0001683863-16-000231.txt : 20161201 0001683863-16-000231.hdr.sgml : 20161201 20161201131219 ACCESSION NUMBER: 0001683863-16-000231 CONFORMED SUBMISSION TYPE: N-CSRS PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20160930 FILED AS OF DATE: 20161201 DATE AS OF CHANGE: 20161201 EFFECTIVENESS DATE: 20161201 FILER: COMPANY DATA: COMPANY CONFORMED NAME: USAA MUTUAL FUNDS TRUST CENTRAL INDEX KEY: 0000908695 IRS NUMBER: 000000000 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: N-CSRS SEC ACT: 1940 Act SEC FILE NUMBER: 811-07852 FILM NUMBER: 162027619 BUSINESS ADDRESS: STREET 1: 9800 FREDERICKSBURG ROAD STREET 2: A-3-W CITY: SAN ANTONIO STATE: TX ZIP: 78288-0227 BUSINESS PHONE: 210-498-0226 MAIL ADDRESS: STREET 1: 9800 FREDERICKSBURG ROAD STREET 2: A-3-W CITY: SAN ANTONIO STATE: TX ZIP: 78288-0227 FORMER COMPANY: FORMER CONFORMED NAME: USAA STATE TAX FREE TRUST DATE OF NAME CHANGE: 19940325 FORMER COMPANY: FORMER CONFORMED NAME: USAA STATE TAX EXEMPT TRUST DATE OF NAME CHANGE: 19930707 0000908695 S000012901 Tax Exempt Intermediate-Term Fund C000034870 Tax Exempt Intermediate-Term Fund Shares USATX C000091153 Tax Exempt Intermediate-Term Fund Adviser Shares UTEIX 0000908695 S000012904 Tax Exempt Long-Term Fund C000034873 Tax Exempt Long-Term Fund Shares USTEX C000091156 Tax Exempt Long-Term Fund Adviser Shares UTELX 0000908695 S000012908 New York Bond Fund C000034877 New York Bond Fund Shares USNYX C000091157 New York Bond Fund Adviser Shares UNYBX 0000908695 S000012909 New York Money Market Fund C000034878 New York Money Market Fund UNYXX 0000908695 S000012912 Tax Exempt Short-Term Fund C000034881 Tax Exempt Short-Term Fund Shares USSTX C000091160 Tax Exempt Short-Term Fund Adviser Shares UTESX 0000908695 S000012916 California Bond Fund C000034886 California Bond Fund Shares USCBX C000091162 California Bond Fund Adviser Shares UXABX 0000908695 S000012917 Tax Exempt Money Market Fund C000034887 Tax Exempt Money Market Fund USEXX 0000908695 S000012921 Virginia Bond Fund C000034891 Virginia Bond Fund Shares USVAX C000091164 Virginia Bond Fund Adviser Shares UVABX 0000908695 S000012922 Virginia Money Market Fund C000034892 Virginia Money Market Fund UVAXX 0000908695 S000012924 California Money Market Fund C000034894 California Money Market Fund UCAXX 0000908695 S000050251 Target Managed Allocation Fund C000158651 Target Managed Allocation Fund UTMAX 0000908695 S000050252 Global Equity Income Fund C000158652 Global Equity Income Fund Shares UGIEX C000158653 Global Equity Income Fund Institutional Shares UIGEX N-CSRS 1 f105_d1-SEC.txt USAA MUTUAL FUNDS TRUST N-CSR/S UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR/S CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number: 811-7852 Exact name of registrant as specified in charter: USAA MUTUAL FUNDS TRUST Address of principal executive offices and zip code: 9800 FREDERICKSBURG ROAD SAN ANTONIO, TX 78288 Name and address of agent for service: DANIEL J. MAVICO USAA MUTUAL FUNDS TRUST 9800 FREDERICKSBURG ROAD SAN ANTONIO, TX 78288 Registrant's telephone number, including area code: (210) 498-0226 Date of fiscal year end: MARCH 31 Date of reporting period: SEPTEMBER 30, 2016 ITEM 1. SEMIANNUAL REPORT TO STOCKHOLDERS. USAA MUTUAL FUNDS TRUST - SEMIANNUAL REPORT FOR PERIOD ENDED SEPTEMBER 30, 2016 [LOGO OF USAA] USAA(R) [GRAPHIC OF USAA CALIFORNIA BOND FUND] =============================================================== SEMIANNUAL REPORT USAA CALIFORNIA BOND FUND FUND SHARES o ADVISER SHARES SEPTEMBER 30, 2016 =============================================================== ================================================================================ ================================================================================ PRESIDENT'S MESSAGE "THE CLOSING WEEKS OF A YEAR CAN BE A GOOD TIME TO TAKE A LOOK AT YOUR FINANCIAL SITUATION [PHOTO OF BROOKS ENGLEHARDT] WITH A GOAL OF GETTING YOUR FINANCES IN ORDER." -------------------------------------------------------------------------------- NOVEMBER 2016 Investors were generally rewarded during the reporting period ended September 30, 2016. Most asset classes posted gains as global growth concerns eased and many of the world's central banks, including the Federal Reserve (the Fed), maintained accommodative monetary policies. Stock prices generally climbed, despite two brief setbacks. In June 2016, a brief retreat followed the United Kingdom's unexpected vote to withdraw from the European Union (commonly known as Brexit). In September 2016, stocks fell--before quickly recovering--on concerns about a potential Fed interest rate increase. Meanwhile, bond prices recorded positive returns during the reporting period. As bond prices rose, longer-term interest rates, which move in the opposite direction, fell. As you know, the Fed only has direct control over short-term interest rates. Bond prices and longer-term interest rates are determined by buyers and sellers, sometimes based on their views of Fed policy. During the reporting period, market expectations about potential Fed interest rate increases shifted into the future. The Fed, which in December 2015 had raised short-term interest rates for the first time since 2008, also initially signaled that four interest rate increases were on tap for 2016. However, policymakers backed off that forecast in March 2016, just before the reporting period began, indicating that only two interest rate increases were on the table. They pointed to the global market turmoil during the first six weeks of 2016 as a contributing factor. Policymakers subsequently hinted there would be a single interest rate increase, but ultimately left interest rates unchanged. In our view, December 2016 is the Fed's only remaining window of opportunity to increase short-term interest rates. It is unlikely to act at its November 2016 meeting, which is just days before the presidential election. We believe that as of this writing, the futures market, which generally is a proxy for investor sentiment, indicates approximately a two-thirds chance that the Fed would raise rates in December 2016. ================================================================================ ================================================================================ This begs the question: Is it good or bad if low interest rates persist? We think it depends on your perspective. On one hand, consumers and businesses are able to continue borrowing at affordable interest rates. On the other hand, savers may continue to see returns lower than the rate of inflation. At USAA Investments, we believe the Fed is likely to raise interest rates at a gradual pace. We've long held the belief that interest rates will stay lower for longer than many market participants expect. Currently, there is no urgency for the Fed to act. Interest rate increases are typically a response to an overheating economy, and the U.S. remains in slow-growth mode with low inflation. Americans are still carrying large amounts of household debt, so higher interest rates are likely to hinder their spending and slow what little growth there is. Tax-exempt bonds, like most other fixed-income investments, generated positive returns during the reporting period. Municipal bonds performed well, as investors continued to favor them for their tax-advantaged status. At the same time, municipal issuance remained low, though it has increased since January 2016. Still, the supply is far from enough to satisfy demand and we expect municipal bonds to continue to benefit from this situation for some time to come. Although state and local finances are in better shape than they were a few years ago, municipal governments have been reluctant to take on additional debt. We believe eventually this will change, but likely not for the foreseeable future. Looking ahead, the end of 2016 is just weeks away. The closing weeks of a year can be a good time to take a look at your financial situation with a goal of getting your finances in order. One way to help ensure you're doing the most with what you have is to consider investing a set amount each month, also known as dollar-cost averaging. Please call USAA Investments to speak with a financial advisor. We are committed to helping you meet your financial objectives. On behalf of everyone at USAA Investments, thank you for relying on us to help you with your investment needs. We appreciate the opportunity to serve you. Sincerely, /S/ BROOKS ENGLEHARDT Brooks Englehardt President USAA Investments Investments provided by USAA Investment Management Company and USAA Financial Advisors, Inc., both registered broker-dealers, and affiliates. Financial planning services and financial advice provided by USAA Financial Planning Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in California, License # 0E36312), a registered investment adviser and insurance agency and its wholly owned subsidiary, USAA Financial Advisors, Inc., a registered broker dealer. ================================================================================ ================================================================================ TABLE OF CONTENTS -------------------------------------------------------------------------------- FUND OBJECTIVE 1 MANAGERS' COMMENTARY ON THE FUND 2 INVESTMENT OVERVIEW 5 FINANCIAL INFORMATION Portfolio of Investments 16 Notes to Portfolio of Investments 23 Financial Statements 25 Notes to Financial Statements 28 EXPENSE EXAMPLE 41 ADVISORY AGREEMENT(S) 43
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS ABOUT THE FUND. (C)2016, USAA. All rights reserved. 211727-1116 ================================================================================ ================================================================================ FUND OBJECTIVE THE USAA CALIFORNIA BOND FUND (THE FUND) PROVIDES CALIFORNIA INVESTORS WITH A HIGH LEVEL OF CURRENT INTEREST INCOME THAT IS EXEMPT FROM FEDERAL AND CALIFORNIA STATE INCOME TAXES. -------------------------------------------------------------------------------- TYPES OF INVESTMENTS The Fund invests primarily in long-term investment-grade securities issued by the state of California, its political subdivisions and instrumentalities, and by other government entities, the interest on which is exempt from federal income tax and California state income tax. During normal market conditions, at least 80% of the Fund's net assets will consist of California tax-exempt securities. The Fund's dollar-weighted average portfolio maturity is not restricted, but is expected to be greater than 10 years. IRA DISTRIBUTION WITHHOLDING DISCLOSURE We generally must withhold federal income tax at a rate of 10% of the taxable portion of your distribution and, if you live in a state that requires state income tax withholding, at your state's tax rate. However, you may elect not to have withholding apply or to have income tax withheld at a higher rate. Any withholding election that you make will apply to any subsequent distribution unless and until you change or revoke the election. If you wish to make a withholding election or change or revoke a prior withholding election, call (800) 531-USAA (8722) or (210) 531-8722. If you do not have a withholding election in place by the date of a distribution, federal income tax will be withheld from the taxable portion of your distribution at a rate of 10%. If you must pay estimated taxes, you may be subject to estimated tax penalties if your estimated tax payments are not sufficient and sufficient tax is not withheld from your distribution. For more specific information, please consult your tax adviser. ================================================================================ FUND OBJECTIVE | 1 ================================================================================ MANAGERS' COMMENTARY ON THE FUND -------------------------------------------------------------------------------- [PHOTO OF JOHN C. BONNELL] [PHOTO OF DALE R. HOFFMANN] JOHN C. BONNELL, CFA DALE R. HOFFMANN USAA Asset USAA Asset Management Company Management Company -------------------------------------------------------------------------------- o WHAT WERE THE MARKET CONDITIONS DURING THE REPORTING PERIOD? The tax-exempt bond market advanced during the reporting period ended September 30, 2016, as demand for municipal securities outweighed the amount of available supply. Although new issuance picked up, it remained low by historical standards. Furthermore, it was dominated by refunding bonds rather than new issues. In a bond refunding, issuers call existing high-interest bonds and replace them with new bonds that have lower coupon rates. Meanwhile, as demand for municipal bonds increased, municipal bond mutual funds also received positive investment inflows every week of the reporting period. Investors continued to prefer municipal securities for their tax-advantaged status as well as their relative stability. Municipal bonds also benefited from the performance of the U.S. Treasury market, which the tax-exempt bond market generally follows over time. Longer-term U.S. Treasury securities rallied on strong demand, especially from foreign investors who favored U.S. Treasuries because of their relatively higher yields compared to the government bonds of other developed countries. As U.S. Treasury prices rose, their yields (which move in the opposite direction) fell. During the reporting period, the yield on a 30-year U.S. Treasury security dropped from 2.61% as of 3/31/16 to 2.32% as of 9/30/16. Municipal credit quality remained strong as state and local governments continued to practice sound fiscal management and generally maintained healthy reserves. State and local revenues rose, though at a more moderate ================================================================================ 2 | USAA CALIFORNIA BOND FUND ================================================================================ pace than in the recent past. Numerous issuers also took steps to address their pension risks, in some cases proposing tax increases to deal with potential pension-funding shortfalls. Unlike corporate issuers, many state and municipal governments have broad taxing powers and are required by law to balance their budgets. o HOW DID THE USAA CALIFORNIA BOND FUND (THE FUND) PERFORM DURING THE REPORTING PERIOD? The Fund has two share classes: Fund Shares and Adviser Shares. For the reporting period ended September 30, 2016, the Fund Shares and Adviser Shares had a total return of 2.20% and 2.06%, respectively, versus an average return of 2.82% amongst the funds in the Lipper California Municipal Debt Funds category. This compares to returns of 2.90% for the Lipper California Municipal Debt Funds Index and 2.30% for the Bloomberg Barclays Municipal Bond Index*. The Fund Shares' and Adviser Shares' tax-exempt distributions over the prior 12 months produced a dividend yield of 3.45% and 3.20%, respectively, compared to the Lipper category average of 3.16%. USAA Asset Management Company (the Manager) is the Fund's investment adviser. The investment adviser provides day-to-day discretionary management for the Fund's assets. o WHAT ARE THE CONDITIONS IN THE STATE OF CALIFORNIA? California's fiscal situation was relatively unchanged during the reporting period. The state controller announced that after four consecutive months of missed budget projections, California's August 2016 revenues had outpaced expectations, based largely on the strength of personal income tax receipts. State revenues are benefiting from a tax initiative approved Refer to page 8 for benchmark definitions. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. *Effective August 24, 2016, Bloomberg acquired Barclays Risk Analytics and Index Solutions, Ltd., which includes the Barclays indices. Thus, the Fund's benchmark is now called the Bloomberg Barclays Municipal Bond Index. ================================================================================ MANAGERS' COMMENTARY ON THE FUND | 3 ================================================================================ by voters in November 2012. In addition to its slowly growing economy, California has not recently experienced any dramatic swings in revenue, which had troubled the state in the past. Importantly, state legislators appear committed to spending cuts that are also contributing to stabilization in California's finances. Recognizing California's fiscal progress, Fitch Ratings upgraded the state's general obligation bonds one notch during the reporting period. On September 30, 2016, the state's general obligation bonds were rated Aa3 by Moody's Investors Service, AA- by Standard & Poor's Ratings Services, and AA- by Fitch Ratings, Inc. o WHAT STRATEGIES DID YOU EMPLOY DURING THE REPORTING PERIOD? We maintained our focus on income generation. Over the long-term, the Fund's income distribution, not its price appreciation, accounts for most of its total return. During the reporting period, the Fund continued to benefit from our independent research. In our efforts to find attractive opportunities, we continued to work with our in-house team of analysts to select investments for the Fund on a bond-by-bond basis. Each security is researched, using fundamental analysis that emphasizes an issuer's ability and willingness to repay its debt. Through our research, we seek both to recognize value and avoid potential risks. The Fund continues to be diversified by sector and issuer, limiting its exposure to an unexpected event. We also avoid bonds subject to the federal alternative minimum tax for individuals. Thank you for allowing us to help you with your investment needs. Diversification is a technique intended to help reduce risk and does not guarantee a profit or prevent a loss. o Some income may be subject to state or local taxes but not the federal alternative minimum tax. o As interest rates rise, bond prices generally fall; given the historically low interest rate environment, risks associated with rising interest rates may be heightened. ================================================================================ 4 | USAA CALIFORNIA BOND FUND ================================================================================ INVESTMENT OVERVIEW USAA CALIFORNIA BOND FUND SHARES (FUND SHARES) (Ticker Symbol: USCBX)
-------------------------------------------------------------------------------- 9/30/16 3/31/16 -------------------------------------------------------------------------------- Net Assets $718.9 Million $698.7 Million Net Asset Value Per Share $11.35 $11.29 LAST 12 MONTHS Tax-Exempt Dividends Per Share $0.392 $0.418 Capital Gain Distributions Per Share - - Dollar-Weighted Average Portfolio Maturity(+) 16.4 Years 14.5 Years (+)Obtained by multiplying the dollar value of each investment by the number of days left to its maturity, adding those figures together, and dividing them by the total dollar value of the Fund's portfolio. -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 9/30/16 -------------------------------------------------------------------------------- 3/31/16 - 9/30/16* 1 YEAR 5 YEARS 10 YEARS 2.20% 5.09% 6.02% 4.81% -------------------------------------------------------------------------------- 30-DAY SEC YIELD** AS OF 9/30/16 EXPENSE RATIO AS OF 3/31/16*** -------------------------------------------------------------------------------- 1.52% 0.56%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT USAA.COM. *Total returns for periods of less than one year are not annualized. This return is cumulative. **Calculated as prescribed by the Securities and Exchange Commission. ***The expense ratio represents the total annual operating expenses, before reductions of any expenses paid indirectly and including any acquired fund fees and expenses, as reported in the Fund's prospectus dated August 1, 2016, and is calculated as a percentage of average net assets. This expense ratio may differ from the expense ratio disclosed in the Financial Highlights, which excludes acquired fund fees and expenses. No adjustment has been made for taxes payable by shareholders on their reinvested net investment income and realized capital gain distributions. ================================================================================ INVESTMENT OVERVIEW | 5 ================================================================================ AVERAGE ANNUAL COMPOUNDED RETURNS WITH REINVESTMENT OF DIVIDENDS - PERIODS ENDED SEPTEMBER 30, 2016
-------------------------------------------------------------------------------------------------- TOTAL RETURN = DIVIDEND RETURN + PRICE CHANGE -------------------------------------------------------------------------------------------------- 10 YEARS 4.81% = 4.46% + 0.35% 5 YEARS 6.02% = 4.04% + 1.98% 1 YEAR 5.09% = 3.57% + 1.52%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT USAA.COM. ANNUAL TOTAL RETURNS AND COMPOUNDED DIVIDEND RETURNS FOR THE ONE-YEAR PERIODS ENDED SEPTEMBER 30, 2007-SEPTEMBER 30, 2016 [CHART OF ANNUAL TOTAL RETURNS AND COMPOUNDED DIVIDEND RETURNS]
TOTAL DIVIDEND CHANGE IN RETURN RETURN SHARE PRICE ----------------------------------------------------------------------------- 9/30/07 1.76% 4.29% -2.53% 9/30/08 -5.92% 4.31% -10.23% 9/30/09 14.80% 5.97% 8.83% 9/30/10 5.18% 4.89% 0.29% 9/30/11 3.34% 4.95% -1.61% 9/30/12 12.25% 4.55% 7.70% 9/30/13 -1.67% 3.84% -5.51% 9/30/14 11.07% 4.38% 6.69% 9/30/15 3.96% 3.87% 0.09% 9/30/16 5.09% 1.52% 1.52%
[END CHART] NOTE THE ROLE THAT DIVIDEND RETURNS PLAY IN THE FUND SHARES' TOTAL RETURN OVER TIME. SHARE PRICES AND DIVIDEND RATES WILL VARY FROM PERIOD TO PERIOD. HOWEVER, DIVIDEND RETURNS GENERALLY ARE MORE CONSISTENT AND LESS VOLATILE THAN SHARE PRICES. Total return measures the price change in a share assuming the reinvestment of all net investment income and realized capital gain distributions, if any. Dividend return is the net investment income dividends received over the period, assuming reinvestment of all dividends. Share price change is the change in net asset value over the period adjusted for realized capital gain distributions. The returns quoted do not reflect adjustments made to the enclosed financial statements in accordance with U.S. generally accepted accounting principles or the deduction of taxes that a shareholder would pay on distributions (including capital gain distributions), redemptions of shares, or reinvested net investment income. ================================================================================ 6 | USAA CALIFORNIA BOND FUND ================================================================================ TAXABLE EQUIVALENT ILLUSTRATION To match the Fund Shares' Dividend Return for the period ended 9/30/16, and assuming California state tax rates of: 9.30% 9.30% 9.30% 9.30% and assuming marginal federal tax rates of: 28.00% 36.80%* 38.80%* 43.40%* A FULLY TAXABLE INVESTMENT MUST PAY THE FOLLOWING:
PERIOD DIVIDEND RETURN -------------------------------------------------------------------------------- 10 Years 4.46% 6.83% 7.78% 8.03% 8.69% 5 Years 4.04% 6.19% 7.05% 7.28% 7.87% 1 Year 3.57% 5.47% 6.23% 6.43% 6.95%
To match the Fund Shares' closing 30-day SEC Yield of 1.52% on 09/30/16 A FULLY TAXABLE INVESTMENT MUST PAY: 2.33% 2.65% 2.74% 2.96% This table is based on a hypothetical investment calculated for illustrative purposes only. It is not an indication of performance for any of the USAA family of funds. Taxable equivalent returns or yields will vary depending on applicable tax rates. -------------------------------------------------------------------------------- Some income may be subject to federal, state, or local taxes, but not the alternative minimum tax. Based on 2015 tax rates or rates in effect as of the issuance of this report. The above marginal rates assume married, filing jointly. *The above marginal rates assume income exceeds $250,000 and investment income is subject to the 3.80% medicare tax which is applied for income over a specific level, depending on the federal income tax filing status. ================================================================================ INVESTMENT OVERVIEW | 7 ================================================================================ o CUMULATIVE PERFORMANCE COMPARISON o [CHART OF CUMULATIVE PERFORMANCE COMPARISON]
LIPPER CALIFORNIA USAA CALIFORNIA MUNICIPAL DEBT BLOOMBERG BARCLAYS BOND FUND SHARES FUNDS INDEX MUNICIPAL BOND INDEX 09/30/06 $10,000.00 $10,000.00 $10,000.00 10/31/06 10,079.00 10,068.59 10,062.71 11/30/06 10,187.00 10,155.56 10,146.59 12/31/06 10,141.00 10,114.19 10,110.74 01/31/07 10,110.00 10,096.78 10,084.85 02/28/07 10,248.00 10,220.19 10,217.74 03/31/07 10,203.00 10,189.74 10,192.55 04/30/07 10,238.00 10,224.24 10,222.72 05/31/07 10,183.00 10,177.48 10,177.46 06/30/07 10,118.00 10,112.42 10,124.72 07/31/07 10,145.00 10,166.11 10,203.21 08/31/07 9,990.00 10,042.16 10,159.19 09/30/07 10,175.00 10,190.27 10,309.52 10/31/07 10,213.00 10,224.44 10,355.47 11/30/07 10,226.00 10,234.48 10,421.50 12/31/07 10,194.00 10,212.55 10,450.43 01/31/08 10,260.00 10,304.86 10,582.21 02/29/08 9,630.00 9,731.99 10,097.73 03/31/08 9,986.00 10,019.88 10,386.34 04/30/08 10,201.00 10,164.38 10,507.88 05/31/08 10,270.00 10,236.55 10,571.41 06/30/08 10,114.00 10,110.82 10,452.09 07/31/08 10,046.00 10,093.81 10,491.82 08/31/08 10,176.00 10,207.87 10,614.60 09/30/08 9,573.00 9,652.72 10,116.83 10/31/08 9,220.00 9,328.82 10,013.57 11/30/08 9,099.00 9,207.07 10,045.40 12/31/08 8,917.00 9,109.22 10,191.86 01/31/09 9,435.00 9,573.35 10,564.91 02/28/09 9,558.00 9,669.87 10,620.41 03/31/09 9,497.00 9,584.91 10,622.35 04/30/09 9,775.00 9,846.85 10,834.56 05/31/09 10,002.00 10,065.10 10,949.17 06/30/09 9,785.00 9,895.27 10,846.60 07/31/09 9,903.00 10,034.60 11,028.07 08/31/09 10,277.00 10,335.72 11,216.61 09/30/09 10,990.00 10,966.12 11,619.14 10/31/09 10,612.00 10,654.08 11,375.24 11/30/09 10,506.00 10,646.84 11,469.23 12/31/09 10,596.00 10,719.08 11,507.99 01/31/10 10,614.00 10,772.98 11,567.92 02/28/10 10,690.00 10,892.23 11,680.05 03/31/10 10,744.00 10,902.93 11,652.09 04/30/10 10,973.00 11,084.67 11,793.69 05/31/10 11,068.00 11,154.54 11,882.15 06/30/10 11,025.00 11,129.22 11,889.21 07/31/10 11,180.00 11,269.24 12,037.46 08/31/10 11,550.00 11,588.36 12,313.06 09/30/10 11,559.00 11,596.31 12,293.82 10/31/10 11,525.00 11,584.78 12,259.77 11/30/10 11,059.00 11,225.77 12,014.62 12/31/10 10,685.00 10,941.76 11,781.79 01/31/11 10,403.00 10,756.26 11,695.00 02/28/11 10,595.00 10,948.56 11,881.18 03/31/11 10,539.00 10,871.56 11,841.59 04/30/11 10,768.00 11,083.46 12,053.65 05/31/11 11,096.00 11,353.29 12,259.63 06/30/11 11,222.00 11,441.29 12,302.40 07/31/11 11,406.00 11,575.26 12,427.95 08/31/11 11,646.00 11,760.83 12,640.57 09/30/11 11,948.00 11,955.43 12,771.24 10/31/11 11,896.00 11,910.45 12,723.76 11/30/11 11,952.00 11,969.25 12,798.93 12/31/11 12,260.00 12,232.63 13,042.41 01/31/12 12,723.00 12,660.11 13,344.04 02/29/12 12,779.00 12,708.21 13,357.19 03/31/12 12,706.00 12,642.25 13,270.40 04/30/12 12,879.00 12,817.94 13,423.49 05/31/12 13,042.00 12,965.10 13,534.92 06/30/12 13,039.00 12,955.09 13,520.39 07/31/12 13,261.00 13,200.39 13,734.67 08/31/12 13,321.00 13,233.67 13,750.31 09/30/12 13,409.00 13,338.56 13,833.37 10/31/12 13,489.00 13,409.90 13,872.40 11/30/12 13,755.00 13,714.82 14,100.94 12/31/12 13,627.00 13,508.43 13,926.66 01/31/13 13,730.00 13,615.94 13,984.66 02/28/13 13,799.00 13,667.82 14,027.02 03/31/13 13,782.00 13,600.07 13,966.53 04/30/13 13,926.00 13,780.07 14,119.63 05/31/13 13,837.00 13,615.90 13,947.15 06/30/13 13,245.00 13,069.20 13,552.23 07/31/13 13,029.00 12,879.54 13,433.74 08/31/13 12,790.00 12,643.55 13,242.02 09/30/13 13,185.00 12,973.68 13,527.03 10/31/13 13,282.00 13,090.36 13,633.90 11/30/13 13,267.00 13,064.16 13,605.80 12/31/13 13,225.00 13,041.14 13,571.05 01/31/14 13,642.00 13,377.63 13,835.44 02/28/14 13,842.00 13,583.48 13,997.67 03/31/14 13,925.00 13,645.00 14,021.21 04/30/14 14,152.00 13,837.01 14,189.67 05/31/14 14,368.00 14,074.61 14,372.39 06/30/14 14,388.00 14,079.95 14,384.85 07/31/14 14,409.00 14,117.01 14,410.18 08/31/14 14,574.00 14,323.78 14,584.73 09/30/14 14,645.00 14,394.72 14,599.54 10/31/14 14,761.00 14,514.26 14,699.62 11/30/14 14,791.00 14,535.84 14,725.09 12/31/14 14,892.00 14,644.05 14,799.29 01/31/15 15,083.00 14,927.91 15,061.60 02/28/15 14,998.00 14,776.43 14,906.29 03/31/15 15,058.00 14,832.30 14,949.34 04/30/15 15,012.00 14,738.06 14,870.85 05/31/15 14,993.00 14,702.14 14,829.74 06/30/15 14,974.00 14,657.24 14,816.31 07/31/15 15,065.00 14,765.39 14,923.59 08/31/15 15,123.00 14,813.55 14,952.94 09/30/15 15,226.00 14,921.23 15,061.18 10/31/15 15,289.00 14,986.90 15,121.12 11/30/15 15,349.00 15,072.44 15,181.20 12/31/15 15,440.00 15,213.67 15,287.92 01/31/16 15,536.00 15,369.79 15,470.36 02/29/16 15,570.00 15,391.92 15,494.59 03/31/16 15,657.00 15,490.53 15,543.73 04/30/16 15,760.00 15,617.94 15,658.07 05/31/16 15,817.00 15,697.18 15,700.42 06/30/16 16,029.00 15,991.39 15,950.14 07/31/16 16,002.00 15,971.48 15,959.83 08/31/16 16,057.00 16,014.02 15,981.42 09/30/16 16,004.00 15,939.57 15,901.69
[END CHART] Data from 9/30/06 through 9/30/16. The graph illustrates the comparison of a $10,000 hypothetical investment in the USAA California Bond Fund Shares to the following benchmarks: o The unmanaged Lipper California Municipal Debt Funds Index measures the Fund's performance to that of the Lipper California Municipal Debt Funds category that limit their assets to those securities exempt from taxation in the state of California. o The unmanaged, broad-based Bloomberg Barclays Municipal Bond Index tracks total return performance for the long-term, investment-grade, tax- exempt bond market. All tax-exempt bond funds will find it difficult to outperform the Index because the Index does not reflect any deduction for fees, expenses, or taxes. Past performance is no guarantee of future results, and the cumulative performance quoted does not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of shares. Indexes are unmanaged and you cannot invest directly in an index. The return information for the indexes does not reflect the deduction of any fees, expenses, or taxes, except that the Lipper index reflects the fees and expenses of the underlying funds included in the index. ================================================================================ 8 | USAA CALIFORNIA BOND FUND ================================================================================ o 12-MONTH DIVIDEND YIELD COMPARISON o [CHART OF 12-MONTH DIVIDEND YIELD COMPARISON]
LIPPER CALIFORNIA USAA CALIFORNIA MUNICIPAL DEBT BOND FUND SHARES FUNDS AVERAGE 09/30/07 4.44% 3.90% 09/30/08 5.08% 4.38% 09/30/09 4.72% 4.16% 09/30/10 4.61% 4.17% 09/30/11 4.64% 4.24% 09/30/12 4.02% 3.78% 09/30/13 4.16% 3.73% 09/30/14 3.92% 3.54% 09/30/15 3.81% 3.42% 09/30/16 3.45% 3.16%
[END CHART] The 12-month dividend yield is computed by dividing net investment income dividends paid during the previous 12 months by the latest adjusted month-end net asset value. The yields quoted do not reflect adjustments made to the enclosed financial statements in accordance with U.S. generally accepted accounting principles. The net asset value is adjusted for a portion of the capital gains, if any, distributed during the previous nine months. The graph represents data for periods ending 9/30/07 through 9/30/16. The Lipper California Municipal Debt Funds Average is an average performance level of all California municipal debt funds, reported by Lipper Inc., an independent organization that monitors the performance of mutual funds. ================================================================================ INVESTMENT OVERVIEW | 9 ================================================================================ USAA CALIFORNIA BOND FUND ADVISER SHARES (ADVISER SHARES) (Ticker Symbol: UXABX)
