01/2018)(d) 1.68 5/01/2042 7,500
7,700 Housing Finance Agency (LOC - Wells
Fargo & Co.) (Put Date 10/05/2018)(d) 1.57 11/01/2046 7,700
5,000 Long Island Power Auth. (70% of 1 mo.
LIBOR + 0.75%) (Put Date 10/01/2023)(a) 2.31(b) 5/01/2033 5,000
4,000 Long Island Power Auth. (70% of 1 mo.
LIBOR + 0.75%) (Put Date 10/01/2023)(a) 2.31(b) 5/01/2033 4,000
5,170 Monroe County 5.00 6/01/2020 5,421
8,000 MTA (MUNIPSA + 0.45%) (Put Date 11/15/2022)(a) 2.01(b) 11/15/2044 7,988
12,000 MTA (MUNIPSA + 0.58%) (Put Date 11/01/2019)(a) 2.14(b) 11/01/2031 12,023
500 Niagara Area Dev. Corp.(c) 3.50 11/01/2024 500
1,475 Rockland County 3.50 10/01/2018 1,475
1,520 Rockland County 3.50 10/01/2019 1,541
1,575 Rockland County 3.50 10/01/2020 1,608
550 Rockland County 5.00 12/15/2018 553
2,500 Rockland County (INS - Assured Guaranty
Municipal Corp.) 5.00 3/01/2023 2,792
1,600 Rockland County (INS - Assured Guaranty
Municipal Corp.) 5.00 3/01/2024 1,816
2,500 Suffolk County EDC 5.00 7/01/2019 2,550
2,640 Suffolk County EDC 5.00 7/01/2020 2,758
3,000 Town of Canadice 3.00 7/19/2019 3,013
8,000 Utica CSD 2.50 6/25/2019 8,011
8,505 Utica CSD 2.50 7/19/2019 8,514
9,900 West Webster Fire District 2.50 12/28/2018 9,908
7,000 Wyandanch Union Free School District 2.50 6/21/2019 7,007
----------
206,635
----------
NORTH CAROLINA (0.6%)
10,000 Capital Facilities Finance Agency
(Put Date 12/03/2018)(d) 1.85 7/01/2034 9,997
----------
OHIO (1.5%)
5,000 American Municipal Power, Inc.
(Put Date 8/15/2021)(a) 2.25 2/15/2048 4,946
1,000 Higher Educational Facility Commission 5.00 5/01/2021 1,059
500 Higher Educational Facility Commission 5.00 5/01/2022 538
550 Higher Educational Facility Commission 5.00 5/01/2023 600
1,000 Higher Educational Facility Commission 5.00 5/01/2024 1,103
1,150 Southeastern Port Auth. 5.00 12/01/2021 1,201
================================================================================
10 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
-------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------------------
$ 1,000 Southeastern Port Auth. 5.00% 12/01/2025 $ 1,067
5,500 State (Put Date 10/05/2018)(a),(e) 1.81 1/15/2045 5,500
1,800 Water Dev. Auth. 1.55 7/01/2021 1,748
7,000 Water Dev. Auth. (Put Date 6/03/2019)
acquired 3/11/2014; cost: $7,000(a),(h),(i) 4.00 6/01/2033 4,734
----------
22,496
----------
OKLAHOMA (2.1%)
500 Dev. Finance Auth. 5.00 8/15/2023 548
600 Dev. Finance Auth. 5.00 8/15/2024 664
550 Dev. Finance Auth. 5.00 8/15/2025 614
10,000 Garfield County Industrial Auth.
(Put Date 10/05/2018)(d) 1.66 1/01/2025 10,000
13,890 Muskogee Industrial Trust (Put Date 10/05/2018)(d) 1.60 1/01/2025 13,890
7,250 Oklahoma Municipal Power Auth.
(MUNIPSA + 0.39%) 1.95(b) 1/01/2023 7,252
----------
32,968
----------
PENNSYLVANIA (7.7%)
1,800 Allegheny County Hospital Dev. Auth.
(LIQ - Royal Bank of Canada) (LOC - Royal
Bank of Canada) (Put Date 10/01/2018)(c),(d),(f) 1.70 4/01/2022 1,800
5,250 Allentown CSD 2.20 1/02/2019 5,247
7,575 Berks County Municipal Auth. (MUNIPSA + 1.50%)
(Put Date 7/01/2022)(a) 3.06(b) 11/01/2039 7,691
1,000 Bethlehem Auth.
(INS - Build America Mutual Assurance Co.) 5.00 11/15/2020 1,058
805 Chester County IDA 3.75 10/01/2024 815
1,165 Coatesville School District (Zero Coupon) 0.00 8/15/2019 1,137
5,305 Coatesville School District (Zero Coupon) 0.00 8/15/2020 5,018
1,000 Coatesville School District
(INS - Assured Guaranty Municipal Corp.) 5.00 8/01/2024 1,112
800 Coatesville School District
(INS - Assured Guaranty Municipal Corp.) 5.00 8/01/2025 900
2,000 Commonwealth Financing Auth. 5.00 6/01/2026 2,266
1,980 Cumberland County Municipal Auth. 3.25 12/01/2022 2,007
1,195 Delaware County Auth. 5.00 10/01/2018 1,195
7,000 Geisinger Auth. (67% of 1 mo. LIBOR + 1.07%)
(Put Date 6/01/2024)(a) 2.58(b) 6/01/2028 7,163
600 Higher Educational Facilities Auth. 5.00 7/15/2020 627
1,090 Higher Educational Facilities Auth. 5.00 7/15/2021 1,164
500 Hospitals & Higher Education Facilities Auth. 5.00 7/01/2019 508
1,595 Hospitals & Higher Education Facilities Auth. 5.00 7/01/2022 1,706
550 Luzerne County IDA
(INS - Assured Guaranty Municipal Corp.) 5.00 12/15/2025 612
================================================================================
PORTFOLIO OF INVESTMENTS | 11
================================================================================
-------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------------------
$ 500 Luzerne County IDA
(INS - Assured Guaranty Municipal Corp.) 5.00% 12/15/2026 $ 558
1,000 Luzerne County IDA
(INS - Assured Guaranty Municipal Corp.) 5.00 12/15/2027 1,114
6,250 Montgomery County Higher Education & Health Auth.
(MUNIPSA + 0.72%) (Put Date 9/01/2023)(a) 2.28(b) 9/01/2051 6,250
5,000 Montgomery County IDA (Put Date 9/01/2020)(a) 2.60 3/01/2034 4,989
1,855 Northampton County General Purpose Auth.
(70% of 1 mo. LIBOR + 1.04%)
(Put Date 8/15/2024)(a) 2.52(b) 8/15/2048 1,859
7,000 Northampton County General Purpose Auth.
(MUNIPSA + 1.40%) (Put Date 8/15/2020)(a) 2.96(b) 8/15/2043 7,074
5,000 School District of Philadelphia 5.00 9/01/2021 5,371
5,500 School District of Philadelphia 5.00 9/01/2022 5,990
2,435 Scranton School District 5.00 6/01/2023 2,617
7,000 Scranton School District (68% of 1 mo.
LIBOR + 0.85%) (Put Date 4/01/2021)(a) 2.29(b) 4/01/2031 7,017
12,500 Turnpike Commission (MUNIPSA + 0.80%)
(Put Date 12/01/2018)(a) 2.36(b) 12/01/2045 12,506
6,500 Turnpike Commission (MUNIPSA + 0.98%) 2.54(b) 12/01/2021 6,594
6,000 Turnpike Commission (MUNIPSA + 1.15%) 2.71(b) 12/01/2019 6,036
6,000 Turnpike Commission (MUNIPSA + 1.27%) 2.83(b) 12/01/2020 6,092
1,570 West Mifflin School District
(INS - Assured Guaranty Municipal Corp.) 5.00 10/01/2021 1,670
----------
117,763
----------
PUERTO RICO (0.1%)
1,000 Industrial Tourist Educational Medical and
Environmental Control Facilities Financing Auth. 5.00 4/01/2019 1,005
700 Industrial Tourist Educational Medical and
Environmental Control Facilities Financing Auth. 4.00 4/01/2020 690
----------
1,695
----------
SOUTH CAROLINA (0.6%)
10,000 Patriots Energy Group Financing Agency (67% of
1 mo. LIBOR + 0.86%) (Put Date 2/01/2024)(a) 2.28(b) 10/01/2048 9,995
----------
TENNESSEE (0.2%)
2,700 Chattanooga Health Educational & Housing Facility
Board (Put Date 10/05/2018)(d) 1.83 5/01/2039 2,700
----------
TEXAS (6.3%)
1,100 Austin Convention Enterprises, Inc. 5.00 1/01/2024 1,224
400 Austin Convention Enterprises, Inc. 5.00 1/01/2025 448
400 Austin Convention Enterprises, Inc. 5.00 1/01/2027 441
================================================================================
12 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
-------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------------------
$ 700 Decatur Hospital Auth. 5.00% 9/01/2021 $ 739
780 Decatur Hospital Auth. 5.00 9/01/2024 849
2,250 Harris County Cultural Education Facilities Finance
Corp. (MUNIPSA + 0.70%) 2.26(b) 6/01/2019 2,257
17,580 Harris County Health Facilities Dev. Corp.
(Put Date 10/01/2018)(d),(f) 1.70 12/01/2041 17,580
480 Harris County Municipal Utility District No. 165
(INS - Build America Mutual Assurance Co.) 3.00 3/01/2020 486
565 Harris County Municipal Utility District No. 165
(INS - Build America Mutual Assurance Co.) 3.00 3/01/2021 574
650 Harris County Municipal Utility District No. 165
(INS - Build America Mutual Assurance Co.) 3.00 3/01/2022 662
520 Harris County Municipal Utility District No. 165
(INS - Build America Mutual Assurance Co.) 3.00 3/01/2023 531
1,750 Irving Hospital Auth. (MUNIPSA + 1.10%)
(Put Date 10/15/2023)(a) 2.66(b) 10/15/2044 1,754
3,000 Karnes County Hospital District 5.00 2/01/2024 3,156
1,250 New Hope Cultural Education Facilities Finance Corp. 5.00 7/01/2023 1,114
2,300 New Hope Cultural Education Facilities Finance Corp. 5.00 7/01/2024 2,046
2,135 New Hope Cultural Education Facilities Finance Corp. 5.00 7/01/2025 1,898
4,000 North Texas Tollway Auth. (MUNIPSA + 0.67%)
(Put Date 1/01/2020)(a) 2.23(b) 1/01/2038 4,004
4,000 North Texas Tollway Auth. (MUNIPSA + 0.80%)
(Put Date 1/01/2019)(a) 2.36(b) 1/01/2050 4,000
9,115 Northside ISD (NBGA - Texas Permanent School Fund)
(Put Date 8/01/2020)(a) 2.13 8/01/2040 9,117
13,500 Port of Port Arthur Navigation District
(Put Date 10/01/2018)(d) 1.80 4/01/2040 13,500
8,500 Port of Port Arthur Navigation District
(Put Date 10/01/2018)(d) 1.85 4/01/2040 8,500
14,005 Port of Port Arthur Navigation District
(Put Date 10/05/2018)(d) 1.80 11/01/2040 14,005
7,175 Red River Auth. (INS - National Public Finance
Guarantee Corp.) 4.45 6/01/2020 7,420
----------
96,305
----------
VIRGINIA (0.2%)
3,506 Marquis Community Dev. Auth.(h),(j) 5.10 9/01/2036 2,453
5,111 Marquis Community Dev. Auth. (Zero Coupon)(h),(j) 0.00 9/01/2041 270
1,074 Marquis Community Dev. Auth.,
7.50%, 9/01/2021(c),(h),(j) 0.00(k) 9/01/2045 777
----------
3,500
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
-------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------------------
WASHINGTON (0.3%)
$ 2,000 Health Care Facilities Auth. 5.00% 8/15/2026 $ 2,259
2,175 Health Care Facilities Auth. 5.00 8/15/2027 2,472
----------
4,731
----------
WEST VIRGINIA (1.2%)
10,000 EDA 3.25 5/01/2019 10,011
5,500 EDA (Put Date 4/01/2019)(a) 1.90 3/01/2040 5,488
3,000 Mason County (Put Date 10/01/2018)(a) 1.63 10/01/2022 3,000
----------
18,499
----------
WISCONSIN (0.5%)
1,200 Health and Educational Facilities Auth. (ETM) 5.00 8/15/2021 1,295
3,500 Health and Educational Facilities Auth. 2.65 11/01/2020 3,475
1,700 Health and Educational Facilities Auth.
