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] ============================================================== SEMIANNUAL REPORT USAA CALIFORNIA BOND FUND FUND SHARES (USCBX) o ADVISER SHARES (UXABX) 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) 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. ================================================================================ INVESTMENT OVERVIEW | 1 ================================================================================ 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. ================================================================================ 2 | USAA CALIFORNIA BOND FUND ================================================================================ PORTFOLIO OF INVESTMENTS September 30, 2018 (unaudited) ----------------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) ----------------------------------------------------------------------------------------------------------------------- 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 ================================================================================ PORTFOLIO OF INVESTMENTS | 3 ================================================================================ ----------------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) ----------------------------------------------------------------------------------------------------------------------- $ 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 ================================================================================ 4 | USAA CALIFORNIA BOND FUND ================================================================================ ----------------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) ----------------------------------------------------------------------------------------------------------------------- $ 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 ================================================================================ PORTFOLIO OF INVESTMENTS | 5 ================================================================================ ----------------------------------------------------------------------------------------------------------------------- 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 ================================================================================ 6 | USAA CALIFORNIA BOND FUND ================================================================================ ----------------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) ----------------------------------------------------------------------------------------------------------------------- $ 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 ================================================================================ PORTFOLIO OF INVESTMENTS | 7 ================================================================================ ----------------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) ----------------------------------------------------------------------------------------------------------------------- $ 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 ------- 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 ================================================================================ 8 | USAA CALIFORNIA BOND FUND ================================================================================ ----------------------------------------------------------------------------------------------------------------------- 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 ---------- 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 ========== ----------------------------------------------------------------------------------------------------------------------- ($ IN 000s) VALUATION HIERARCHY ----------------------------------------------------------------------------------------------------------------------- ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL ----------------------------------------------------------------------------------------------------------------------- Municipal Obligations $- $678,570 $- $678,570 ----------------------------------------------------------------------------------------------------------------------- Total $- $678,570 $- $678,570 ----------------------------------------------------------------------------------------------------------------------- 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 | 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 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 -------------- RECEIVE ALL YOUR DOCUMENTS ONLINE >> Secure >> Saves Time >> Good for the Environment Sign up today for online document delivery at USAA.COM/UDO [LOGO OF USAA] USAA We know what it means to serve.(R) ================================================================================ 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 -------------- RECEIVE ALL YOUR DOCUMENTS ONLINE >> Secure >> Saves Time >> Good for the Environment Sign up today for online document delivery at USAA.COM/UDO [LOGO OF USAA] USAA We know what it means to serve.(R) ================================================================================ 98352-1118 (C)2018, USAA. All rights reserved. [LOGO OF USAA] USAA(R) [GRAPHIC OF USAA NEW YORK BOND FUND] ============================================================ SEMIANNUAL REPORT USAA NEW YORK BOND FUND FUND SHARES (USNYX) o ADVISER SHARES (UNYBX) SEPTEMBER 30, 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 -------------- RECEIVE ALL YOUR DOCUMENTS ONLINE >> Secure >> Saves Time >> Good for the Environment Sign up today for online document delivery at USAA.COM/UDO [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 -------------- RECEIVE ALL YOUR DOCUMENTS ONLINE >> Secure >> Saves Time >> Good for the Environment Sign up today for online document delivery at USAA.COM/UDO [LOGO OF USAA] USAA We know what it means to serve.(R) ================================================================================ 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 -------------- RECEIVE ALL YOUR DOCUMENTS ONLINE >> Secure >> Saves Time >> Good for the Environment Sign up today for online document delivery at USAA.COM/UDO [LOGO OF USAA] USAA We know what it means to serve.(R) ================================================================================ 39596-1118 (C)2018, USAA. All rights reserved. K[LOGO OF USAA] 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) ----------------------------------------------------------------------------------------------------------------------- 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 ---------- 71,550 ---------- 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 ---------- 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 ================================================================================ 2 | USAA TAX EXEMPT MONEY MARKET FUND ================================================================================ ----------------------------------------------------------------------------------------------------------------------- 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 ---------- 144,650 ---------- 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 ---------- 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 ---------- 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 ---------- 15,100 ---------- 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 ---------- 67,270 ---------- 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 ---------- ================================================================================ PORTFOLIO OF INVESTMENTS | 3 ================================================================================ ----------------------------------------------------------------------------------------------------------------------- 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 ---------- 113,205 ---------- 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 ---------- 20,370 ---------- 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 ================================================================================ 4 | USAA TAX EXEMPT MONEY MARKET FUND ================================================================================ ----------------------------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) ----------------------------------------------------------------------------------------------------------------------- $ 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 ---------- 125,693 ---------- 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 ---------- 21,895 ---------- 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 ---------- 52,100 ---------- 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 ---------- 24,120 ---------- 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 ---------- 29,765 ---------- ================================================================================ PORTFOLIO OF INVESTMENTS | 5 ================================================================================ ----------------------------------------------------------------------------------------------------------------------- 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 ---------- 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 ---------- 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 ---------- 21,300 ---------- 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 ---------- 25,000 ---------- 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 ---------- 20,000 ---------- 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 ---------- 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 ---------- 42,070 ---------- ================================================================================ 6 | USAA TAX EXEMPT MONEY MARKET FUND ================================================================================ ----------------------------------------------------------------------------------------------------------------------- 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 ---------- 17,945 ---------- 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 ---------- 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 ================================================================================ PORTFOLIO OF INVESTMENTS | 7 ================================================================================ ----------------------------------------------------------------------------------------------------------------------- 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 ---------- 221,049 ---------- 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 ================================================================================ ----------------------------------------------------------------------------------------------------------------------- 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 -------------- RECEIVE ALL YOUR DOCUMENTS ONLINE >> Secure >> Saves Time >> Good for the Environment Sign up today for online document delivery at USAA.COM/UDO [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 -------------- RECEIVE ALL YOUR DOCUMENTS ONLINE >> Secure >> Saves Time >> Good for the Environment Sign up today for online document delivery at USAA.COM/UDO [LOGO OF USAA] USAA We know what it means to serve.(R) ================================================================================ 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 -------------- RECEIVE ALL YOUR DOCUMENTS ONLINE >> Secure >> Saves Time >> Good for the Environment Sign up today for online document delivery at USAA.COM/UDO [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 -------------- RECEIVE ALL YOUR DOCUMENTS ONLINE >> Secure >> Saves Time >> Good for the Environment Sign up today for online document delivery at USAA.COM/UDO [LOGO OF USAA] USAA We know what it means to serve.(R) ================================================================================ 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.