-------------------------------------------------------------------------------- 9/30/16 3/31/16 -------------------------------------------------------------------------------- Net Assets $8.3 Million $8.3 Million Net Asset Value Per Share $11.34 $11.28 LAST 12 MONTHS Tax-Exempt Dividends Per Share $0.363 $0.390 Capital Gain Distributions Per Share - - -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 9/30/16 -------------------------------------------------------------------------------- 3/31/16 - 9/30/16* 1 YEAR 5 YEARS SINCE INCEPTION 8/01/10 2.06% 4.83% 5.75% 5.72% -------------------------------------------------------------------------------- 30-DAY SEC YIELD** AS OF 9/30/16 EXPENSE RATIO AS OF 3/31/16*** -------------------------------------------------------------------------------- 1.26% 0.80%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT USAA.COM. *Total returns for periods of less than one year are not annualized. This return is cumulative. **Calculated as prescribed by the Securities and Exchange Commission. ***The expense ratio represents the total annual operating expenses, before reductions of any expenses paid indirectly and including any acquired fund fees and expenses, as reported in the Fund's prospectus dated August 1, 2016, and is calculated as a percentage of average net assets. This expense ratio may differ from the expense ratios disclosed in the Financial Highlights, which excludes acquired fund fees and expenses. No adjustment has been made for taxes payable by shareholders on their reinvested net investment income and realized capital gain distributions. ================================================================================ 10 | USAA CALIFORNIA BOND FUND ================================================================================ TAXABLE EQUIVALENT ILLUSTRATION To match the Adviser Shares' closing 30-day SEC Yield of 1.26% on 09/30/16 and assuming California state tax rates of: 9.30% 9.30% 9.30% 9.30% and assuming marginal federal tax rates of: 28.00% 36.80%* 38.80%* 43.40%* A FULLY TAXABLE INVESTMENT MUST PAY: 1.93% 2.20% 2.27% 2.45% This table is based on a hypothetical investment calculated for illustrative purposes only. It is not an indication of performance for any of the USAA family of funds. Taxable equivalent returns or yields will vary depending on applicable tax rates. -------------------------------------------------------------------------------- Some income may be subject to federal, state, or local taxes, but not the alternative minimum tax. Based on 2015 tax rates or rates in effect as of the issuance of this report. The above marginal rates assume married, filing jointly. *The above marginal rates assume income exceeds $250,000 and investment income is subject to the 3.80% medicare tax which is applied for income over a specific level, depending on the federal income tax filing status. ================================================================================ INVESTMENT OVERVIEW | 11 ================================================================================ o CUMULATIVE PERFORMANCE COMPARISON o [CHART OF CUMULATIVE PERFORMANCE COMPARISON]
LIPPER CALIFORNIA USAA CALIFORNIA BLOOMBERG BARCLAYS MUNICIPAL DEBT BOND FUND MUNICIPAL BOND FUNDS INDEX ADVISER SHARES INDEX 07/31/10 $10,000.00 $10,000.00 $10,000.00 08/31/10 10,283.17 10,327.02 10,228.95 09/30/10 10,290.23 10,342.20 10,212.97 10/31/10 10,280.00 10,308.42 10,184.68 11/30/10 9,961.43 9,878.64 9,981.03 12/31/10 9,709.40 9,551.35 9,787.61 01/31/11 9,544.79 9,296.62 9,715.50 02/28/11 9,715.44 9,465.58 9,870.17 03/31/11 9,647.11 9,412.89 9,837.28 04/30/11 9,835.14 9,614.75 10,013.45 05/31/11 10,074.58 9,895.21 10,184.57 06/30/11 10,152.67 10,005.14 10,220.10 07/31/11 10,271.55 10,166.77 10,324.40 08/31/11 10,436.22 10,378.91 10,501.03 09/30/11 10,608.91 10,655.90 10,609.58 10/31/11 10,568.99 10,608.40 10,570.14 11/30/11 10,621.17 10,646.51 10,632.58 12/31/11 10,854.88 10,929.25 10,834.86 01/31/12 11,234.21 11,340.94 11,085.43 02/29/12 11,276.90 11,377.94 11,096.35 03/31/12 11,218.36 11,309.99 11,024.25 04/30/12 11,374.27 11,472.97 11,151.44 05/31/12 11,504.86 11,616.02 11,244.01 06/30/12 11,495.97 11,600.98 11,231.93 07/31/12 11,713.65 11,796.92 11,409.94 08/31/12 11,743.18 11,847.72 11,422.94 09/30/12 11,836.25 11,923.87 11,491.93 10/31/12 11,899.56 11,993.17 11,524.36 11/30/12 12,170.14 12,227.90 11,714.22 12/31/12 11,987.00 12,110.44 11,569.44 01/31/13 12,082.39 12,200.13 11,617.62 02/28/13 12,128.43 12,259.65 11,652.81 03/31/13 12,068.31 12,242.45 11,602.56 04/30/13 12,228.03 12,367.64 11,729.74 05/31/13 12,082.36 12,283.42 11,586.46 06/30/13 11,597.23 11,758.34 11,258.38 07/31/13 11,428.93 11,563.45 11,159.95 08/31/13 11,219.52 11,346.35 11,000.68 09/30/13 11,512.47 11,696.97 11,237.45 10/31/13 11,616.01 11,780.42 11,326.23 11/30/13 11,592.76 11,764.63 11,302.88 12/31/13 11,572.34 11,724.90 11,274.02 01/31/14 11,870.92 12,090.44 11,493.66 02/28/14 12,053.58 12,265.86 11,628.43 03/31/14 12,108.18 12,339.39 11,647.98 04/30/14 12,278.57 12,538.43 11,787.93 05/31/14 12,489.40 12,726.15 11,939.72 06/30/14 12,494.14 12,742.24 11,950.07 07/31/14 12,527.03 12,757.86 11,971.12 08/31/14 12,710.51 12,900.16 12,116.12 09/30/14 12,773.46 12,961.86 12,128.43 10/31/14 12,879.54 13,046.90 12,211.57 11/30/14 12,898.68 13,085.37 12,232.73 12/31/14 12,994.71 13,170.14 12,294.37 01/31/15 13,246.60 13,336.63 12,512.28 02/28/15 13,112.18 13,258.43 12,383.26 03/31/15 13,161.75 13,309.37 12,419.02 04/30/15 13,078.13 13,266.59 12,353.82 05/31/15 13,046.25 13,247.47 12,319.66 06/30/15 13,006.42 13,227.24 12,308.51 07/31/15 13,102.38 13,301.82 12,397.63 08/31/15 13,145.12 13,353.04 12,422.01 09/30/15 13,240.67 13,440.51 12,511.93 10/31/15 13,298.95 13,492.18 12,561.73 11/30/15 13,374.85 13,543.84 12,611.63 12/31/15 13,500.17 13,617.60 12,700.29 01/31/16 13,638.71 13,703.35 12,851.86 02/29/16 13,658.35 13,730.57 12,871.98 03/31/16 13,745.85 13,805.49 12,912.80 04/30/16 13,858.91 13,893.00 13,007.79 05/31/16 13,929.22 13,940.00 13,042.97 06/30/16 14,190.30 14,124.00 13,250.42 07/31/16 14,172.63 14,097.00 13,258.47 08/31/16 14,210.38 14,142.00 13,276.41 09/30/16 14,144.32 14,092.00 13,210.17
[END CHART] Data from 7/31/10 through 9/30/16.* The graph illustrates the comparison of a $10,000 hypothetical investment in the USAA California Bond Fund Adviser Shares to the benchmarks listed above (see page 8 for benchmark definitions). *The performance of the Lipper California Municipal Debt Funds Index and the Bloomberg Barclays Municipal Bond Index is calculated from the end of the month, July 31, 2010, while the inception date of the Adviser Shares is August 1, 2010. There may be a slight variation of performance numbers because of this difference. Past performance is no guarantee of future results, and the cumulative performance quoted does not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of shares. Indexes are unmanaged and you cannot invest directly in an index. The return information for the indexes does not reflect the deduction of any fees, expenses, or taxes, except that the Lipper index reflects the fees and expenses of the underlying funds included in the index. ================================================================================ 12 | USAA CALIFORNIA BOND FUND ================================================================================ o 12-MONTH DIVIDEND YIELD COMPARISON o [CHART OF 12-MONTH DIVIDEND YIELD COMPARISON]
USAA CALIFORNIA LIPPER CALIFORNIA BOND FUND MUNICIPAL DEBT ADVISER SHARES FUNDS AVERAGE 09/30/11 4.34% 4.24% 09/30/12 3.82% 3.78% 09/30/13 3.92% 3.73% 09/30/14 3.68% 3.54% 09/30/15 3.55% 3.42% 09/30/16 3.20% 3.16%
[END CHART] The 12-month dividend yield is computed by dividing net investment income dividends paid during the previous 12 months by the latest adjusted month-end net asset value. The yields quoted do not reflect adjustments made to the enclosed financial statements in accordance with U.S. generally accepted accounting principles. The net asset value is adjusted for a portion of the capital gains, if any, distributed during the previous nine months. The graph represents data for periods ending 9/30/11 through 9/30/16. The Lipper California Municipal Debt Funds Average is an average performance level of all California municipal debt funds, reported by Lipper Inc., an independent organization that monitors the performance of mutual funds. ================================================================================ INVESTMENT OVERVIEW | 13 ================================================================================ o TOP 10 INDUSTRIES - 9/30/16 o (% of Net Assets) General Obligation ...................................................... 16.0% Hospital ................................................................ 14.1% Appropriated Debt ....................................................... 14.0% Special Assessment/Tax/Fee .............................................. 12.9% Water/Sewer Utility ..................................................... 12.3% Real Estate Tax/Fee ..................................................... 8.7% Toll Roads .............................................................. 5.1% Electric/Gas Utilities .................................................. 4.3% Airport/Port ............................................................ 3.9% Nursing/CCRC ............................................................ 3.3%
You will find a complete list of securities that the Fund owns on pages 16-22. ================================================================================ 14 | USAA CALIFORNIA BOND FUND ================================================================================ o PORTFOLIO RATINGS MIX - 9/30/16 o [PIE CHART OF PORTFOLIO RATINGS MIX] AAA 0.8% AA 64.4% A 22.4% BBB 9.0% BELOW INVESTMENT-GRADE 2.3% UNRATED 1.1%
[END CHART] This chart reflects the highest long-term rating from a Nationally Recognized Statistical Rating Organization (NRSRO), with the four highest long-term credit ratings labeled, in descending order of credit quality, AAA, AA, A, and BBB. These categories represent investment-grade quality. NRSRO ratings are shown because they provide independent analysis of the credit quality of the Fund's investments. USAA Asset Management Company (the Manager) also performs its own fundamental credit analysis of each security. As part of its fundamental credit analysis, the Manager considers various criteria, including industry specific actions, peer comparisons, payment ranking, and structure specific characteristics. Any of the Fund's securities that are not rated by an NRSRO appear in the chart above as "Unrated," but these securities are analyzed and monitored by the Manager on an ongoing basis. Government securities that are issued or guaranteed as to principal and interest by the U.S. government and pre-refunded and escrowed-to-maturity municipal bonds that are not rated are treated as AAA for credit quality purposes. Percentages are of the total market value of the Fund's investments. You will find a complete list of securities that the Fund owns on pages 16-22. ================================================================================ INVESTMENT OVERVIEW | 15 ================================================================================ PORTFOLIO OF INVESTMENTS September 30, 2016 (unaudited) -------------------------------------------------------------------------------- o CATEGORIES AND DEFINITIONS FIXED-RATE INSTRUMENTS - Consist of municipal bonds, notes, and commercial paper. The interest rate is constant to maturity. Prior to maturity, the market price of a fixed-rate instrument generally varies inversely to the movement of interest rates. PUT BONDS - Provide the right to sell the bond at face value at specific tender dates prior to final maturity. The put feature shortens the effective maturity of the security. VARIABLE-RATE DEMAND NOTES (VRDNs) - Provide the right to sell the security at face value on either that day or within the rate-reset period. The interest rate is adjusted at a stipulated daily, weekly, monthly, quarterly, or other specified time interval to reflect current market conditions. VRDNs will normally trade as if the maturity is the earlier put date, even though stated maturity is longer. o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS CCD Community College District PRE Pre-refunded to a date prior to maturity USD Unified School District CREDIT ENHANCEMENTS - Adds the financial strength of the provider of the enhancement to support the issuer's ability to repay the principal and interest payments when due. The enhancement may be provided by a high-quality bank, insurance company or other corporation, or a collateral trust. The enhancements do not guarantee the market values of the securities. ================================================================================ 16 | USAA CALIFORNIA BOND FUND ================================================================================ (INS) Principal and interest payments are insured by one of the following: AMBAC Assurance Corp., Assured Guaranty Corp., Assured Guaranty Municipal Corp., Build America Mutual Assurance Co., National Public Finance Guarantee Corp., Radian Asset Assurance, Inc., or XL Capital Assurance. Although bond insurance reduces the risk of loss due to default by an issuer, such bonds remain subject to the risk that value may fluctuate for other reasons, and there is no assurance that the insurance company will meet its obligations. (LIQ) Liquidity enhancement that may, under certain circumstances, provide for repayment of principal and interest upon demand from one of the following: Bank of America Corp., Deutsche Bank A.G., Dexia Credit Local, or JPMorgan Chase & Co. (LOC) Principal and interest payments are guaranteed by a bank letter of credit or other bank credit agreement. (NBGA) Principal and interest payments or, under certain circumstances, underlying mortgages, are guaranteed by a nonbank guarantee agreement from California Health Insurance Construction Loan Insurance Program. ================================================================================ PORTFOLIO OF INVESTMENTS | 17 ================================================================================ INVESTMENTS
---------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) ---------------------------------------------------------------------------------------------------------------- FIXED-RATE INSTRUMENTS (90.0%) CALIFORNIA (87.0%) $ 2,000 Alameda Corridor Transportation Auth. 5.00% 10/01/2037 $ 2,399 1,500 Anaheim Public Financing Auth. 5.00 5/01/2046 1,780 4,235 Association of Bay Area Governments (NBGA) 5.00 1/01/2033 5,010 17,520 Association of Bay Area Governments (INS) 4.75 3/01/2036 17,779 1,500 Association of Bay Area Governments 5.00 7/01/2042 1,675 3,085 Burbank USD, 4.30%, 8/01/2023 4.30(a) 8/01/2033 2,681 3,000 Burbank USD, 4.35%, 8/01/2023 4.35(a) 8/01/2034 2,598 5,265 Carlsbad USD (INS) 5.00 10/01/2034 5,820 9,500 Centinela Valley Union High School District (b) 4.00 8/01/2050 10,283 3,000 Central USD (INS) (PRE) 5.50 8/01/2029 3,389 5,000 Chula Vista 5.88 1/01/2034 5,604 6,000 City and County of San Francisco Airport Commission 4.90 5/01/2029 6,701 1,350 Corona-Norco USD 5.00 9/01/2032 1,580 6,000 Educational Facilities Auth. 5.38 4/01/2034 6,774 1,000 Educational Facilities Auth. 5.00 10/01/2037 1,196 3,100 Educational Facilities Auth. 5.00 10/01/2049 3,769 1,500 Elk Grove Finance Auth. (INS) 5.00 9/01/2038 1,782 15,000 Foothill/Eastern Transportation Corridor Agency (INS) 4.21(c) 1/15/2034 8,395 7,500 Foothill/Eastern Transportation Corridor Agency (INS) 4.25(c) 1/15/2035 4,052 18,000 Golden State Tobacco Securitization (INS) 4.55(a) 6/01/2022 19,001 17,000 Golden State Tobacco Securitization 5.00 6/01/2033 17,147 610 Health Facilities Financing Auth. (NBGA) 5.50 1/01/2019 612 5,000 Health Facilities Financing Auth. 5.00 7/01/2033 5,905 2,000 Health Facilities Financing Auth. (PRE) 6.50 10/01/2033 2,227 8,105 Health Facilities Financing Auth. 4.00 3/01/2039 8,902 1,050 Health Facilities Financing Auth. (NBGA) 5.00 7/01/2039 1,247 2,100 Health Facilities Financing Auth. 5.00 11/15/2039 2,481 14,000 Health Facilities Financing Auth. 4.00 11/15/2041 15,317 7,805 Health Facilities Financing Auth. (NBGA) 5.00 6/01/2042 8,959 2,300 Health Facilities Financing Auth. (NBGA) 5.00 7/01/2044 2,722 10,000 Health Facilities Financing Auth. 4.00 10/01/2047 10,850 9,310 Indio Redevelopment Agency 5.25 8/15/2031 9,965 6,000 Inland Empire Tobacco Securitization Auth. 5.75(a) 6/01/2026 6,407 1,000 Jurupa Public Financing Auth. 5.00 9/01/2042 1,151 3,875 Long Beach Bond Finance Auth. 5.00 11/15/2035 4,990 2,000 Los Angeles County Public Works Financing Auth. 5.00 12/01/2044 2,380
================================================================================ 18 | USAA CALIFORNIA BOND FUND ================================================================================
---------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) ---------------------------------------------------------------------------------------------------------------- $ 6,000 Los Angeles County Public Works Financing Auth. 5.00% 12/01/2045 $ 7,244 10,000 Madera Redevelopment Agency 5.38 9/01/2038 10,695 5,790 March Joint Powers Redevelopment Agency (INS) 4.00 8/01/2041 6,357 6,000 Modesto Irrigation District 5.75 10/01/2034 6,659 3,435 Monrovia Financing Auth. 5.00 12/01/2045 4,094 2,345 Monrovia Financing Auth. (INS) 5.00 12/01/2045 2,795 7,500 Monterey Peninsula CCD (INS) (PRE) 5.11(c) 8/01/2029 4,142 2,000 Mountain View Shoreline Regional Park Community(d) 5.63 8/01/2035 2,374 1,000 Municipal Finance Auth. 5.00 6/01/2050 1,143 1,500 Norco Redevelopment Agency 5.88 3/01/2032 1,725 1,250 Norco Redevelopment Agency 6.00 3/01/2036 1,444 5,000 Norwalk Redevelopment Agency (INS) 5.00 10/01/2030 5,016 3,500 Norwalk Redevelopment Agency (INS) 5.00 10/01/2035 3,513 7,500 Norwalk-La Mirada USD (INS) 5.00(c) 8/01/2030 5,067 6,205 Oakdale Irrigation District (PRE) 5.50 8/01/2034 7,008 5,500 Palomar Pomerado Health (INS) 4.89(c) 8/01/2026 4,268 12,230 Palomar Pomerado Health (INS) 6.05(c) 8/01/2031 7,687 2,000 Pittsburg Successor Redevelopment Agency (INS) 5.00 9/01/2029 2,496 4,000 Pollution Control Financing Auth.(e) 5.25 8/01/2040 4,487 10,000 Pollution Control Financing Auth. 5.00 11/21/2045 10,283 1,500 Pomona USD (INS) 5.00 8/01/2039 1,770 6,875 Public Works Board 5.00 4/01/2031 6,902 5,705 Public Works Board 5.00 4/01/2031 5,727 5,000 Regents of the Univ. of California Medical Center 4.00 5/15/2044 5,530 2,800 Rio Elementary School District (INS) 4.00 8/01/2045 3,090 9,880 Riverside County Public Financing Auth. (INS) (PRE) 4.75 10/01/2035 9,881 120 Riverside County Public Financing Auth. (INS) 4.75 10/01/2035 120 1,250 Riverside County Public Financing Auth. (INS) 4.00 10/01/2036 1,380 1,625 Riverside County Public Financing Auth. (INS) 4.00 10/01/2037 1,793 2,000 Riverside County Redevelopment Successor Agency (INS) 4.00 10/01/2037 2,207 2,000 Riverside County Transportation Commission 5.25 6/01/2039 2,437 7,115 Roseville Finance Auth. 5.00 2/01/2037 7,987 2,000 Sacramento Area Flood Control Agency (INS) 5.00 10/01/2044 2,351 7,030 Sacramento City Financing Auth. (INS) (PRE) 5.00 12/01/2036 7,081 1,020 Sacramento USD (INS) 5.00 7/01/2038 1,196 2,000 San Diego County Regional Airport Auth. 5.00 7/01/2040 2,251 2,500 San Diego Public Facilities Financing Auth. 5.00 10/15/2044 3,016 1,000 San Diego Public Financing Auth. (PRE) 5.25 5/15/2029 1,155 3,500 San Francisco City and County Airport (PRE) 5.25 5/01/2026 3,747 10,000 San Jose Financing Auth. 5.00 6/01/2039 11,775 3,000 San Jose Redevelopment Agency (INS) 4.45 8/01/2032 3,071
================================================================================ PORTFOLIO OF INVESTMENTS | 19 ================================================================================
---------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) ---------------------------------------------------------------------------------------------------------------- $ 1,500 San Luis & Delta-Mendota (INS) 5.00% 3/01/2038 $ 1,721 3,000 San Marcos USD Financing Auth. (INS) 5.00 8/15/2035 3,384 5,000 San Ramon Successor Redevelopment Agency (INS) 5.00 2/01/2038 5,894 3,500 Santa Barbara Financing Auth. 5.00 7/01/2029 3,854 9,000 Santa Barbara Financing Auth. 5.00 7/01/2039 9,891 2,000 Santa Clara 5.25 7/01/2032 2,354 5,250 Santa Clarita Community College District 4.00 8/01/2046 5,860 900 Santa Cruz County Redevelopment Successor Agency (INS) 4.00 9/01/2035 1,004 6,000 Santa Cruz County Redevelopment Successor Agency (INS) 5.00 9/01/2035 7,235 1,350 Santa Cruz County Redevelopment Successor Agency (INS) 4.00 9/01/2036 1,500 1,750 School Finance Auth.(e) 5.00 8/01/2041 2,006 2,250 School Finance Auth.(e) 5.00 8/01/2046 2,566 1,750 Sierra View Local Health Care District (PRE) 5.25 7/01/2037 1,809 10,000 South Orange County Public Financing Auth. (INS) 5.00 8/15/2032 10,029 2,070 South Orange County Public Financing Auth. 5.00 4/01/2035 2,523 1,075 South Orange County Public Financing Auth. 5.00 4/01/2036 1,305 4,000 State 5.25 2/01/2030 4,807 6,000 State 4.50 8/01/2030 6,069 5,000 State 5.75 4/01/2031 5,583 3,000 State 5.00 2/01/2043 3,539 2,500 State 5.00 9/01/2045 3,078 8,000 State 4.00 9/01/2046 8,907 2,225 Statewide Communities Dev. Auth. (INS)(d) 4.50 2/01/2027 2,242 11,795 Statewide Communities Dev. Auth. (NBGA) (PRE) 5.00 12/01/2027 12,384 4,225 Statewide Communities Dev. Auth. 5.50 7/01/2031 4,374 4,000 Statewide Communities Dev. Auth. (INS)(d) 4.60 2/01/2037 4,025 13,000 Statewide Communities Dev. Auth. (NBGA) (PRE) 5.00 12/01/2037 13,649 3,500 Statewide Communities Dev. Auth. (NBGA) (PRE) 5.75 8/15/2038 3,822 2,500 Statewide Communities Dev. Auth. 5.00 11/15/2038 2,658 2,000 Statewide Communities Dev. Auth. 5.00 5/15/2040 2,389 1,500 Statewide Communities Dev. Auth. 5.00 5/15/2042 1,680 500 Statewide Communities Dev. Auth. 5.00 11/01/2043 592 2,400 Statewide Communities Dev. Auth. (NBGA) 5.00 8/01/2044 2,804 1,500 Statewide Communities Dev. Auth. 5.00 5/15/2047 1,672 3,000 Statewide Communities Dev. Auth. 4.00 8/15/2051 3,247 1,575 Temecula Valley USD (INS) 5.00 9/01/2040 1,853 7,500 Temecula Valley USD (INS) 4.00 8/01/2045 8,280 5,710 Tulare (INS) 4.00 11/15/2041 6,302 5,000 Tulare (INS) 4.00 11/15/2044 5,505 7,190 Tuolumne Wind Project Auth. (PRE) 5.63 1/01/2029 7,953
================================================================================ 20 | USAA CALIFORNIA BOND FUND ================================================================================
---------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) ---------------------------------------------------------------------------------------------------------------- $ 4,000 Val Verde USD (INS) 5.00% 3/01/2029 $ 4,339 1,105 Val Verde USD (INS) 5.00 8/01/2034 1,331 1,530 Val Verde USD (INS) 5.00 8/01/2035 1,834 1,500 Val Verde USD (INS) 5.13 3/01/2036 1,630 4,000 Val Verde USD (INS) 5.00 8/01/2044 4,733 4,475 Val Verde USD (INS) 4.00 8/01/2045 4,902 4,813 Vallejo Sanitation and Flood Control District (INS)(d) 5.00 7/01/2019 5,045 5,000 Victor Valley Union High School District (INS) 4.00 8/01/2037 5,558 7,000 Vista (INS) (PRE) 5.00 5/01/2037 7,175 1,250 Washington Township Health Care District 6.00 7/01/2029 1,397 6,080 Washington Township Health Care District 5.00 7/01/2037 6,207 4,585 West Kern Water District(d) 5.00 6/01/2028 5,238 6,000 Western Placer USD (INS)(b) 4.00 8/01/2041 6,630 -------- 632,862 -------- GUAM (1.9%) 1,000 Power Auth. 5.00 10/01/2034 1,103 4,000 Waterworks Auth. 5.50 7/01/2043 4,620 7,000 Waterworks Auth. 5.00 1/01/2046 8,080 -------- 13,803 -------- U.S. VIRGIN ISLANDS (1.1%) 1,805 Public Finance Auth. 4.00 10/01/2022 1,775 1,500 Public Finance Auth. 5.00 10/01/2027 1,512 1,500 Public Finance Auth. 5.00 10/01/2032 1,495 3,000 Public Finance Auth.(e) 5.00 9/01/2033 3,394 -------- 8,176 -------- Total Fixed-Rate Instruments (cost: $613,629) 654,841 -------- PUT BONDS (3.5%) CALIFORNIA (3.5%) 15,000 Bay Area Toll Auth. 2.09(f) 4/01/2036 15,272 10,000 Twin Rivers USD (INS) 3.20 6/01/2041 10,018 -------- 25,290 -------- Total Put Bonds (cost: $25,000) 25,290 -------- VARIABLE-RATE DEMAND NOTES (7.9%) CALIFORNIA (7.9%) 10,120 Anaheim Public Financing Auth. (LIQ) (LOC - Deutsche Bank A.G.)(e) 1.09 9/01/2030 10,120 1,800 Antioch USD (LIQ) (LOC - Deutsche Bank A.G.)(e) 0.99 8/01/2047 1,800 8,770 Bay Area Toll Auth. (LIQ)(e) 1.05 4/01/2039 8,770
================================================================================ PORTFOLIO OF INVESTMENTS | 21 ================================================================================
---------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) ---------------------------------------------------------------------------------------------------------------- $ 5,355 Sacramento City Financing Auth. (LIQ) (LOC - Deutsche Bank A.G.)(e) 1.03% 12/01/2030 $ 5,355 9,595 Semitropic Improvement District (LIQ)(e) 1.09 6/01/2017 9,595 5,990 State (LIQ) (LOC - Dexia Credit Local)(e) 1.02 8/01/2027 5,990 15,895 Victorville Joint Powers Financing Auth. (LOC - BNP Paribas) 1.49 5/01/2040 15,895 -------- 57,525 -------- Total Variable-Rate Demand Notes (cost: $57,525) 57,525 -------- TOTAL INVESTMENTS (COST: $696,154) $737,656 ======== ---------------------------------------------------------------------------------------------------------------- ($ IN 000s) VALUATION HIERARCHY ---------------------------------------------------------------------------------------------------------------- ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL ---------------------------------------------------------------------------------------------------------------- Fixed-Rate Instruments $- $654,841 $- $654,841 Put Bonds - 25,290 - 25,290 Variable-Rate Demand Notes - 57,525 - 57,525 ---------------------------------------------------------------------------------------------------------------- Total $- $737,656 $- $737,656 ----------------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or geographic region classifications. For the period of April 1, 2016, through September 30, 2016, there were no transfers of securities between levels. The Fund's policy is to recognize any transfers in and transfers out as of the beginning of the reporting period in which the event or circumstance that caused the transfer occurred. ================================================================================ 22 | USAA CALIFORNIA BOND FUND ================================================================================ NOTES TO PORTFOLIO OF INVESTMENTS September 30, 2016 (unaudited) -------------------------------------------------------------------------------- o GENERAL NOTES Market values of securities are determined by procedures and practices discussed in Note 1A to the financial statements. The Portfolio of Investments category percentages shown represent the percentages of the investments to net assets, and, in total, may not equal 100%. A category percentage of 0.0% represents less than 0.1% of net assets. o SPECIFIC NOTES (a) Stepped-coupon security that is initially issued in zero-coupon form and converts to coupon form at the specified date and rate shown in the security's description. The rate presented in the coupon rate column represents the effective yield at the date of purchase. (b) At September 30, 2016, the aggregate market value of securities purchased on a delayed-delivery basis was $16,913,000, of which all were when-issued securities. (c) Zero-coupon security. Rate represents the effective yield at the date of purchase. (d) At September 30, 2016, the security, or a portion thereof, was segregated to cover delayed-delivery and/or when-issued purchases. (e) Restricted security that is not registered under the Securities Act of 1933. A resale of this security in the United States may occur in an exempt transaction to a qualified institutional buyer as defined by Rule 144A, and as such has been deemed liquid by USAA Asset ================================================================================ NOTES TO PORTFOLIO OF INVESTMENTS | 23 ================================================================================ Management Company (the Manager) under liquidity guidelines approved by USAA Mutual Funds Trust's Board of Trustees (the Board), unless otherwise noted as illiquid. (f) Variable-rate or floating-rate security - interest rate is adjusted periodically. The interest rate disclosed represents the rate at September 30, 2016. See accompanying notes to financial statements. ================================================================================ 24 | USAA CALIFORNIA BOND FUND ================================================================================ STATEMENT OF ASSETS AND LIABILITIES (IN THOUSANDS) September 30, 2016 (unaudited) -------------------------------------------------------------------------------- ASSETS Investments in securities, at market value (cost of $696,154) $737,656 Cash 48 Receivables: Capital shares sold 64 Interest 7,260 Other 23 -------- Total assets 745,051 -------- LIABILITIES Payables: Securities purchased 16,761 Capital shares redeemed 411 Dividends on capital shares 508 Accrued management fees 166 Accrued transfer agent's fees 5 Other accrued expenses and payables 49 -------- Total liabilities 17,900 -------- Net assets applicable to capital shares outstanding $727,151 ======== NET ASSETS CONSIST OF: Paid-in capital $691,257 Undistributed net investment income 1 Accumulated net realized loss on investments (5,609) Net unrealized appreciation of investments 41,502 -------- Net assets applicable to capital shares outstanding $727,151 ======== Net asset value, redemption price, and offering price per share: Fund Shares (net assets of $718,865/63,345 capital shares outstanding, no par value) $ 11.35 ======== Adviser Shares (net assets of $8,286/731 capital shares outstanding, no par value) $ 11.34 ========
See accompanying notes to financial statements. ================================================================================ FINANCIAL STATEMENTS | 25 ================================================================================ STATEMENT OF OPERATIONS (IN THOUSANDS) Six-month period ended September 30, 2016 (unaudited) -------------------------------------------------------------------------------- INVESTMENT INCOME Interest income $13,677 ------- EXPENSES Management fees 1,025 Administration and servicing fees: Fund Shares 536 Adviser Shares 6 Transfer agent's fees: Fund Shares 82 Adviser Shares 1 Distribution and service fees (Note 6D): Adviser Shares 11 Custody and accounting fees: Fund Shares 52 Adviser Shares 1 Postage: Fund Shares 5 Shareholder reporting fees: Fund Shares 9 Trustees' fees 15 Professional fees 45 Other 9 ------- Total expenses 1,797 ------- NET INVESTMENT INCOME 11,880 ------- NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS Net realized gain 1,181 Change in net unrealized appreciation/(depreciation) 2,555 ------- Net realized and unrealized gain 3,736 ------- Increase in net assets resulting from operations $15,616 =======
See accompanying notes to financial statements. ================================================================================ 26 | USAA CALIFORNIA BOND FUND ================================================================================ STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS) Six-month period ended September 30, 2016 (unaudited), and year ended March 31, 2016