(MUNIPSA + 0.65%) (Put Date 7/31/2024)(a) 2.21(b) 8/15/2054 1,701
1,500 Public Finance Auth.(c) 3.50 11/15/2023 1,505
----------
7,976
----------
Total Municipal Obligations (cost: $1,529,824) 1,530,308
----------
TOTAL INVESTMENTS (COST: $1,529,824) $1,530,308
==========
-------------------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
-------------------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
-------------------------------------------------------------------------------------------------------------------------
Municipal Obligations $- $1,526,808 $3,500 $1,530,308
-------------------------------------------------------------------------------------------------------------------------
Total $- $1,526,808 $3,500 $1,530,308
-------------------------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
For the period of April 1, 2018, through September 30, 2018, there were no
transfers of securities between levels. The Fund's policy is to recognize
transfers in and transfers out as of the beginning of the reporting period in
which the event or circumstance that caused the transfer occurred.
================================================================================
14 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
September 30, 2018 (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 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
ISD Independent School District
LIBOR London Interbank Offered Rate
MTA Metropolitan Transportation Authority
MUNIPSA Securities Industry and Financial Markets Association (SIFMA)
Municipal Swap Index
Zero Coupon Normally issued at a significant discount from face value and
do not provide for periodic interest payments. Income is
earned from the purchase date by accreting the purchase
discount of the security to par over the life of the security.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 15
================================================================================
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 the name listed.
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 the name
listed.
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 name listed.
o SPECIFIC NOTES
(a) Put bond - provides 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.
(b) Floating-rate security - interest rate is adjusted periodically. The
interest rate disclosed represents the rate at September 30, 2018.
(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
================================================================================
16 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
USAA Mutual Funds Trust's Board of Trustees, unless otherwise noted as
illiquid.
(d) 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. VRDNs will normally trade as if the maturity is the earlier put
date, even though stated maturity is longer. The interest rate is reset
on the put date at a stipulated daily, weekly, monthly, quarterly,
or other specified time interval to reflect current market conditions.
These securities do not indicate a reference rate and spread in their
description.
(e) 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.
(f) At September 30, 2018, the security, or a portion thereof, was
segregated to cover delayed-delivery and/or when-issued purchases.
(g) Security or a portion of the security purchased on a delayed-delivery
and/or when-issued basis.
(h) Security deemed illiquid by USAA Asset Management Company, under
liquidity guidelines approved by USAA Mutual Funds Trust's Board of
Trustees.
(i) Restricted security that is not registered under the Securities Act of
1933. The aggregate market value of these securities at September 30,
2018, was $4,734,000, which represented 0.3% of the Fund's net assets.
(j) Security was classified as Level 3.
(k) 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.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 17
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
September 30, 2018 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $1,529,824) $1,530,308
Receivables:
Capital shares sold 561
USAA Asset Management Company (Note 6) 2
Interest 10,711
Securities sold 13,926
----------
Total assets 1,555,508
----------
LIABILITIES
Payables:
Securities purchased 21,683
Capital shares redeemed 1,531
Bank overdraft 52
Dividends on capital shares 428
Accrued management fees 408
Accrued transfer agent's fees 33
Other accrued expenses and payables 119
----------
Total liabilities 24,254
----------
Net assets applicable to capital shares outstanding $1,531,254
==========
NET ASSETS CONSIST OF:
Paid-in capital $1,554,483
Distributable earnings loss (23,229)
----------
Net assets applicable to capital shares outstanding $1,531,254
==========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $1,516,572/145,495 capital shares
outstanding, no par value) $ 10.42
==========
Adviser Shares (net assets of $14,682/1,407 capital shares
outstanding, no par value) $ 10.43
==========
See accompanying notes to financial statements.
================================================================================
18 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended September 30, 2018 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Interest income $17,732
-------
EXPENSES
Management fees 2,278
Administration and servicing fees:
Fund Shares 1,150
Adviser Shares 11
Transfer agent's fees:
Fund Shares 349
Adviser Shares 1
Distribution and service fees (Note 6):
Adviser Shares 18
Custody and accounting fees:
Fund Shares 110
Adviser Shares 1
Postage:
Fund Shares 17
Shareholder reporting fees:
Fund Shares 13
Trustees' fees 18
Registration fees:
Fund Shares 19
Adviser Shares 13
Professional fees 31
Other 12
-------
Total expenses 4,041
Expenses reimbursed:
Adviser Shares (10)
-------
Net expenses 4,031
-------
NET INVESTMENT INCOME 13,701
-------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss (4,300)
Change in net unrealized appreciation/(depreciation) 6,087
-------
Net realized and unrealized gain 1,787
-------
Increase in net assets resulting from operations $15,488
=======
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 19
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended September 30, 2018 (unaudited), and year ended March 31,
2018
---------------------------------------------------------------------------------------------------
9/30/2018 3/31/2018
---------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 13,701 $ 25,241
Net realized loss on investments (4,300) (119)
Change in net unrealized appreciation/(depreciation)
of investments 6,087 (4,699)
--------------------------
Increase in net assets resulting from operations 15,488 20,423
--------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM DISTRIBUTABLE EARNINGS:
Fund Shares (13,407) (25,139)
Adviser Shares (106) (265)
--------------------------
Distributions to shareholders (13,513) (25,404)
--------------------------
NET DECREASE IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS (NOTE 5)
Fund Shares (36,403) (113,714)
Adviser Shares 3,339 (20,844)
--------------------------
Total net decrease in net assets from capital
share transactions (33,064) (134,558)
--------------------------
Net decrease in net assets (31,089) (139,539)
NET ASSETS
Beginning of period 1,562,343 1,701,882
--------------------------
End of period $1,531,254 $1,562,343
==========================
See accompanying notes to financial statements.
================================================================================
20 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
September 30, 2018 (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 47 separate funds.
The 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.
A. SECURITY VALUATION - The Trust's Board of Trustees (the Board) has
established the Valuation and Liquidity Committee (the Committee), and
subject to Board oversight, the Committee administers and oversees the
================================================================================
NOTES TO FINANCIAL STATEMENTS | 21
================================================================================
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 extent the valuations include significant
unobservable inputs, the securities would be categorized in Level 3.
================================================================================
22 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
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
that are observable for the securities, either directly or indirectly, and
market-corroborated inputs such as market indexes.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 23
================================================================================
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. INVESTMENTS IN SECURITIES - Securities transactions are accounted for as
of 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.
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.
For the six-month period ended September 30, 2018, 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.
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
================================================================================
24 | USAA TAX EXEMPT SHORT-TERM 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. INDEMNIFICATIONS - Under the Trust's organizational documents, its officers
and trustees are indemnified against certain liabilities arising out of the
performance of their duties to the Trust. In addition, in the normal course
of business, the Trust enters into contracts that contain a variety of
representations and warranties that provide general indemnifications. The
Trust's maximum exposure under these arrangements is unknown, as this would
involve future claims that may be made against the Trust that have not yet
occurred. However, the Trust expects the risk of loss to be remote.
G. USE OF ESTIMATES - The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts in the
financial statements.
(2) LINE OF CREDIT
The Fund participates, 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 14.0 basis
points of the amount of the committed loan agreement. Prior to September 30,
2018, the maximum annual facility fee was 13.0 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 daily net assets for the period.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 25
================================================================================
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 15.0 basis points.
For the six-month period ended September 30, 2018, the Fund paid CAPCO facility
fees of $6,000, which represents 1.8% of the total fees paid to CAPCO by the
funds of the Trusts. The Fund had no borrowings under this agreement during the
six-month period ended September 30, 2018.
(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, 2019, in
accordance with applicable federal tax law.
Net investment income is accrued daily as dividends and distributed to
shareholders monthly. Distributions of realized gains from security transactions
not offset by capital losses are made annually in the succeeding fiscal year or
as otherwise required to avoid the payment of federal taxes.
At March 31, 2018, the Fund had net capital loss carryforwards of $19,358,000,
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 $ 597,000
Long-Term 18,761,000
-----------
Total $19,358,000
===========
As of September 30, 2018, 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, 2018, were $7,977,000 and $7,493,000, respectively, resulting in net
unrealized appreciation of $484,000.
================================================================================
26 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
(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, 2018, were
$170,296,000 and $107,592,000, respectively.
In accordance with affiliated transaction procedures approved by the Board,
purchases and sales of security transactions were executed between the Fund and
affiliated USAA Funds at the then-current market price with no brokerage
commissions incurred. The affiliated transactions executed by the Fund,
including short-term securities, during the six-month period ended September 30,
2018 were as follows:
PURCHASES SALES REALIZED GAIN/(LOSS)
------------------------------------------------------------------------------------------
$48,810,000 $36,400,000 $-
(5) CAPITAL SHARE TRANSACTIONS
At September 30, 2018, 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, 2018 MARCH 31, 2018
-------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------
FUND SHARES:
Shares sold 12,423 $ 129,604 27,862 $ 291,671
Shares issued from reinvested
dividends 1,028 10,728 2,051 21,468
Shares redeemed (16,946) (176,735) (40,758) (426,853)
--------------------------------------------------
Net decrease from
capital share transactions (3,495) $ (36,403) (10,845) $(113,714)
==================================================
ADVISER SHARES:
Shares sold 993 $ 10,385 1,695 $ 17,743
Shares issued from reinvested
dividends 9 95 17 184
Shares redeemed (684) (7,141) (3,702) (38,771)
--------------------------------------------------
Net increase (decrease) from
capital share transactions 318 $ 3,339 (1,990) $ (20,844)
==================================================
================================================================================
NOTES TO FINANCIAL STATEMENTS | 27
================================================================================
(6) TRANSACTIONS WITH MANAGER
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 daily 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 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 Lipper index,
rounded to the nearest basis point. Average daily 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
daily 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.
================================================================================
28 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
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, 2018, the Fund incurred management
fees, paid or payable to the Manager, of $2,278,000, which included a
performance adjustment of 0.01% for the Fund Shares of $111,000. The Advisor
Shares did not incur any performance adjustment.
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
daily net assets for both the Fund Shares and Adviser Shares. For the six-month
period ended September 30, 2018, the Fund Shares and Adviser Shares incurred
administration and servicing fees, paid or payable to the Manager, of $1,150,000
and $11,000, 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, 2018, the Fund reimbursed the Manager $13,000 for these
compliance and legal services. These expenses are included in the professional
fees on the Fund's Statement of Operations.
EXPENSE LIMITATION - The Manager agreed, through July 31, 2019, to limit the
total annual operating expenses of the Adviser Shares to 0.75% of its average
daily 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, 2019, without approval of the Board, and may be
changed or terminated by the Manager at any time after that date. Prior to
August 1, 2018, the expense limitation for the Adviser Shares was 0.80%. For the
six-month period ended September 30, 2018, the Adviser Shares incurred
reimbursable expenses of $10,000, of which $2,000 was receivable from the
Manager.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 29
================================================================================
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, 2018, the Fund Shares and Adviser Shares incurred transfer agent's
fees, paid or payable to SAS, of $349,000 and $1,000, respectively.
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 daily 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,
2018, the Adviser Shares incurred distribution and service (12b-1) fees of
$18,000.
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.
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 SEC issued Final Rule Release No. 33-10233, INVESTMENT
COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS (Liquidity Rule).
================================================================================
30 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
The Liquidity Rule requires funds to establish a liquidity risk management
program and enhances disclosures regarding funds' liquidity. The requirements to
implement a liquidity risk management program and establish a 15% illiquid
investment limit are effective December 1, 2018. However, in February 2018, the
SEC issued Release No. IC-33010, INVESTMENT COMPANY LIQUIDITY RISK MANAGEMENT
PROGRAMS; COMMISSION GUIDANCE FOR IN-KIND ETFs, which delayed certain
requirements related to liquidity classification, highly liquid investment
minimums, and board approval of the liquidity risk management programs to June
1, 2019. The Manager continues to evaluate the impact of this rule on the Fund's
financial statements and various filings.
(9) UPCOMING ACCOUNTING PRONOUNCEMENTS
(ASU) 2017-08, PREMIUM AMORTIZATION OF PURCHASED CALLABLE DEBT SECURITIES
-------------------------------------------------------------------------
In March 2017, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Update (ASU) 2017-08, Premium Amortization of Purchased Callable Debt
Securities. The amendments in the ASU shorten the premium amortization period on
a purchased callable debt security from the security's contractual life to the
earliest call date. It is anticipated that this change will enhance reporting
disclosures by reducing losses recognized when a security is called on an
earlier date. This ASU is effective for fiscal years beginning after December
15, 2018. The Manager continues to evaluate the impact this ASU will have on the
financial statements and other reporting disclosures.
(ASU) 2018-13, FAIR VALUE MEASUREMENT
-------------------------------------
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820).
The amendments in the ASU impact disclosure requirements for fair value
measurement. It is anticipated that this change will enhance the effectiveness
of disclosures in the notes to the financial statements. This ASU is effective
for fiscal years beginning after December 15, 2019. Early adoption is permitted
and can include the entire standard or certain provisions that exclude or amend
disclosures. The adoption of this ASU guidance is not expected to have a
material impact on the financial statements and other disclosures.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 31
================================================================================
(10) RECENTLY ADOPTED ACCOUNTING STANDARD
In August 2018, the U.S. Securities and Exchange Commission (SEC) adopted
amendments to Regulation S-X for investment companies governing the form and
content of financial statements. The amendments to Regulation S-X took effect
on November 5, 2018, and the financial statements have been modified
accordingly, for the current and prior period.