---------------------------------------------------------------------------------------------------------- 9/30/2016 3/31/2016 ---------------------------------------------------------------------------------------------------------- FROM OPERATIONS Net investment income $ 11,880 $ 25,547 Net realized gain on investments 1,181 166 Change in net unrealized appreciation/(depreciation) of investments 2,555 1,149 ---------------------- Increase in net assets resulting from operations 15,616 26,862 ---------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income: Fund Shares (11,732) (25,252) Adviser Shares (127) (276) ---------------------- Distributions to shareholders (11,859) (25,528) ---------------------- NET INCREASE IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS (NOTE 5) Fund Shares 16,422 21,719 Adviser Shares (62) 339 ---------------------- Total net increase in net assets from capital share transactions 16,360 22,058 ---------------------- Net increase in net assets 20,117 23,392 NET ASSETS Beginning of period 707,034 683,642 ---------------------- End of period $727,151 $707,034 ====================== Undistributed (overdistribution of) net investment income: End of period $ 1 $ (20) ======================
See accompanying notes to financial statements. ================================================================================ FINANCIAL STATEMENTS | 27 ================================================================================ NOTES TO FINANCIAL STATEMENTS September 30, 2016 (unaudited) -------------------------------------------------------------------------------- (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company Act of 1940, as amended (the 1940 Act), is an open-end management investment company organized as a Delaware statutory trust consisting of 54 separate funds. Additionally, the Fund qualifies as a registered investment company under Accounting Standards Codification Topic 946. The information presented in this semiannual report pertains only to the USAA California Bond Fund (the Fund), which is classified as diversified under the 1940 Act. The Fund's investment objective is to provide California investors with a high level of current interest income that is exempt from federal and California state income taxes. The Fund consists of two classes of shares: California Bond Fund Shares (Fund Shares) and California Bond Fund Adviser Shares (Adviser Shares). Each class of shares has equal rights to assets and earnings, except that each class bears certain class-related expenses specific to the particular class. These expenses include administration and servicing fees, transfer agent fees, postage, shareholder reporting fees, distribution and service (12b-1) fees, and certain registration and custodian fees. Expenses not attributable to a specific class, income, and realized gains or losses on investments are allocated to each class of shares based on each class' relative net assets. Each class has exclusive voting rights on matters related solely to that class and separate voting rights on matters that relate to all classes. The Adviser Shares permit investors to purchase shares through financial intermediaries, including banks, broker- dealers, insurance companies, investment advisers, plan sponsors, and financial professionals that provide various administrative and distribution services. ================================================================================ 28 | USAA CALIFORNIA BOND FUND ================================================================================ A. SECURITY VALUATION - The Trust's Board of Trustees (the Board) has established the Valuation Committee (the Committee), and subject to Board oversight, the Committee administers and oversees the Fund's valuation policies and procedures, which are approved by the Board. Among other things, these policies and procedures allow the Fund to utilize independent pricing services, quotations from securities dealers, and a wide variety of sources and information to establish and adjust the fair value of securities as events occur and circumstances warrant. The Committee reports to the Board on a quarterly basis and makes recommendations to the Board as to pricing methodologies and services used by the Fund and presents additional information to the Board regarding application of the pricing and fair valuation policies and procedures during the preceding quarter. The Committee meets as often as necessary to make pricing and fair value determinations. In addition, the Committee holds regular monthly meetings to review prior actions taken by the Committee and USAA Asset Management Company (the Manager), an affiliate of the Fund. Among other things, these monthly meetings include a review and analysis of back testing reports, pricing service quotation comparisons, illiquid securities and fair value determinations, pricing movements, and daily stale price monitoring. The value of each security is determined (as of the close of trading on the New York Stock Exchange (NYSE) on each business day the NYSE is open) as set forth below: 1. Debt securities with maturities greater than 60 days are valued each business day by a pricing service (the Service) approved by the Board. The Service uses an evaluated mean between quoted bid and asked prices or the last sales price to value a security when, in the Service's judgment, these prices are readily available and are representative of the security's market value. For many securities, such prices are not readily available. The Service generally prices those securities based on methods which include consideration of yields or prices of ================================================================================ NOTES TO FINANCIAL STATEMENTS | 29 ================================================================================ securities of comparable quality, coupon, maturity, and type; indications as to values from dealers in securities; and general market conditions. Generally, debt securities are categorized in Level 2 of the fair value hierarchy; however, to the extent the valuations include significant unobservable inputs, the securities would be categorized in Level 3. 2. Short-term debt securities with original or remaining maturities of 60 days or less may be valued at amortized cost, provided that amortized cost represents the fair value of such securities. 3. In the event that price quotations or valuations are not readily available, are not reflective of market value, or a significant event has been recognized in relation to a security or class of securities, the securities are valued in good faith by the Committee in accordance with valuation procedures approved by the Board. The effect of fair value pricing is that securities may not be priced on the basis of quotations from the primary market in which they are traded and the actual price realized from the sale of a security may differ materially from the fair value price. Valuing these securities at fair value is intended to cause the Fund's net asset value (NAV) to be more reliable than it otherwise would be. Fair value methods used by the Manager include, but are not limited to, obtaining market quotations from secondary pricing services, broker-dealers, other pricing services, or widely used quotation systems. General factors considered in determining the fair value of securities include fundamental analytical data, the nature and duration of any restrictions on disposition of the securities, evaluation of credit quality, and an evaluation of the forces that influenced the market in which the securities are purchased and sold. B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The three-level valuation hierarchy disclosed in the Portfolio of Investments is based upon the transparency of inputs to the valuation of an asset or ================================================================================ 30 | USAA CALIFORNIA BOND FUND ================================================================================ liability as of the measurement date. The three levels are defined as follows: Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) in active markets for identical securities. Level 2 - inputs to the valuation methodology are other significant observable inputs, including quoted prices for similar securities, inputs that are observable for the securities, either directly or indirectly, and market-corroborated inputs such as market indexes. Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value measurement, including the Manager's own assumptions in determining the fair value. The inputs or methodologies used for valuing securities are not necessarily an indication of the risks associated with investing in those securities. C. FEDERAL TAXES - The Fund's policy is to comply with the requirements of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies and to distribute substantially all of its taxable income and net capital gains, if any, to its shareholders. Therefore, no federal income tax provision is required. D. INVESTMENTS IN SECURITIES - Securities transactions are accounted for on the date the securities are purchased or sold (trade date). Gains or losses from sales of investment securities are computed on the identified cost basis. Interest income is recorded daily on the accrual basis. Premiums and discounts are amortized over the life of the respective securities, using the effective yield method for long-term securities and the straight-line method for short-term securities. The Fund concentrates its investments in California tax-exempt securities and, therefore, may be exposed to more credit risk than portfolios with a broader geographical diversification. E. SECURITIES PURCHASED ON A DELAYED-DELIVERY OR WHEN-ISSUED BASIS - Delivery and payment for securities that have been purchased by the Fund on a delayed-delivery or when-issued basis can take place a month or more after the trade date. During the period prior to settlement, these securities ================================================================================ NOTES TO FINANCIAL STATEMENTS | 31 ================================================================================ do not earn interest, are subject to market fluctuation, and may increase or decrease in value prior to their delivery. The Fund maintains segregated assets with a market value equal to or greater than the amount of its purchase commitments. The purchase of securities on a delayed- delivery or when-issued basis may increase the volatility of the Fund's NAV to the extent that the Fund makes such purchases while remaining substantially fully invested. As of September 30, 2016, the Fund's outstanding delayed-delivery commitments, including interest purchased, were $16,761,000; all of which were when-issued securities. F. EXPENSES PAID INDIRECTLY - Through arrangements with the Fund's custodian and other banks utilized by the Fund for cash management purposes, realized credits, if any, generated from cash balances in the Fund's bank accounts may be used to directly reduce the Fund's expenses. For the six-month period ended September 30, 2016, custodian and other bank credits reduced the Fund's expenses by less than $500. G. REDEMPTION FEES - All share classes held in the Fund less than 60 days are subject to a redemption fee equal to 1.00% of the proceeds of the redeemed or exchanged shares. All redemption fees paid will be accounted for by the Fund as an addition to paid in capital. For the six-month period ended September 30, 2016, the Fund Shares did not charge any redemption fees and the Adviser Shares charged redemption fees which were less than $500. H. INDEMNIFICATIONS - Under the Trust's organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Trust. In addition, in the normal course of business, the Trust enters into contracts that contain a variety of representations and warranties that provide general indemnifications. The Trust's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Trust that have not yet occurred. However, the Trust expects the risk of loss to be remote. I. USE OF ESTIMATES - The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management ================================================================================ 32 | USAA CALIFORNIA BOND FUND ================================================================================ to make estimates and assumptions that may affect the reported amounts in the financial statements. (2) LINE OF CREDIT The Fund participates in a joint, short-term, revolving, committed loan agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate of the Manager. The purpose of the agreement is to meet temporary or emergency cash needs, including redemption requests that might otherwise require the untimely disposition of securities. Subject to availability, the Fund may borrow from CAPCO an amount up to 5% of the Fund's total assets at an interest rate based on the London Interbank Offered Rate (LIBOR), plus 100.0 basis points. The USAA Funds that are party to the loan agreement are assessed facility fees by CAPCO in the amount of 12.0 basis points of the amount of the committed loan agreement. Prior to September 30, 2016, the maximum annual facility fee was 9.0 basis points of the amount of the committed loan agreement. The facility fees are allocated among the USAA Funds based on their respective average net assets for the period. The USAA Funds may request an optional increase of the committed loan agreement from $500 million up to $750 million. If the USAA Funds increase the committed loan agreement, the assessed facility fee on the amount of the additional commitment will be 13.0 basis points. For the six-month period ended September 30, 2016, the Fund paid CAPCO facility fees of $2,000, which represents 1.0% of the total fees paid to CAPCO by the USAA Funds. The Fund had no borrowings under this agreement during the six-month period ended September 30, 2016. (3) DISTRIBUTIONS The tax basis of distributions and any accumulated undistributed net investment income will be determined as of the Fund's tax year-end of March 31, 2017, in accordance with applicable federal tax law. Net investment income is accrued daily as dividends and distributed to shareholders monthly. Distributions of realized gains from security ================================================================================ NOTES TO FINANCIAL STATEMENTS | 33 ================================================================================ transactions not offset by capital losses are made annually in the succeeding fiscal year or as otherwise required to avoid the payment of federal income taxes. At March 31, 2016, the Fund had long-term capital loss carryforwards of $6,790,000, for federal income tax purposes. It is unlikely that the Board will authorize a distribution of capital gains realized in the future until the capital loss carryforwards have been used. For the six-month period ended September 30, 2016, the Fund did not incur any income tax, interest, or penalties, and has recorded no liability for net unrecognized tax benefits relating to uncertain income tax positions. On an ongoing basis, the Manager will monitor the Fund's tax basis to determine if adjustments to this conclusion are necessary. The statute of limitations on the Fund's tax return filings generally remain open for the three preceding fiscal reporting year ends and remain subject to examination by the Internal Revenue Service and state taxing authorities. (4) INVESTMENT TRANSACTIONS Cost of purchases and proceeds from sales/maturities of securities, excluding short-term securities, for the six-month period ended September 30, 2016, were $148,266,000 and $126,840,000, respectively. As of September 30, 2016, the cost of securities, including short-term securities, for federal income tax purposes, was approximately the same as the cost reported in the financial statements. Gross unrealized appreciation and depreciation of investments as of September 30, 2016, were $42,354,000 and $852,000, respectively, resulting in net unrealized appreciation of $41,502,000. (5) CAPITAL SHARE TRANSACTIONS At September 30, 2016, there were an unlimited number of shares of capital stock at no par value authorized for the Fund. ================================================================================ 34 | USAA CALIFORNIA BOND FUND ================================================================================ Capital share transactions for all classes were as follows, in thousands:
SIX-MONTH PERIOD ENDED YEAR ENDED SEPTEMBER 30, 2016 MARCH 31, 2016 ------------------------------------------------------------------------------------------------- SHARES AMOUNT SHARES AMOUNT ---------------------------------------------------------- FUND SHARES: Shares sold 3,599 $ 40,954 6,098 $ 68,352 Shares issued from reinvested dividends 782 8,906 1,723 19,287 Shares redeemed (2,938) (33,438) (5,887) (65,920) ---------------------------------------------------------- Net increase from capital share transactions 1,443 $ 16,422 1,934 $ 21,719 ========================================================== ADVISER SHARES: Shares sold 14 $ 153 123 $ 1,373 Shares issued from reinvested dividends 3 39 7 79 Shares redeemed* (22) (254) (100) (1,113) ---------------------------------------------------------- Net increase (decrease) from capital share transactions (5) $ (62) 30 $ 339 ==========================================================
*Net of redemption fees, if any. (6) TRANSACTIONS WITH MANAGER A. MANAGEMENT FEES - The Manager provides investment management services to the Fund pursuant to an Advisory Agreement. Under this agreement, the Manager is responsible for managing the business and affairs of the Fund, and for directly managing the day-to-day investment of the Fund's assets, subject to the authority of and supervision by the Board. The investment management fee for the Fund is comprised of a base fee and a performance adjustment. The Fund's base fee is accrued daily and paid monthly as a percentage of aggregate average net assets of the USAA California Bond Fund and USAA California Money Market Fund combined, which on an annual basis is equal to 0.50% of the first $50 million, 0.40% of that portion over $50 million but not over $100 million, and 0.30% of that portion over $100 million. These fees ================================================================================ NOTES TO FINANCIAL STATEMENTS | 35 ================================================================================ are allocated on a proportional basis to each Fund monthly based on average net assets. For the six-month period ended September 30, 2016, the Fund's effective annualized base fee was 0.32% of the Fund's average net assets for the same period. The performance adjustment is calculated separately for each share class on a monthly basis by comparing each class' performance over the performance period to that of the Lipper California Municipal Debt Funds Index. The Lipper California Municipal Debt Funds Index tracks the total return performance of Funds that limit assets to those securities that are exempt from taxation in California. The performance period for each class consists of the current month plus the previous 35 months. The following table is utilized to determine the extent of the performance adjustment:
OVER/UNDER PERFORMANCE RELATIVE TO INDEX ANNUAL ADJUSTMENT RATE (IN BASIS POINTS)(1) (IN BASIS POINTS)(1) -------------------------------------------------------------------- +/- 20 to 50 +/- 4 +/- 51 to 100 +/- 5 +/- 101 and greater +/- 6
(1)Based on the difference between average annual performance of the relevant share class of the Fund and its relevant index, rounded to the nearest basis point. Average net assets of the share class are calculated over a rolling 36-month period. Each class' annual performance adjustment rate is multiplied by the average net assets of each respective class over the entire performance period, which is then multiplied by a fraction, the numerator of which is the number of days in the month and the denominator of which is 365 (366 in leap years). The resulting amount is then added to (in the case of overperformance), or subtracted from (in the case of underperformance) the base fee. Under the performance fee arrangement, each class will pay a positive performance fee adjustment for a performance period whenever the class outperforms the Lipper California Municipal Debt Funds Index over that period, even if the Fund had overall negative returns during the performance period. ================================================================================ 36 | USAA CALIFORNIA BOND FUND ================================================================================ For the six-month period ended September 30, 2016, the Fund incurred total management fees, paid or payable to the Manager, of $1,025,000, which included a performance adjustment for the Fund Shares and Adviser Shares of $(111,000) and $(2,000), respectively. For the Fund Shares and Adviser Shares, the performance adjustments were (0.03)% and (0.04)%, respectively. B. ADMINISTRATION AND SERVICING FEES - The Manager provides certain administration and servicing functions for the Fund. For such services, the Manager receives a fee accrued daily and paid monthly at an annualized rate of 0.15% of average net assets for both the Fund Shares and Adviser Shares. For the six-month period ended September 30, 2016, the Fund Shares and Adviser Shares incurred administration and servicing fees, paid or payable to the Manager, of $536,000 and $6,000, respectively. In addition to the services provided under its Administration and Servicing Agreement with the Fund, the Manager also provides certain compliance and legal services for the benefit of the Fund. The Board has approved the reimbursement of a portion of these expenses incurred by the Manager. For the six-month period ended September 30, 2016, the Fund reimbursed the Manager $10,000 for these compliance and legal services. These expenses are included in the professional fees on the Fund's Statement of Operations. C. TRANSFER AGENT'S FEES - USAA Transfer Agency Company, d/b/a USAA Shareholder Account Services (SAS), an affiliate of the Manager, provides transfer agent services to the Fund Shares and Adviser Shares based on an annual charge of $25.50 per shareholder account plus out-of-pocket expenses. SAS pays a portion of these fees to certain intermediaries for the administration and servicing of accounts that are held with such intermediaries. For the six-month period ended September 30, 2016, the Fund Shares and Adviser Shares incurred transfer agent's fees, paid or payable to SAS, of $82,000 and $1,000, respectively. D. DISTRIBUTION AND SERVICE (12b-1) FEES - The Fund has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Adviser Shares. Under the plan, the Adviser Shares pay fees to USAA Investment ================================================================================ NOTES TO FINANCIAL STATEMENTS | 37 ================================================================================ Management Company (IMCO), the distributor, for distribution and shareholder services. IMCO pays all or a portion of such fees to intermediaries that make the Adviser Shares available for investment by their customers. The fee is accrued daily and paid monthly at an annual rate of 0.25% of the Adviser Shares' average net assets. Adviser Shares are offered and sold without imposition of an initial sales charge or a contingent deferred sales charge. For the six-month period ended September 30, 2016, the Adviser Shares incurred distribution and service (12b-1) fees of $11,000. E. UNDERWRITING SERVICES - IMCO provides exclusive underwriting and distribution of the Fund's shares on a continuing best-efforts basis and receives no fee or other compensation for these services, but may receive 12b-1 fees as described above, with respect to Adviser Shares. (7) TRANSACTIONS WITH AFFILIATES The Manager is indirectly wholly owned by United Services Automobile Association (USAA), a large, diversified financial services institution. At September 30, 2016, USAA and its affiliates owned 479,000 Adviser Shares, which represents 65.5% of the Adviser Shares outstanding and 0.7% of the Fund's total outstanding shares. Certain trustees and officers of the Fund are also directors, officers, and/or employees of the Manager. None of the affiliated trustees or Fund officers received any compensation from the Fund. ================================================================================ 38 | USAA CALIFORNIA BOND FUND ================================================================================ (8) FINANCIAL HIGHLIGHTS - FUND SHARES Per share operating performance for a share outstanding throughout each period is as follows:
SIX-MONTH PERIOD ENDED SEPTEMBER 30, YEAR ENDED MARCH 31, ------------------------------------------------------------------------------ 2016 2016 2015 2014 2013 2012 ------------------------------------------------------------------------------ Net asset value at beginning of period $ 11.29 $ 11.27 $ 10.83 $ 11.17 $ 10.71 $ 9.31 ----------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income .19 .42 .43 .44 .44 .46 Net realized and unrealized gain (loss) .06 .02 .44 (.34) .46 1.41 ----------------------------------------------------------------------------- Total from investment operations .25 .44 .87 .10 .90 1.87 ----------------------------------------------------------------------------- Less distributions from: Net investment income (.19) (.42) (.43) (.44) (.44) (.46) Realized capital gains - - - - - (.01) ----------------------------------------------------------------------------- Total distributions (.19) (.42) (.43) (.44) (.44) (.47) ----------------------------------------------------------------------------- Net asset value at end of period $ 11.35 $ 11.29 $ 11.27 $ 10.83 $ 11.17 $ 10.71 ============================================================================= Total return (%)* 2.20 3.98 8.14 1.03 8.48 20.54 Net assets at end of period (000) $718,865 $698,731 $675,694 $631,184 $689,365 $643,449 Ratios to average net assets:** Expenses (%)(b) .49(a) .56 .57 .58 .56 .53 Net investment income (%) 3.29(a) 3.74 3.85 4.12 3.95 4.57 Portfolio turnover (%) 19 9 4 8 4 4
* Assumes reinvestment of all net investment income and realized capital gain distributions, if any, during the period. Includes adjustments in accordance with U.S. generally accepted accounting principles and could differ from the Lipper reported return. Total returns for periods of less than one year are not annualized. ** For the six-month period ended September 30, 2016, average net assets were $713,120,000. (a) Annualized. The ratio is not necessarily indicative of 12 months of operations. (b) Reflects total annual operating expenses of the Fund Shares before reductions of any expenses paid indirectly. The Fund Shares' expenses paid indirectly decreased the expense ratios by less than 0.01% ================================================================================ NOTES TO FINANCIAL STATEMENTS | 39 ================================================================================ (8) FINANCIAL HIGHLIGHTS (CONTINUED) - ADVISER SHARES Per share operating performance for a share outstanding throughout each period is as follows:
SIX-MONTH PERIOD ENDED SEPTEMBER 30, YEAR ENDED MARCH 31, ----------------------------------------------------------------------------- 2016 2016 2015 2014 2013 2012 ----------------------------------------------------------------------------- Net asset value at beginning of period $11.28 $11.26 $10.82 $11.16 $10.70 $ 9.31 --------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income .17 .39 .40 .41 .41 .44 Net realized and unrealized gain (loss) .06 .02 .44 (.34) .46 1.40 --------------------------------------------------------------------------- Total from investment operations .23 .41 .84 .07 .87 1.84 --------------------------------------------------------------------------- Less distributions from: Net investment income (.17) (.39) (.40) (.41) (.41) (.44) Realized capital gains - - - - - (.01) --------------------------------------------------------------------------- Total distributions (.17) (.39) (.40) (.41) (.41) (.45) --------------------------------------------------------------------------- Redemption fees added to beneficial interests .00(a) - - - - - --------------------------------------------------------------------------- Net asset value at end of period $11.34 $11.28 $11.26 $10.82 $11.16 $10.70 =========================================================================== Total return (%)* 2.06 3.73 7.86 .79 8.26 20.14 Net assets at end of period (000) $8,286 $8,303 $7,948 $5,606 $6,149 $8,689 Ratios to average net assets:** Expenses (%)(b) .74(c) .80 .83(d) .82 .77 .77 Expenses, excluding reimbursements (%)(b) .74(c) .80 .83 .82 .77 .77 Net investment income (%) 3.04(c) 3.49 3.58 3.88 3.73 4.20 Portfolio turnover (%) 19 9 4 8 4 4
* Assumes reinvestment of all net investment income and realized capital gain distributions, if any, during the period. Includes adjustments in accordance with U.S. generally accepted accounting principles and could differ from the Lipper reported return. Total returns for periods of less than one year are not annualized. ** For the six-month period ended September 30, 2016, average net assets were $8,402,000. (a) Represents less than $0.01 per share. (b) Reflects total annual operating expenses of the Adviser Shares before reductions of any expenses paid indirectly. The Adviser Shares' expenses paid indirectly decreased the expense ratios by less than 0.01%. (c) Annualized. The ratio is not necessarily indicative of 12 months of operations. (d) Prior to August 1, 2014, the Manager had voluntarily agreed to limit the annual expenses of the Adviser Shares to 0.90% of the Adviser Shares' average net assets. ================================================================================ 40 | USAA CALIFORNIA BOND FUND ================================================================================ EXPENSE EXAMPLE September 30, 2016 (unaudited) -------------------------------------------------------------------------------- EXAMPLE As a shareholder of the Fund, you incur two types of costs: direct costs, such as wire fees, redemption fees, and low balance fees; and indirect costs, including management fees, transfer agency fees, distribution and service (12b-1) fees, and other Fund operating expenses. This example is intended to help you understand your indirect costs, also referred to as "ongoing costs" (in dollars), of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire six-month period of April 1, 2016, through September 30, 2016. ACTUAL EXPENSES The line labeled "actual" under each share class in the table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested at the beginning of the period, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number for your share class in the "actual" line under the heading "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The line labeled "hypothetical" under each share class in the table provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratios for each class and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual ================================================================================ EXPENSE EXAMPLE | 41 ================================================================================ return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any direct costs, such as wire fees, redemption fees, or low balance fees. Therefore, the line labeled "hypothetical" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these direct costs were included, your costs would have been higher.
EXPENSES PAID BEGINNING ENDING DURING PERIOD* ACCOUNT VALUE ACCOUNT VALUE APRIL 1, 2016 - APRIL 1, 2016 SEPTEMBER 30, 2016 SEPTEMBER 30, 2016 --------------------------------------------------------------- FUND SHARES Actual $1,000.00 $1,022.00 $2.48 Hypothetical (5% return before expenses) 1,000.00 1,022.61 2.48 ADVISER SHARES Actual 1,000.00 1,020.60 3.75 Hypothetical (5% return before expenses) 1,000.00 1,021.36 3.75
*Expenses are equal to the annualized expense ratio of 0.49% for Fund Shares and 0.74% for Adviser Shares, which are net of any reimbursements and expenses paid indirectly, multiplied by the average account value over the period, multiplied by 183 days/365 days (to reflect the one-half-year period). The Fund's actual ending account values are based on its actual total returns of 2.20% for Fund Shares and 2.06% for Adviser Shares for the six-month period of April 1, 2016, through September 30, 2016. ================================================================================ 42 | USAA CALIFORNIA BOND FUND ================================================================================ ADVISORY AGREEMENT(S) September 30, 2016 (unaudited) -------------------------------------------------------------------------------- At an in-person meeting of the Board of Trustees (the Board) held on April 22, 2016, the Board, including the Trustees who are not "interested persons" (as that term is defined in the Investment Company Act of 1940, as amended) of the Trust (the Independent Trustees), approved for an annual period the continuance of the Advisory Agreement between the Trust and the Manager with respect to the Fund. In advance of the meeting, the Trustees received and considered a variety of information relating to the Advisory Agreement and the Manager and were given the opportunity to ask questions and request additional information from management. The information provided to the Board included, among other things: (i) a separate report prepared by an independent third party, which provided a statistical analysis comparing the Fund's investment performance, expenses, and fees to comparable investment companies; (ii) information concerning the services rendered to the Fund, as well as information regarding the Manager's revenues and costs of providing services to the Fund and compensation paid to affiliates of the Manager; and (iii) information about the Manager's operations and personnel. Prior to voting, the Independent Trustees reviewed the proposed continuation of the Advisory Agreement with management and with experienced retained by the Independent Trustees (Independent Counsel) and received materials from such Independent Counsel discussing the legal standards for their consideration of the proposed continuation of the Advisory Agreement with respect to the Fund. The Independent Trustees also reviewed the proposed continuation of the Advisory Agreement with respect to the Fund in private sessions with Independent Counsel at which no representatives of management were present. At each regularly scheduled meeting of the Board and its committees, the Board receives and reviews, among other things, information concerning the Fund's performance and related services provided by the Manager. At the ================================================================================ ADVISORY AGREEMENT(S) | 43 ================================================================================ meeting at which the renewal of the Advisory Agreement is considered, particular focus is given to information concerning Fund performance, fees and total expenses, as compared to comparable investment companies and the Manager's profitability with respect to the Fund. However, the Board noted that the evaluation process with respect to the Manager is an ongoing one. In this regard, the Board's and its committees' consideration of the Advisory Agreement included information previously received at such meetings. ADVISORY AGREEMENT After full consideration of a variety of factors, the Board, including the Independent Trustees, voted to approve the Advisory Agreement. In approving the Advisory Agreement, the Trustees did not identify any single factor as controlling, and each Trustee may have attributed different weights to various factors. Throughout their deliberations, the Independent Trustees were represented and assisted by Independent Counsel. NATURE, EXTENT, AND QUALITY OF SERVICES - In considering the nature, extent, and quality of the services provided by the Manager under the Advisory Agreement, the Board reviewed information provided by the Manager relating to its operations and personnel. The Board also took into account its knowledge of the Manager's management and the quality of the performance of the Manager's duties through Board meetings, discussions, and reports during the preceding year. The Board considered the fees paid to the Manager and the services provided to the Fund by the Manager under the Advisory Agreement, as well as other services provided by the Manager and its affiliates under other agreements, and the personnel who provide these services. In addition to the investment advisory services provided to the Fund, the Manager and its affiliates provide administrative services, stockholder services, oversight of Fund accounting, marketing services, assistance in meeting legal and regulatory requirements, and other services necessary for the operation of the Fund and the Trust. The Board considered the Manager's management style and the performance of the Manager's duties under the Advisory Agreement. The Board considered the level and depth of knowledge of the Manager, including the professional ================================================================================ 44 | USAA CALIFORNIA BOND FUND ================================================================================ experience and qualifications of its senior and investment personnel, as well as current staffing levels. The allocation of the Fund's brokerage, including the Manager's process for monitoring "best execution," also was considered. The Manager's role in coordinating the activities of the Fund's other service providers also was considered. The Board also considered the Manager's risk management processes. The Board considered the Manager's financial condition and that it had the financial wherewithal to continue to provide the same scope and high quality of services under the Advisory Agreement. In reviewing the Advisory Agreement, the Board focused on the experience, resources, and strengths of the Manager and its affiliates in managing the Fund, as well as the other funds in the Trust. The Board also reviewed the compliance and administrative services provided to the Fund by the Manager, including the Manager's oversight of the Fund's day-to-day operations and oversight of Fund accounting. The Trustees, guided also by information obtained from their experiences as trustees of the Trust, also focused on the quality of the Manager's compliance and administrative staff. EXPENSES AND PERFORMANCE - In connection with its consideration of the Advisory Agreement, the Board evaluated the Fund's advisory fees and total expense ratio as compared to other open-end investment companies deemed to be comparable to the Fund as determined by the independent third party in its report. The Fund's expenses were compared to (i) a group of investment companies chosen by the independent third party to be comparable to the Fund based upon certain factors, including fund type, comparability of investment objective and classification, sales load type (in this case, investment companies with no sales loads), asset size, and expense components (the "expense group") and (ii) a larger group of investment companies that includes all no-load retail open-end investment companies with the same investment classification/objective as the Fund regardless of asset size, excluding outliers (the "expense universe"). Among other data, the Board noted that the Fund's management fee rate - which includes advisory and administrative services and the effects of any performance adjustment - was above the median of its expense group and below the median of its expense universe. The data indicated that the Fund's total expense ratio was equal to the median of its ================================================================================ ADVISORY AGREEMENT(S) | 45 ================================================================================ expense group and below the median of its expense universe. The Board took into account the various services provided to the Fund by the Manager and its affiliates. The Board also took into account the high quality of services received by the Fund from the Manager. The Board also noted the level and method of computing the management fee, including any performance adjustment to such fee. In considering the Fund's performance, the Board noted that it reviews at its regularly scheduled meetings information about the Fund's performance results. The Trustees also reviewed various comparative data provided to them in connection with their consideration of the renewal of the Advisory Agreement, including, among other information, a comparison of the Fund's average annual total return with its Lipper index and with that of other mutual funds deemed to be in its peer group by the independent third party in its report (the "performance universe"). The Fund's performance universe consisted of the Fund and all retail and institutional open-end investment companies with the same classification/objective as the Fund regardless of asset size or primary channel of distribution. This comparison indicated that, among other data, the Fund's performance was lower than the average of its performance universe and its Lipper index for the one-year period ended December 31, 2015 and was above the average of its performance universe and its Lipper index for the three-, five-, and ten-year periods ended December 31, 2015. The Board also noted that the Fund's percentile performance ranking was in the top 50% of its performance universe for the one-year period ended December 31, 2015, was in the top 25% of its performance universe for the three- and ten-year periods ended December 31, 2015, and was in the top 10% of its performance universe for the five-year period ended December 31, 2015. COMPENSATION AND PROFITABILITY - The Board took into consideration the level and method of computing the Fund's management fee. The information considered by the Board included operating profit margin information for the Manager's business as a whole. The Board also received and considered profitability information related to the management revenues from the Fund. This information included a review of the methodology used in the allocation of certain costs to the Fund. The Trustees reviewed the profitability of the Manager's relationship with the Fund before tax expenses. In reviewing the ================================================================================ 46 | USAA CALIFORNIA BOND FUND ================================================================================ overall profitability of the management fee to the Manager, the Board also considered the fact that affiliates provide shareholder servicing and administrative services to the Fund for which they receive compensation. The Board also considered the possible direct and indirect benefits to the Manager from its relationship with the Trust, including that the Manager may derive reputational and other benefits from its association with the Fund. The Board also took into account the high quality of services received by the Fund from the Manager. The Trustees recognized that the Manager should be entitled to earn a reasonable level of profits in exchange for the level of services it provides to the Fund and the entrepreneurial risk that it assumes as Manager. ECONOMIES OF SCALE - The Board noted that the Fund has advisory fee breakpoints that allow the Fund to participate in economies of scale and that such economies of scale currently were reflected in the advisory fee. The Board also considered the effect of the Fund's growth and size on its performance and fees, noting that the Fund may realize additional economies of scale if assets increase proportionally more than some expenses. The Board determined that the current investment management fee structure was reasonable. CONCLUSIONS - The Board reached the following conclusions regarding the Fund's Advisory Agreement with the Manager, among others: (i) the Manager has demonstrated that it possesses the capability and resources to perform the duties required of it under the Advisory Agreement; (ii) the Manager maintains an appropriate compliance program; (iii) the performance of the Fund is reasonable in relation to the performance of funds with similar investment objectives and to relevant indices; (iv) the Fund's advisory expenses are reasonable in relation to those of similar funds and to the services to be provided by the Manager; and (v) the Manager's and its affiliates' level of profitability from its relationship with the Fund is reasonable in light of the nature and high quality of services provided by the Manager and the type of fund. Based on its conclusions, the Board determined that continuation of the Advisory Agreement would be in the best interests of the Fund and its shareholders. ================================================================================ ADVISORY AGREEMENT(S) | 47 ================================================================================ TRUSTEES Daniel S. McNamara Robert L. Mason, Ph.D. Jefferson C. Boyce Dawn M. Hawley Paul L. McNamara Barbara B. Ostdiek, Ph.D. Michael F. Reimherr -------------------------------------------------------------------------------- ADMINISTRATOR AND USAA Asset Management Company INVESTMENT ADVISER P.O. Box 659453 San Antonio, Texas 78265-9825 -------------------------------------------------------------------------------- UNDERWRITER AND USAA Investment Management Company DISTRIBUTOR P.O. Box 659453 San Antonio, Texas 78265-9825 -------------------------------------------------------------------------------- TRANSFER AGENT USAA Shareholder Account Services 9800 Fredericksburg Road San Antonio, Texas 78288 -------------------------------------------------------------------------------- CUSTODIAN AND State Street Bank and Trust Company ACCOUNTING AGENT P.O. Box 1713 Boston, Massachusetts 02105 -------------------------------------------------------------------------------- INDEPENDENT Ernst & Young LLP REGISTERED PUBLIC 100 West Houston St., Suite 1700 ACCOUNTING FIRM San Antonio, Texas 78205 -------------------------------------------------------------------------------- MUTUAL FUND Under "My Accounts" on SELF-SERVICE 24/7 usaa.com select your mutual fund AT USAA.COM account and either click the link or select 'I want to...' and select OR CALL the desired action. (800) 531-USAA (8722) (210) 531-8722 -------------------------------------------------------------------------------- Copies of the Manager's proxy voting policies and procedures, approved by the Trust's Board of Trustees for use in voting proxies on behalf of the Fund, are available without charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722; (ii) at USAA.COM; and (iii) in summary within the Statement of Additional Information on the SEC's website at HTTP://WWW.SEC.GOV. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge (i) at USAA.COM; and (ii) on the SEC's website at HTTP://WWW.SEC.GOV. The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. These Forms N-Q are available at no charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722; (ii) at usaa.com; and (iii) on the SEC's website at http://www.sec.gov. These Forms N-Q also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling (800) 732-0330. ================================================================================ -------------- USAA PRSRT STD 9800 Fredericksburg Road U.S. Postage San Antonio, TX 78288 PAID USAA -------------- >> SAVE PAPER AND FUND COSTS Under MY PROFILE on USAA.COM select MANAGE PREFERENCES Set your DOCUMENT PREFERENCES to USAA DOCUMENTS ONLINE. [LOGO OF USAA] USAA We know what it means to serve.(R) ============================================================================= 39600-1116 (C)2016, USAA. All rights reserved. [LOGO OF USAA] USAA(R) [GRAPHIC OF USAA CALIFORNIA MONEY MARKET FUND] =============================================================== SEMIANNUAL REPORT USAA CALIFORNIA MONEY MARKET FUND SEPTEMBER 30, 2016 =============================================================== ================================================================================ ================================================================================ PRESIDENT'S MESSAGE "THE CLOSING WEEKS OF A YEAR CAN BE A GOOD TIME TO TAKE A LOOK AT YOUR FINANCIAL SITUATION [PHOTO OF BROOKS ENGLEHARDT] WITH A GOAL OF GETTING YOUR FINANCES IN ORDER." -------------------------------------------------------------------------------- NOVEMBER 2016 Investors were generally rewarded during the reporting period ended September 30, 2016. Most asset classes posted gains as global growth concerns eased and many of the world's central banks, including the Federal Reserve (the Fed), maintained accommodative monetary policies. Stock prices generally climbed, despite two brief setbacks. In June 2016, a brief retreat followed the United Kingdom's unexpected vote to withdraw from the European Union (commonly known as Brexit). In September 2016, stocks fell--before quickly recovering--on concerns about a potential Fed interest rate increase. Meanwhile, bond prices recorded positive returns during the reporting period. As bond prices rose, longer-term interest rates, which move in the opposite direction, fell. As you know, the Fed only has direct control over short-term interest rates. Bond prices and longer-term interest rates are determined by buyers and sellers, sometimes based on their views of Fed policy. During the reporting period, market expectations about potential Fed interest rate increases shifted into the future. The Fed, which in December 2015 had raised short-term interest rates for the first time since 2008, also initially signaled that four interest rate increases were on tap for 2016. However, policymakers backed off that forecast in March 2016, just before the reporting period began, indicating that only two interest rate increases were on the table. They pointed to the global market turmoil during the first six weeks of 2016 as a contributing factor. Policymakers subsequently hinted there would be a single interest rate increase, but ultimately left interest rates unchanged. In our view, December 2016 is the Fed's only remaining window of opportunity to increase short-term interest rates. It is unlikely to act at its November 2016 meeting, which is just days before the presidential election. We believe that as of this writing, the futures market, which generally is a proxy for investor sentiment, indicates approximately a two-thirds chance that the Fed would raise rates in December 2016. ================================================================================ ================================================================================ This begs the question: Is it good or bad if low interest rates persist? We think it depends on your perspective. On one hand, consumers and businesses are able to continue borrowing at affordable interest rates. On the other hand, savers may continue to see returns lower than the rate of inflation. At USAA Investments, we believe the Fed is likely to raise interest rates at a gradual pace. We've long held the belief that interest rates will stay lower for longer than many market participants expect. Currently, there is no urgency for the Fed to act. Interest rate increases are typically a response to an overheating economy, and the U.S. remains in slow-growth mode with low inflation. Americans are still carrying large amounts of household debt, so higher interest rates are likely to hinder their spending and slow what little growth there is. Tax-exempt bonds, like most other fixed-income investments, generated positive returns during the reporting period. Municipal bonds performed well, as investors continued to favor them for their tax-advantaged status. At the same time, municipal issuance remained low, though it has increased since January 2016. Still, the supply is far from enough to satisfy demand and we expect municipal bonds to continue to benefit from this situation for some time to come. Although state and local finances are in better shape than they were a few years ago, municipal governments have been reluctant to take on additional debt. We believe eventually this will change, but likely not for the foreseeable future. Looking ahead, the end of 2016 is just weeks away. The closing weeks of a year can be a good time to take a look at your financial situation with a goal of getting your finances in order. One way to help ensure you're doing the most with what you have is to consider investing a set amount each month, also known as dollar-cost averaging. Please call USAA Investments to speak with a financial advisor. We are committed to helping you meet your financial objectives. On behalf of everyone at USAA Investments, thank you for relying on us to help you with your investment needs. We appreciate the opportunity to serve you. Sincerely, /S/ BROOKS ENGLEHARDT Brooks Englehardt President USAA Investments Investments provided by USAA Investment Management Company and USAA Financial Advisors, Inc., both registered broker-dealers, and affiliates. Financial planning services and financial advice provided by USAA Financial Planning Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in California, License # 0E36312), a registered investment adviser and insurance agency and its wholly owned subsidiary, USAA Financial Advisors, Inc., a registered broker dealer. ================================================================================ ================================================================================ TABLE OF CONTENTS -------------------------------------------------------------------------------- FUND OBJECTIVE 1 MANAGER'S COMMENTARY ON THE FUND 2 INVESTMENT OVERVIEW 5 FINANCIAL INFORMATION Portfolio of Investments 9 Notes to Portfolio of Investments 13 Financial Statements 14 Notes to Financial Statements 17 EXPENSE EXAMPLE 25 ADVISORY AGREEMENT(S) 27
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS ABOUT THE FUND. (C)2016, USAA. All rights reserved. 211729-1116 ================================================================================ ================================================================================ FUND OBJECTIVE THE USAA CALIFORNIA MONEY MARKET FUND (THE FUND) PROVIDES CALIFORNIA INVESTORS WITH A HIGH LEVEL OF CURRENT INTEREST INCOME THAT IS EXEMPT FROM FEDERAL AND CALIFORNIA STATE INCOME TAXES AND HAS A FURTHER OBJECTIVE OF PRESERVING CAPITAL AND MAINTAINING LIQUIDITY. -------------------------------------------------------------------------------- TYPES OF INVESTMENTS The Fund primarily invests in high-quality California tax-exempt securities with remaining maturities of 397 days or less. During normal market conditions, at least 80% of the Fund's net assets will consist of California tax-exempt securities. IRA DISTRIBUTION WITHHOLDING DISCLOSURE We generally must withhold federal income tax at a rate of 10% of the taxable portion of your distribution and, if you live in a state that requires state income tax withholding, at your state's tax rate. However, you may elect not to have withholding apply or to have income tax withheld at a higher rate. Any withholding election that you make will apply to any subsequent distribution unless and until you change or revoke the election. If you wish to make a withholding election or change or revoke a prior withholding election, call (800) 531-USAA (8722) or (210) 531-8722. If you do not have a withholding election in place by the date of a distribution, federal income tax will be withheld from the taxable portion of your distribution at a rate of 10%. If you must pay estimated taxes, you may be subject to estimated tax penalties if your estimated tax payments are not sufficient and sufficient tax is not withheld from your distribution. For more specific information, please consult your tax adviser. ================================================================================ FUND OBJECTIVE | 1 ================================================================================ MANAGER'S COMMENTARY ON THE FUND DALE R. HOFFMANN [PHOTO OF DALE R. HOFFMANN] USAA Asset Management Company -------------------------------------------------------------------------------- o WHAT WERE THE MARKET CONDITIONS DURING THE REPORTING PERIOD? When the reporting period began in April 2016, investors were still digesting the change in the Federal Reserve's (the Fed) guidance on short-term interest-rate increases. At its March policy meeting, the Fed had called for two interest rate increases in 2016, down from the four it had forecast in December 2015. Ultimately, however, the Fed remained steady, leaving the federal funds target rate in a range between 0.25% and 0.50% throughout the reporting period. Although the Fed did not change its monetary policy, interest rates on money market securities rose, largely due to shifting market dynamics. At the beginning of the reporting period, the SIFMA Municipal Swap Index*, the index of seven-day variable rate demand notes (VRDNs), stood at 0.40%. It stayed near that level through July 2016 and then climbed 44 basis points to close the reporting period at 0.84%. (A basis point is 1/100th of a percent.) During August and September 2016, shortly before the Securities and Exchange Commission's money market fund reform became effective, a large number of money market funds sold VRDNs as they liquidated, consolidated, or shifted assets into treasury money market funds. This caused inventories of VRDNs to increase, leading many dealers to raise interest rates in order to attract buyers. *The SIFMA Municipal Swap Index is a 7-day high-grade market index comprised of tax-exempt Variable Rate Demand Obligations (VRDOs) with certain characteristics. The index is calculated and published by Bloomberg. The index is overseen by SIFMA's Municipal Swap Index Committee. =============================================================================== 2 | USAA CALIFORNIA MONEY MARKET FUND ================================================================================ o HOW DID THE USAA CALIFORNIA TAX EXEMPT MONEY MARKET FUND (THE FUND) PERFORM DURING THE REPORTING PERIOD? For the reporting period ended September 30, 2016, the Fund had a return of 0.22%, compared to an average return of 0.08% for the tax-exempt money market funds category, according to iMoneyNet, Inc. USAA Asset Management Company (the Manager) is the Fund's investment adviser. The investment adviser provides day-to-day discretionary management for the Fund's assets. o WHAT ARE THE CONDITIONS IN THE STATE OF CALIFORNIA? California's fiscal situation was relatively unchanged during the reporting period. The state controller announced that after four consecutive months of missed budget projections, California's August revenues had outpaced expectations, based largely on the strength of personal income tax receipts. State revenues are benefiting from a tax initiative approved by voters in November 2012. In addition to its slowly growing economy, California has not recently experienced any dramatic swings in revenue, which had troubled the state in the past. Importantly, state legislators appear committed to spending cuts that are also contributing to stabilization in California's finances. Recognizing California's fiscal progress, Fitch Ratings upgraded the state's general obligation bonds one notch during the reporting period. On September 30, 2016, California's general obligation bonds were rated Aa3 by Moody's Investors Service, AA- by Standard & Poor's Ratings, and AA- by Fitch Ratings. o WHAT WERE YOUR STRATEGIES IN THIS ENVIRONMENT? We continued to focus our purchases on VRDNs, which added to the Fund's yield during the reporting period. Because the VRDNs owned by the Fund can be sold at par value (100% of face value) upon seven days or less notice, the Fund's had the flexibility to take advantage of higher interest rates. Many of the Fund's VRDNs also are guaranteed Refer to page 6 for benchmark definition. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. ================================================================================ MANAGER'S COMMENTARY ON THE FUND | 3 ================================================================================ by a bank letter-of-credit for the payment of both principal and interest, providing the Fund with a certain degree of stability. In addition, the Fund benefited from investments with longer maturities. We continued to work with our in-house team of analysts to help us identify attractive opportunities for the Fund. They also continue to analyze and monitor the Fund's portfolio. We appreciate the opportunity to help you with your investment needs. As interest rates rise, bond prices generally fall; given the historically low interest rate environment, risks associated with rising interest rates may be heightened. o VRDNs are securities for which the interest rate is reset periodically; typically weekly, although reset intervals may vary. o Investing in securities products involves risk, including possible loss of principal. o Some income may be subject to state or local taxes but not the federal alternative minimum tax. ================================================================================ 4 | USAA CALIFORNIA MONEY MARKET FUND ================================================================================ INVESTMENT OVERVIEW USAA CALIFORNIA MONEY MARKET FUND (THE FUND) (Ticker Symbol: UCAXX)
-------------------------------------------------------------------------------- 9/30/16 3/31/16 -------------------------------------------------------------------------------- Net Assets $273.9 Million $313.2 Million Net Asset Value Per Share $1.00 $1.00 Dollar-Weighted Average Portfolio Maturity(+) 10 Days 9 Days (+)Obtained by multiplying the dollar value of each investment by the number of days left to its maturity, adding those figures together, and dividing them by the total dollar value of the Fund's portfolio. -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 9/30/16 -------------------------------------------------------------------------------- 3/31/16-9/30/16* 1 YEAR 5 YEARS 10 YEARS 0.22% 0.31% 0.08% 0.71% -------------------------------------------------------------------------------- 7-DAY YIELD AS OF 9/30/16 EXPENSE RATIO AS OF 3/31/16** -------------------------------------------------------------------------------- 0.20% 0.59%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT USAA.COM. *Total returns for periods of less than one year are not annualized. This return is cumulative. **The expense ratio represents the total annual operating expenses, before reductions of any expenses paid indirectly and including any acquired fund fees and expenses, as reported in the Fund's prospectus dated August 1, 2016, and is calculated as a percentage of average net assets. This expense ratio may differ from the expense ratio disclosed in the Financial Highlights, which excludes acquired fund fees and expenses. YOU COULD LOSE MONEY BY INVESTING IN THE FUND. ALTHOUGH THE FUND SEEKS TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1 PER SHARE, IT CANNOT GUARANTEE IT WILL DO SO. THE FUND MAY IMPOSE A FEE UPON THE SALE OF YOUR SHARES OR MAY TEMPORARILY SUSPEND YOUR ABILITY TO SELL SHARES IF THE FUND'S LIQUIDITY FALLS BELOW REQUIRED MINIMUMS BECAUSE OF MARKET CONDITIONS OR OTHER FACTORS. AN INVESTMENT IN THE FUND IS NOT A DEPOSIT IN USAA FEDERAL SAVINGS BANK, OR ANY OTHER BANK, AND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. THE FUND'S SPONSOR HAS NO LEGAL OBLIGATION TO PROVIDE FINANCIAL SUPPORT TO THE FUND, AND YOU SHOULD NOT EXPECT THAT THE SPONSOR WILL PROVIDE FINANCIAL SUPPORT TO THE FUND AT ANY TIME. Total return measures the price change in a share assuming the reinvestment of all net investment income and realized capital gain distributions, if any. The total returns quoted do not reflect adjustments made to the enclosed financial statements in accordance with U.S. generally accepted accounting principles or the deduction of taxes that a shareholder would pay on net investment income and realized capital gain distributions, including reinvested distributions, or redemptions of shares. Yields and returns fluctuate. The seven-day yield quotation more closely reflects current earnings of the Fund than the total return quotation. ================================================================================ INVESTMENT OVERVIEW | 5 ================================================================================ o 7-DAY YIELD COMPARISON o [CHART OF 7-DAY YIELD COMPARISON]
USAA CALIFORNIA iMoneyNet MONEY MARKET FUND AVERAGE 9/28/2015 0.01% 0.01% 10/26/2015 0.01 0.01 11/30/2015 0.01 0.01 12/28/2015 0.01 0.01 1/25/2016 0.01 0.01 2/29/2016 0.01 0.01 3/28/2016 0.01 0.02 4/25/2016 0.04 0.04 5/23/2016 0.04 0.04 6/27/2016 0.05 0.05 7/25/2016 0.05 0.05 8/29/2016 0.09 0.09 9/26/2016 0.18 0.18
[END CHART] Data represents the last Monday of each month. Ending date 9/26/16. The graph tracks the USAA California Money Market Fund's seven-day yield against an average of money market fund yields of all state-specific and retail state tax-free and municipal money funds calculated by iMoneyNet, Inc. iMoneyNet, Inc. is an organization that tracks the performance of money market funds. Past performance is no guarantee of future results. ================================================================================ 6 | USAA CALIFORNIA MONEY MARKET FUND ================================================================================ o TOP 10 INDUSTRIES - 9/30/16 o (% of Net Assets) Hospital ............................................................... 20.8% Education .............................................................. 17.6% General Obligation ..................................................... 11.3% Appropriated Debt ...................................................... 9.4% Real Estate Tax/Fee .................................................... 9.0% Water/Sewer Utility .................................................... 6.2% Electric/Gas Utilities ................................................. 5.0% Toll Roads ............................................................. 4.5% Real Estate Development ................................................ 3.6% Nursing/CCRC ........................................................... 3.3%
o PORTFOLIO MIX - 9/30/16 o [PIE CHART OF PORTFOLIO MIX] VARIABLE-RATE DEMAND NOTES 84.2% FIXED-RATE INSTRUMENTS 8.6% PUT BONDS 4.3% ADJUSTABLE-RATE NOTES 2.9%
[END CHART] Percentages are of the net assets of the Fund and may not equal 100%. You will find a complete list of securities that the Fund owns on pages 9-12. ================================================================================ INVESTMENT OVERVIEW | 7 ================================================================================ o CUMULATIVE PERFORMANCE OF $10,000 o [CHART OF CUMULATIVE PERFORMANCE]