(11) SUBSEQUENT EVENT
On November 6, 2018, United Services Automobile Association ("USAA"), the parent
company of USAA Asset Management Company ("AMCO"), the investment adviser to the
Funds, and USAA Transfer Agency Company d.b.a. USAA Shareholder Account Services
("SAS"), the transfer agent to the Funds, announced that AMCO and SAS would be
acquired by Victory Capital Holdings, Inc. ("Victory"), a global investment
management firm headquartered in Cleveland, Ohio (the "Transaction"). The
closing of the Transaction is expected to be completed during the second quarter
of 2019, pending satisfaction of certain closing conditions and approvals,
including certain approvals of the Funds' Board of Trustees and of Fund
shareholders at a special shareholder meeting to be held in 2019.
The Transaction is not expected to result in any material changes to the Funds'
respective investment objectives and principal investment strategies.
================================================================================
32 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
FINANCIAL HIGHLIGHTS
FUND SHARES (UNAUDITED)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
SEPTEMBER 30, YEAR ENDED MARCH 31,
-----------------------------------------------------------------------------------------------
2018 2018 2017 2016 2015 2014
-----------------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 10.41 $ 10.45 $ 10.59 $ 10.68 $ 10.71 $ 10.84
-----------------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .09 .16 .15 .16 .17 .19
Net realized and
unrealized gain (loss) .01 (.03) (.14) (.09) (.03) (.13)
-----------------------------------------------------------------------------------------------
Total from investment
operations .10 .13 .01 .07 .14 .06
-----------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.09) (.17) (.15) (.16) (.17) (.19)
-----------------------------------------------------------------------------------------------
Net asset value at
end of period $ 10.42 $ 10.41 $ 10.45 $ 10.59 $ 10.68 $ 10.71
===============================================================================================
Total return (%)* .98 1.21 .09 .62 1.29 .60
Net assets at end of
period (000) $1,516,572 $1,550,994 $1,669,691 $1,760,074 $1,929,648 $2,031,383
Ratios to average daily
net assets:**
Expenses (%)(c) .52(a) .51 .54(b) .55(b) .55(b) .55(b)
Net investment
income (%) 1.77(a) 1.57 1.43 1.47 1.56 1.81
Portfolio turnover (%) 12 25 34 25 30 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, 2018, average daily net assets
were $1,529,369,000.
(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 ratio by less than 0.01%.
(c) Does not include acquired fund fees, if any.
================================================================================
FINANCIAL HIGHLIGHTS | 33
================================================================================
ADVISER SHARES (UNAUDITED)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
SEPTEMBER 30, YEAR ENDED MARCH 31,
-------------------------------------------------------------------------------------------
2018 2018 2017 2016 2015 2014
-------------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 10.42 $ 10.46 $ 10.59 $ 10.67 $ 10.71 $ 10.84
------------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .08 .13 .12 .13 .14 .17
Net realized and
unrealized gain (loss) .01 (.03) (.13) (.08) (.04) (.13)
------------------------------------------------------------------------------------------
Total from investment
operations .09 .10 (.01) .05 .10 .04
------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.08) (.14) (.12) (.13) (.14) (.17)
Redemption fees added
to beneficial interests - - - .00(a) - -
------------------------------------------------------------------------------------------
Net asset value at
end of period $ 10.43 $ 10.42 $ 10.46 $ 10.59 $ 10.67 $ 10.71
==========================================================================================
Total return (%)* .84 .91 (.08) .46 .94 .35
Net assets at end of
period (000) $14,682 $11,349 $32,191 $31,017 $16,805 $11,186
Ratios to average daily
net assets:**
Expenses (%)(e) .78(b),(d) .80 .80(c) .80(c) .80(c) .80(c)
Expenses, excluding
reimbursements (%)(e) .92(b) .83 .81(c) .83(c) .98(c) .94(c)
Net investment
income (%) 1.51(b) 1.27 1.16 1.17 1.32 1.55
Portfolio turnover (%) 12 25 34 25 30 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, 2018, average daily net assets
were $14,267,000.
(a) Represents less than $0.01 per share.
(b) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(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 ratio by less than 0.01%.
(d) Prior to August 1, 2018, the Manager voluntarily agreed to limit the annual
expenses of the Adviser Shares to .80% of the Adviser Shares' average daily
net assets.
(e) Does not include acquired fund fees, if any.
================================================================================
34 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
EXPENSE EXAMPLE
September 30, 2018 (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, 2018, through
September 30, 2018.
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
================================================================================
EXPENSE EXAMPLE | 35
================================================================================
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, 2018 -
APRIL 1, 2018 SEPTEMBER 30, 2018 SEPTEMBER 30, 2018
----------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $1,009.80 $2.62
Hypothetical
(5% return before expenses) 1,000.00 1,022.46 2.64
ADVISER SHARES
Actual 1,000.00 1,008.40** 3.93**
Hypothetical
(5% return before expenses) 1,000.00 1,021.16** 3.95**
*Expenses are equal to the annualized expense ratio of 0.52% 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
0.98% for Fund Shares and 0.84% for Adviser Shares for the six-month period of
April 1, 2018, through September 30, 2018.
**The Fund's annualized expense ratio of 0.78% for the Adviser Shares above
reflects a change effective August 1, 2018, in the rate of the Manager's
expense limitation for the Adviser Shares from 0.80% to 0.75% of the Adviser
Shares' average daily net assets. Had the expense limitation of 0.75%, which
is net
================================================================================
36 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
of expenses paid indirectly, been in effect for the entire six-month period of
April 1, 2018, through September 30, 2018, the values in the table above would
be as shown below.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD
ACCOUNT VALUE ACCOUNT VALUE APRIL 1, 2018 -
APRIL 1, 2018 SEPTEMBER 30, 2018 SEPTEMBER 30, 2018
-------------------------------------------------------------
ADVISER SHARES
Actual $1,000.00 $1,008.40 $3.78
Hypothetical
(5% return before expenses) 1,000.00 1,021.31 3.80
================================================================================
EXPENSE EXAMPLE | 37
================================================================================
ADVISORY AGREEMENT
September 30, 2018 (unaudited)
--------------------------------------------------------------------------------
At an in-person meeting of the Board of Trustees (the Board) held on April 18,
2018, 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
================================================================================
38 | USAA TAX EXEMPT SHORT-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 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 also considered the significant risks assumed by the Manager in
connection with the services provided to the Fund, including investment,
operational, enterprise, litigation, regulatory and compliance risks.
The Board considered the Manager's management style and the performance of the
Manager's duties under the Advisory Agreement. The Board considered
================================================================================
ADVISORY AGREEMENT | 39
================================================================================
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
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 and its affiliates, 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 equal to the median of its expense universe. The data
indicated that the Fund's
================================================================================
40 | USAA TAX EXEMPT SHORT-TERM FUND
================================================================================
total expense ratio was below the median of its expense group and its expense
universe. The Board took into account the various services provided to the Fund
by the Manager and its affiliates, including the high quality of services
provided by the Manager. The Board also took into account management's
discussion of the Fund's expenses. The Board also noted the level and method of
computing the management fee, including any performance adjustment to such fee.
In considering the Fund's performance, the Board noted that it reviews at its
regularly scheduled meetings information about the Fund's performance results.
The Trustees also reviewed various comparative data provided to them in
connection with their consideration of the renewal of the Advisory Agreement,
including, among other information, a comparison of the Fund's average annual
total return with its Lipper index and with that of other mutual funds deemed to
be in its peer group by the independent third party in its report (the
"performance universe"). The Fund's performance universe consisted of the Fund
and all retail and institutional open-end investment companies with the same
classification/objective as the Fund regardless of asset size or primary channel
of distribution. This comparison indicated that, among other data, the Fund's
performance was above the average of its performance universe and its Lipper
index for the one-, three-, five-, and ten-year periods ended December 31, 2017.
The Board also noted that the Fund's percentile performance ranking was in the
top 20% of its performance universe for the one-year period ended December 31,
2017, was in the top 25% of its performance universe for the three-year period
ended December 31, 2017, was in the top 15% of its performance universe for the
five-year period ended December 31, 2017, and was in the top 10% of its
performance universe for the ten-year period ended December 31, 2017.
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 | 41
================================================================================
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.
================================================================================
42 | USAA TAX EXEMPT SHORT-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 State Street Bank and Trust Company
ACCOUNTING AGENT, AND P.O. Box 1713
SUB-ADMINISTRATOR Boston, Massachusetts 02105
--------------------------------------------------------------------------------
INDEPENDENT Ernst & Young LLP
REGISTERED PUBLIC 100 West Houston St., Suite 1700
ACCOUNTING FIRM San Antonio, Texas 78205
--------------------------------------------------------------------------------
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
--------------
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================================================================================
39592-1118 (C)2018, 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, 2018
============================================================
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
INVESTMENT OVERVIEW 1
FINANCIAL INFORMATION
Portfolio of Investments 2
Notes to Portfolio of Investments 5
Financial Statements 7
Notes to Financial Statements 10
Financial Highlights 23
EXPENSE EXAMPLE 24
ADVISORY AGREEMENT 26
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.
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.
(C)2018, USAA. All rights reserved.
================================================================================
================================================================================
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
o ASSET ALLOCATION* - 9/30/18 o
[PIE CHART OF ASSET ALLOCATION]
DOMESTIC EXCHANGE-TRADED FUNDS 77.1%
FIXED-INCOME EXCHANGE-TRADED FUNDS 10.0%
INTERNATIONAL EXCHANGE-TRADED FUNDS 5.5%
BONDS 3.7%
MONEY MARKET INSTRUMENTS 3.4%
[END CHART]
*Does not include futures.
Percentages are of the net assets of the Fund and may not equal 100%.
Refer to the Portfolio of Investments for a complete list of securities.
================================================================================
INVESTMENT OVERVIEW | 1
================================================================================
PORTFOLIO OF INVESTMENTS
September 30, 2018 (unaudited)
-------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (92.6%)
EXCHANGE-TRADED FUNDS (92.6%)
DOMESTIC EXCHANGE-TRADED FUNDS (77.1%)
459,590 Consumer Staples Select Sector SPDR Fund $ 4,786
580,090 iShares Core S&P Mid-Cap ETF 116,766
551,000 iShares Core U.S. REIT ETF 26,658
688,000 iShares Edge MSCI USA Momentum Factor ETF(a) 81,872
457,662 VanEck Vectors Oil Services ETF(a) 11,529
408,164 Vanguard Mid-Cap ETF(a) 67,016
198,085 Vanguard Real Estate ETF 15,981
66,980 Vanguard Small-Cap ETF 10,890
--------
Total Domestic Exchange-Traded Funds 355,498
--------
FIXED-INCOME EXCHANGE-TRADED FUNDS (10.0%)
30,000 iShares Core U.S. Aggregate Bond ETF 3,166
240,000 iShares iBoxx $ High Yield Corporate Bond ETF 20,745
18,838 iShares TIPS Bond ETF 2,084
550,000 SPDR Bloomberg Barclays High Yield Bond ETF 19,827
--------
Total Fixed-Income Exchange-Traded Funds 45,822
--------
INTERNATIONAL EXCHANGE-TRADED FUNDS (5.5%)
196,238 Invesco FTSE RAFI Emerging Markets ETF(a) 4,149
662,000 iShares MSCI Canada ETF 19,052
79,561 Schwab Fundamental Emerging Markets Large Company Index ETF(a) 2,293
--------
Total International Exchange-Traded Funds 25,494
--------
Total Exchange-Traded Funds (cost: $394,612) 426,814
--------
Total Equity Securities (cost: $394,612) 426,814
--------
-------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT
(000)
-------------------------------------------------------------------------------------------------------------
BONDS (3.7%)
U.S. TREASURY SECURITIES (3.7%)
NOTES (3.7%)(b)
$ 17,600 1.88%, 4/30/2022(a),(c) (cost: $17,220) 16,984
--------
Total Bonds (cost: $17,220) 16,984
--------
================================================================================
2 | USAA TARGET MANAGED ALLOCATION FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS (3.4%)
COMMERCIAL PAPER (3.4%)
$ 2,000 Barton Capital Corp.(a),(d) 2.20% 10/05/2018 $ 2,000
4,500 Gotham Funding Corp.(a),(d) 2.16 10/01/2018 4,500
2,400 Manhattan Asset Fund Company LLC(a),(d) 2.10 10/05/2018 2,399
4,000 Ridgefield Funding Co.(a),(d) 2.10 10/02/2018 4,000
2,810 Victory Receivables Corp.(a),(d) 2.11 10/04/2018 2,809
--------
Total Commercial Paper (cost: $15,708) 15,708
--------
-------------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES
-------------------------------------------------------------------------------------------------------------
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (0.0%)
144,207 State Street Institutional Treasury Money Market Fund Premier Class,
1.95%(a),(e) (cost: $144) 144
--------
Total Money Market Instruments (cost: $15,852) 15,852
--------
TOTAL INVESTMENTS (COST: $427,684) $459,650
========
-------------------------------------------------------------------------------------------------------------
UNREALIZED
NOTIONAL CONTRACT APPRECIATION/
NUMBER OF EXPIRATION AMOUNT VALUE (DEPRECIATION)
CONTRACTS DESCRIPTION DATE (000) (000) (000)
-------------------------------------------------------------------------------------------------------------
FUTURES (0.1%)
LONG FUTURES
EQUITY CONTRACTS
367 Euro STOXX 50 12/21/2018 EUR 12,214 $14,432 $ 251
163 FTSE MIB Index 12/21/2018 GBP 12,181 15,905 29
166 S&P/TSX 60 Index 12/20/2018 CAD 31,414 24,426 105
232 TOPIX Index 12/13/2018 JPY 3,893,020 37,112 2,848
------- ------
TOTAL LONG FUTURES $91,875 $3,233
------- ------
================================================================================
PORTFOLIO OF INVESTMENTS | 3
================================================================================
-------------------------------------------------------------------------------------------------------------
UNREALIZED
NOTIONAL CONTRACT APPRECIATION/
NUMBER OF EXPIRATION AMOUNT VALUE (DEPRECIATION)
CONTRACTS DESCRIPTION DATE (000) (000) (000)
-------------------------------------------------------------------------------------------------------------
SHORT FUTURES
EQUITY CONTRACTS
200 Russell 2000 Mini 12/21/2018 USD (17,287) $(17,008) $ 279
340 S&P 500 E Mini 12/21/2018 USD (49,475) (49,623) (148)
276 Swiss Market Index 12/21/2018 CHF (24,577) (25,496) (453)
-------- ------
TOTAL SHORT FUTURES $(92,127) $ (322)
-------- ------
TOTAL FUTURES $ (252) $2,911
======== ======
-------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
-------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
-------------------------------------------------------------------------------------------------------------
Equity Securities:
Exchange-Traded Funds $426,814 $ - $- $426,814
Bonds:
U.S. Treasury Securities 16,984 - - 16,984
Money Market Instruments:
Commercial Paper - 15,708 - 15,708
Government & U.S. Treasury
Money Market Funds 144 - - 144
Futures(1) 3,512 - - 3,512
-------------------------------------------------------------------------------------------------------------
Total $447,454 $15,708 $- $463,162
-------------------------------------------------------------------------------------------------------------
LIABILITIES LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
-------------------------------------------------------------------------------------------------------------
Futures(1) $(601) $- $- $(601)
-------------------------------------------------------------------------------------------------------------
Total $(601) $- $- $(601)
-------------------------------------------------------------------------------------------------------------
(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, 2018, through September 30, 2018, there were no
transfers of securities between levels. The Fund's policy is to recognize
transfers in and transfers out as of the beginning of the reporting period in
which the event or circumstance that caused the transfer occurred.