USAA CALIFORNIA MONEY MARKET FUND 09/30/06 $10,000.00 10/31/06 10,025.00 11/30/06 10,050.00 12/31/06 10,078.00 01/31/07 10,103.00 02/28/07 10,127.00 03/31/07 10,154.00 04/30/07 10,181.00 05/31/07 10,210.00 06/30/07 10,238.00 07/31/07 10,264.00 08/31/07 10,295.00 09/30/07 10,321.00 10/31/07 10,348.00 11/30/07 10,376.00 12/31/07 10,402.00 01/31/08 10,425.00 02/29/08 10,445.00 03/31/08 10,469.00 04/30/08 10,487.00 05/31/08 10,508.00 06/30/08 10,522.00 07/31/08 10,536.00 08/31/08 10,553.00 09/30/08 10,581.00 10/31/08 10,613.00 11/30/08 10,627.00 12/31/08 10,640.00 01/31/09 10,649.00 02/28/09 10,655.00 03/31/09 10,662.00 04/30/09 10,669.00 05/31/09 10,675.00 06/30/09 10,678.00 07/31/09 10,680.00 08/31/09 10,682.00 09/30/09 10,683.00 10/31/09 10,684.00 11/30/09 10,684.00 12/31/09 10,687.00 01/31/10 10,688.00 02/28/10 10,688.00 03/31/10 10,688.00 04/30/10 10,688.00 05/31/10 10,688.00 06/30/10 10,688.00 07/31/10 10,688.00 08/31/10 10,688.00 09/30/10 10,688.00 10/31/10 10,688.00 11/30/10 10,688.00 12/31/10 10,689.00 01/31/11 10,689.00 02/28/11 10,690.00 03/31/11 10,690.00 04/30/11 10,690.00 05/31/11 10,690.00 06/30/11 10,690.00 07/31/11 10,690.00 08/31/11 10,690.00 09/30/11 10,690.00 10/31/11 10,690.00 11/30/11 10,690.00 12/31/11 10,691.00 01/31/12 10,692.00 02/29/12 10,692.00 03/31/12 10,692.00 04/30/12 10,693.00 05/31/12 10,693.00 06/30/12 10,693.00 07/31/12 10,693.00 08/31/12 10,693.00 09/30/12 10,693.00 10/31/12 10,693.00 11/30/12 10,693.00 12/31/12 10,694.00 01/31/13 10,694.00 02/28/13 10,694.00 03/31/13 10,694.00 04/30/13 10,694.00 05/31/13 10,694.00 06/30/13 10,694.00 07/31/13 10,694.00 08/31/13 10,694.00 09/30/13 10,694.00 10/31/13 10,694.00 11/30/13 10,695.00 12/31/13 10,695.00 01/31/14 10,696.00 02/28/14 10,696.00 03/31/14 10,696.00 04/30/14 10,696.00 05/31/14 10,696.00 06/30/14 10,696.00 07/31/14 10,696.00 08/31/14 10,696.00 09/30/14 10,696.00 10/31/14 10,696.00 11/30/14 10,696.00 12/31/14 10,697.00 01/31/15 10,697.00 02/28/15 10,698.00 03/31/15 10,698.00 04/30/15 10,698.00 05/31/15 10,698.00 06/30/15 10,698.00 07/31/15 10,698.00 08/31/15 10,698.00 09/30/15 10,698.00 10/31/15 10,698.00 11/30/15 10,698.00 12/31/15 10,708.00 01/31/16 10,708.00 02/29/16 10,708.00 03/31/16 10,708.00 04/30/16 10,708.00 05/31/16 10,708.00 06/30/16 10,708.00 07/31/16 10,708.00 08/31/16 10,708.00 09/30/16 10,732.00
[END CHART] Data from 9/30/06 through 9/30/16. The graph illustrates the performance of a hypothetical $10,000 investment in the USAA California Money Market Fund. Past performance is no guarantee of future results. The cumulative performance quoted does not reflect the deduction of taxes that a shareholder would pay on reinvested net investment income and realized capital gain distributions or on the redemption of shares. Some income may be subject to federal, state, or local taxes. For seven-day yield information, please refer to the Fund's Investment Overview. ================================================================================ 8 | USAA CALIFORNIA MONEY MARKET FUND ================================================================================ PORTFOLIO OF INVESTMENTS September 30, 2016 (unaudited) -------------------------------------------------------------------------------- o CATEGORIES AND DEFINITIONS VARIABLE-RATE DEMAND NOTES (VRDNs) - Provide the right to sell the security at face value on either that day or within the rate-reset period. The interest rate is adjusted at a stipulated daily, weekly, monthly, quarterly, or other specified time interval to reflect current market conditions. The effective maturity of these instruments is deemed to be less than 397 days in accordance with detailed regulatory requirements. PUT BONDS - Provide the right to sell the bond at face value at specific tender dates prior to final maturity. The put feature shortens the effective maturity of the security. FIXED-RATE INSTRUMENTS - Consist of municipal bonds, notes, and commercial paper. The interest rate is constant to maturity. Prior to maturity, the market price of a fixed-rate instrument generally varies inversely to the movement of interest rates. ADJUSTABLE-RATE NOTES - Similar to VRDNs in the fact that the interest rate is adjusted periodically to reflect current market conditions. These interest rates are adjusted at a given time, such as monthly or quarterly. However, these securities do not offer the right to sell the security at face value prior to maturity. o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS ABAG Association of Bay Area Governments IDA Industrial Development Authority/Agency SPEAR Short Puttable Exempt Adjustable Receipts ================================================================================ PORTFOLIO OF INVESTMENTS | 9 ================================================================================ CREDIT ENHANCEMENTS - Adds the financial strength of the provider of the enhancement to support the issuer's ability to repay the principal and interest payments when due. The enhancement may be provided by a high-quality bank, insurance company or other corporation, or a collateral trust. The enhancements do not guarantee the values of the securities. The Fund's purchases consist of securities meeting the requirements to qualify as "eligible securities" under the Securities and Exchange Commission (SEC) regulations applicable to money market funds. In order to qualify as an eligible security, the USAA Mutual Funds Trust's Board of Trustees (the Board), must determine that the particular investment presents minimal credit risk in accordance with these SEC regulations. With respect to quality, eligible securities generally are rated or subject to a guarantee that is rated in one of the two highest categories for short-term securities by at least two Nationally Recognized Statistical Rating Organizations (NRSROs), or by one NRSRO if the security is rated by only one NRSRO, or if unrated, determined by USAA Asset Management Company (the Manager) to be of comparable quality. (LIQ) Liquidity enhancement that may, under certain circumstances, provide for repayment of principal and interest upon demand from one of the following: Deutsche Bank A.G., Wells Fargo & Co., or JP Morgan Chase & Co. (LOC) Principal and interest payments are guaranteed by a bank letter of credit or other bank credit agreement. ================================================================================ 10 | USAA CALIFORNIA MONEY MARKET FUND ================================================================================ INVESTMENTS
----------------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) ----------------------------------------------------------------------------------------------------------------------- VARIABLE-RATE DEMAND NOTES (84.2%) CALIFORNIA (84.2%) $ 9,010 ABAG Finance Auth. for Nonprofit Corps. (LOC - KBC Bank N.V.) 1.12% 5/15/2035 $ 9,010 11,100 ABAG Finance Auth. for Nonprofit Corps. (LOC - Citigroup, Inc.) 0.81 8/01/2035 11,100 3,700 Alameda County IDA (LOC - BNP Paribas) 0.90 12/01/2040 3,700 5,050 Alameda County IDA (LOC - Comerica Bank, N.A.) 0.93 12/01/2040 5,050 12,400 Bay Area Toll Auth. (LOC - Mitsubishi UFJ Financial Group Inc.) 0.84 4/01/2045 12,400 4,865 Chino Basin Regional Financing Auth. (LOC - Sumitomo Mitsui Banking Corp.) 0.84 6/01/2032 4,865 10,000 Enterprise Dev. Auth. (LOC - Federal Home Loan Bank of San Francisco)(a) 0.94 12/01/2042 10,000 14,950 Health Facilities Financing Auth. (LOC - Mizuho Corporate Bank Ltd.) 0.88 7/01/2033 14,950 4,765 Infrastructure and Economic Dev. Bank (LOC - Federal Home Loan Bank of San Francisco)(a) 0.89 12/01/2040 4,765 7,905 Irvine (LOC - Sumitomo Mitsui Banking Corp.) 0.82 9/02/2032 7,905 8,857 Irvine (LOC - Sumitomo Mitsui Banking Corp.) 0.82 9/02/2050 8,857 9,900 Irvine Assessment District (LOC - Sumitomo Mitsui Banking Corp.) 0.82 9/02/2025 9,900 10,100 Long Beach Health Facility 0.82 10/01/2016 10,100 6,085 Los Angeles (LOC - U.S. Bancorp) 0.80 8/01/2035 6,085 7,150 Los Angeles (LOC - Federal Home Loan Bank of San Francisco) 0.88 8/01/2038 7,150 2,045 Manhattan Beach (LOC - Mitsubishi UFJ Financial Group Inc.) 0.89 8/01/2032 2,045 8,735 Municipal Finance Auth. (LOC - Comerica Bank, N.A.) 0.98 1/01/2040 8,735 800 Novato (LOC - BNP Paribas) 0.93 10/01/2032 800 11,570 Pasadena (LOC - Bank of America Corp.) 0.89 2/01/2035 11,570 3,200 Pollution Control Financing Auth. (LOC - BNP Paribas) 0.93 11/01/2019 3,200 1,690 Pollution Control Financing Auth. (LOC - Comerica Bank, N.A.) 0.91 12/01/2030 1,690 5,985 Rancho Water District (LOC - Wells Fargo & Co.) 0.78 9/01/2028 5,985 9,000 Riverside (LOC - Bank of America Corp.) 0.88 3/01/2037 9,000 13,600 Riverside Electric Public Utilities (LOC - Barclays Bank PLC) 0.82 10/01/2029 13,600 3,395 Sacramento City Financing Auth. (LIQ) (LOC - Deutsche Bank A.G.)(a) 1.04 12/01/2033 3,395
================================================================================ PORTFOLIO OF INVESTMENTS | 11 ================================================================================
----------------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) ----------------------------------------------------------------------------------------------------------------------- $ 6,250 San Diego County (LOC - Comerica Bank, N.A.) 0.89% 1/01/2023 $ 6,250 3,200 San Diego County (LOC - Wells Fargo & Co.) 0.89 9/01/2030 3,200 7,958 SPEAR (LIQ) (LOC - Deutsche Bank A.G.)(a) 1.19 8/01/2031 7,958 548 SPEAR (LIQ) (LOC - Deutsche Bank A.G.)(a) 1.19 8/01/2041 548 2,500 State (LOC - U.S. Bancorp) 0.85 5/01/2033 2,500 12,000 State (LOC - Barclays Bank PLC) 0.85 5/01/2040 12,000 4,805 Statewide Communities Dev. Auth. (LIQ)(a) 1.04 10/01/2020 4,805 3,450 Statewide Communities Dev. Auth. (LOC - Comerica Bank, N.A.) 0.91 12/01/2024 3,450 4,000 Statewide Communities Dev. Auth. 0.83 4/01/2038 4,000 -------- 230,568 -------- Total Variable-Rate Demand Notes (cost: $230,568) 230,568 -------- PUT BONDS (4.3%) CALIFORNIA (4.3%) 11,865 Statewide Communities Dev. Auth. (LIQ) (LOC - Wells Fargo & Co.)(a) (cost: $11,865) 0.55(b) 10/01/2036 11,865 -------- FIXED-RATE INSTRUMENTS (8.6%) CALIFORNIA (8.6%) 12,000 San Diego County Water Auth. 0.72 11/08/2016 12,000 11,600 Statewide Communities Dev. Auth. 0.77 11/04/2016 11,600 -------- 23,600 -------- Total Fixed-Rate Instruments (cost: $23,600) 23,600 -------- ADJUSTABLE-RATE NOTES (2.9%) CALIFORNIA (2.9%) 8,000 Golden Empire Schools Financing Auth. (cost: $8,000) 1.34(b) 5/01/2017 8,000 -------- TOTAL INVESTMENTS (COST: $274,033) $274,033 ======== ------------------------------------------------------------------------------------------------------------ ($ IN 000s) VALUATION HIERARCHY ------------------------------------------------------------------------------------------------------------ ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL ------------------------------------------------------------------------------------------------------------ Variable-Rate Demand Notes $- $230,568 $- $230,568 Put Bonds - 11,865 - 11,865 Fixed-Rate Instruments - 23,600 - 23,600 Adjustable-Rate Notes - 8,000 - 8,000 ------------------------------------------------------------------------------------------------------------ Total $- $274,033 $- $274,033 ------------------------------------------------------------------------------------------------------------
================================================================================ 12 | USAA CALIFORNIA MONEY MARKET FUND ================================================================================ NOTES TO PORTFOLIO OF INVESTMENTS September 30, 2016 (unaudited) -------------------------------------------------------------------------------- o GENERAL NOTES Values of securities are determined by procedures and practices discussed in Note 1A to the financial statements. The cost of securities at September 30, 2016, for federal income tax purposes, was approximately the same as that reported in the financial statements. The Portfolio of Investments category percentages shown represent the percentages of the investments to net assets, and, in total, may not equal 100%. A category percentage of 0.0% represents less than 0.1% of net assets. o SPECIFIC NOTES (a) Restricted security that is not registered under the Securities Act of 1933. A resale of this security in the United States may occur in an exempt transaction to a qualified institutional buyer as defined by Rule 144A, and as such has been deemed liquid by USAA Asset Management Company (the Manager) under liquidity guidelines approved by USAA Mutual Funds Trust's Board of Trustees (the Board), unless otherwise noted as illiquid. (b) Variable-rate or floating-rate security - interest rate is adjusted periodically. The interest rate disclosed represents the rate at September 30, 2016. See accompanying notes to financial statements. ================================================================================ NOTES TO PORTFOLIO OF INVESTMENTS | 13 ================================================================================ STATEMENT OF ASSETS AND LIABILITIES (IN THOUSANDS) September 30, 2016 (unaudited) -------------------------------------------------------------------------------- ASSETS Investments in securities (amortized cost approximates market value) $274,033 Cash 30 Receivables: Capital shares sold 528 Interest 215 -------- Total assets 274,806 -------- LIABILITIES Payables: Capital shares redeemed 756 Dividends on capital shares 6 Accrued management fees 73 Other accrued expenses and payables 65 -------- Total liabilities 900 -------- Net assets applicable to capital shares outstanding $273,906 ======== NET ASSETS CONSIST OF: Paid-in capital $273,907 Overdistribution of net investment income (1) -------- Net assets applicable to capital shares outstanding $273,906 ======== Capital shares outstanding, unlimited number of shares authorized, no par value 273,900 ======== Net asset value, redemption price, and offering price per share $ 1.00 ========
See accompanying notes to financial statements. ================================================================================ 14 | USAA CALIFORNIA MONEY MARKET FUND ================================================================================ STATEMENT OF OPERATIONS (IN THOUSANDS) Six-month period ended September 30, 2016 (unaudited) -------------------------------------------------------------------------------- INVESTMENT INCOME Interest income $ 786 ----- EXPENSES Management fees 472 Administration and servicing fees 150 Transfer agent's fees 181 Custody and accounting fees 50 Postage 7 Shareholder reporting fees 10 Trustees' fees 15 Professional fees 43 Other 7 ----- Total expenses 935 Expenses reimbursed (186) ----- Net expenses 749 ----- NET INVESTMENT INCOME 37 ----- NET REALIZED GAIN ON INVESTMENTS Net realized gain 491 ----- Increase in net assets resulting from operations $ 528 =====
See accompanying notes to financial statements. ================================================================================ FINANCIAL STATEMENTS | 15 ================================================================================ STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS) Six-month period ended September 30, 2016 (unaudited), and year ended March 31, 2016
------------------------------------------------------------------------------------------------------- 9/30/2016 3/31/2016 ------------------------------------------------------------------------------------------------------- FROM OPERATIONS Net investment income $ 37 $ 31 Net realized gain on investments 491 339 ----------------------------- Increase in net assets resulting from operations 528 370 ----------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income (38) (31) Net realized gains (571) (259) ----------------------------- Distributions to shareholders (609) (290) ----------------------------- FROM CAPITAL SHARE TRANSACTIONS Proceeds from shares sold 188,641 211,269 Reinvested dividends 602 288 Cost of shares redeemed (228,408) (218,650) ----------------------------- Decrease in net assets from capital share transactions (39,165) (7,093) ----------------------------- Net decrease in net assets (39,246) (7,013) NET ASSETS Beginning of period 313,152 320,165 ----------------------------- End of period $ 273,906 $ 313,152 ============================= Overdistribution of net investment income: End of period $ (1) $ - ============================= CHANGE IN SHARES OUTSTANDING Shares sold 188,641 211,269 Shares issued for dividends reinvested 602 288 Shares redeemed (228,408) (218,650) ----------------------------- Decrease in shares outstanding (39,165) (7,093) =============================
See accompanying notes to financial statements. ================================================================================ 16 | USAA CALIFORNIA MONEY MARKET FUND ================================================================================ NOTES TO FINANCIAL STATEMENTS September 30, 2016 (unaudited) -------------------------------------------------------------------------------- (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company Act of 1940, as amended (the 1940 Act), is an open-end management investment company organized as a Delaware statutory trust consisting of 54 separate funds. Additionally, the Fund qualifies as a registered investment company under Accounting Standards Codification Topic 946. The information presented in this semiannual report pertains only to the USAA California Money Market Fund (the Fund), which is classified as diversified under the 1940 Act. The Fund's investment objective is to provide California investors with a high level of current interest income that is exempt from federal and California state income taxes, with a further objective of preserving capital and maintaining liquidity. A. SECURITY VALUATION - The Trust's Board of Trustees (the Board) has established the Valuation Committee (the Committee), and subject to Board oversight, the Committee administers and oversees the Fund's valuation policies and procedures, which are approved by the Board. Among other things, these policies and procedures allow the Fund to utilize independent pricing services, quotations from securities dealers, and a wide variety of sources and information to establish and adjust the fair value of securities as events occur and circumstances warrant. The Committee reports to the Board on a quarterly basis and makes recommendations to the Board as to pricing methodologies and services used by the Fund and presents additional information to the Board regarding application of the pricing and fair valuation policies and procedures during the preceding quarter. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 17 ================================================================================ The Committee meets as often as necessary to make pricing and fair value determinations. In addition, the Committee holds regular monthly meetings to review prior actions taken by the Committee and USAA Asset Management Company (the Manager), an affiliate of the Fund. Among other things, these monthly meetings include a review and analysis of back testing reports, pricing service quotation comparisons, illiquid securities and fair value determinations, pricing movements, and daily stale price monitoring. The value of each security is determined (as of the close of trading on the New York Stock Exchange (NYSE) on each business day the NYSE is open) as set forth below: 1. All securities held in the Fund are short-term debt securities which are valued pursuant to Rule 2a-7 under the 1940 Act. This method values a security at its purchase price, and thereafter, assumes a constant amortization to maturity of any premiums or discounts. 2. Securities for which amortized cost valuations are considered unreliable or whose values have been materially affected by a significant event are valued in good faith at fair value, using methods determined by the Committee, under procedures to stabilize net assets and valuation procedures approved by the Board. B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The three-level valuation hierarchy disclosed in the Portfolio of Investments is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows: Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) in active markets for identical securities. Level 2 - inputs to the valuation methodology are other significant observable inputs, including quoted prices for similar securities, inputs that are observable for the securities, either directly or indirectly, and market-corroborated inputs such as market indexes. ================================================================================ 18 | USAA CALIFORNIA MONEY MARKET FUND ================================================================================ Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value measurement, including the Manager's own assumptions in determining the fair value. The inputs or methodologies used for valuing securities are not necessarily an indication of the risks associated with investing in those securities. For example, money market securities are valued using amortized cost, in accordance with rules under the 1940 Act. Generally, amortized cost approximates the current fair value of a security, but since the value is not obtained from a quoted price in an active market, such securities are reflected as Level 2. C. FEDERAL TAXES - The Fund's policy is to comply with the requirements of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies and to distribute substantially all of its taxable income and net capital gains, if any, to its shareholders. Therefore, no federal income tax provision is required. D. INVESTMENTS IN SECURITIES - Securities transactions are accounted for on the date the securities are purchased or sold (trade date). Gains or losses from sales of investment securities are computed on the identified cost basis. Interest income is recorded daily on the accrual basis. Premiums and discounts are amortized over the life of the respective securities using the straight-line method. The Fund concentrates its investments in California tax-exempt securities and, therefore, may be exposed to more credit risk than portfolios with a broader geographical diversification. E. SECURITIES PURCHASED ON A DELAYED-DELIVERY OR WHEN-ISSUED BASIS - Delivery and payment for securities that have been purchased by the Fund on a delayed-delivery or when-issued basis can take place a month or more after the trade date. During the period prior to settlement, these securities do not earn interest, are subject to market fluctuation, and may increase or decrease in value prior to their delivery. The Fund maintains segregated assets with a market value equal to or greater than the amount of its purchase commitments. F. EXPENSES PAID INDIRECTLY - Through arrangements with the Fund's custodian and other banks utilized by the Fund for cash management purposes, realized credits, if any, generated from cash balances in the ================================================================================ NOTES TO FINANCIAL STATEMENTS | 19 ================================================================================ Fund's bank accounts may be used to directly reduce the Fund's expenses. For the six-month period ended September 30, 2016, custodian and other bank credits reduced the Fund's expenses by less than $500. G. INDEMNIFICATIONS - Under the Trust's organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Trust. In addition, in the normal course of business, the Trust enters into contracts that contain a variety of representations and warranties that provide general indemnifications. The Trust's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Trust that have not yet occurred. However, the Trust expects the risk of loss to be remote. H. USE OF ESTIMATES - The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that may affect the reported amounts in the financial statements. (2) LINE OF CREDIT The Fund participates in a joint, short-term, revolving, committed loan agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate of the Manager. The purpose of the agreement is to meet temporary or emergency cash needs, including redemption requests that might otherwise require the untimely disposition of securities. Subject to availability, the Fund may borrow from CAPCO an amount up to 5% of the Fund's total assets at an interest rate based on the London Interbank Offered Rate (LIBOR), plus 100.0 basis points. The USAA Funds that are party to the loan agreement are assessed facility fees by CAPCO in the amount of 12.0 basis points of the amount of the committed loan agreement. Prior to September 30, 2016, the maximum annual facility fee was 9.0 basis points of the amount of the committed loan agreement. The facility fees are allocated among the USAA Funds based on their respective average net assets for the period. The USAA Funds may request an optional increase of the committed loan agreement from $500 million up to $750 million. If the USAA Funds increase ================================================================================ 20 | USAA CALIFORNIA MONEY MARKET FUND ================================================================================ the committed loan agreement, the assessed facility fee on the amount of the additional commitment will be 13.0 basis points. For the six-month period ended September 30, 2016, the Fund paid CAPCO facility fees of $1,000, which represents 0.4% of the total fees paid to CAPCO by the USAA Funds. The Fund had no borrowings under this agreement during the six-month period ended September 30, 2016. (3) DISTRIBUTIONS The tax basis of distributions and any accumulated undistributed net investment income will be determined as of the Fund's tax year-end of March 31, 2017, in accordance with applicable federal tax law. Net investment income is accrued daily as dividends and distributed to shareholders monthly. Distributions of realized gains from security transactions not offset by capital losses are made annually in the succeeding fiscal year or as otherwise required to avoid the payment of federal income taxes. At March 31, 2016, the Fund had no capital loss carryforwards, for federal income tax purposes. For the six-month period ended September 30, 2016, the Fund did not incur any income tax, interest, or penalties, and has recorded no liability for net unrecognized tax benefits relating to uncertain income tax positions. On an ongoing basis, the Manager will monitor the Fund's tax basis to determine if adjustments to this conclusion are necessary. The statute of limitations on the Fund's tax return filings generally remain open for the three preceding fiscal reporting year ends and remain subject to examination by the Internal Revenue Service and state taxing authorities. (4) TRANSACTIONS WITH MANAGER A. MANAGEMENT FEES - The Manager provides investment management services to the Fund pursuant to an Advisory Agreement. Under this agreement, the Manager is responsible for managing the business and affairs of the Fund, and for directly managing the day-to-day investment of the Fund's assets, subject to the authority of and supervision by the Board. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 21 ================================================================================ The Fund's investment management fee is accrued daily and paid monthly as a percentage of aggregate average net assets of the USAA California Bond Fund and USAA California Money Market Fund combined, which on an annual basis is equal to 0.50% of the first $50 million, 0.40% of that portion over $50 million but not over $100 million, and 0.30% of that portion over $100 million. These fees are allocated on a proportional basis to each Fund monthly based upon average net assets. For the six-month period ended September 30, 2016, the Fund incurred total management fees, paid or payable to the Manager, of $472,000, resulting in an effective annualized management fee of 0.32% of the Fund's average net assets for the same period. B. ADMINISTRATION AND SERVICING FEES - The Manager provides certain administration and servicing functions for the Fund. For such services, the Manager receives a fee accrued daily and paid monthly at an annualized rate of 0.10% of the Fund's average net assets. For the six-month period ended September 30, 2016, the Fund incurred administration and servicing fees, paid or payable to the Manager, of $150,000. In addition to the services provided under its Administration and Servicing Agreement with the Fund, the Manager also provides certain compliance and legal services for the benefit of the Fund. The Board has approved the reimbursement of a portion of these expenses incurred by the Manager. For the six-month period ended September 30, 2016, the Fund reimbursed the Manager $4,000 for these compliance and legal services. These expenses are included in the professional fees on the Fund's Statement of Operations. C. TRANSFER AGENT'S FEES - USAA Transfer Agency Company, d/b/a USAA Shareholder Account Services (SAS), an affiliate of the Manager, provides transfer agent services to the Fund. The Fund's transfer agent's fees are accrued daily and paid monthly at an annualized rate of 0.10% of the Fund's average net assets, plus out-of-pocket expenses. SAS pays a portion of these fees to certain intermediaries for the administration and servicing of accounts that are held with such intermediaries. Prior to June 1, 2016, the Fund paid transfer agent service fees based on an annual charge of $25.50 per shareholder account. For the six-month ================================================================================ 22 | USAA CALIFORNIA MONEY MARKET FUND ================================================================================ period ended September 30, 2016, the Fund incurred transfer agent's fees, paid or payable to SAS, of $181,000. D. EXPENSE LIMITATION - The Manager has voluntarily agreed, on a temporary basis, to reimburse management, administrative, or other fees to limit the Fund's expenses and attempt to prevent a negative yield. The Manager can modify or terminate this arrangement at any time without prior notice to shareholders. For the six-month period ended September 30, 2016, the Fund incurred reimbursable expenses of $186,000. E. UNDERWRITING SERVICES - USAA Investment Management Company provides exclusive underwriting and distribution of the Fund's shares on a continuing best-efforts basis and receives no fee or other compensation for these services. (5) TRANSACTIONS WITH AFFILIATES The Manager is indirectly wholly owned by United Services Automobile Association (USAA), a large, diversified financial services institution. Certain trustees and officers of the Fund are also directors, officers, and/or employees of the Manager. None of the affiliated trustees or Fund officers received any compensation from the Fund. (6) REGULATORY MATTERS In July 2014, the Securities and Exchange Commission (SEC) adopted amendments to the rules that govern money market funds that will affect the manner in which money market funds are structured and operated. The amendments also will allow money market funds to impose liquidity fees and suspend redemptions temporarily (redemption gates), and will impose new requirements related to diversification, stress testing, and disclosure. Money market funds that qualify as "retail" (Retail MMFs) or "government" will be permitted to continue to utilize amortized cost to value their portfolio securities and to transact at a stable $1 net asset value per share as they do today. Effective October 14, 2016, the Fund operates as a Retail MMF and in doing so, will have the ability to impose liquidity fees and redemption gates. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 23 ================================================================================ (7) FINANCIAL HIGHLIGHTS Per share operating performance for a share outstanding throughout each period is as follows:
SIX-MONTH PERIOD ENDED SEPTEMBER 30, YEAR ENDED MARCH 31, ---------------------------------------------------------------------------- 2016 2016 2015 2014 2013 2012 ---------------------------------------------------------------------------- Net asset value at beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ---------------------------------------------------------------------------- Income from investment operations: Net investment income(a) .00 .00 .00 .00 .00 .00 Net realized and unrealized gain(a) .00 .00 .00 .00 .00 .00 ---------------------------------------------------------------------------- Total from investment operations(a) .00 .00 .00 .00 .00 .00 ---------------------------------------------------------------------------- Less distributions from: Net investment income(a) (.00) (.00) (.00) (.00) (.00) (.00) Realized capital gains(a) (.00) (.00) (.00) (.00) (.00) (.00) ---------------------------------------------------------------------------- Total distributions(a) (.00) (.00) (.00) (.00) (.00) (.00) ---------------------------------------------------------------------------- Net asset value at end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ============================================================================ Total return(%)*,(c) .22 .10 .02 .02 .01 .03(b) Net assets at end of period (000) $273,906 $313,152 $320,165 $316,437 $329,421 $328,917 Ratios to average net assets:** Expenses(%)(c),(d) .50(e) .09 .12 .18 .32 .31(b) Expenses, excluding reimbursements(%)(d) .62(e) .61 .60 .58 .57 .58(b) Net investment income(%) .02(e) .01 .01 .01 .01 .02
* Assumes reinvestment of all net investment income and realized capital gain distributions, if any, during the period. Includes adjustments in accordance with U.S. generally accepted accounting principles and could differ from the iMoneyNet reported return. Total returns for periods of less than one year are not annualized. ** For the six-month period ended September 30, 2016, average net assets were $298,994,000. (a) Represents less than $0.01 per share. (b) During the year ended March 31, 2012, SAS reimbursed the Fund $42,000 for corrections in fees paid for the administration and servicing of certain accounts. The effect of this reimbursement on the Fund's total return was less than 0.01%. The reimbursement decreased the Fund's expense ratio by 0.01%. This decrease is excluded from the expense ratio in the Financial Highlights table. (c) The Manager voluntarily agreed, on a temporary basis, to reimburse management, administrative, or other fees to limit the Fund's expenses and attempt to prevent a negative yield. (d) Reflects total annual operating expenses of the Fund before reductions of any expenses paid indirectly. The Fund's expenses paid indirectly decreased the expense ratios by less than 0.01%. (e) Annualized. The ratio is not necessarily indicative of 12 months of operations. ================================================================================ 24 | USAA CALIFORNIA MONEY MARKET FUND ================================================================================ EXPENSE EXAMPLE September 30, 2016 (unaudited) -------------------------------------------------------------------------------- EXAMPLE As a shareholder of the Fund, you incur two types of costs: direct costs, such as wire fees, redemption fees, and low balance fees; and indirect costs, including management fees, transfer agency fees, and other Fund operating expenses. This example is intended to help you understand your indirect costs, also referred to as "ongoing costs" (in dollars), of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire six-month period of April 1, 2016, through September 30, 2016. ACTUAL EXPENSES The line labeled "actual" in the table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested at the beginning of the period, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "actual" line under the heading "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The line labeled "hypothetical" in the table provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information ================================================================================ EXPENSE EXAMPLE | 25 ================================================================================ to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any direct costs, such as wire fees, redemption fees, or low balance fees. Therefore, the line labeled "hypothetical" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these direct costs were included, your costs would have been higher.
EXPENSES PAID BEGINNING ENDING DURING PERIOD* ACCOUNT VALUE ACCOUNT VALUE APRIL 1, 2016 - APRIL 1, 2016 SEPTEMBER 30, 2016 SEPTEMBER 30, 2016 ---------------------------------------------------------------- Actual $1,000.00 $1,002.20** $2.51** Hypothetical (5% return before expenses) 1,000.00 1,022.56** 2.54**
*Expenses are equal to the Fund's annualized expense ratio of 0.50%, which is net of any reimbursements and expenses paid indirectly, multiplied by the average account value over the period, multiplied by 183 days/365 days (to reflect the one-half-year period). The Fund's actual ending account value is based on its actual total return of 0.22% for the six-month period of April 1, 2016, through September 30, 2016. **The Funds' annualized expense ratio of 0.50% above reflects a change in the transfer agency fee structure from a per-account fee to an asset-based fee effective June 1, 2016. Had this change been in effect for the entire six-month period of April 1, 2016, through September 30, 2016, the Fund's expense ratio would have been 0.53%, net of expenses paid indirectly, and the values in the table above would be as shown below.
EXPENSES PAID BEGINNING ENDING DURING PERIOD ACCOUNT VALUE ACCOUNT VALUE APRIL 1, 2016 - APRIL 1, 2016 SEPTEMBER 30, 2016 SEPTEMBER 30, 2016 ---------------------------------------------------------------- Actual $1,000.00 $1,002.20 $2.66 Hypothetical (5% return before expenses) 1,000.00 1,022.41 2.69
================================================================================ 26 | USAA CALIFORNIA MONEY MARKET FUND ================================================================================ ADVISORY AGREEMENT(S) September 30, 2016 (unaudited) -------------------------------------------------------------------------------- At an in-person meeting of the Board of Trustees (the Board) held on April 22, 2016, the Board, including the Trustees who are not "interested persons" (as that term is defined in the Investment Company Act of 1940, as amended) of the Trust (the Independent Trustees), approved for an annual period the continuance of the Advisory Agreement between the Trust and the Manager with respect to the Fund. In advance of the meeting, the Trustees received and considered a variety of information relating to the Advisory Agreement and the Manager and were given the opportunity to ask questions and request additional information from management. The information provided to the Board included, among other things: (i) a separate report prepared by an independent third party, which provided a statistical analysis comparing the Fund's investment performance, expenses, and fees to comparable investment companies; (ii) information concerning the services rendered to the Fund, as well as information regarding the Manager's revenues and costs of providing services to the Fund and compensation paid to affiliates of the Manager; and (iii) information about the Manager's operations and personnel. Prior to voting, the Independent Trustees reviewed the proposed continuation of the Advisory Agreement with management and with experienced counsel retained by the Independent Trustees (Independent Counsel) and received materials from such Independent Counsel discussing the legal standards for their consideration of the proposed continuation of the Advisory Agreement with respect to the Fund. The Independent Trustees also reviewed the proposed continuation of the Advisory Agreement with respect to the Fund in private sessions with Independent Counsel at which no representatives of management were present. At each regularly scheduled meeting of the Board and its committees, the Board receives and reviews, among other things, information concerning the ================================================================================ ADVISORY AGREEMENT(S) | 27 ================================================================================ Fund's performance and related services provided by the Manager. At the meeting at which the renewal of the Advisory Agreement is considered, particular focus is given to information concerning Fund performance, fees and total expenses as compared to comparable investment companies, and the Manager's profitability with respect to the Fund. However, the Board noted that the evaluation process with respect to the Manager is an ongoing one. In this regard, the Board's and its committees' consideration of the Advisory Agreement included information previously received at such meetings. ADVISORY AGREEMENT After full consideration of a variety of factors, the Board, including the Independent Trustees, voted to approve the Advisory Agreement. In approving the Advisory Agreement, the Trustees did not identify any single factor as controlling, and each Trustee may have attributed different weights to various factors. Throughout their deliberations, the Independent Trustees were represented and assisted by Independent Counsel. NATURE, EXTENT, AND QUALITY OF SERVICES - In considering the nature, extent, and quality of the services provided by the Manager under the Advisory Agreement, the Board reviewed information provided by the Manager relating to its operations and personnel. The Board also took into account its knowledge of the Manager's management and the quality of the performance of the Manager's duties through Board meetings, discussions, and reports during the preceding year. The Board considered the fees paid to the Manager and the services provided to the Fund by the Manager under the Advisory Agreement, as well as other services provided by the Manager and its affiliates under other agreements, and the personnel who provide these services. In addition to the investment advisory services provided to the Fund, the Manager and its affiliates provide administrative services, stockholder services, oversight of Fund accounting, marketing services, assistance in meeting legal and regulatory requirements, and other services necessary for the operation of the Fund and the Trust. The Board considered the Manager's management style and the performance of the Manager's duties under the Advisory Agreement. The Board considered ================================================================================ 28 | USAA CALIFORNIA MONEY MARKET FUND ================================================================================ the level and depth of knowledge of the Manager, including the professional experience and qualifications of its senior and investment personnel, as well as current staffing levels. The allocation of the Fund's brokerage, including the Manager's process for monitoring "best execution," also was considered. The Manager's role in coordinating the activities of the Fund's other service providers also was considered. The Board also considered the Manager's risk management processes. The Board considered the Manager's financial condition and that it had the financial wherewithal to continue to provide the same scope and high quality of services under the Advisory Agreement. In reviewing the Advisory Agreement, the Board focused on the experience, resources, and strengths of the Manager and its affiliates in managing the Fund, as well as the other funds in the Trust. The Board also reviewed the compliance and administrative services provided to the Fund by the Manager, including the Manager's oversight of the Fund's day-to-day operations and oversight of Fund accounting. The Trustees, guided also by information obtained from their experiences as trustees of the Trust, also focused on the quality of the Manager's compliance and administrative staff. EXPENSES AND PERFORMANCE - In connection with its consideration of the Advisory Agreement, the Board evaluated the Fund's advisory fees and total expense ratio as compared to other open-end investment companies deemed to be comparable to the Fund as determined by the independent third party in its report. The Fund's expenses were compared to (i) a group of investment companies chosen by the independent third party to be comparable to the Fund based upon certain factors, including fund type, comparability of investment objective and classification, sales load type (in this case, investment companies with no sales loads), asset size, and expense components (the "expense group") and (ii) a larger group of investment companies that includes the Fund and all other no-load retail open-end investment companies with the same investment classifications/objectives as the Fund regardless of asset size, excluding outliers (the "expense universe"). Among other data, the Board noted that the Fund's management fee rate - which includes advisory and administrative services as well as any fee waivers or reimbursements - was ================================================================================ ADVISORY AGREEMENT(S) | 29 ================================================================================ equal to the median of its expense group and its expense universe. The data indicated that the Fund's total expense ratio, after reimbursements, was above the median of its expense group and its expense universe. The Board took into account the various services provided to the Fund by the Manager and its affiliates, including the nature and high quality of services provided by the Manager. The Board also noted the level and method of computing the management fee. The Board took into account management's discussion of the Fund's expenses, noting that the Manager had reimbursed a significant portion of Fund expenses during the previous year. In considering the Fund's performance, the Board noted that it reviews at its regularly scheduled meetings information about the Fund's performance results. The Trustees also reviewed various comparative data provided to them in connection with their consideration of the renewal of the Advisory Agreement, including, among other information, a comparison of the Fund's average annual total return with its Lipper index and with that of other mutual funds deemed to be in its peer group by the independent third party in its report (the "performance universe"). The Fund's performance universe consisted of the Fund and all retail and institutional open-end investment companies with the same classification/objective as the Fund regardless of asset size or primary channel of distribution. This comparison indicated that, among other data, the Fund's performance was above the average of its performance universe and its Lipper index for the one-, three-, five-, and ten-year periods ended December 31, 2015. The Board also noted that the Fund's percentile performance ranking was in the top 5% of its performance universe for the one-year period ended December 31, 2015, was in the top 10% of its performance universe for the three- and ten-year periods ended December 31, 2015, and was in the top 20% of its performance universe for the five-year period ended December 31, 2015. The Board also took into account management's discussion regarding current market conditions. COMPENSATION AND PROFITABILITY - The Board took into consideration the level and method of computing the management fee. The information considered by the Board included operating profit margin information for the Manager's business as a whole. The Board also received and considered profitability ================================================================================ 30 | USAA CALIFORNIA MONEY MARKET FUND ================================================================================ information related to the management revenues from the Fund. This information included a review of the methodology used in the allocation of certain costs to the Fund. In considering the profitability data with respect to the Fund, the Trustees noted that the Manager reimbursed a portion of its management fees to the Fund. The Trustees reviewed the profitability of the Manager's relationship with the Fund before tax expenses. In reviewing the overall profitability of the management fee to the Manager, the Board also considered the fact that affiliates provide shareholder servicing and administrative services to the Fund for which they receive compensation. The Board also considered the possible direct and indirect benefits to the Manager from its relationship with the Trust, including that the Manager may derive reputational and other benefits from its association with the Fund. The Board also took into account the high quality of services received by the Fund from the Manager as well as the type of fund. The Trustees recognized that the Manager should be entitled to earn a reasonable level of profits in exchange for the level of services it provides to the Fund and the entrepreneurial risk that it assumes as Manager. ECONOMIES OF SCALE - The Board noted that the Fund has advisory fee breakpoints that allow the Fund to participate in economies of scale and that such economies of scale currently were reflected in the advisory fee. The Board also considered the effect of the Fund's growth and size on its performance and fees, noting that if the Fund's assets increase over time, the Fund may realize additional economies of scale if assets increase proportionally more than some expenses. The Board also considered the fee waiver and expense reimbursement arrangements by the Manager. The Board determined that the current investment management fee structure was reasonable. CONCLUSIONS - The Board reached the following conclusions regarding the Fund's Advisory Agreement with the Manager, among others: (i) the Manager has demonstrated that it possesses the capability and resources to perform the duties required of it under the Advisory Agreement; (ii) the Manager maintains an appropriate compliance program; (iii) the performance of the Fund is reasonable in relation to the performance of funds with similar investment objectives and to relevant indices; (iv) the Fund's advisory expenses are reasonable in relation to those of similar funds and to the ================================================================================ ADVISORY AGREEMENT(S) | 31 ================================================================================ services to be provided by the Manager; and (v) the Manager's and its affiliates' level of profitability from its relationship with the Fund is reasonable in light of the nature and high quality of services provided by the Manager and the type of fund. Based on its conclusions, the Board determined that continuation of the Advisory Agreement would be in the best interests of the Fund and its shareholders. =============================================================================== 32 | USAA CALIFORNIA MONEY MARKET FUND ================================================================================ TRUSTEES Daniel S. McNamara Robert L. Mason, Ph.D. Jefferson C. Boyce Dawn M. Hawley Paul L. McNamara Barbara B. Ostdiek, Ph.D. Michael F. Reimherr -------------------------------------------------------------------------------- ADMINISTRATOR AND USAA Asset Management Company INVESTMENT ADVISER P.O. Box 659453 San Antonio, Texas 78265-9825 -------------------------------------------------------------------------------- UNDERWRITER AND USAA Investment Management Company DISTRIBUTOR P.O. Box 659453 San Antonio, Texas 78265-9825 -------------------------------------------------------------------------------- TRANSFER AGENT USAA Shareholder Account Services 9800 Fredericksburg Road San Antonio, Texas 78288 -------------------------------------------------------------------------------- CUSTODIAN AND State Street Bank and Trust Company ACCOUNTING AGENT P.O. Box 1713 Boston, Massachusetts 02105 -------------------------------------------------------------------------------- INDEPENDENT Ernst & Young LLP REGISTERED PUBLIC 100 West Houston St., Suite 1700 ACCOUNTING FIRM San Antonio, Texas 78205 -------------------------------------------------------------------------------- MUTUAL FUND Under "My Accounts" on SELF-SERVICE 24/7 usaa.com select your mutual fund AT USAA.COM account and either click the link or select 'I want to...' and select OR CALL the desired action. (800) 531-USAA (8722) (210) 531-8722 -------------------------------------------------------------------------------- Copies of the Manager's proxy voting policies and procedures, approved by the Trust's Board of Trustees for use in voting proxies on behalf of the Fund, are available without charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722; (ii) at USAA.COM; and (iii) in summary within the Statement of Additional Information on the SEC's website at HTTP://WWW.SEC.GOV. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge (i) at USAA.COM; and (ii) on the SEC's website at HTTP://WWW.SEC.GOV. The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. These Forms N-Q are available at no charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722; (ii) at USAA.COM; and (iii) on the SEC's website at HTTP://WWW.SEC.GOV. These Forms N-Q also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling (800) 732-0330. ================================================================================ -------------- USAA PRSRT STD 9800 Fredericksburg Road U.S. Postage San Antonio, TX 78288 PAID USAA -------------- >> SAVE PAPER AND FUND COSTS Under MY PROFILE on USAA.COM select MANAGE PREFERENCES Set your DOCUMENT PREFERENCES to USAA DOCUMENTS ONLINE. [LOGO OF USAA] USAA We know what it means to serve.(R) ============================================================================= 39602-1116 (C)2016, USAA. All rights reserved. [LOGO OF USAA] USAA(R) [GRAPHIC OF USAA GLOBAL EQUITY INCOME FUND] ============================================================== SEMIANNUAL REPORT USAA GLOBAL EQUITY INCOME FUND FUND SHARES o INSTITUTIONAL SHARES SEPTEMBER 30, 2016 ============================================================== ================================================================================ ================================================================================ PRESIDENT'S MESSAGE "THE CLOSING WEEKS OF A YEAR CAN BE A GOOD TIME TO TAKE A LOOK AT YOUR FINANCIAL [PHOTO OF BROOKS ENGLEHARDT] SITUATION WITH A GOAL OF GETTING YOUR FINANCES IN ORDER." -------------------------------------------------------------------------------- NOVEMBER 2016 Investors were generally rewarded during the reporting period ended September 30, 2016. Most asset classes posted gains as global growth concerns eased and many of the world's central banks, including the Federal Reserve (the Fed), maintained accommodative monetary policies. Stock prices generally climbed, despite two brief setbacks. In June 2016, a brief retreat followed the United Kingdom's unexpected vote to withdraw from the European Union (commonly known as Brexit). In September 2016, stocks fell--before quickly recovering--on concerns about a potential Fed interest rate increase. Meanwhile, bond prices recorded positive returns during the reporting period. As bond prices rose, longer-term interest rates, which move in the opposite direction, fell. As you know, the Fed only has direct control over short-term interest rates. Bond prices and longer-term interest rates are determined by buyers and sellers, sometimes based on their views of Fed policy. During the reporting period, market expectations about potential Fed interest rate increases shifted into the future. The Fed, which in December 2015 had raised short-term interest rates for the first time since 2008, also initially signaled that four interest rate increases were on tap for 2016. However, policymakers backed off that forecast in March 2016, just before the reporting period began, indicating that only two interest rate increases were on the table. They pointed to the global market turmoil during the first six weeks of 2016 as a contributing factor. Policymakers subsequently hinted there would be a single interest rate increase, but ultimately left interest rates unchanged. In our view, December 2016 is the Fed's only remaining window of opportunity to increase short-term interest rates. It is unlikely to act at its November 2016 meeting, which is just days before the presidential election. We believe that as of this writing, the futures market, which generally is a proxy for investor sentiment, indicates approximately a two-thirds chance that the Fed would raise rates in December 2016. ================================================================================ ================================================================================ This begs the question: Is it good or bad if low interest rates persist? We think it depends on your perspective. On one hand, consumers and businesses are able to continue borrowing at affordable interest rates. On the other hand, savers may continue to see returns lower than the rate of inflation. At USAA Investments, we believe the Fed is likely to raise interest rates at a gradual pace. We've long held the belief that interest rates will stay lower for longer than many market participants expect. Currently, there is no urgency for the Fed to act. Interest rate increases are typically a response to an overheating economy, and the U.S. remains in slow-growth mode with low inflation. Americans are still carrying large amounts of household debt, so higher interest rates are likely to hinder their spending and slow what little growth there is. Tax-exempt bonds, like most other fixed-income investments, generated positive returns during the reporting period. Municipal bonds performed well, as investors continued to favor them for their tax-advantaged status. At the same time, municipal issuance remained low, though it has increased since January 2016. Still, the supply is far from enough to satisfy demand and we expect municipal bonds to continue to benefit from this situation for some time to come. Although state and local finances are in better shape than they were a few years ago, municipal governments have been reluctant to take on additional debt. We believe eventually this will change, but likely not for the foreseeable future. Looking ahead, the end of 2016 is just weeks away. The closing weeks of a year can be a good time to take a look at your financial situation with a goal of getting your finances in order. One way to help ensure you're doing the most with what you have is to consider investing a set amount each month, also known as dollar-cost averaging. Please call USAA Investments to speak with a financial advisor. We are committed to helping you meet your financial objectives. On behalf of everyone at USAA Investments, thank you for relying on us to help you with your investment needs. We appreciate the opportunity to serve you. Sincerely, /S/ BROOKS ENGLEHARDT Brooks Englehardt President USAA Investments Investments provided by USAA Investment Management Company and USAA Financial Advisors, Inc., both registered broker-dealers, and affiliates. Financial planning services and financial advice provided by USAA Financial Planning Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in California, License # 0E36312), a registered investment adviser and insurance agency and its wholly owned subsidiary, USAA Financial Advisors, Inc., a registered broker dealer. ================================================================================ ================================================================================ TABLE OF CONTENTS -------------------------------------------------------------------------------- FUND OBJECTIVE 1 MANAGERS' COMMENTARY ON THE FUND 2 INVESTMENT OVERVIEW 6 FINANCIAL INFORMATION Portfolio of Investments 12 Notes to Portfolio of Investments 18 Financial Statements 19 Notes to Financial Statements 23 EXPENSE EXAMPLE 38 ADVISORY AGREEMENT(S) 40
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS ABOUT THE FUND. (C)2016, USAA. All rights reserved. 225184-1116 ================================================================================ ================================================================================ FUND OBJECTIVE THE USAA GLOBAL EQUITY INCOME FUND (THE FUND) SEEKS TOTAL RETURN WITH AN EMPHASIS ON CURRENT INCOME. -------------------------------------------------------------------------------- TYPES OF INVESTMENTS The Fund normally invests at least 80% of its assets in equity securities. This 80% policy may be changed upon at least 60 days' written notice to shareholders. The Fund's equity investments may include common stocks, depositary receipts, real estate investment trusts (REITs), other investment companies, including exchange-traded funds (ETFs), master limited partnerships (MLPs), securities convertible into common stocks, and securities that carry the right to buy common stocks. The Fund will invest primarily in global equity securities with an emphasis on companies that the Fund's management believes have attractive dividend policies and/or those with the potential to grow their dividends. Under normal circumstances, the Fund expects to invest at least 40% of its assets in foreign securities (unless market conditions are not deemed favorable by Fund management, in which case the Fund would invest at least 30% of its assets in foreign securities). IRA DISTRIBUTION WITHHOLDING DISCLOSURE We generally must withhold federal income tax at a rate of 10% of the taxable portion of your distribution and, if you live in a state that requires state income tax withholding, at your state's tax rate. However, you may elect not to have withholding apply or to have income tax withheld at a higher rate. Any withholding election that you make will apply to any subsequent distribution unless and until you change or revoke the election. If you wish to make a withholding election or change or revoke a prior withholding election, call (800) 531-USAA (8722) or (210) 531-8722. If you do not have a withholding election in place by the date of a distribution, federal income tax will be withheld from the taxable portion of your distribution at a rate of 10%. If you must pay estimated taxes, you may be subject to estimated tax penalties if your estimated tax payments are not sufficient and sufficient tax is not withheld from your distribution. For more specific information, please consult your tax adviser. ================================================================================ FUND OBJECTIVE | 1 ================================================================================ MANAGERS' COMMENTARY ON THE FUND USAA Asset Management Company STEPHAN KLAFFKE, CFA DAN DENBOW, CFA JOHN P. TOOHEY, CFA -------------------------------------------------------------------------------- O WHAT WERE THE MARKET CONDITIONS DURING THE REPORTING PERIOD? Entering the reporting period ended September 30, 2016, global equity markets faced ongoing concerns around weak global growth. However, investor sentiment was supported by the highly favorable policies pursued by central banks globally. The Bank of Japan and the European Central Bank both maintained short-term interest rates below zero, pushing government bond yields into negative territory across a number of overseas developed markets. In the United States, U.S. Treasury yields remained at low levels all along the curve due to concerns about growth. In addition, investors viewed the Federal Reserve (the Fed) as likely to pursue a longer timetable than initially indicated with respect to raising the Fed funds short-term interest rate. With bonds seeming less attractive, many investors viewed stocks as more compelling and the global search for yield fueled outperformance by dividend-paying stocks. In late June 2016, markets were rocked by the surprise result of the United Kingdom's (U.K.) vote to withdraw from the European Union (commonly known as Brexit). In the wake of Brexit, U.S. Treasury yields dipped from already low levels on trades generally attributable to investor flight-to-safety. However, investor sentiment stabilized as investors put into perspective the likely impact of Brexit on global growth, and equities delivered solid gains in July 2016. The remainder of the reporting period saw stocks trade more or less within a range as investors awaited clarity as ================================================================================ 2 | USAA GLOBAL EQUITY INCOME FUND ================================================================================ to the direction of the economy. September 2016 saw rising speculation regarding the potential for the Fed to raise interest rates before year-end, leading to a shift in market leadership away from "bond surrogates" and boosting financial stocks. o HOW DID THE USAA GLOBAL EQUITY INCOME FUND (THE FUND) PERFORM DURING THE REPORTING PERIOD? The Fund has two share classes: Fund Shares and Institutional Shares. For the semiannual period ended September 30, 2016, the Fund Shares and Institutional Shares had a total return of 6.10% and 6.17%. This compares to returns of 5.65% for the MSCI World High Dividend Yield Index (the Index) and 4.71% for the Lipper Global Equity Income Funds Index. USAA Asset Management Company (the Manager) is the Fund's investment adviser. The investment adviser provides day-to-day discretionary management for the Fund's assets. o WHAT STRATEGIES DID YOU EMPLOY DURING THE REPORTING PERIOD? The Fund focuses on income-oriented global equities, and will normally have roughly equal weights in U.S. and international stocks, although this will vary to some degree depending on where we see the better value. In selecting stocks, emphasis is placed not only the current dividend but also a company's potential to grow its dividend. As a result, the average current dividend of stocks held by the Fund will generally be somewhat lower than the Fund's benchmark. However, our view is that a focus on companies with dividend growth potential should provide an improved total return profile as we invest within the global dividend stock universe. During the reporting period, stock selection was a significant positive contributor to the Fund's performance relative to its benchmark, led Refer to page 7 for benchmark definitions. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. ================================================================================ MANAGERS' COMMENTARY ON THE FUND | 3 ================================================================================ by holdings within the technology, financials, energy, and consumer staples sectors. Security selection lagged within industrials. Sector allocation had a slight negative impact on the Fund's relative performance overall. In particular, an overweight allocation to energy and an underweight allocation to materials and real estate detracted from performance which, more than offset positive contributions from an underweight allocation to consumer staples and consumer discretionary. In terms of individual holdings, performance was led by holdings in storage drive manufacturer Seagate Technology plc, oil and gas multinational Royal Dutch Shell plc, U.K.-based global bank HSBC Holdings plc (HSBC), and frozen food distributor B&G Foods, Inc. (B&G Foods). Seagate Technology plc saw its shares rebound after being beaten down in 2015 and into the first quarter of 2016, as investors came to view the personal computer sales environment as less dire than previously feared. Royal Dutch Shell plc and HSBC saw their shares benefit despite difficult near-term operating conditions as both companies pursued strong cost management and capital allocation measures. B&G Foods was rewarded by investors as the company was able to realize cost savings, due to its acquisition of the Green Giant frozen food brands, that were above what Wall Street thought was possible. The company's shares were further boosted on news of a potential acquisition of ACH Food Companies, owner of a range of baking product and condiment brands. The Fund sold its holdings of B&G Foods during the reporting period as the shares had reached the price target. On the downside, the Fund's positions in industrial conglomerate General Electric Co. (GE) and biopharmaceutical company Gilead Sciences, Inc. (Gilead) were the leading detractors from performance, along with a lack of exposure to biopharmaceutical firm AstraZeneca. GE has seen its stock underperform in recent quarters as the market digests the company's massive business transformation. Over the past year, GE has reduced its financial services exposure by exiting GE Capital and acquired more industrial exposure by purchasing French railway vehicle and signaling manufacturer Alstom. We believe that the stock will benefit from GE's ================================================================================ 4 | USAA GLOBAL EQUITY INCOME FUND ================================================================================ transformation into a pure play industrial company and its financial reporting becomes more transparent. Gilead has faced increased price competition and election-year debate around drug pricing has further undermined investor sentiment with respect to its shares. Research indicates that Gilead's stock is currently undervalued based on the company's drug pipeline and potential capital allocation moves, and so we have maintained the Fund's position in Gilead. As always, the direction of global markets will ultimately be determined by the economic outlook and how that translates to corporate earnings. A number of factors have the potential to drive equity market volatility in the near future. Investors will be watching headlines around the U.S. elections, action or inaction by the Fed on interest rates, the impact of Brexit on Western European economies, and the stability of the European banking system. While most of 2016 saw a continuation of the market's preference for sectors such as utilities and consumer staples, which tend to offer high dividends and low volatility attributes, this trend has shown signs of reversal. On a long-term basis, focusing on quality companies with attractive valuations and dividend income is a sound strategy from a total return perspective. In the short-term, a focus on dividends may help provide a degree of relative stability against a backdrop of economic uncertainty and potential market volatility. Investments in foreign securities are subject to additional and more diverse risks, including but not limited to currency fluctuations, market illiquidity, and political and economic instability. Foreign investing may result in more rapid and extreme changes in value than investments made exclusively in the securities of U.S. companies. There may be less publicly available information relating to foreign companies than those in the U.S. Foreign securities may also be subject to foreign taxes. Investments made in emerging market countries may be particularly volatile. Economies of emerging market countries are generally less diverse and mature than more developed countries and may have less stable political systems. o Dividends are not guaranteed. In any year, dividends may be higher, lower, or not paid at all. ================================================================================ MANAGERS' COMMENTARY ON THE FUND | 5 ================================================================================ INVESTMENT OVERVIEW USAA GLOBAL EQUITY INCOME FUND SHARES (FUND SHARES) (Ticker Symbol: UGEIX)
-------------------------------------------------------------------------------- 9/30/16 3/31/16 -------------------------------------------------------------------------------- Net Assets $56.7 Million $42.1 Million Net Asset Value Per Share $9.84 $9.39 -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURN AS OF 9/30/16 -------------------------------------------------------------------------------- 3/31/16-9/30/16* 1 YEAR SINCE INCEPTION 8/7/15 6.10% 11.21% 0.37% -------------------------------------------------------------------------------- EXPENSE RATIO AS OF 8/1/16** -------------------------------------------------------------------------------- BEFORE REIMBURSEMENT 1.38% AFTER REIMBURSEMENT 1.21%
(Includes acquired fund fees and expenses of 0.01%) THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT USAA.COM. *Total returns for periods of less than one year are not annualized. This return is cumulative. **The expense ratio is reported in the Fund's prospectus dated August 1, 2016, and is based on estimated expenses for the current fiscal year. USAA Asset Management Company (the Manager) has agreed, through August 1, 2017, to make payments or waive management, administration, and other fees to limit the expenses of the Fund so that the total annual operating expenses of the Fund Shares (exclusive of commission recapture, expense offset arrangements, acquired fund fees and expenses, and extraordinary expenses) do not exceed an annual rate of 1.20% of the Fund Shares' average net assets. This reimbursement arrangement may not be changed or terminated during this time period without approval of the Trust's Board of Trustees and may be changed or terminated by the Manager at any time after August 1, 2017. If the total annual operating expense ratio of the Fund Shares is lower than 1.20%, the Fund Shares will operate at the lower expense ratio. These expense ratios may differ from the expense ratios disclosed in the Financial Highlights, which excludes acquired fund fees and expenses. Total return measures the price change in a share assuming the reinvestment of all net investment income and realized capital gain distributions, if any. The total returns quoted do not reflect adjustments made to the enclosed financial statements in accordance with U.S. generally accepted accounting principles or the deduction of taxes that a shareholder would pay on net investment income and realized capital gain distributions, including reinvested distributions, or redemptions of shares. ================================================================================ 6 | USAA GLOBAL EQUITY INCOME FUND ================================================================================ o CUMULATIVE PERFORMANCE COMPARISON o [CHART OF CUMULATIVE PERFORMANCE COMPARISON]
MSCI WORLD HIGH LIPPER GLOBAL EQUITY USAA GLOBAL EQUITY DIVIDEND YIELD INCOME FUNDS INCOME FUND INDEX INDEX SHARES 07/31/15 $10,000.00 $10,000.00 $10,000.00 08/31/15 9,398.61 9,429.12 9,350.00 09/30/15 9,159.15 9,182.62 9,030.00 10/31/15 9,866.73 9,759.31 9,650.00 11/30/15 9,719.34 9,676.75 9,510.00 12/31/15 9,581.12 9,537.00 9,316.00 01/31/16 9,247.14 9,219.54 8,935.00 02/29/16 9,312.39 9,183.69 8,915.00 03/31/16 9,942.16 9,733.62 9,465.00 04/30/16 10,142.82 9,820.25 9,707.00 05/31/16 10,143.87 9,878.12 9,737.00 06/30/16 10,238.75 9,921.61 9,848.00 07/31/16 10,487.05 10,203.27 10,062.00 08/31/16 10,429.82 10,165.14 10,011.00 09/30/16 10,504.33 10,192.32 10,042.00
[END CHART] Data from 7/31/15 through 9/30/16.* The graph illustrates the comparison of a $10,000 hypothetical investment in the USAA Global Equity Income Fund Shares to the following benchmarks: o The unmanaged MSCI World High Dividend Yield Index is a free float-adjusted market capitalization weighed index that is designed to measure the equity market performance of developed and emerging markets. o The unmanaged Lipper Global Equity Income Funds Index which measures the Fund's performance to that of the Lipper Global Equity Income Funds category. *The performance of the Lipper Global Equity Income Funds Index and the MSCI World High Dividend Yield Index is calculated from the end of the month, July 31, 2015, while the inception date of the Fund Shares is August 7, 2015. There may be a slight variation of performance numbers because of this difference. Past performance is no guarantee of future results, and the cumulative performance quoted does not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of shares. Indexes are unmanaged and you cannot invest directly in an index. The return information for the indexes does not reflect the deduction of any fees, expenses, or taxes, except that the Lipper index reflects the fees and expenses of the underlying funds included in the index. ================================================================================ INVESTMENT OVERVIEW | 7 ================================================================================ USAA GLOBAL EQUITY INCOME FUND INSTITUTIONAL SHARES (INSTITUTIONAL SHARES) (Ticker Symbol: UIGEX)