================================================================================
4 | USAA TARGET MANAGED ALLOCATION FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
September 30, 2018 (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 6.0% of net assets at September 30,
2018.
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 CATEGORIES AND DEFINITIONS
COMMERCIAL PAPER - Consists of short-term unsecured promissory notes with
maturities ranging from one to 270 days, issued mainly by corporations.
Commercial paper is usually purchased at a discount and matures at par
value; however, it also may be interest-bearing. Rate represents an
annualized yield at time of purchase or coupon rate, if applicable.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 5
================================================================================
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
o SPECIFIC NOTES
(a) The security, or a portion thereof, is segregated to cover the value of
open futures contracts at September 30, 2018.
(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 $11,194,000 are segregated as collateral for
initial margin requirements on open futures contracts.
(d) 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.
(e) Rate represents the money market fund annualized seven-day yield at
September 30, 2018.
See accompanying notes to financial statements.
================================================================================
6 | USAA TARGET MANAGED ALLOCATION FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
September 30, 2018 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $427,684) $459,650
Receivables:
Dividends and interest 1,867
Variation margin on futures contracts 2,915
--------
Total assets 464,432
--------
LIABILITIES
Bank overdraft 39
Payable to broker 3,028
Accrued management fees 195
Other accrued expenses and payables 50
--------
Total liabilities 3,312
--------
Net assets applicable to capital shares outstanding $461,120
========
NET ASSETS CONSIST OF:
Paid-in capital $383,534
Distributable earnings 77,586
--------
Net assets applicable to capital shares outstanding $461,120
========
Capital shares outstanding unlimited number of shares authorized,
no par value 39,590
========
Net asset value, redemption price, and offering price per share $ 11.65
========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 7
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended September 30, 2018 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends $ 4,697
Interest 196
-------
Total income 4,893
-------
EXPENSES
Management fees 1,109
Administration and servicing fees 110
Transfer agent's fees 111
Custody and accounting fees 48
Trustees' fees 18
Professional fees 33
Other 9
-------
Total expenses 1,438
-------
NET INVESTMENT INCOME 3,455
-------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
FOREIGN CURRENCY, AND FUTURES CONTRACTS
Net realized gain (loss) on:
Affiliated transactions 1,665
Unaffiliated investments 39,895
Foreign currency transactions 2
Futures transactions (4,351)
Change in net unrealized appreciation/(depreciation) of:
Investments (26,092)
Foreign currency translations 29
Futures contracts 987
-------
Net realized and unrealized gain 12,135
-------
Increase in net assets resulting from operations $15,590
=======
See accompanying notes to financial statements.
================================================================================
8 | USAA TARGET MANAGED ALLOCATION FUND
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended September 30, 2018 (unaudited), and year ended March 31,
2018
----------------------------------------------------------------------------------------------------------
9/30/2018 3/31/2018
----------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 3,455 $ 7,272
Net realized gain on investments 41,560 4,046
Net realized gain (loss) on foreign currency transactions 2 (1)
Net realized loss on futures transactions (4,351) (1,389)
Change in net unrealized appreciation/(depreciation) of:
Investments (26,092) 28,072
Foreign currency translations 29 10
Futures contracts 987 2,117
--------------------------------
Increase in net assets resulting from operations 15,590 40,127
--------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
DISTRIBUTABLE EARNINGS: - (5,673)
--------------------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 79,914 3,408
Reinvested dividends - 5,673
Cost of shares redeemed (121,983) (18,730)
--------------------------------
Decrease in net assets from capital share transactions (42,069) (9,649)
--------------------------------
Net increase (decrease) in net assets (26,479) 24,805
NET ASSETS
Beginning of period 487,599 462,794
--------------------------------
End of period $ 461,120 $487,599
================================
CHANGE IN SHARES OUTSTANDING
Shares sold 6,908 293
Shares issued for dividends reinvested - 501
Shares redeemed (10,761) (1,599)
--------------------------------
Increase (decrease) in shares outstanding (3,853) (805)
================================
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 9
================================================================================
NOTES TO FINANCIAL STATEMENTS
September 30, 2018 (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 47 separate funds. The
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 and Liquidity 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
================================================================================
10 | USAA TARGET MANAGED ALLOCATION FUND
================================================================================
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 pricemonitoring.
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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 11
================================================================================
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. 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.
5. 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.
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
================================================================================
12 | USAA TARGET MANAGED ALLOCATION FUND
================================================================================
value pricing is that securities may not be priced on the basis of
quotations from the primary market in which they are traded and the
actual price realized from the sale of a security may differ materially
from the fair value price. Valuing these securities at fair value is
intended to cause the Fund's NAV to be more reliable than it otherwise
would be.
Fair value methods used by the Manager include, but are not limited to,
obtaining market quotations from secondary pricing services,
broker-dealers, other pricing services, or widely used quotation
systems. General factors considered in determining the fair value of
securities include fundamental analytical data, the nature and duration
of any restrictions on disposition of the securities, evaluation of
credit quality, and an evaluation of the forces that influenced the
market in which the securities are purchased and sold.
B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability in an orderly
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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 13
================================================================================
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, 2018,
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.
================================================================================
14 | USAA TARGET MANAGED ALLOCATION FUND
================================================================================
FAIR VALUES OF DERIVATIVE INSTRUMENTS AS OF SEPTEMBER 30, 2018* (IN THOUSANDS)
ASSET DERIVATIVES
----------------------------------------------------------------------------------------------
DERIVATIVES NOT STATEMENT OF FOREIGN
ACCOUNTED FOR AS ASSETS AND INTEREST RATE EQUITY EXCHANGE
HEDGING INSTRUMENTS LIABILITIES LOCATION CONTRACTS CONTRACTS CONTRACTS TOTAL
----------------------------------------------------------------------------------------------
USAA Target Net unrealized $- $3,512** $- $3,512
Managed Allocation appreciation of
Fund investments and
futures contracts
----------------------------------------------------------------------------------------------
LIABILITY DERIVATIVES
----------------------------------------------------------------------------------------------
DERIVATIVES NOT STATEMENT OF FOREIGN
ACCOUNTED FOR AS ASSETS AND INTEREST RATE EQUITY EXCHANGE
HEDGING INSTRUMENTS LIABILITIES LOCATION CONTRACTS CONTRACTS CONTRACTS TOTAL
----------------------------------------------------------------------------------------------
USAA Target Net unrealized $- $(601)** $- $(601)
Managed Allocation appreciation of
Fund investments and
futures contracts
----------------------------------------------------------------------------------------------
* For open derivative instruments as of September 30, 2018, see the Portfolio of
Investments.
** 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 ENDED SEPTEMBER 30, 2018 (IN THOUSANDS)
NET REALIZED GAIN (LOSS)
----------------------------------------------------------------------------------------------
DERIVATIVES NOT STATEMENT OF FOREIGN
ACCOUNTED FOR AS OPERATIONS INTEREST RATE EQUITY EXCHANGE
HEDGING INSTRUMENTS LOCATION CONTRACTS CONTRACTS CONTRACTS TOTAL
----------------------------------------------------------------------------------------------
USAA Target Net realized gain $- $(10,541) $6,190 $(4,351)
Managed Allocation (loss) on Futures
Fund transactions
----------------------------------------------------------------------------------------------
NET CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)
----------------------------------------------------------------------------------------------
DERIVATIVES NOT STATEMENT OF FOREIGN
ACCOUNTED FOR AS OPERATIONS INTEREST RATE EQUITY EXCHANGE
HEDGING INSTRUMENTS LOCATION CONTRACTS CONTRACTS CONTRACTS TOTAL
----------------------------------------------------------------------------------------------
USAA Target Change in net $- $1,447 $(460) $987
Managed Allocation unrealized appreciation
Fund /(depreciation) of
Futures contracts
----------------------------------------------------------------------------------------------
================================================================================
NOTES TO FINANCIAL STATEMENTS | 15
================================================================================
D. INVESTMENTS IN SECURITIES - Securities transactions are accounted for as of
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. 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.
For the six-month period ended September 30, 2018, 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.
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
================================================================================
16 | USAA TARGET MANAGED ALLOCATION FUND
================================================================================
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. 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 17
================================================================================
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 14.0 basis
points of the amount of the committed loan agreement. Prior to September 30,
2018, the maximum annual facility fee was 13.0 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 daily 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 15.0 basis points.
For the six-month period ended September 30, 2018, the Fund paid CAPCO facility
fees of $2,000, which represents 0.5% of the total fees paid to CAPCO by the
funds of the Trusts. The Fund had no borrowings under this agreement during the
six-month period ended September 30, 2018.
(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, 2019, 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 taxes.
At March 31, 2018, the Fund had no capital loss carryforwards, for federal
income tax purposes.
As of September 30, 2018, 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.
================================================================================
18 | USAA TARGET MANAGED ALLOCATION FUND
================================================================================
Gross unrealized appreciation and depreciation of investments as of September
30, 2018, were $33,414,000 and $1,447,000, respectively, resulting in net
unrealized appreciation of $31,967,000.
(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, 2018, were
$281,107,000 and $331,390,000, respectively.
In accordance with affiliated transaction procedures approved by the Board,
purchases and sales of security transactions were executed between the Fund and
affiliated USAA Funds at the then-current market price with no brokerage
commissions incurred. The affiliated transactions executed by the Fund,
including short-term securities, during the six-month period ended September 30,
2018 were as follows:
PURCHASES SALES REALIZED GAIN/(LOSS)
--------------------------------------------------------------------------------
$- $24,243,000 $1,665,000
(5) TRANSACTIONS WITH MANAGER
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 all or a portion of the
Fund's assets. For the six-month period ended September 30, 2018, the Fund had
no subadviser(s).
The Fund's investment management fee is accrued daily and paid monthly at an
annualized rate of 0.50% of the Fund's average daily net assets. For the
six-month period ended September 30, 2018, the Fund incurred management fees,
paid or payable to the Manager, of $1,109,000.
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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 19
================================================================================
of 0.10% of the Fund's average daily net assets. For the six-month period ended
September 30, 2018, the Fund incurred administration and servicing fees, paid or
payable to the Manager, of $110,000.
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, 2018, the Fund reimbursed the Manager $4,000 for these
compliance and legal services. These expenses are included in the professional
fees on the Fund's Statement of Operations.
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 daily net
assets for the fiscal year. For the six-month period ended September 30, 2018,
the Fund incurred transfer agent's fees, paid or payable to SAS, of $111,000.
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, 2018, the USAA fund-of-funds owned the following
percentages of the total outstanding shares of the fund:
AFFILIATED USAA FUND OWNERSHIP %
--------------------------------------------------------------------------------
Target Retirement Income 3.4
Target Retirement 2020 9.2
Target Retirement 2030 27.0
Target Retirement 2040 36.1
Target Retirement 2050 21.9
Target Retirement 2060 2.4
================================================================================
20 | USAA TARGET MANAGED ALLOCATION FUND
================================================================================
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) UPCOMING REGULATORY MATTERS
In October 2016, the SEC issued Final Rule Release No. 33-10233, INVESTMENT
COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS (Liquidity Rule). The Liquidity Rule
requires funds to establish a liquidity risk management program and enhances
disclosures regarding funds' liquidity. The requirements to implement a
liquidity risk management program and establish a 15% illiquid investment limit
are effective December 1, 2018. However, in February 2018, the SEC issued
Release No. IC-33010, INVESTMENT COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS;
COMMISSION GUIDANCE FOR IN-KIND ETFs, which delayed certain requirements related
to liquidity classification, highly liquid investment minimums, and board
approval of the liquidity risk management programs to June 1, 2019. The Manager
continues to evaluate the impact of this rule on the Fund's financial statements
and various filings.
(8) UPCOMING ACCOUNTING PRONOUNCEMENTS
(ASU) 2017-08, PREMIUM AMORTIZATION OF PURCHASED CALLABLE DEBT SECURITIES
-------------------------------------------------------------------------
In March 2017, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Update (ASU) 2017-08, Premium Amortization of Purchased Callable Debt
Securities. The amendments in the ASU shorten the premium amortization period on
a purchased callable debt security from the security's contractual life to the
earliest call date. It is anticipated that this change will enhance reporting
disclosures by reducing losses recognized when a security is called on an
earlier date. This ASU is effective for fiscal years beginning after December
15, 2018. The Manager continues to evaluate the impact this ASU will have on the
financial statements and other reporting disclosures.
(ASU) 2018-13, FAIR VALUE MEASUREMENT
-------------------------------------
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820).
The amendments in the ASU impact disclosure requirements for
================================================================================
NOTES TO FINANCIAL STATEMENTS | 21
================================================================================
fair value measurement. It is anticipated that this change will enhance the
effectiveness of disclosures in the notes to the financial statements. This ASU
is effective for fiscal years beginning after December 15, 2019. Early adoption
is permitted and can include the entire standard or certain provisions that
exclude or amend disclosures. The adoption of this ASU guidance is not expected
to have a material impact on the financial statements and other disclosures.
(9) RECENTLY ADOPTED ACCOUNTING STANDARD
In August 2018, the U.S. Securities and Exchange Commission (SEC) adopted
amendments to Regulation S-X for investment companies governing the form and
content of financial statements. The amendments to Regulation S-X took effect on
November 5, 2018, and the financial statements have been modified accordingly,
for the current and prior period.
(10) SUBSEQUENT EVENT
On November 6, 2018, United Services Automobile Association ("USAA"), the parent
company of USAA Asset Management Company ("AMCO"), the investment adviser to the
Funds, and USAA Transfer Agency Company d.b.a. USAA Shareholder Account Services
("SAS"), the transfer agent to the Funds, announced that AMCO and SAS would be
acquired by Victory Capital Holdings, Inc. ("Victory"), a global investment
management firm headquartered in Cleveland, Ohio (the "Transaction"). The
closing of the Transaction is expected to be completed during the second quarter
of 2019, pending satisfaction of certain closing conditions and approvals,
including certain approvals of the Funds' Board of Trustees and of Fund
shareholders at a special shareholder meeting to be held in 2019.
The Transaction is not expected to result in any material changes to the Funds'
respective investment objectives and principal investment strategies.
================================================================================
22 | USAA TARGET MANAGED ALLOCATION FUND
================================================================================
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX MONTHS
ENDED PERIOD ENDED
SEPTEMBER 30, YEAR ENDED MARCH 31, MARCH 31,
-----------------------------------------------------------
2018 2018 2017 2016***
-----------------------------------------------------------
Net asset value at
beginning of period $ 11.22 $ 10.46 $ 9.49 $ 10.00
--------------------------------------------------------
Income (loss) from investment
operations
Net investment income .09 .16 .14 .12(a)
Net realized and unrealized
gain (loss) .34 .73 .97 (.51)(a)
--------------------------------------------------------
Total from investment operations .43 .89 1.11 (.39)
--------------------------------------------------------
Less distributions from
Net investment income - (.13) (.14) (.12)
Realized capital gains - (.00)(b) - -
--------------------------------------------------------
Total distributions - (.13) (.14) (.12)
--------------------------------------------------------
Net asset value at end of period $ 11.65 $ 11.22 $ 10.46 $ 9.49
========================================================
Total return (%)* 3.83 8.48 11.72 (3.91)
Net assets at end of period (000) $461,120 $487,599 $462,794 $415,896
Ratios to average daily net assets**
Expenses (%)(g) .65(c) .65 .64(d) .65(c)
Expenses, excluding
reimbursements (%)(g) .65(c) .65 .64 .65(c)
Net investment income (%) 1.56(c) 1.50 1.37 1.88(c)
Portfolio turnover (%) 64 75(e) 125(f) 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, 2018, average daily net assets
were $442,566,000.
*** Fund commenced operations on August 7, 2015.
(a) Calculated using average shares.
(b) Represents less than $0.01 per share.
(c) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(d) Prior to August 1, 2016, the Manager had voluntarily agreed to limit the
annual expenses of the Fund to 0.70% of the Fund's average daily net assets.
(e) Reflects overall decrease in purchases and sales of securities.
(f) Reflects that the Fund did not have a full year of operations in 2016.
(g) Does not include acquired fund fees, if any.
================================================================================
FINANCIAL HIGHLIGHTS | 23
================================================================================
EXPENSE EXAMPLE
September 30, 2018 (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, 2018, through
September 30, 2018.
ACTUAL EXPENSES
The line labeled "actual" in the table provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested at the beginning of the period, to estimate the
expenses that you paid over the period. Simply divide your account value by
$1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number in the "actual" line under the heading
"Expenses Paid During Period" to estimate the expenses you paid on your account
during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The line labeled "hypothetical" in the table provides information about
hypothetical account values and hypothetical expenses based on the Fund's actual
expense ratio and an assumed rate of return of 5% per year before expenses,
which is not the Fund's actual return. The hypothetical account values and
expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period. You may use this information to
================================================================================
24 | USAA TARGET MANAGED ALLOCATION FUND
================================================================================
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, 2018 -
APRIL 1, 2018 SEPTEMBER 30, 2018 SEPTEMBER 30, 2018
----------------------------------------------------------------
Actual $1,000.00 $1,038.30 $3.32
Hypothetical
(5% return before expenses) 1,000.00 1,021.81 3.29
*Expenses are equal to the Fund's annualized expense ratio of 0.65%, which is
net of any reimbursements and expenses paid indirectly, multiplied by the
average account value over the period, multiplied by 183 days/365 days (to
reflect the one-half-year period). The Fund's actual ending account value is
based on its actual total return of 3.83% for the six-month period of April
1, 2018, through September 30, 2018.
================================================================================
EXPENSE EXAMPLE | 25
================================================================================
ADVISORY AGREEMENT
September 30, 2018 (unaudited)
--------------------------------------------------------------------------------
At an in-person meeting of the Board of Trustees (the Board) held on April 18,
2018, 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
================================================================================
26 | USAA TARGET MANAGED ALLOCATION 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 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 also considered the significant risks assumed by the Manager in
connection with the services provided to the Fund, including investment,
operational, enterprise, litigation, regulatory and compliance risks.
================================================================================
ADVISORY AGREEMENT | 27
================================================================================
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 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 and its affiliates, 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").
================================================================================
28 | USAA TARGET MANAGED ALLOCATION FUND
================================================================================
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
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, 2017. The Board also noted that
the Fund's percentile performance ranking was in the top 50% of its performance
universe for the one-year period ended December 31, 2017.
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 | 29
================================================================================
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.
================================================================================
30 | USAA TARGET MANAGED ALLOCATION 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, State Street Bank and Trust Company
ACCOUNTING AGENT, AND P.O. Box 1713
SUB-ADMINISTRATOR Boston, Massachusetts 02105
--------------------------------------------------------------------------------
INDEPENDENT Ernst & Young LLP
REGISTERED PUBLIC 100 West Houston St., Suite 1700
ACCOUNTING FIRM San Antonio, Texas 78205
--------------------------------------------------------------------------------
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
--------------
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[LOGO OF USAA]
USAA We know what it means to serve.(R)
================================================================================
98356-1118 (C)2018, 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, 2018
============================================================
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
INVESTMENT OVERVIEW 1
FINANCIAL INFORMATION
Portfolio of Investments 3
Notes to Portfolio of Investments 10
Financial Statements 13
Notes to Financial Statements 16
Financial Highlights 28
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.
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.
(C)2018, USAA. All rights reserved.
================================================================================
================================================================================
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
o TOP 10 INDUSTRIES - 9/30/18 o
(% of Net Assets)
Education ................................................................ 20.9%
Hospital ................................................................. 17.9%
Escrowed Bonds ........................................................... 10.9%
Appropriated Debt ........................................................ 10.4%
Toll Road ................................................................ 6.3%
Water/Sewer Utility ...................................................... 6.2%
Nursing/CCRC ............................................................. 4.2%
Special Assessment/Tax/Fee ............................................... 4.2%
Sales Tax ................................................................ 3.3%
Airport/Port ............................................................. 2.9%
Refer to the Portfolio of Investments for a complete list of securities.
================================================================================
INVESTMENT OVERVIEW | 1
================================================================================
o PORTFOLIO RATINGS MIX - 9/30/18 o
[PIE CHART OF PORTFOLIO RATINGS MIX]
AAA 6.1%
AA 60.1%
A 16.0%
BBB 9.5%
BELOW INVESTMENT-GRADE 4.8%
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.
Refer to the Portfolio of Investments for a complete list of securities.
================================================================================
2 | USAA VIRGINIA BOND FUND
================================================================================
PORTFOLIO OF INVESTMENTS
September 30, 2018 (unaudited)
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
MUNICIPAL OBLIGATIONS (98.9%)
VIRGINIA (87.1%)
$ 1,000 Alexandria IDA (PRE) 4.75% 1/01/2036 $ 1,034
2,000 Amherst IDA 5.00 9/01/2026 1,927
2,000 Amherst IDA 4.75 9/01/2030 1,815
15,000 Arlington County IDA 5.00 7/01/2031 15,576
1,775 Arlington County IDA 5.00 2/15/2043 2,001
700 Capital Region Airport Commission 4.00 7/01/2036 724
750 Capital Region Airport Commission 4.00 7/01/2038 772
10,000 Charles City County EDA 2.88 2/01/2029 9,487
5,000 Chesapeake Bay Bridge & Tunnel District (ETM) 5.50 7/01/2025 5,806
9,240 Chesapeake Bay Bridge & Tunnel District 5.00 7/01/2051 10,010
5,000 Chesapeake Bay Bridge & Tunnel District
(INS - Assured Guaranty Municipal Corp.) 5.00 7/01/2041 5,584
6,520 City of Chesapeake Expressway Toll Road,
4.75%, 7/15/2023 -(c) 7/15/2032 5,684
3,000 City of Chesapeake Expressway Toll Road,
4.88%, 7/15/2023 -(c) 7/15/2040 2,568
880 City of Portsmouth (PRE) 5.00 2/01/2033 980
120 City of Portsmouth 5.00 2/01/2033 132
800 City of Richmond 5.00 3/01/2032 977
1,000 City of Richmond 5.00 3/01/2033 1,223
2,000 City of Richmond Public Utility (PRE) 5.00 1/15/2035 2,018
4,500 City of Richmond Public Utility (PRE) 5.00 1/15/2040 4,541
6,000 City of Richmond Public Utility 5.00 1/15/2038 6,565
6,000 City of Richmond Public Utility 4.00 1/15/2040 6,129
5,000 College Building Auth. 5.00 6/01/2029 4,951
11,710 College Building Auth. 5.00 6/01/2036 11,245
2,540 College Building Auth. 5.00 3/01/2041 2,636
10,000 College Building Auth. 5.00 3/01/2034 10,389
8,000 College Building Auth. 4.00 2/01/2035 8,317
2,725 College Building Auth. 5.00 9/01/2031 3,073
5,615 College Building Auth. 5.00 9/01/2032 6,320
6,380 College Building Auth. 5.00 9/01/2033 7,162
10,000 College Building Auth. 5.00 2/01/2031 11,750
4,000 College Building Auth. 5.00 2/01/2032 4,679
3,335 College Building Auth. (LIQ - Barclays Bank plc)
(Put Date 10/05/2018)(a),(b) 1.58 2/01/2028 3,335
================================================================================
PORTFOLIO OF INVESTMENTS | 3
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 14,850 College Building Auth. (LIQ - U.S. Bancorp)
(Put Date 10/05/2018)(b) 1.56% 8/01/2034 $ 14,850
3,335 College Building Auth. (LIQ - Barclays Bank plc)
(Put Date 10/05/2018)(a),(b) 1.58 2/01/2027 3,335
965 College Building Auth. 4.00 1/15/2033 990
545 College Building Auth. 4.00 1/15/2035 554
650 College Building Auth. 4.00 1/15/2036 659
1,285 College Building Auth. 4.00 1/15/2043 1,281
10,000 Commonwealth Transportation Board 4.00 5/15/2042 10,309
3,350 Commonwealth Transportation Board 5.00 3/15/2032 3,910
9,190 Commonwealth Transportation Board 5.00 9/15/2032 10,726
2,000 Commonwealth Transportation Board 4.00 5/15/2036 2,089
6,315 Commonwealth University Health System
Auth. (PRE) 4.75 7/01/2036 6,777
3,000 Commonwealth University Health System
Auth. (PRE) 4.75 7/01/2041 3,219
5,500 Commonwealth University Health System Auth. 5.00 7/01/2046 6,099
2,250 Fairfax County EDA 5.00 10/01/2042 2,465
2,750 Fairfax County EDA 4.00 10/01/2042 2,756
2,000 Fairfax County EDA 5.00 10/01/2029 2,267
2,000 Fairfax County EDA 5.00 10/01/2030 2,263
2,000 Fairfax County EDA 5.00 10/01/2031 2,253
1,500 Fairfax County EDA 5.00 10/01/2032 1,686
2,200 Fairfax County EDA 5.00 10/01/2033 2,467
2,000 Fairfax County EDA 5.00 10/01/2034 2,241
2,620 Fairfax County EDA 5.00 10/01/2035 3,006
2,000 Fairfax County EDA 5.00 10/01/2036 2,281
2,800 Fairfax County EDA 5.00 12/01/2042 2,947
1,500 Fairfax County EDA 5.00 12/01/2032 1,595
4,000 Fairfax County EDA 5.00 4/01/2047 4,481
1,500 Fairfax County IDA (PRE) 5.25 5/15/2026 1,531
1,000 Fairfax County IDA 4.00 5/15/2042 1,001
14,000 Fairfax County IDA 5.00 5/15/2037 15,168
6,900 Fairfax County IDA 4.00 5/15/2044 6,969
1,020 Fairfax County IDA (Put Date 10/05/2018)(b) 1.58 5/15/2042 1,020
1,500 Fairfax County IDA 4.00 5/15/2048 1,505
5,000 Front Royal & Warren County IDA 4.00 1/01/2050 4,929
1,500 Greater Richmond Convention Center Auth. 5.00 6/15/2032 1,681
4,700 Hampton Roads Sanitation District 5.00 8/01/2043 5,275
15,000 Hampton Roads Transportation
Accountability Commission 5.00 7/01/2052 16,992
2,795 Hanover County EDA 4.50 7/01/2030 2,841
1,100 Hanover County EDA 4.50 7/01/2032 1,115
================================================================================
4 | USAA VIRGINIA BOND FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 2,000 Hanover County EDA 5.00% 7/01/2042 $ 2,049
1,200 Hanover County EDA 5.00 7/01/2051 1,246
2,105 Henrico County EDA 5.00 11/01/2030 2,299
1,200 Henrico County EDA 5.00 6/01/2024 1,273
140 Henrico County EDA 4.25 6/01/2026 143
2,500 Henrico County EDA 4.00 10/01/2035 2,516
4,480 Housing Dev. Auth. 4.60 9/01/2040 4,539
3,175 Housing Dev. Auth. 4.50 10/01/2036 3,261
7,000 Housing Dev. Auth. 3.60 5/01/2046 6,681
1,492 Lewistown Commerce Center Community
Dev. Auth. 6.05 3/01/2044 1,437
718 Lewistown Commerce Center Community
Dev. Auth. 6.05 3/01/2044 691
2,340 Lewistown Commerce Center Community
Dev. Auth.(d) 6.05 3/01/2054 427
750 Lexington IDA 4.00 1/01/2031 762
1,000 Lexington IDA 4.00 1/01/2037 1,006
5,000 Lexington IDA (PRE) 5.00 12/01/2036 5,100
2,000 Lexington IDA 5.00 1/01/2043 2,151
1,000 Lexington IDA 5.00 1/01/2042 1,070
1,250 Lexington IDA 5.00 1/01/2048 1,335
1,000 Lexington IDA 5.00 1/01/2048 1,133
1,135 Loudoun County EDA 5.00 12/01/2031 1,280
800 Loudoun County EDA 5.00 12/01/2032 901
775 Loudoun County EDA 5.00 12/01/2033 871
805 Loudoun County EDA 5.00 12/01/2034 904
5,000 Lynchburg 4.00 6/01/2044 5,125
3,000 Lynchburg EDA 5.00 9/01/2043 3,150
2,250 Lynchburg EDA 5.00 1/01/2047 2,466
3,532 Marquis Community Dev. Auth.(d),(e) 5.63 9/01/2041 2,465
5,389 Marquis Community Dev. Auth.
(Zero Coupon)(d),(e) 0.00 9/01/2041 285
1,093 Marquis Community Dev. Auth., 7.50%,
9/01/2021(a),(d),(e) 0.00(c) 9/01/2045 791
5,000 Montgomery County EDA (PRE) 5.00 6/01/2035 5,249
3,500 Norfolk EDA 5.00 11/01/2043 3,798
1,000 Norfolk EDA 5.00 11/01/2030 1,092
5,800 Norfolk EDA (Put Date 10/05/2018)(b) 1.55 11/01/2034 5,800
1,600 Norfolk EDA (Put Date 11/01/2028)(f) 5.00 11/01/2048 1,890
1,100 Norfolk EDA 4.00 11/01/2048 1,104
685 Norfolk Redev. & Housing Auth. 5.50 11/01/2019 687
10,000 Port Auth. (PRE) 5.00 7/01/2040 10,224
3,000 Port Auth. (PRE) 5.00 7/01/2030 3,067
================================================================================
PORTFOLIO OF INVESTMENTS | 5
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 1,705 Prince William County IDA (PRE) 5.50% 9/01/2031 $ 1,866
1,000 Prince William County IDA (PRE) 5.50 9/01/2034 1,095
2,000 Prince William County IDA 5.50 9/01/2031 2,171
10,000 Prince William County IDA 5.00 11/01/2046 10,585
4,000 Public Building Auth. 4.00 8/01/2030 4,311
10,000 Public School Auth. 5.00 8/01/2024 11,436
4,000 Radford IDA (NBGA - Fannie Mae) 3.50 9/15/2029 4,059
2,340 Rappahannock Regional Jail Auth. 5.00 10/01/2034 2,654
1,165 Rappahannock Regional Jail Auth. 5.00 10/01/2035 1,317
7,310 Resources Auth. 4.00 11/01/2041 7,442
1,030 Resources Auth. 5.00 11/01/2032 1,150
1,270 Resources Auth. (PRE) 5.00 11/01/2040 1,348
165 Resources Auth. 5.00 11/01/2040 174
5,000 Resources Auth. (LIQ - J.P.Morgan Chase & Co.)
(Put Date 10/05/2018)(a),(b) 1.59 11/01/2019 5,000
5,120 Roanoke County EDA (PRE) (INS - Assured
Guaranty Corp.) 5.00 10/15/2027 5,126
2,850 Roanoke County EDA (PRE) (INS - Assured
Guaranty Corp.) 5.00 10/15/2032 2,853
4,285 Roanoke County EDA (PRE) (INS - Assured
Guaranty Corp.) 5.13 10/15/2037 4,290
1,150 Roanoke County EDA 5.00 7/01/2033 1,202
110 Roanoke County EDA (PRE) (INS - Assured
Guaranty Municipal Corp.) 5.00 7/01/2038 116
6,890 Roanoke County EDA (INS - Assured
Guaranty Municipal Corp.) 5.00 7/01/2038 7,143
1,640 Roanoke EDA 5.00 9/01/2036 1,793
4,060 Roanoke EDA 5.00 9/01/2043 4,379
11,945 Small Business Financing Auth. 5.00 11/01/2040 12,448
420 Small Business Financing Auth. 5.00 4/01/2025 433
185 Small Business Financing Auth. 5.25 4/01/2026 191
855 Small Business Financing Auth. 5.50 4/01/2028 885
750 Small Business Financing Auth. 5.50 4/01/2033 775
5,900 Stafford County EDA 5.00 6/15/2036 6,434
6,495 Stafford County EDA 4.00 6/15/2037 6,369
10,000 Tobacco Settlement Financing Corp. 5.00 6/01/2047 10,000
4,405 Univ. of Virginia 5.00 6/01/2037 4,875
5,000 Univ. of Virginia 4.00 4/01/2045 5,109
4,000 Univ. of Virginia 5.00 4/01/2042 4,551
5,000 Univ. of Virginia 5.00 4/01/2047 5,661
5,000 Univ. of Virginia 5.00 4/01/2046 5,665
5,000 Upper Occoquan Sewage Auth. 4.00 7/01/2039 5,182
1,795 Virginia Beach Dev. Auth. 5.00 5/01/2029 2,018
================================================================================
6 | USAA VIRGINIA BOND FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 1,500 Virginia Beach Dev. Auth. 5.00% 9/01/2040 $ 1,641
1,600 Virginia Beach Dev. Auth. 5.00 9/01/2044 1,747
2,165 Washington County IDA (PRE) 5.25 8/01/2030 2,290
2,160 Washington County IDA (PRE) 5.50 8/01/2040 2,294
1,449 Watkins Centre Community Dev. Auth. 5.40 3/01/2020 1,451
2,000 Western Virginia Regional Jail Auth. 5.00 12/01/2038 2,225
3,085 Western Virginia Regional Jail Auth. 5.00 12/01/2035 3,465
3,250 Winchester EDA 5.00 1/01/2044 3,475
3,250 Winchester EDA 5.00 1/01/2044 3,512
3,000 Winchester EDA (PRE) 5.63 1/01/2044 3,028
5,000 Wise County IDA (Put Date 9/01/2020)(f) 2.15 10/01/2040 4,984
3,000 York County EDA (Put Date 5/16/2019)(f) 1.88 5/01/2033 2,995
--------
592,424
--------
DISTRICT OF COLUMBIA (6.0%)
2,825 Metropolitan Washington Airports Auth. 5.00 10/01/2029 2,900
12,465 Metropolitan Washington Airports Auth. 5.00 10/01/2030 12,465
11,230 Metropolitan Washington Airports Auth.
Dulles Toll Road Revenue 5.00 10/01/2039 11,499
5,500 Metropolitan Washington Airports Auth.
Dulles Toll Road Revenue (INS - Assured
Guaranty Municipal Corp.)(Zero Coupon) 0.00 10/01/2030 3,448
4,000 Metropolitan Washington Airports Auth.
Dulles Toll Road Revenue 5.00 10/01/2053 4,205
1,000 Washington MTA (PRE) 5.13 7/01/2032 1,024
5,000 Washington MTA 5.00 7/01/2042 5,633
--------
41,174
--------
GUAM (5.5%)
1,255 Antonio B. Won Pat International Airport Auth.
(INS - Assured Guaranty Municipal Corp.) 5.75 10/01/2043 1,406
1,500 Government 5.00 1/01/2042 1,554
9,300 Government (LIQ - Barclays Bank plc)
(LOC - Barclays Bank plc) (Put Date
10/05/2018)(a),(b) 1.71 12/01/2046 9,300
1,250 Government 5.00 12/01/2046 1,355
2,000 Government 5.00 11/15/2039 2,151
1,000 Government Waterworks Auth. 5.00 7/01/2037 1,092
3,250 Government Waterworks Auth. 5.00 7/01/2040 3,538
4,000 Government Waterworks Auth. 5.50 7/01/2043 4,305
2,850 Government Waterworks Auth. 5.00 7/01/2035 3,048
1,500 Port Auth. 5.00 7/01/2048 1,621
1,000 Power Auth. 5.00 10/01/2034 1,055
================================================================================
PORTFOLIO OF INVESTMENTS | 7
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 1,000 Power Auth. (INS - Assured Guaranty
Municipal Corp.) 5.00% 10/01/2044 $ 1,080
4,000 Power Auth. 5.00 10/01/2040 4,328
500 Power Auth. 5.00 10/01/2031 539
750 Power Auth. (INS - Assured Guaranty
Municipal Corp.) 5.00 10/01/2039 811
--------
37,183
--------
U. S. VIRGIN ISLANDS (0.3%)
2,000 Public Finance Auth. 5.00 10/01/2032 2,015
--------
Total Municipal Obligations (cost: $670,734) 672,796
--------
TOTAL INVESTMENTS (COST: $670,734) $672,796
========
-----------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
-----------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
-----------------------------------------------------------------------------------------------------------
Municipal Obligations $- $669,255 $3,541 $672,796
-----------------------------------------------------------------------------------------------------------
Total $- $669,255 $3,541 $672,796
-----------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
-----------------------------------------------------------------------------------------------------------
RECONCILIATION OF LEVEL 3 INVESTMENTS
-----------------------------------------------------------------------------------------------------------
($ IN 000s) MUNICIPAL OBLIGATIONS
-----------------------------------------------------------------------------------------------------------
Balance as of March 31, 2018 $ 5,057
Purchases -
Sales (1,852)
Transfers into Level 3 -
Transfers out of Level 3 -
Net realized gain (loss) on investments (3,791)
Change in net unrealized appreciation/(depreciation) of investments 4,127
-----------------------------------------------------------------------------------------------------------
Balance as of September 30, 2018 $ 3,541
-----------------------------------------------------------------------------------------------------------
For the period of April 1, 2018, through September 30, 2018, there were no
transfers of securities between levels. The Fund's policy is to recognize
transfers in and transfers out as of the beginning of the reporting period in
which the event or circumstance that caused the transfer occurred.
================================================================================
8 | USAA VIRGINIA BOND FUND
================================================================================
-----------------------------------------------------------------------------------------------------------
QUANTITATIVE INFORMATION ABOUT LEVEL 3 FAIR VALUE MEASUREMENTS*
-----------------------------------------------------------------------------------------------------------
FAIR VALUE AT SIGNIFICANT
SEPTEMBER 30, 2018 VALUATION UNOBSERVABLE
ASSETS ($ IN 000's) TECHNIQUE(S) INPUT(S) RANGE/VALUE
-----------------------------------------------------------------------------------------------------------
Municipal Obligations $3,256 Discounted Comparable Discount 6% - 10%
cash flow Adjustment(a)
-----------------------------------------------------------------------------------------------------------
(a) Represents amounts used when the reporting entity has determined that market
participants would take into account these discounts when pricing the security.
*Quantitative Information table includes certain Level 3 securities using
discounted cash flow.
An increase in the comparable discount adjustment will decrease the value of the
security.
================================================================================
PORTFOLIO OF INVESTMENTS | 9
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
September 30, 2018 (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 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
Zero Coupon Normally issued at a significant discount from face value and
do not provide for periodic interest payments. Income is
earned from the purchase date by accreting the purchase
discount of the security to par over the life of the security.
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
================================================================================
10 | 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 the name listed.
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 the name
listed.
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 name listed.
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 (VRDNs) - Provide the right to sell the
security at face value on either that day or within the rate-reset
period. VRDNs will normally trade as if the maturity is the earlier put
date, even though stated maturity is longer. The interest rate is reset
on the put date at a stipulated daily, weekly, monthly, quarterly, or
other specified time interval to reflect current market conditions.
These securities do not indicate a reference rate and spread in their
description.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 11
================================================================================
(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.
(d) Security deemed illiquid by USAA Asset Management Company, under
liquidity guidelines approved by USAA Mutual Funds Trust's Board of
Trustees.
(e) Security was classified as Level 3.
(f) Put bond - provides 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.
See accompanying notes to financial statements.
================================================================================
12 | USAA VIRGINIA BOND FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
September 30, 2018 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $670,734) $672,796
Receivables:
Capital shares sold 60
Interest 8,378
--------
Total assets 681,234
--------
LIABILITIES
Payables:
Capital shares redeemed 597
Bank overdraft 31
Dividends on capital shares 299
Accrued management fees 203
Accrued transfer agent's fees 8
Other accrued expenses and payables 79
--------
Total liabilities 1,217
--------
Net assets applicable to capital shares outstanding $680,017
========
NET ASSETS CONSIST OF:
Paid-in capital $687,887
Distributable earnings loss (7,870)
--------
Net assets applicable to capital shares outstanding $680,017
========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $661,044/59,756 capital shares
outstanding, no par value) $ 11.06
========
Adviser Shares (net assets of $18,973/1,716 capital shares
outstanding, no par value) $ 11.06
========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 13
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended September 30, 2018 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Interest income $12,451
-------
EXPENSES
Management fees 1,256
Administration and servicing fees:
Fund Shares 499
Adviser Shares 15
Transfer agent's fees:
Fund Shares 101
Adviser Shares 5
Distribution and service fees (Note 6):
Adviser Shares 25
Custody and accounting fees:
Fund Shares 60
Adviser Shares 2
Postage:
Fund Shares 8
Shareholder reporting fees:
Fund Share 9
Trustees' fees 18
Registration fees:
Fund Shares 1
Professional fees 41
Other 13
-------
Total expenses 2,053
Expenses reimbursed:
Adviser Shares (5)
-------
Net expenses 2,048
-------
NET INVESTMENT INCOME 10,403
-------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Net realized loss (3,745)
Change in net unrealized appreciation/(depreciation) (2,438)
-------
Net realized and unrealized loss (6,183)
-------
Increase in net assets resulting from operations $ 4,220
=======
See accompanying notes to financial statements.
================================================================================
14 | USAA VIRGINIA BOND FUND
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended September 30, 2018 (unaudited), and year ended March
31, 2018
------------------------------------------------------------------------------------------------------------------
9/30/2018 3/31/2018
------------------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 10,403 $ 20,669
Net realized gain (loss) on investments (3,745) 151
Change in net unrealized appreciation/(depreciation)
of investments (2,438) (3,028)
-------------------------------
Increase in net assets resulting from operations 4,220 17,792
-------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
DISTRIBUTABLE EARNINGS:
Fund Shares (10,086) (19,978)
Adviser Shares (279) (650)
-------------------------------
Distributions to shareholders (10,365) (20,628)
-------------------------------
NET INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS (NOTE 5)
Fund Shares 243 11,117
Adviser Shares (747) (5,563)
-------------------------------
Total net increase (decrease) in net assets from
capital share transactions (504) 5,554
-------------------------------
Net increase (decrease) in net assets (6,649) 2,718
NET ASSETS
Beginning of period 686,666 683,948
-------------------------------
End of period $680,017 $686,666
===============================
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 15
================================================================================
NOTES TO FINANCIAL STATEMENTS
September 30, 2018 (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 47 separate funds. The
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 and Liquidity Committee (the Committee), and
subject to Board oversight, the Committee administers and oversees
================================================================================
16 | USAA VIRGINIA BOND FUND
================================================================================
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 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
that are observable for the securities, either directly or indirectly, and
market-corroborated inputs such as market indexes.
================================================================================
18 | USAA VIRGINIA BOND FUND
================================================================================
Level 3 - inputs to the valuation methodology are unobservable and
significant to the fair value measurement, including the Manager's own
assumptions in determining the fair value.
The inputs or methodologies used for valuing securities are not necessarily
an indication of the risks associated with investing in those securities.
The methods used may include valuation models that rely on significant
assumptions and/or unobservable inputs to determine the fair value
measurement for the securities. A market-based approach may be employed
using related or comparable securities, recent transactions, market
multiples, book values and other relevant information or an income-based
approach may be employed whereby estimated future cash flows are discounted
to determine the fair value. In some cases discounts may be applied due to
market liquidity limitations.
The valuation methodology applied to certain Level 3 securities changed
during the year. Securities that were previously valued using valuation
models are now being valued based upon the use of unobservable inputs.
Refer to the Portfolio of Investments for a reconciliation of investments in
which significant unobservable inputs (Level 3) were used in determining
value.
C. INVESTMENTS IN SECURITIES - Securities transactions are accounted for as
of 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.
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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 19
================================================================================
income and net capital gains, if any, to its shareholders. Therefore, no
federal income tax provision is required.
For the six-month period ended September 30, 2018, 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.
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. INDEMNIFICATIONS - Under the Trust's organizational documents, its officers
and trustees are indemnified against certain liabilities arising out of the
performance of their duties to the Trust. In addition, in the normal course
of business, the Trust enters into contracts that contain a variety of
representations and warranties that provide general indemnifications. The
Trust's maximum exposure under these arrangements is unknown, as this would
involve future claims that may be made against the Trust that have not yet
occurred. However, the Trust expects the risk of loss to be remote.
G. USE OF ESTIMATES - The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts in the
financial statements.
================================================================================
20 | USAA VIRGINIA 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 14.0 basis
points of the amount of the committed loan agreement. Prior to September 30,
2018, the maximum annual facility fee was 13.0 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 daily 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 15.0 basis points.
For the six-month period ended September 30, 2018, the Fund paid CAPCO facility
fees of $3,000, which represents 0.8% of the total fees paid to CAPCO by the
funds of the Trusts. The Fund had no borrowings under this agreement during the
six-month period ended September 30, 2018.
(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, 2019, in
accordance with applicable federal tax law.
Net investment income is accrued daily as dividends and distributed to
shareholders monthly. Distributions of realized gains from security transactions
not offset by capital losses are made annually in the succeeding fiscal year or
as otherwise required to avoid the payment of federal taxes.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 21
================================================================================
At March 31, 2018, the Fund had net capital loss carryforwards of $6,187,000,
for federal income tax purposes as shown in the table below. It is unlikely that
the Board will authorize a distribution of capital gains realized in the future
until the capital loss carryforwards have been used.
CAPITAL LOSS CARRYFORWARDS
--------------------------------------
TAX CHARACTER
--------------------------------------
(NO EXPIRATION) BALANCE
--------------- ----------
Short-Term $1,007,000
Long-Term 5,180,000
----------
Total $6,187,000
==========
As of September 30, 2018, 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, 2018, were $11,266,000 and $9,204,000, respectively, resulting in net
unrealized appreciation of $2,062,000.
(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, 2018, were
$30,507,000 and $20,153,000, respectively.
In accordance with affiliated transaction procedures approved by the Board,
purchases and sales of security transactions were executed between the Fund and
affiliated USAA Funds at the then-current market price with no brokerage
commissions incurred. The affiliated transactions executed by the Fund,
including short-term securities, during the six-month period ended September 30,
2018 were as follows:
PURCHASES SALES REALIZED GAIN/(LOSS)
-------------------------------------------------------------------------------
$23,590,000 $18,945,000 $-
(5) CAPITAL SHARE TRANSACTIONS
At September 30, 2018, there were an unlimited number of shares of capital stock
at no par value authorized for the Fund.
================================================================================
22 | USAA VIRGINIA BOND FUND
================================================================================
Capital share transactions for all classes were as follows, in thousands:
SIX-MONTH PERIOD ENDED YEAR ENDED
SEPTEMBER 30, 2018 MARCH 31, 2018
---------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------
FUND SHARES:
Shares sold 2,327 $ 25,933 5,760 $ 65,022
Shares issued from reinvested
dividends 733 8,167 1,443 16,273
Shares redeemed (3,039) (33,857) (6,218) (70,178)
----------------------------------------------------
Net increase from capital
share transactions 21 $ 243 985 $ 11,117
====================================================
ADVISER SHARES:
Shares sold 94 $ 1,046 494 $ 5,579
Shares issued from reinvested
dividends. 25 275 50 570
Shares redeemed (186) (2,068) (1,037)* (11,712)*
----------------------------------------------------
Net decrease from capital
share transactions (67) $ (747) (493) $ (5,563)
====================================================
* Net of redemption fees, if any.
(6) TRANSACTIONS WITH MANAGER
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 daily 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.
For the six-month period ended September 30, 2018, the Fund's effective
annualized base fee was 0.32% of the Fund's average daily net assets for the
same period.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 23
================================================================================
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 Lipper index, rounded
to the nearest basis point. Average daily 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
daily net assets of each respective class over the entire performance period,
which is then multiplied by a fraction, the numerator of which is the number of
days in the month and the denominator of which is 365 (366 in leap years). The
resulting amount is then added to (in the case of overperformance), or
subtracted from (in the case of underperformance) the base fee.
Under the performance fee arrangement, each class will pay a positive
performance fee adjustment for a performance period whenever the class
outperforms the Lipper Virginia Municipal Debt Funds Index over that period,
even if the class had overall negative returns during the performance period.
For the six-month period ended September 30, 2018, the Fund incurred management
fees, paid or payable to the Manager, of $1,256,000, which included a
performance adjustment for the Fund Shares and Adviser Shares of $149,000 and
$3,000, respectively. For the Fund Shares and Adviser Shares, the performance
adjustments were 0.04% and 0.03%, respectively.
ADMINISTRATION AND SERVICING FEES - The Manager provides certain administration
and servicing functions for the Fund. For such services, the
================================================================================
24 | USAA VIRGINIA BOND FUND
================================================================================
Manager receives a fee accrued daily and paid monthly at an annualized rate of
0.15% of average daily net assets for both the Fund Shares and Adviser Shares.
For the six-month period ended September 30, 2018, the Fund Shares and Adviser
Shares incurred administration and servicing fees, paid or payable to the
Manager, of $499,000 and $15,000, 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, 2018, 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.
EXPENSE LIMITATION - The Manager agreed, through July 31, 2019, to limit the
total annual operating expenses of the Adviser Shares to 0.80% of its average
daily 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, 2019, 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, 2018, the Adviser Shares incurred
reimbursable expenses of $5,000.
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, 2018, the Fund Shares and Adviser Shares incurred transfer agent's
fees, paid or payable to SAS, of $101,000 and $5,000, respectively.
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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 25
================================================================================
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 daily 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, 2018, the Adviser Shares incurred distribution and service
(12b-1) fees of $25,000.
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) UPCOMING REGULATORY MATTERS
In October 2016, the SEC issued Final Rule Release No. 33-10233, INVESTMENT
COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS (Liquidity Rule). The Liquidity Rule
requires funds to establish a liquidity risk management program and enhances
disclosures regarding funds' liquidity. The requirements to implement a
liquidity risk management program and establish a 15% illiquid investment limit
are effective December 1, 2018. However, in February 2018, the SEC issued
Release No. IC-33010, INVESTMENT COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS;
COMMISSION GUIDANCE FOR IN-KIND ETFs, which delayed certain requirements related
to liquidity classification, highly liquid investment minimums, and board
approval of the liquidity risk management programs to June 1, 2019. The Manager
continues to evaluate the impact of this rule on the Fund's financial statements
and various filings.
(8) UPCOMING ACCOUNTING PRONOUNCEMENTS
(ASU) 2017-08, PREMIUM AMORTIZATION OF PURCHASED CALLABLE DEBT SECURITIES
-------------------------------------------------------------------------
In March 2017, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Update (ASU) 2017-08, Premium Amortization of Purchased Callable Debt
Securities. The amendments in the ASU shorten the premium amortization period on
a purchased callable debt security from the security's contractual life to the
earliest call date. It is anticipated that this change will enhance reporting
disclosures by reducing losses recognized when a security is called on an
earlier date. This ASU is effective for fiscal years beginning after December
15, 2018. The Manager continues to
================================================================================
26 | USAA VIRGINIA BOND FUND
================================================================================
evaluate the impact this ASU will have on the financial statements and other
reporting disclosures.
(ASU) 2018-13, FAIR VALUE MEASUREMENT
-------------------------------------
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820).
The amendments in the ASU impact disclosure requirements for fair value
measurement. It is anticipated that this change will enhance the effectiveness
of disclosures in the notes to the financial statements. This ASU is effective
for fiscal years beginning after December 15, 2019. Early adoption is permitted
and can include the entire standard or certain provisions that exclude or amend
disclosures. The adoption of this ASU guidance is not expected to have a
material impact on the financial statements and other disclosures.
(9) RECENTLY ADOPTED ACCOUNTING STANDARD
In August 2018, the U.S. Securities and Exchange Commission (SEC) adopted
amendments to Regulation S-X for investment companies governing the form and
content of financial statements. The amendments to Regulation S-X took effect on
November 5, 2018, and the financial statements have been modified accordingly,
for the current and prior period.
(10) SUBSEQUENT EVENT
On November 6, 2018, United Services Automobile Association ("USAA"), the parent
company of USAA Asset Management Company ("AMCO"), the investment adviser to the
Funds, and USAA Transfer Agency Company d.b.a. USAA Shareholder Account Services
("SAS"), the transfer agent to the Funds, announced that AMCO and SAS would be
acquired by Victory Capital Holdings, Inc. ("Victory"), a global investment
management firm headquartered in Cleveland, Ohio (the "Transaction"). The
closing of the Transaction is expected to be completed during the second quarter
of 2019, pending satisfaction of certain closing conditions and approvals,
including certain approvals of the Funds' Board of Trustees and of Fund
shareholders at a special shareholder meeting to be held in 2019.
The Transaction is not expected to result in any material changes to the Funds'
respective investment objectives and principal investment strategies.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 27
================================================================================
FINANCIAL HIGHLIGHTS
FUND SHARES (UNAUDITED)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
SEPTEMBER 30, YEAR ENDED MARCH 31,
-----------------------------------------------------------------------------------
2018 2018 2017 2016 2015 2014
-----------------------------------------------------------------------------------
Net asset value at
beginning of period $ 11.16 $ 11.21 $ 11.52 $ 11.53 $ 11.17 $ 11.60
-----------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .17 .34 .35 .41 .43 .44
Net realized and
unrealized gain (loss) (.10) (.05) (.31) (.01) .35 (.43)
-----------------------------------------------------------------------------------
Total from investment
operations .07 .29 .04 .40 .78 .01
-----------------------------------------------------------------------------------
Less distributions from:
Net investment income (.17) (.34) (.35) (.41) (.42) (.44)
-----------------------------------------------------------------------------------
Net asset value at
end of period $ 11.06 $ 11.16 $ 11.21 $ 11.52 $ 11.53 $ 11.17
===================================================================================
Total return (%)* .62 2.56 .36 3.58 7.10 .23
Net assets at end of
period (000) $661,044 $666,772 $658,452 $648,913 $648,331 $595,246
Ratios to average daily
net assets:**
Expenses (%)(c) .59(a) .56 .58(b) .60(b) .59(b) .59(b)
Net investment
income (%) 3.04(a) 2.98 3.10 3.57 3.70 4.01
Portfolio turnover (%) 3 11 13 3 12 7
* Assumes reinvestment of all net investment income and realized capital
gain distributions, if any, during the period. Includes adjustments in
accordance with U.S. generally accepted accounting principles and could
differ from the Lipper reported return. Total returns for periods of less
than one year are not annualized.
** For the six-month period ended September 30, 2018, average daily net
assets were $664,049,000.
(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 ratio by less than 0.01%.
(c) Does not include acquired fund fees, if any.
================================================================================
28 | USAA VIRGINIA BOND FUND
================================================================================
ADVISER SHARES (UNAUDITED)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
SEPTEMBER 30, YEAR ENDED MARCH 31,
----------------------------------------------------------------------------------
2018 2018 2017 2016 2015 2014
----------------------------------------------------------------------------------
Net asset value at
beginning of period $ 11.16 $ 11.20 $ 11.51 $ 11.53 $ 11.17 $ 11.60
----------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .16 .31 .33 .38 .40 .42
Net realized and
unrealized gain (loss) (.10) (.04) (.31) (.02) .36 (.43)
----------------------------------------------------------------------------------
Total from investment
operations .06 .27 .02 .36 .76 (.01)
----------------------------------------------------------------------------------
Less distributions from:
Net investment income (.16) (.31) (.33) (.38) (.40) (.42)
Redemption fees added to
beneficial interests - .00(a) - .00(a) - -
----------------------------------------------------------------------------------
Net asset value at
end of period $ 11.06 $ 11.16 $ 11.20 $ 11.51 $ 11.53 $ 11.17
==================================================================================
Total return (%)* .51 2.42 .12 3.24 6.84 .03
Net assets at end of
period (000) $18,973 $19,894 $25,496 $22,951 $21,029 $12,701
Ratios to average daily
net assets:**
Expenses (%)(f) .80(b) .79(c) .81(d) .84(d) .84(d),(e) .79(d)
Expenses, excluding
reimbursements (%)(f) .85(b) .81 .81(d) .84(d) .84(d) .79(d)
Net investment income (%) 2.83(b) 2.76 2.85 3.34 3.44 3.80
Portfolio turnover (%) 3 11 13 3 12 7
* Assumes reinvestment of all net investment income and realized capital
gain distributions, if any, during the period. Includes adjustments in
accordance with U.S. generally accepted accounting principles and could
differ from the Lipper reported return. Total returns for periods of less
than one year are not annualized.
** For the six-month period ended September 30, 2018, average daily net
assets were $19,699,000.
(a) Represents less than $0.01 per share.
(b) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(c) Effective October 12, 2017, the Manager voluntarily agreed to limit the
annual expenses of the Adviser Shares to 0.80% of the Adviser Shares'
average daily net assets.
(d) 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 ratio by less than 0.01%.
(e) 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 daily net assets.
(f) Does not include acquired fund fees, if any.
================================================================================
FINANCIAL HIGHLIGHTS | 29
================================================================================
EXPENSE EXAMPLE
September 30, 2018 (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, 2018, through
September 30, 2018.
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 VIRGINIA 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, 2018 -
APRIL 1, 2018 SEPTEMBER 30, 2018 SEPTEMBER 30, 2018
---------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $1,006.20 $2.97
Hypothetical
(5% return before expenses) 1,000.00 1,022.11 2.99
ADVISER SHARES
Actual 1,000.00 1,005.10 4.02
Hypothetical
(5% return before expenses) 1,000.00 1,021.06 4.05
*Expenses are equal to the annualized expense ratio of 0.59% for Fund Shares and
0.80% for Adviser Shares, which are net of any reimbursements and expenses paid
indirectly, multiplied by the average account value over the period, multiplied
by 183 days/365 days (to reflect the one-half-year period). The Fund's actual
ending account values are based on its actual total returns of 0.62% for Fund
Shares and 0.51% for Adviser Shares for the six-month period of April 1, 2018,
through September 30, 2018.
================================================================================
EXPENSE EXAMPLE | 31
================================================================================
ADVISORY AGREEMENT
September 30, 2018 (unaudited)
--------------------------------------------------------------------------------
At an in-person meeting of the Board of Trustees (the Board) held on April 18,
2018, 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 VIRGINIA BOND 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 also considered the significant risks assumed by the Manager in
connection with the services provided to the Fund, including investment,
operational, enterprise, litigation, regulatory and compliance risks.
================================================================================
ADVISORY AGREEMENT | 33
================================================================================
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 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
================================================================================
34 | USAA VIRGINIA BOND FUND
================================================================================
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 the
Manager. The Board took into account management's discussion of the Fund's
expenses. The Board also noted the level and method of computing the management
fee, including any performance adjustment to such fee.
In considering the Fund's performance, the Board noted that it reviews at its
regularly scheduled meetings information about the Fund's performance results.
The Trustees also reviewed various comparative data provided to them in
connection with their consideration of the renewal of the Advisory Agreement,
including, among other information, a comparison of the Fund's average annual
total return with its Lipper index and with that of other mutual funds deemed to
be in its peer group by the independent third party in its report (the
"performance universe"). The Fund's performance universe consisted of the Fund
and all retail and institutional open-end investment companies with the same
classification/objective as the Fund regardless of asset size or primary channel
of distribution. This comparison indicated that, among other data, the Fund's
performance was above the average of its performance universe and its Lipper
index for the one-, three-, five-, and ten- year periods ended December 31,
2017. 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, 2017, was in the top 20% of its performance universe for the three-year
period ended December 31, 2017, was in the top 5% of its performance universe
for the five-year period ended December 31, 2017, and was in the top 20% of its
performance universe for the ten-year period ended December 31, 2017.
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 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.
================================================================================
36 | USAA VIRGINIA 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, State Street Bank and Trust Company
ACCOUNTING AGENT, AND P.O. Box 1713
SUB-ADMINISTRATOR Boston, Massachusetts 02105
--------------------------------------------------------------------------------
INDEPENDENT Ernst & Young LLP
REGISTERED PUBLIC 100 West Houston St., Suite 1700
ACCOUNTING FIRM San Antonio, Texas 78205
--------------------------------------------------------------------------------
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
--------------
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39604-1118 (C)2018, USAA. All rights reserved.
ITEM 2. CODE OF ETHICS.
NOT APPLICABLE. This item is only required in annual reports.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
NOT APPLICABLE. This item is only required annual reports.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
NOT APPLICABLE. This item is only required in annual reports.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
NOT APPLICABLE.
ITEM 6. SCHEDULE OF INVESTMENTS.
Included as part of the Report to Stockholders filed under Item 1 of this form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not Applicable to open-end management investment companies.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not Applicable to open-end management investment companies.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not Applicable to open-end management investment companies.
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 changes in the Trust's internal controls over financial
reporting (as defined in rule 30a-3(d)under the 1940 Act) that occurred
during the period covered by this report that have materially affected,
or are reasonably likely to materially affect, the Trust's internal control
over financial reporting.
ITEM 12. DISCLOSURE OF SECURITIES LENDING ACTIVITIES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not Applicable to open-end management investment companies.
ITEM 13. EXHIBITS.
(a)(1). NOT APPLICABLE. This item is only required 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.
(a)(4). 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, 2018
By:* /S/ KRISTEN MILLAN
-----------------------------------------------------------
Signature and Title: Kristen Millan, Assistant Secretary
Date: 11/26/2018
------------------------------
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: 11/27/2018
------------------------------
By:* /S/ JAMES K. DE VRIES
-----------------------------------------------------
Signature and Title: James K. De Vries, Treasurer
Date: 11/26/2018
------------------------------
*Print the name and title of each signing officer under his or her signature.