-------------------------------------------------------------------------------- 9/30/16 3/31/16 -------------------------------------------------------------------------------- Net Assets $4.9 Million $4.7 Million Net Asset Value Per Share $9.84 $9.39 -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURN AS OF 9/30/16 -------------------------------------------------------------------------------- 3/31/16-9/30/16* 1 YEAR SINCE INCEPTION 8/7/15 6.17% 1.32% 0.45% -------------------------------------------------------------------------------- EXPENSE RATIO AS OF 8/1/16** -------------------------------------------------------------------------------- BEFORE REIMBURSEMENT 1.80% AFTER REIMBURSEMENT 1.11%
(Includes acquired fund fees and expenses of 0.01%) THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT USAA.COM. *Total returns for periods of less than one year are not annualized. This return is cumulative. **The expense ratio is reported in the Fund's prospectus dated August 1, 2016, and is based on estimated expenses for the current fiscal year. USAA Asset Management Company (the Manager) has agreed, through August 1, 2017, to make payments or waive management, administration, and other fees to limit the expenses of the Fund so that the total annual operating expenses of the Institutional Shares (exclusive of commission recapture, expense offset arrangements, acquired fund fees and expenses, and extraordinary expenses) do not exceed an annual rate of 1.10% of the Institutional Shares' average net assets. This reimbursement arrangement may not be changed or terminated during this time period without approval of the Trust's Board of Trustees and may be changed or terminated by the Manager at any time after August 1, 2017. If the total annual operating expense ratio of the Institutional Shares is lower than 1.10%, the Institutional Shares will operate at the lower expense ratio. These expense ratios may differ from the expense ratios disclosed in the Financial Highlights, which excludes acquired fund fees and expenses. Total return measures the price change in a share assuming the reinvestment of all net investment income and realized capital gain distributions, if any. The total returns quoted do not reflect adjustments made to the enclosed financial statements in accordance with U.S. generally accepted accounting principles or the deduction of taxes that a shareholder would pay on net investment income and realized capital gain distributions, including reinvested distributions, or redemptions of shares. The Institutional Shares are available for investment through a USAA discretionary managed account program, and certain advisory programs sponsored by financial intermediaries, such as brokerage firms, investment advisors, financial planners, third-party administrators, and insurance companies. Institutional Shares also are available to institutional investors, which include retirement plans, endowments, foundations, and bank trusts, as well as other persons or legal entities that the Fund may approve from time to time, or for purchase by a USAA fund participating in a fund-of-funds investment strategy (USAA fund-of-funds). ================================================================================ 8 | USAA GLOBAL EQUITY INCOME FUND ================================================================================ o CUMULATIVE PERFORMANCE COMPARISON o [CHART OF CUMULATIVE PERFORMANCE COMPARISON]
MSCI WORLD HIGH LIPPER GLOBAL EQUITY USAA GLOBAL EQUITY DIVIDEND YIELD INCOME FUNDS INCOME FUND INSTITUTIONAL INDEX INDEX SHARES 07/31/15 $10,000.00 $10,000.00 $10,000.00 08/31/15 9,398.61 9,429.12 9,350.00 09/30/15 9,159.15 9,182.62 9,030.00 10/31/15 9,866.73 9,759.31 9,660.00 11/30/15 9,719.34 9,676.75 9,520.00 12/31/15 9,581.12 9,537.00 9,323.00 01/31/16 9,247.14 9,219.54 8,942.00 02/29/16 9,312.39 9,183.69 8,912.00 03/31/16 9,942.16 9,733.62 9,468.00 04/30/16 10,142.82 9,820.25 9,710.00 05/31/16 10,143.87 9,878.12 9,750.00 06/30/16 10,238.75 9,921.61 9,858.00 07/31/16 10,487.05 10,203.27 10,072.00 08/31/16 10,429.82 10,165.14 10,031.00 09/30/16 10,504.33 10,192.32 10,052.00
[END CHART] Data from 7/31/15 through 9/30/16.* The graph illustrates the comparison of a $10,000 hypothetical investment in the USAA Global Equity Income Fund Institutional Shares to the Fund's benchmarks listed above (see page 7 for benchmark definitions). *The performance of the MSCI World High Dividend Yield Index and the Lipper Global Equity Income Funds Index is calculated from the end of the month, July 31, 2015, while the inception date of the Institutional Shares is August 7, 2015. There may be a slight variation of performance numbers because of this difference. Past performance is no guarantee of future results, and the cumulative performance quoted does not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of shares. Indexes are unmanaged and you cannot invest directly in an index. The return information for the indexes does not reflect the deduction of any fees, expenses, or taxes, except that the Lipper index reflects the fees and expenses of the underlying funds included in the index. ================================================================================ INVESTMENT OVERVIEW | 9 ================================================================================ o TOP 10 HOLDINGS* - 9/30/16 o (% of Net Assets) Siemens AG ............................................................... 3.0% Nestle S.A. .............................................................. 2.7% Procter & Gamble Co. ..................................................... 2.7% Pfizer, Inc. ............................................................. 2.5% General Electric Co. ..................................................... 2.4% Chevron Corp. ............................................................ 2.4% Merck & Co., Inc. ........................................................ 2.3% Cisco Systems, Inc. ...................................................... 2.3% Exxon Mobil Corp. ........................................................ 2.2% Novartis AG .............................................................. 2.1%
You will find a complete list of securities that the Fund owns on pages 12 -17. *Excludes money market instruments. ================================================================================ 10 | USAA GLOBAL EQUITY INCOME FUND ================================================================================ o ASSET ALLOCATION - 9/30/16 o [PIE CHART OF ASSET ALLOCATION] HEALTH CARE 15.4% CONSUMER STAPLES 12.5% ENERGY 11.3% MONEY MARKET INSTRUMENTS 11.2% FINANCIALS 9.9% INDUSTRIALS 9.6% INFORMATION TECHNOLOGY 8.6% UTILITIES 6.7% TELECOMMUNICATION SERVICES 5.3% MATERIALS 4.6% CONSUMER DISCRETIONARY 4.2%
[END PIE CHART] Percentages are of the net assets of the Fund and may not equal 100%. You will find a complete list of securities that the Fund owns on pages 12-17. ================================================================================ INVESTMENT OVERVIEW | 11 ================================================================================ PORTFOLIO OF INVESTMENTS September 30, 2016 (unaudited)
------------------------------------------------------------------------------------------------------------ MARKET NUMBER VALUE OF SHARES SECURITY (000) ------------------------------------------------------------------------------------------------------------ EQUITY SECURITIES (88.1%) COMMON STOCKS (88.1%) CONSUMER DISCRETIONARY (4.2%) ----------------------------- ADVERTISING (0.4%) 2,700 Omnicom Group, Inc. $ 230 ------- AUTOMOBILE MANUFACTURERS (1.4%) 8,200 Daimler AG 578 23,400 Ford Motor Co. 282 ------- 860 ------- CABLE & SATELLITE (0.7%) 36,200 Sky plc 419 ------- HOME IMPROVEMENT RETAIL (1.0%) 124,500 Kingfisher plc 608 ------- HOTELS, RESORTS & CRUISE LINES (0.5%) 6,300 Carnival Corp. 308 ------- RESTAURANTS (0.2%) 1,300 McDonald's Corp. 150 ------- Total Consumer Discretionary 2,575 ------- CONSUMER STAPLES (12.5%) ------------------------ HOUSEHOLD PRODUCTS (2.7%) 18,300 Procter & Gamble Co. 1,642 ------- HYPERMARKETS & SUPER CENTERS (0.7%) 5,900 Wal-Mart Stores, Inc. 426 ------- PACKAGED FOODS & MEAT (2.7%) 21,200 Nestle S.A. 1,671 ------- PERSONAL PRODUCTS (1.9%) 25,500 Unilever N.V. 1,177 ------- SOFT DRINKS (1.0%) 14,400 Coca-Cola Co. 609 ------- TOBACCO (3.5%) 7,000 Altria Group, Inc. 443 8,600 British American Tobacco plc 549
================================================================================ 12 | USAA GLOBAL EQUITY INCOME FUND ================================================================================
------------------------------------------------------------------------------------------------------------ MARKET NUMBER VALUE OF SHARES SECURITY (000) ------------------------------------------------------------------------------------------------------------ 6,500 Imperial Tobacco Group plc $ 335 5,900 Philip Morris International, Inc. 573 5,700 Reynolds American, Inc. 269 ------- 2,169 ------- Total Consumer Staples 7,694 ------- ENERGY (11.3%) -------------- INTEGRATED OIL & GAS (9.9%) 14,100 Chevron Corp. 1,451 15,900 Exxon Mobil Corp. 1,388 13,200 Occidental Petroleum Corp. 963 33,894 Royal Dutch Shell plc "A" 841 7,100 Royal Dutch Shell plc ADR "A" 355 22,700 Total S.A. 1,075 ------- 6,073 ------- OIL & GAS DRILLING (0.5%) 4,600 Helmerich & Payne, Inc. 310 ------- OIL & GAS EQUIPMENT & SERVICES (0.4%) 3,500 Schlumberger Ltd. 275 ------- OIL & GAS EXPLORATION & PRODUCTION (0.5%) 7,100 ConocoPhillips 309 ------- Total Energy 6,967 ------- FINANCIALS (9.9%) ----------------- CONSUMER FINANCE (0.8%) 16,715 Synchrony Financial 468 ------- DIVERSIFIED BANKS (6.3%) 39,800 Australia and New Zealand Banking Group Ltd. 842 4,400 Bank of Montreal 288 7,500 Canadian Imperial Bank of Commerce 582 52,600 DBS Group Holdings Ltd. 594 57,800 HSBC Holdings plc 433 6,600 JPMorgan Chase & Co. 439 11,200 Royal Bank of Canada 694 ------- 3,872 ------- MULTI-LINE INSURANCE (1.9%) 1,900 Allianz SE 282 42,200 AXA S.A. 898 ------- 1,180 -------
================================================================================ PORTFOLIO OF INVESTMENTS | 13 ================================================================================
------------------------------------------------------------------------------------------------------------ MARKET NUMBER VALUE OF SHARES SECURITY (000) ------------------------------------------------------------------------------------------------------------ REGIONAL BANKS (0.4%) 3,000 PNC Financial Services Group, Inc. $ 270 ------- REINSURANCE (0.5%) 3,300 Swiss Re AG 298 ------- Total Financials 6,088 ------- HEALTH CARE (15.4%) ------------------- BIOTECHNOLOGY (2.1%) 17,000 AbbVie, Inc. 1,072 2,900 Gilead Sciences, Inc. 229 ------- 1,301 ------- HEALTH CARE EQUIPMENT (0.7%) 5,200 Medtronic plc 449 ------- PHARMACEUTICALS (12.6%) 29,000 GlaxoSmithKline plc 618 7,900 GlaxoSmithKline plc ADR 341 9,900 Johnson & Johnson 1,169 22,800 Merck & Co., Inc. 1,423 16,200 Novartis AG 1,274 45,600 Pfizer, Inc. 1,544 4,700 Roche Holding AG 1,166 3,100 Sanofi 236 ------- 7,771 ------- Total Health Care 9,521 ------- INDUSTRIALS (9.6%) ------------------ AEROSPACE & DEFENSE (1.1%) 42,400 BAE Systems plc 288 1,700 Lockheed Martin Corp. 407 ------- 695 ------- CONSTRUCTION & ENGINEERING (1.0%) 7,500 Vinci S.A. 574 ------- ELECTRICAL COMPONENTS & EQUIPMENT (0.7%) 6,800 Eaton Corp. plc 447 ------- ENVIRONMENTAL & FACILITIES SERVICES (0.5%) 6,200 Republic Services, Inc. 313 ------- HUMAN RESOURCE & EMPLOYMENT SERVICES (0.5%) 5,000 Adecco Group AG 281 -------
================================================================================ 14 | USAA GLOBAL EQUITY INCOME FUND ================================================================================
------------------------------------------------------------------------------------------------------------ MARKET NUMBER VALUE OF SHARES SECURITY (000) ------------------------------------------------------------------------------------------------------------ INDUSTRIAL CONGLOMERATES (5.4%) 49,368 General Electric Co. $ 1,462 16,000 Siemens AG 1,873 ------- 3,335 ------- SECURITY & ALARM SERVICES (0.4%) 5,432 Johnson Controls International plc 253 ------- Total Industrials 5,898 ------- INFORMATION TECHNOLOGY (8.6%) ----------------------------- COMMUNICATIONS EQUIPMENT (2.3%) 44,000 Cisco Systems, Inc. 1,396 ------- SEMICONDUCTORS (3.8%) 28,200 Intel Corp. 1,064 13,500 QUALCOMM, Inc. 925 4,900 Texas Instruments, Inc. 344 ------- 2,333 ------- SYSTEMS SOFTWARE (0.9%) 9,900 Microsoft Corp. 570 ------- TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (1.6%) 300 Samsung Electronics Co. Ltd. 435 14,500 Seagate Technology plc 559 ------- 994 ------- Total Information Technology 5,293 ------- MATERIALS (4.6%) ---------------- COMMODITY CHEMICALS (0.6%) 4,500 LyondellBasell Industries N.V. "A" 363 ------- DIVERSIFIED CHEMICALS (2.2%) 4,200 BASF SE 359 8,200 Dow Chemical Co. 425 36,100 Huntsman Corp. 587 ------- 1,371 ------- DIVERSIFIED METALS & MINING (1.2%) 11,900 Freeport-McMoRan, Inc. 129 15,100 Rio Tinto Ltd. 597 ------- 726 ------- GOLD (0.4%) 15,500 Goldcorp, Inc. 256 -------
================================================================================ PORTFOLIO OF INVESTMENTS | 15 ================================================================================
------------------------------------------------------------------------------------------------------------ MARKET NUMBER VALUE OF SHARES SECURITY (000) ------------------------------------------------------------------------------------------------------------ PAPER PRODUCTS (0.2%) 7,100 UPM-Kymmene Oyj $ 150 ------- Total Materials 2,866 ------- TELECOMMUNICATION SERVICES (5.3%) --------------------------------- INTEGRATED TELECOMMUNICATION SERVICES (2.8%) 20,200 AT&T, Inc. 820 7,200 Nippon Telegraph & Telephone Corp. 328 54,400 Singapore Telecommunications Ltd. 158 31,400 TeliaSonera AB 141 5,400 Verizon Communications, Inc. 281 ------- 1,728 ------- WIRELESS TELECOMMUNICATION SERVICES (2.5%) 14,000 NTT DOCOMO, Inc. 354 10,300 Rogers Communications, Inc. 437 264,300 Vodafone Group plc 759 ------- 1,550 ------- Total Telecommunication Services 3,278 ------- UTILITIES (6.7%) ---------------- ELECTRIC UTILITIES (4.9%) 5,100 American Electric Power Co., Inc. 328 5,200 Duke Energy Corp. 416 7,700 Edison International 556 50,300 EDP-Energias de Portugal S.A. 169 164,700 Enel S.p.A. 734 2,300 NextEra Energy, Inc. 281 16,100 PPL Corp. 557 ------- 3,041 ------- MULTI-UTILITIES (1.8%) 53,600 E.ON SE 380 45,100 National Grid plc 638 5,360 Uniper SE* 66 ------- 1,084 ------- Total Utilities 4,125 ------- Total Common Stocks 54,305 ------- Total Equity Securities (cost: $52,636) 54,305 -------
================================================================================ 16 | USAA GLOBAL EQUITY INCOME FUND ================================================================================
------------------------------------------------------------------------------------------------------------ MARKET NUMBER VALUE OF SHARES SECURITY (000) ------------------------------------------------------------------------------------------------------------ MONEY MARKET INSTRUMENTS (11.2%) MONEY MARKET FUNDS (11.2%) 6,887,558 State Street Institutional Liquid Reserves Fund Premier Class, 0.40%(a) (cost: $6,888) $ 6,888 ------- TOTAL INVESTMENTS (COST: $59,524) $61,193 ======= ------------------------------------------------------------------------------------------------------------ ($ IN 000s) VALUATION HIERARCHY ------------------------------------------------------------------------------------------------------------ ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL ------------------------------------------------------------------------------------------------------------ Equity Securities: Common Stocks $54,305 $- $- $54,305 Money Market Instruments: Money Market Funds 6,888 - - 6,888 ------------------------------------------------------------------------------------------------------------ Total $61,193 $- $- $61,193 ------------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or geographic region classifications. For the period of April 1, 2016, through September 30, 2016, there were no transfers of securities between levels. The Fund's policy is to recognize any transfers in and transfers out as of the beginning of the reporting period in which the event or circumstance that caused the transfer occurred. ================================================================================ PORTFOLIO OF INVESTMENTS | 17 ================================================================================ NOTES TO PORTFOLIO OF INVESTMENTS September 30, 2016 (unaudited) -------------------------------------------------------------------------------- o GENERAL NOTES Market values of securities are determined by procedures and practices discussed in Note 1A to the financial statements. The Portfolio of Investments category percentages shown represent the percentages of the investments to net assets, and, in total, may not equal 100%. A category percentage of 0.0% represents less than 0.1% of net assets. Investments in foreign securities were 40.8% of net assets at September 30, 2016. o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS ADR American depositary receipts are receipts issued by a U.S. bank evidencing ownership of foreign shares. Dividends are paid in U.S. dollars. o SPECIFIC NOTES (a) Rate represents the money market fund annualized seven-day yield at September 30, 2016. * Non-income-producing security. See accompanying notes to financial statements. ================================================================================ 18 | USAA GLOBAL EQUITY INCOME FUND ================================================================================ STATEMENT OF ASSETS AND LIABILITIES (IN THOUSANDS) September 30, 2016 (unaudited) -------------------------------------------------------------------------------- ASSETS Investments in securities, at market value (cost of $59,524) $61,193 Cash denominated in foreign currencies (identified cost of $160) 160 Receivables: Capital shares sold 191 USAA Asset Management Company (Note 6C) 100 Dividends and interest 171 Other 17 ------- Total assets 61,832 ------- LIABILITIES Payables: Capital shares redeemed 18 Bank overdraft 106 Accrued management fees 23 Accrued transfer agent's fees 4 Other accrued expenses and payables 46 ------- Total liabilities 197 ------- Net assets applicable to capital shares outstanding $61,635 ======= NET ASSETS CONSIST OF: Paid-in capital $60,840 Accumulated undistributed net investment income 22 Accumulated net realized loss on investments (896) Net unrealized appreciation of investments 1,669 ------- Net assets applicable to capital shares outstanding $61,635 ======= Net asset value, redemption price, and offering price per share: Fund Shares (net assets of $56,714/5,763 capital shares outstanding, no par value) $ 9.84 ======= Institutional Shares (net assets of $4,921/500 capital shares outstanding, no par value) $ 9.84 =======
See accompanying notes to financial statements. ================================================================================ FINANCIAL STATEMENTS | 19 ================================================================================ STATEMENT OF OPERATIONS (IN THOUSANDS) Six-month period ended September 30, 2016 (unaudited) -------------------------------------------------------------------------------- INVESTMENT INCOME Dividends (net of foreign taxes withheld of $47) $1,000 Interest 9 ------ Total income 1,009 ------ EXPENSES Management fees 133 Administration and servicing fees: Fund Shares 38 Institutional Shares 2 Transfer agent's fees: Fund Shares 37 Institutional Shares 2 Custody and accounting fees: Fund Shares 32 Institutional Shares 3 Postage: Fund Shares 2 Shareholder reporting fees: Fund Shares 7 Trustees' fees 15 Registration fees: Fund Shares 25 Institutional Shares 23 Professional fees 42 Other 7 ------ Total expenses 368 Expenses reimbursed: Fund Shares (22) Institutional Shares (21) ------ Net expenses 325 ------ NET INVESTMENT INCOME 684 ------
================================================================================ 20 | USAA GLOBAL EQUITY INCOME FUND ================================================================================ NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY Net realized loss on: Investments (199) Foreign currency transactions (10) Change in net unrealized appreciation/(depreciation) of: Investments 2,652 Foreign currency translations (6) ------ Net realized and unrealized gain 2,437 ------ Increase in net assets resulting from operations $3,121 ======
See accompanying notes to financial statements. ================================================================================ FINANCIAL STATEMENTS | 21 ================================================================================ STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS) Six-month period ended September 30, 2016 (unaudited), and period ended March 31, 2016
------------------------------------------------------------------------------------------------------------ 9/30/2016 3/31/2016* ------------------------------------------------------------------------------------------------------------ FROM OPERATIONS Net investment income $ 684 $ 514 Net realized loss on investments (199) (687) Net realized loss on foreign currency transactions (10) (139) Change in net unrealized appreciation/(depreciation) of: Investments 2,652 (983) Foreign currency translations (6) 6 ---------------------- Increase (decrease) in net assets resulting from operations 3,121 (1,289) ---------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income: Fund Shares (626) (310) Institutional Shares (63) (38) ---------------------- Distributions to shareholders (689) (348) ---------------------- NET INCREASE IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS (NOTE 5) Fund Shares 12,428 43,411 Institutional Shares - 5,000 ---------------------- Total net increase in net assets from capital share transactions 12,428 48,411 ---------------------- Capital contribution from USAA Transfer Agency Company: Fund Shares - 1 ---------------------- Net increase in net assets 14,860 46,775 NET ASSETS Beginning of period 46,775 - ---------------------- End of period $61,635 $46,775 ====================== Accumulated undistributed net investment income: End of period $ 22 $ 27 ======================
*Fund commenced operations on August 7, 2015. See accompanying notes to financial statements. ================================================================================ 22 | USAA GLOBAL EQUITY INCOME FUND ================================================================================ NOTES TO FINANCIAL STATEMENTS September 30, 2016 (unaudited) -------------------------------------------------------------------------------- (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company Act of 1940, as amended (the 1940 Act), is an open-end management investment company organized as a Delaware statutory trust consisting of 54 separate funds. Additionally, the Fund qualifies as a registered investment company under Accounting Standards Codification Topic 946. The information presented in this semiannual report pertains only to the USAA Global Equity Income Fund (the Fund), which is classified as diversified under the 1940 Act. The Fund's investment objective is to seek total return with an emphasis on current income. The Fund consists of two classes of shares: Global Equity Income Fund Shares (Fund Shares) and Global Equity Income Fund Institutional Shares (Institutional Shares). Each class of shares has equal rights to assets and earnings, except that each class bears certain class-related expenses specific to the particular class. These expenses include administration and servicing fees, transfer agent fees, postage, shareholder reporting fees, and certain registration and custodian fees. Expenses not attributable to a specific class, income, and realized gains or losses on investments are allocated to each class of shares based on each class' relative net assets. Each class has exclusive voting rights on matters related solely to that class and separate voting rights on matters that relate to all classes. The Institutional Shares are available for investment through a USAA discretionary managed account program, and certain advisory programs sponsored by financial intermediaries, such as brokerage firms, investment advisors, financial planners, third-party administrators, and insurance companies. Institutional Shares also are available to institutional investors, which include retirement plans, endowments, foundations, and bank trusts, as well as other persons or legal entities that the Fund may ================================================================================ NOTES TO FINANCIAL STATEMENTS | 23 ================================================================================ approve from time to time, or for purchase by a USAA fund participating in a fund-of-funds investment strategy (USAA fund-of-funds). A. SECURITY VALUATION - The Trust's Board of Trustees (the Board) has established the Valuation Committee (the Committee), and subject to Board oversight, the Committee administers and oversees the Fund's valuation policies and procedures, which are approved by the Board. Among other things, these policies and procedures allow the Fund to utilize independent pricing services, quotations from securities dealers, and a wide variety of sources and information to establish and adjust the fair value of securities as events occur and circumstances warrant. The Committee reports to the Board on a quarterly basis and makes recommendations to the Board as to pricing methodologies and services used by the Fund and presents additional information to the Board regarding application of the pricing and fair valuation policies and procedures during the preceding quarter. The Committee meets as often as necessary to make pricing and fair value determinations. In addition, the Committee holds regular monthly meetings to review prior actions taken by the Committee and USAA Asset Management Company (the Manager), an affiliate of the Fund. Among other things, these monthly meetings include a review and analysis of back testing reports, pricing service quotation comparisons, illiquid securities and fair value determinations, pricing movements, and daily stale price monitoring. The value of each security is determined (as of the close of trading on the New York Stock Exchange (NYSE) on each business day the NYSE is open) as set forth below: 1. Equity securities, including exchange-traded funds (ETFs), except as otherwise noted, traded primarily on a domestic securities exchange or the over-the-counter markets, are valued at the last sales price or official closing price on the exchange or primary market on which they trade. Securities traded primarily on foreign securities exchanges or markets are valued at the last quoted sales price, or the most recently determined official closing price calculated according to local market convention, available at the time the Fund is valued. ================================================================================ 24 | USAA GLOBAL EQUITY INCOME FUND ================================================================================ If no last sale or official closing price is reported or available, the average of the bid and asked prices generally is used. Actively traded equity securities listed on a domestic exchange generally are categorized in Level 1 of the fair value hierarchy. Certain preferred and equity securities traded in inactive markets generally are categorized in Level 2 of the fair value hierarchy. 2. Equity securities trading in various foreign markets may take place on days when the NYSE is closed. Further, when the NYSE is open, the foreign markets may be closed. Therefore, the calculation of the Fund's net asset value (NAV) may not take place at the same time the prices of certain foreign securities held by the Fund are determined. In many cases, events affecting the values of foreign securities that occur between the time of their last quoted sales or official closing prices and the close of normal trading on the NYSE on a day the Fund's NAV is calculated will not need to be reflected in the value of the Fund's foreign securities. However, the Manager will monitor for events that would materially affect the value of the Fund's foreign securities and the Committee will consider such available information that it deems relevant and will determine a fair value for the affected foreign securities in accordance with valuation procedures. In addition, information from an external vendor or other sources may be used to adjust the foreign market closing prices of foreign equity securities to reflect what the Committee believes to be the fair value of the securities as of the close of the NYSE. Fair valuation of affected foreign equity securities may occur frequently based on an assessment that events which occur on a fairly regular basis (such as U.S. market movements) are significant. Such securities are categorized in Level 2 of the fair value hierarchy. 3. Investments in open-end investment companies, commingled, or other funds, other than ETFs, are valued at their NAV at the end of each business day and are categorized in Level 1 of the fair value hierarchy. 4. Short-term debt securities with original or remaining maturities of 60 days or less may be valued at amortized cost, provided that amortized cost represents the fair value of such securities. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 25 ================================================================================ 5. Debt securities with maturities greater than 60 days are valued each business day by a pricing service (the Service) approved by the Board. The Service uses an evaluated mean between quoted bid and asked prices or the last sales price to value a security when, in the Service's judgment, these prices are readily available and are representative of the security's market value. For many securities, such prices are not readily available. The Service generally prices those securities based on methods which include consideration of yields or prices of securities of comparable quality, coupon, maturity, and type; indications as to values from dealers in securities; and general market conditions. Generally, debt securities are categorized in Level 2 of the fair value hierarchy; however, to the extent the valuations include significant unobservable inputs, the securities would be categorized in Level 3. 6. Repurchase agreements are valued at cost. 7. In the event that price quotations or valuations are not readily available, are not reflective of market value, or a significant event has been recognized in relation to a security or class of securities, the securities are valued in good faith by the Committee in accordance with valuation procedures approved by the Board. The effect of fair value pricing is that securities may not be priced on the basis of quotations from the primary market in which they are traded and the actual price realized from the sale of a security may differ materially from the fair value price. Valuing these securities at fair value is intended to cause the Fund's NAV to be more reliable than it otherwise would be. Fair value methods used by the Manager include, but are not limited to, obtaining market quotations from secondary pricing services, broker-dealers, other pricing services, or widely used quotation systems. General factors considered in determining the fair value of securities include fundamental analytical data, the nature and duration of any restrictions on disposition of the securities, evaluation of credit quality, and an evaluation of the forces that influenced the market in which the securities are purchased and sold. B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly ================================================================================ 26 | USAA GLOBAL EQUITY INCOME FUND ================================================================================ transaction between market participants at the measurement date. The three-level valuation hierarchy disclosed in the Portfolio of Investments is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows: Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) in active markets for identical securities. Level 2 - inputs to the valuation methodology are other significant observable inputs, including quoted prices for similar securities, inputs that are observable for the securities, either directly or indirectly, and market-corroborated inputs such as market indexes. Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value measurement, including the Manager's own assumptions in determining the fair value. The inputs or methodologies used for valuing securities are not necessarily an indication of the risks associated with investing in those securities. C. FEDERAL TAXES - The Fund's policy is to comply with the requirements of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies and to distribute substantially all of its taxable income and net capital gains, if any, to its shareholders. Therefore, no federal income tax provision is required. D. INVESTMENTS IN SECURITIES - Securities transactions are accounted for on the date the securities are purchased or sold (trade date). Gains or losses from sales of investment securities are computed on the identified cost basis. Dividend income, less foreign taxes, if any, is recorded on the ex-dividend date. If the ex-dividend date has passed, certain dividends from foreign securities are recorded upon notification. Interest income is recorded daily on the accrual basis. Discounts and premiums on short-term securities are amortized on a straight-line basis over the life of the respective securities. E. FOREIGN TAXATION - Foreign income and capital gains on some foreign securities may be subject to foreign taxes, which are reflected as a reduction to such income and realized gains. The Fund records a liability based on unrealized gains to provide for potential foreign taxes payable upon the sale of these securities. Foreign taxes have been provided for in ================================================================================ NOTES TO FINANCIAL STATEMENTS | 27 ================================================================================ accordance with the Fund's understanding of the applicable countries' prevailing tax rules and rates. F. FOREIGN CURRENCY TRANSLATIONS - The Fund's assets may be invested in the securities of foreign issuers and may be traded in foreign currency. Since the Fund's accounting records are maintained in U.S. dollars, foreign currency amounts are translated into U.S. dollars on the following bases: 1. Purchases and sales of securities, income, and expenses at the exchange rate obtained from an independent pricing service on the respective dates of such transactions. 2. Market value of securities, other assets, and liabilities at the exchange rate obtained from an independent pricing service on a daily basis. The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments. Separately, net realized foreign currency gains/losses may arise from sales of foreign currency, currency gains/losses realized between the trade and settlement dates on security transactions, and from the difference between amounts of dividends, interest, and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent of the amounts received. At the end of the Fund's fiscal year, net realized foreign currency gains/losses are reclassified from accumulated net realized gains/losses to accumulated undistributed net investment income on the Statement of Assets and Liabilities, as such amounts are treated as ordinary income/loss for federal income tax purposes. Net unrealized foreign currency exchange gains/losses arise from changes in the value of assets and liabilities, other than investments in securities, resulting from changes in the exchange rate. G. EXPENSES PAID INDIRECTLY - Through arrangements with the Fund's custodian and other banks utilized by the Fund for cash management purposes, realized credits, if any, generated from cash balances in the Fund's bank accounts may be used to directly reduce the Fund's expenses. For the six-month period ended September 30, 2016, there were no custodian and other bank credits. ================================================================================ 28 | USAA GLOBAL EQUITY INCOME FUND ================================================================================ H. INDEMNIFICATIONS - Under the Trust's organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Trust. In addition, in the normal course of business, the Trust enters into contracts that contain a variety of representations and warranties that provide general indemnifications. The Trust's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Trust that have not yet occurred. However, the Trust expects the risk of loss to be remote. I. USE OF ESTIMATES - The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that may affect the reported amounts in the financial statements. (2) LINE OF CREDIT The Fund participates in a joint, short-term, revolving, committed loan agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate of the Manager. The purpose of the agreement is to meet temporary or emergency cash needs, including redemption requests that might otherwise require the untimely disposition of securities. Subject to availability, the Fund may borrow from CAPCO an amount up to 5% of the Fund's total assets at an interest rate based on the London Interbank Offered Rate (LIBOR), plus 100.0 basis points. The USAA Funds that are party to the loan agreement are assessed facility fees by CAPCO in the amount of 12.0 basis points of the amount of the committed loan agreement. Prior to September 30, 2016, the maximum annual facility fee was 9.0 basis points of the amount of the committed loan agreement. The facility fees are allocated among the USAA Funds based on their respective average net assets for the period. The USAA Funds may request an optional increase of the committed loan agreement from $500 million up to $750 million. If the USAA Funds increase the committed loan agreement, the assessed facility fee on the amount of the additional commitment will be 13.0 basis points. For the six-month period ended September 30, 2016, the Fund paid CAPCO facility fees of less than $500, which represents 0.1% of the total fees paid to ================================================================================ NOTES TO FINANCIAL STATEMENTS | 29 ================================================================================ CAPCO by the USAA Funds. The Fund had no borrowings under this agreement during the six-month period ended September 30, 2016. (3) DISTRIBUTIONS The tax basis of distributions and accumulated undistributed net investment income will be determined as of the Fund's tax year-end of March 31, 2017, in accordance with applicable federal tax law. Distributions of net investment income are made quarterly. Distributions of realized gains from security transactions not offset by capital losses are made annually in the succeeding fiscal year or as otherwise required to avoid the payment of federal income taxes. At March 31, 2016, the Fund had net capital loss carryforwards of $662,000, for federal income tax purposes. It is unlikely that the Board will authorize a distribution of capital gains realized in the future until the capital loss carryforwards have been used. For the six-month period ended September 30, 2016, the Fund did not incur any income tax, interest, or penalties, and has recorded no liability for net unrecognized tax benefits relating to uncertain income tax positions. On an ongoing basis, the Manager will monitor the Fund's tax basis to determine if adjustments to this conclusion are necessary. The statute of limitations on the Fund's tax return filings generally remain open for the three preceding fiscal reporting year ends and remain subject to examination by the Internal Revenue Service and state taxing authorities. (4) INVESTMENT TRANSACTIONS Cost of purchases and proceeds from sales/maturities of securities, excluding short-term securities, for the six-month period ended September 30, 2016, were $16,500,000 and $6,873,000, respectively. As of September 30, 2016, the cost of securities, including short-term securities, for federal income tax purposes, was approximately the same as the cost reported in the financial statements. Gross unrealized appreciation and depreciation of investments as of September 30, 2016, were $3,567,000 and $1,898,000, respectively, resulting in net unrealized appreciation of $1,669,000. ================================================================================ 30 | USAA GLOBAL EQUITY INCOME FUND ================================================================================ (5) CAPITAL SHARE TRANSACTIONS At September 30, 2016, there were an unlimited number of shares of capital stock at no par value authorized for the Fund. Capital share transactions for the Institutional Shares resulted from purchases and sales by the affiliated USAA fund-of-funds as well as other persons or legal entities that the Fund may approve from time to time. Capital share transactions for all classes were as follows, in thousands:
SIX-MONTH PERIOD ENDED PERIOD ENDED SEPTEMBER 30, 2016 MARCH 31, 2016* ------------------------------------------------------------------------------------------------------------ SHARES AMOUNT SHARES AMOUNT ------------------------------------------------- FUND SHARES: Shares sold 1,579 $15,340 4,678 $45,192 Shares issued from reinvested dividends 34 328 13 125 Shares redeemed (333) (3,240) (208) (1,906) ------------------------------------------------- Net increase from capital share transactions 1,280 $12,428 4,483 $43,411 ================================================= INSTITUTIONAL SHARES: Shares sold - $ - 500 $ 5,000 Shares issued from reinvested dividends - - - - Shares redeemed (-) (-) (-)** (-)** ------------------------------------------------- Net increase from capital share transactions - $ - 500 $ 5,000 =================================================
*Fund commenced operations on August 7, 2015. **Represents less than 500 shares or $500. (6) TRANSACTIONS WITH MANAGER A. MANAGEMENT FEES - The Manager provides investment management services to the Fund pursuant to an Advisory Agreement. Under this agreement, the Manager is responsible for managing the business and affairs of the Fund, and for directly managing the day-to-day investment of the Fund's assets, subject to the authority of and supervision by the Board. The Manager is authorized to select (with approval of the Board ================================================================================ NOTES TO FINANCIAL STATEMENTS | 31 ================================================================================ and without shareholder approval) one or more subadvisers to manage the day-to-day investment of a portion of the Fund's assets. For the period ended September 30, 2015, there were no subadviser(s). The investment management fee for the Fund is comprised of a base fee and a performance adjustment. The Fund's base fee is accrued daily and paid monthly at an annualized rate of 0.50% of the Fund's average net assets. The performance adjustment is calculated separately for each share class on a monthly basis by comparing each class' performance over the performance period to that of the Lipper Global Equity Income Funds Index. The Lipper Global Equity Income Funds Index tracks the total return performance of Funds that, by prospectus language and portfolio practice, seek relatively high current income and growth of income by investing at least 65% or more of their portfolio in dividend-paying equity securities of domestic and foreign companies. The performance period for the Fund commenced on August 7, 2015, and will consist of the current month plus the preceding 12 months through that date until a period of 36 months is included in the performance period. Thereafter, the performance period will consist of the current month plus the previous 35 months. The following table is utilized to determine the extent of the performance adjustment:
OVER/UNDER PERFORMANCE RELATIVE TO INDEX ANNUAL ADJUSTMENT RATE (IN BASIS POINTS)(1) (IN BASIS POINTS)(1) ------------------------------------------------------------------- +/- 100 to 400 +/- 4 +/- 401 to 700 +/- 5 +/- 701 and greater +/- 6
(1)Based on the difference between average annual performance of the relevant share class of the Fund and its relevant index, rounded to the nearest basis point. Average net assets of the share class are calculated over a rolling 36-month period. Each class' annual performance adjustment rate is multiplied by the average net assets of each respective class over the entire performance period, which is then multiplied by a fraction, the numerator of which is the number of days in the month and the denominator of which is 365 (366 in leap years). The resulting amount is then added to (in the case of ================================================================================ 32 | USAA GLOBAL EQUITY INCOME FUND ================================================================================ overperformance), or subtracted from (in the case of underperformance) the base fee. Under the performance fee arrangement, each class will pay a positive performance fee adjustment for a performance period whenever the class outperforms the Lipper Global Equity Income Funds Index over that period, even if the class had overall negative returns during the performance period. For the six-month period ended September 30, 2016, the Fund incurred total management fees, paid or payable to the Manager, of $133,000, which included a performance adjustment for the Fund Shares and Institutional Shares of $(3,000) and less than $(500), respectively. For the Fund Shares and Institutional Shares, the performance adjustments were (0.01)% and (0.01)%, respectively. B. ADMINISTRATION AND SERVICING FEES - The Manager provides certain administration and servicing functions for the Fund. For such services, the Manager receives a fee accrued daily and paid monthly at an annualized rate of 0.15% of average net assets of the Fund Shares and 0.10% of average net assets of the Institutional Shares. For the six-month period ended September 30, 2016, the Fund Shares and Institutional Shares incurred administration and servicing fees, paid or payable to the Manager, of $38,000 and $2,000, respectively. In addition to the services provided under its Administration and Servicing Agreement with the Fund, the Manager also provides certain compliance and legal services for the benefit of the Fund. The Board has approved the reimbursement of a portion of these expenses incurred by the Manager. For the six-month period ended September 30, 2016, the Fund reimbursed the Manager $1,000 for these compliance and legal services. These expenses are included in the professional fees on the Fund's Statement of Operations. C. EXPENSE LIMITATION - The Manager agreed, through August 1, 2017, to limit the total annual operating expenses of the Fund Shares and Institutional Shares to 1.20%, and 1.10%, respectively, of their average net assets, excluding extraordinary expenses and before reductions of ================================================================================ NOTES TO FINANCIAL STATEMENTS | 33 ================================================================================ any expenses paid indirectly, and to reimburse the Fund Shares and Institutional Shares for all expenses in excess of those amounts. This expense limitation arrangement may not be changed or terminated through August 1, 2017, without approval of the Board, and may be changed or terminated by the Manager at any time after that date. For the six-month period ended September 30, 2016, the Fund incurred reimbursable expenses from the Manager for the Fund Shares and Institutional Shares of $22,000 and $21,000, respectively. Due to a timing difference, $100,000 was receivable from the Manager at September 30, 2016. D. TRANSFER AGENT'S FEES - USAA Transfer Agency Company, d/b/a USAA Shareholder Account Services (SAS), an affiliate of the Manager, provides transfer agent services to the Fund Shares based on an annual charge of $23 per shareholder account plus out-of-pocket expenses. SAS pays a portion of these fees to certain intermediaries for the administration and servicing of accounts that are held with such intermediaries. Transfer agent's fees for Institutional Shares are paid monthly based on a fee accrued daily at an annualized rate of 0.10% of the Institutional Shares' average net assets, plus out-of-pocket expenses. For the six-month period ended September 30, 2016, the Fund Shares and Institutional Shares incurred transfer agent's fees, paid or payable to SAS, of $37,000 and $2,000, respectively. E. UNDERWRITING SERVICES - USAA Investment Management Company provides exclusive underwriting and distribution of the Fund's shares on a continuing best-efforts basis and receives no fee or other compensation for these services. (7) TRANSACTIONS WITH AFFILIATES The Manager is indirectly wholly owned by United Services Automobile Association (USAA), a large, diversified financial services institution. At September 30, 2016, USAA and its affiliates owned 2,500,000 Fund Shares and 500,000 Institutional Shares, which represents 43.4% of the Fund Shares outstanding, 100.0% of the Institutional Shares outstanding, and 47.9% of the Fund's total outstanding shares. ================================================================================ 34 | USAA GLOBAL EQUITY INCOME FUND ================================================================================ Certain trustees and officers of the Fund are also directors, officers, and/or employees of the Manager. None of the affiliated trustees or Fund officers received any compensation from the Fund. As of September 30, 2016, USAA and its affiliates owned approximately 47.9% of the USAA Global Equity Income Fund; and it is considered a "control person" of the Fund for purposes of the 1940 Act. Investment activities of these shareholders could have a significant impact on the Fund. A control person could potentially control the outcome of any proposal submitted to the shareholders for approval, including changes to the Fund's fundamental policies or terms of the investment advisory agreement with the investment advisor. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 35 ================================================================================ (8) FINANCIAL HIGHLIGHTS - FUND SHARES Per share operating performance for a share outstanding throughout each period is as follows:
SIX-MONTH PERIOD ENDED PERIOD ENDED SEPTEMBER 30, MARCH 31, 2016 2016*** ------------------------------------- Net asset value at beginning of period $ 9.39 $ 10.00 --------------------------------- Income (loss) from investment operations: Net investment income .12 .14(a) Net realized and unrealized gain (loss) .45 (.68)(a) --------------------------------- Total from investment operations .57 (.54)(a) --------------------------------- Less distributions from: Net investment income (.12) (.07) --------------------------------- Net asset value at end of period $ 9.84 $ 9.39 ================================= Total return (%)* 6.10 (5.35) Net assets at end of period (000) $56,714 $42,080 Ratios to average net assets:** Expenses (%)(b) 1.20 1.20 Expenses, excluding reimbursements (%)(b) 1.28 1.37 Net investment income (%)(b) 2.50 2.12 Portfolio turnover (%) 14 16
* Assumes reinvestment of all net investment income and realized capital gain distributions, if any, during the period. Includes adjustments in accordance with U.S. generally accepted accounting principles and could differ from the Lipper reported return. Total returns for periods of less than one year are not annualized. ** For the six-month period ended September 30, 2016, average net assets were $49,545,000. *** Fund Shares commenced operations on August 7, 2015. (a) Calculated using average shares. (b) Annualized. The ratio is not necessarily indicative of 12 months of operations. ================================================================================ 36 | USAA GLOBAL EQUITY INCOME FUND ================================================================================ (8) FINANCIAL HIGHLIGHTS (CONTINUED) - INSTITUTIONAL SHARES Per share operating performance for a share outstanding throughout each period is as follows:
SIX-MONTH PERIOD ENDED PERIOD ENDED SEPTEMBER 30, MARCH 31, 2016 2016*** ------------------------------------- Net asset value at beginning of period $ 9.39 $10.00 --------------------------------- Income (loss) from investment operations: Net investment income .13 .15(a) Net realized and unrealized gain (loss) .44 (.68)(a) --------------------------------- Total from investment operations .57 (.53)(a) --------------------------------- Less distributions from: Net investment income (.12) (.08) --------------------------------- Net asset value at end of period $ 9.84 $ 9.39 ================================= Total return (%)* 6.17 (5.32) Net assets at end of period (000) $4,921 $4,695 Ratios to average net assets:** Expenses (%)(b) 1.10 1.10 Expenses, excluding reimbursements (%)(b) 1.98 1.79 Net investment income (%)(b) 2.64 2.20 Portfolio turnover (%) 14 16
* Assumes reinvestment of all net investment income and realized capital gain distributions, if any, during the period. Includes adjustments in accordance with U.S. generally accepted accounting principles and could differ from the Lipper reported return. Total returns for periods of less than one year are not annualized. ** For the six-month period ended September 30, 2016, average net assets were $4,857,000. *** Institutional Shares commenced operations on August 7, 2015. (a) Calculated using average shares. (b) Annualized. The ratio is not necessarily indicative of 12 months of operations. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 37 ================================================================================ EXPENSE EXAMPLE September 30, 2016 (unaudited) -------------------------------------------------------------------------------- EXAMPLE As a shareholder of the Fund, you incur two types of costs: direct costs, such as wire fees, redemption fees, and low balance fees; and indirect costs, including management fees, transfer agency fees, and other Fund operating expenses. This example is intended to help you understand your indirect costs, also referred to as "ongoing costs" (in dollars), of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire six-month period of April 1, 2016, through September 30, 2016. ACTUAL EXPENSES The line labeled "actual" under each share class in the table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested at the beginning of the period, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number for your share class in the "actual" line under the heading "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The line labeled "hypothetical" under each share class in the table provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratios for each class and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to ================================================================================ 38 | USAA GLOBAL EQUITY INCOME FUND ================================================================================ estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any direct costs, such as wire fees, redemption fees, or low balance fees. Therefore, the line labeled "hypothetical" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these direct costs were included, your costs would have been higher.
EXPENSES PAID BEGINNING ENDING DURING PERIOD* ACCOUNT VALUE ACCOUNT VALUE APRIL 1, 2016 - APRIL 1, 2016 SEPTEMBER 30, 2016 SEPTEMBER 30, 2016 -------------------------------------------------------------- FUND SHARES Actual $1,000.00 $1,061.00 $6.20 Hypothetical (5% return before expenses) 1,000.00 1,019.05 6.07 INSTITUTIONAL SHARES Actual 1,000.00 1,061.70 5.69 Hypothetical (5% return before expenses) 1,000.00 1,019.55 5.57
*Expenses are equal to the annualized expense ratio of 1.20% for Fund Shares and 1.10% for Institutional Shares, which are net of any reimbursements and expenses paid indirectly, multiplied by the average account value over the period, multiplied by 183 days/365 days (to reflect the one-half-year period). The Fund's actual ending account values are based on its actual total returns of 6.10% for Fund Shares and 6.17% for Institutional Shares for the six-month period of April 1, 2016, through September 30, 2016. ================================================================================ EXPENSE EXAMPLE | 39 ================================================================================ ADVISORY AGREEMENT(S) September 30, 2016 (unaudited) -------------------------------------------------------------------------------- At an in-person meeting of the Board of Trustees (the Board) held on April 22, 2016, the Board, including the Trustees who are not "interested persons" (as that term is defined in the Investment Company Act of 1940, as amended) of the Trust (the Independent Trustees), approved for an annual period the continuance of the Advisory Agreement between the Trust and the Manager with respect to the Fund. In advance of the meeting, the Trustees received and considered a variety of information relating to the Advisory Agreement and the Manager and were given the opportunity to ask questions and request additional information from management. The information provided to the Board included, among other things: (i) a separate report prepared by an independent third party, which provided a statistical analysis comparing the Fund's investment performance, expenses, and fees to comparable investment companies; (ii) information concerning the services rendered to the Fund, as well as information regarding the Manager's revenues and costs of providing services to the Fund and compensation paid to affiliates of the Manager; and (iii) information about the Manager's operations and personnel. Prior to voting, the Independent Trustees reviewed the proposed continuation of the Advisory Agreement with management and with experienced counsel retained by the Independent Trustees (Independent Counsel) and received materials from such Independent Counsel discussing the legal standards for their consideration of the proposed continuation of the Advisory Agreement with respect to the Fund. The Independent Trustees also reviewed the proposed continuation of the Advisory Agreement with respect to the Fund in private sessions with Independent Counsel at which no representatives of management were present. At each regularly scheduled meeting of the Board and its committees, the Board receives and reviews, among other things, information concerning the Fund's performance and related services provided by the Manager. At the meeting at which the renewal of the Advisory Agreement is considered, ================================================================================ 40 | USAA GLOBAL EQUITY INCOME FUND ================================================================================ particular focus is given to information concerning Fund performance, fees and total expenses as compared to comparable investment companies, and the Manager's profitability with respect to the Fund. However, the Board noted that the evaluation process with respect to the Manager is an ongoing one. In this regard, the Board's and its committees' consideration of the Advisory Agreement included information previously received at such meetings. ADVISORY AGREEMENT After full consideration of a variety of factors, the Board, including the Independent Trustees, voted to approve the Advisory Agreement. In approving the Advisory Agreement, the Trustees did not identify any single factor as controlling, and each Trustee may have attributed different weights to various factors. Throughout their deliberations, the Independent Trustees were represented and assisted by Independent Counsel. NATURE, EXTENT, AND QUALITY OF SERVICES - In considering the nature, extent, and quality of the services to be provided by the Manager under the Advisory Agreement, the Board reviewed information provided by the Manager relating to its operations and personnel. The Board also took into account its knowledge of the Manager's management and the quality of the performance of the Manager's duties through Board meetings, discussions, and reports during the preceding year in connection with the other funds in the Trust. The Board considered the fees to be paid to the Manager and the services to be provided to the Fund by the Manager under the Advisory Agreement, as well as other services to be provided by the Manager and its affiliates under other agreements, and the personnel who would be responsible for providing these services. The Board also took into consideration that, in addition to the investment advisory services to be provided to the Fund, the Manager and its affiliates will provide administrative services, compliance oversight, stockholder services, oversight of Fund accounting, assistance in meeting legal and regulatory requirements, and other services necessary for the operation of the Fund and the Trust. The Board considered the Manager's management style and the performance of the Manager's duties under the Advisory Agreement with respect to the other funds in the Trust. The Board considered the level and depth of ================================================================================ ADVISORY AGREEMENT(S) | 41 ================================================================================ knowledge of the Manager, including the professional experience and qualifications of its senior and investment personnel, as well as current staffing levels. The expected allocation of the Fund's brokerage, including the Manager's process for monitoring "best execution," was also considered. The Manager's role in coordinating the activities of the Fund's other service providers also was considered. The Board also considered the Manager's risk management processes. The Board considered the Manager's financial condition and that it had the financial wherewithal to provide a high quality of services under the Advisory Agreement. In reviewing the Advisory Agreement, the Board focused on the experience, resources, and strengths of the Manager and its affiliates in managing the other funds in the Trust. The Board also reviewed the compliance and administrative services to be provided to the Fund by the Manager, including oversight of the Fund's day-to-day operations and oversight of Fund accounting. The Trustees, guided also by information obtained from their experiences as trustees of other funds managed by the Manager, also focused on the quality of the Manager's compliance and administrative staff. EXPENSES AND PERFORMANCE - In connection with its consideration of the Advisory Agreement, the Board evaluated the Fund's advisory fees and total expense ratio as compared to other open-end investment companies deemed to be comparable to the Fund as determined by the independent third party in its report. The Fund's expenses were compared to (i) a group of investment companies chosen by the independent third party to be comparable to the Fund based upon certain factors, including fund type, comparability of investment objective and classification, sales load type (in this case, investment companies with front-end loads and no sales loads), asset size, and expense components (the "expense group") and (ii) a larger group of investment companies that includes the Fund and all other front-end load and no-load retail open-end investment companies with the same investment classifications/objectives as the Fund regardless of asset size, excluding outliers (the "expense universe"). Among other data, the Board noted that the Fund's management fee rate - which includes advisory and administrative services as well as any fee waivers or reimbursements - was above the median of its expense group and below the median of its expense universe. The data ================================================================================ 42 | USAA GLOBAL EQUITY INCOME FUND ================================================================================ indicated that the Fund's total expense ratio, after reimbursements, was below the median of its expense group and its expense universe. The Board took into account the various services provided to the Fund by the Manager and its affiliates, including the nature and high quality of services provided by the Manager. The Board also noted the level and method of computing the management fee. In considering the Fund's performance, the Board noted that it reviews at its regularly scheduled meetings information about the Fund's performance results. The Trustees also reviewed various comparative data provided to them in connection with their consideration of the renewal of the Advisory Agreement, including, among other information, a comparison of the Fund's average annual total return with its Lipper index and with that of other mutual funds deemed to be in its peer group by the independent third party in its report (the "performance universe"). The Fund's performance universe consisted of the Fund and all retail and institutional open-end investment companies with the same classification/objective as the Fund regardless of asset size or primary channel of distribution. This comparison indicated that, among other data, the Fund's performance was lower than the average of its performance universe and its Lipper index for the period August 31, 2015 to December 31, 2015. The Board also noted that the Fund's percentile performance ranking was in the bottom 50% of its performance universe for the period August 31, 2015 to December 31, 2015. The Board noted that the Fund recently commenced operations and therefore has a limited performance history. COMPENSATION AND PROFITABILITY - The Board took into consideration the level and method of computing the management fee. The information considered by the Board included operating profit margin information for the Manager's business as a whole. The Board also received and considered profitability information related to the management revenues from the Fund. This information included a review of the methodology used in the allocation of certain costs to the Fund. In considering the profitability data with respect to the Fund, the Trustees noted that the Manager reimbursed a portion of its management fees to the Fund. The Trustees reviewed the profitability of the Manager's relationship with the Fund before tax expenses. In reviewing the overall profitability of the management fee to the Manager, the Board also ================================================================================ ADVISORY AGREEMENT(S) | 43 ================================================================================ considered the fact that affiliates provide shareholder servicing and administrative services to the Fund for which they receive compensation. The Board also considered the possible direct and indirect benefits to the Manager from its relationship with the Trust, including that the Manager may derive reputational and other benefits from its association with the Fund. The Board also took into account the high quality of services received by the Fund from the Manager as well as the type of fund. The Trustees recognized that the Manager should be entitled to earn a reasonable level of profits in exchange for the level of services it provides to the Fund and the entrepreneurial risk that it assumes as Manager. ECONOMIES OF SCALE - The Board took into account management's discussions of the Fund's advisory fee structure. The Board also considered the effect of the Fund's growth and size on its performance and fees, noting that if the Fund's assets increase over time, the Fund may realize other economies of scale if assets increase proportionally more than some expenses. The Board also considered the fee waivers and expense reimbursement arrangements by the Manager. The Board determined that the investment management fee structure was reasonable. CONCLUSIONS - The Board reached the following conclusions regarding the Fund's Advisory Agreement with the Manager, among others: (i) the Manager has demonstrated that it possesses the capability and resources to perform the duties required of it under the Advisory Agreement; (ii) the Manager maintains an appropriate compliance program; (iii) the performance of the Fund is reasonable in relation to the performance of funds with similar investment objectives and to relevant indices in view of its limited performance history; (iv) the Fund's advisory expenses are reasonable in relation to those of similar funds and to the services to be provided by the Manager; and (v) the Manager's and its affiliates' level of profitability from its relationship with the Fund is reasonable in light of the nature and high quality of services provided by the Manager and the type of fund. Based on its conclusions, the Board determined that continuation of the Advisory Agreement would be in the best interests of the Fund and its shareholders. ================================================================================ 44 | USAA GLOBAL EQUITY INCOME FUND ================================================================================ TRUSTEES Daniel S. McNamara Robert L. Mason, Ph.D. Jefferson C. Boyce Dawn M. Hawley Paul L. McNamara Barbara B. Ostdiek, Ph.D. Michael F. Reimherr -------------------------------------------------------------------------------- ADMINISTRATOR AND USAA Asset Management Company INVESTMENT ADVISER P.O. Box 659453 San Antonio, Texas 78265-9825 -------------------------------------------------------------------------------- UNDERWRITER AND USAA Investment Management Company DISTRIBUTOR P.O. Box 659453 San Antonio, Texas 78265-9825 -------------------------------------------------------------------------------- TRANSFER AGENT USAA Shareholder Account Services 9800 Fredericksburg Road San Antonio, Texas 78288 -------------------------------------------------------------------------------- CUSTODIAN AND State Street Bank and Trust Company ACCOUNTING AGENT P.O. Box 1713 Boston, Massachusetts 02105 -------------------------------------------------------------------------------- INDEPENDENT Ernst & Young LLP REGISTERED PUBLIC 100 West Houston St., Suite 1700 ACCOUNTING FIRM San Antonio, Texas 78205 -------------------------------------------------------------------------------- MUTUAL FUND Under "My Accounts" on SELF-SERVICE 24/7 usaa.com select your mutual fund AT USAA.COM account and either click the link or select 'I want to...' and select OR CALL the desired action. (800) 531-USAA (8722) (210) 531-8722 -------------------------------------------------------------------------------- Copies of the Manager's proxy voting policies and procedures, approved by the Trust's Board of Trustees for use in voting proxies on behalf of the Fund, are available without charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722; (ii) at USAA.COM; and (iii) in summary within the Statement of Additional Information on the SEC's website at HTTP://WWW.SEC.GOV. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge (i) at USAA.COM; and (ii) on the SEC's website at HTTP://WWW.SEC.GOV. The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. These Forms N-Q are available at no charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722; (ii) at USAA.COM; and (iii) on the SEC's website at HTTP://WWW.SEC.GOV. These Forms N-Q also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling (800) 732-0330. ================================================================================ -------------- USAA PRSRT STD 9800 Fredericksburg Road U.S. Postage San Antonio, TX 78288 PAID USAA -------------- >> SAVE PAPER AND FUND COSTS Under MY PROFILE on USAA.COM select MANAGE PREFERENCES Set your DOCUMENT PREFERENCES to USAA DOCUMENTS ONLINE. [LOGO OF USAA] USAA We know what it means to serve.(R) ============================================================================= 98352-1116 (C)2016, USAA. All rights reserved. [LOGO OF USAA] USAA(R) [GRAPHIC OF USAA NEW YORK BOND FUND] ============================================================== SEMIANNUAL REPORT USAA NEW YORK BOND FUND FUND SHARES o ADVISER SHARES SEPTEMBER 30, 2016 ============================================================== ================================================================================ ================================================================================ PRESIDENT'S MESSAGE "THE CLOSING WEEKS OF A YEAR CAN BE A GOOD TIME TO TAKE A LOOK AT YOUR FINANCIAL SITUATION [PHOTO OF BROOKS ENGLEHARDT] WITH A GOAL OF GETTING YOUR FINANCES IN ORDER." -------------------------------------------------------------------------------- NOVEMBER 2016 Investors were generally rewarded during the reporting period ended September 30, 2016. Most asset classes posted gains as global growth concerns eased and many of the world's central banks, including the Federal Reserve (the Fed), maintained accommodative monetary policies. Stock prices generally climbed, despite two brief setbacks. In June 2016, a brief retreat followed the United Kingdom's unexpected vote to withdraw from the European Union (commonly known as Brexit). In September 2016, stocks fell--before quickly recovering--on concerns about a potential Fed interest rate increase. Meanwhile, bond prices recorded positive returns during the reporting period. As bond prices rose, longer-term interest rates, which move in the opposite direction, fell. As you know, the Fed only has direct control over short-term interest rates. Bond prices and longer-term interest rates are determined by buyers and sellers, sometimes based on their views of Fed policy. During the reporting period, market expectations about potential Fed interest rate increases shifted into the future. The Fed, which in December 2015 had raised short-term interest rates for the first time since 2008, also initially signaled that four interest rate increases were on tap for 2016. However, policymakers backed off that forecast in March 2016, just before the reporting period began, indicating that only two interest rate increases were on the table. They pointed to the global market turmoil during the first six weeks of 2016 as a contributing factor. Policymakers subsequently hinted there would be a single interest rate increase, but ultimately left interest rates unchanged. In our view, December 2016 is the Fed's only remaining window of opportunity to increase short-term interest rates. It is unlikely to act at its November 2016 meeting, which is just days before the presidential election. We believe that as of this writing, the futures market, which generally is a proxy for investor sentiment, indicates approximately a two-thirds chance that the Fed would raise rates in December 2016. ================================================================================ ================================================================================ This begs the question: Is it good or bad if low interest rates persist? We think it depends on your perspective. On one hand, consumers and businesses are able to continue borrowing at affordable interest rates. On the other hand, savers may continue to see returns lower than the rate of inflation. At USAA Investments, we believe the Fed is likely to raise interest rates at a gradual pace. We've long held the belief that interest rates will stay lower for longer than many market participants expect. Currently, there is no urgency for the Fed to act. Interest rate increases are typically a response to an overheating economy, and the U.S. remains in slow-growth mode with low inflation. Americans are still carrying large amounts of household debt, so higher interest rates are likely to hinder their spending and slow what little growth there is. Tax-exempt bonds, like most other fixed-income investments, generated positive returns during the reporting period. Municipal bonds performed well, as investors continued to favor them for their tax-advantaged status. At the same time, municipal issuance remained low, though it has increased since January 2016. Still, the supply is far from enough to satisfy demand and we expect municipal bonds to continue to benefit from this situation for some time to come. Although state and local finances are in better shape than they were a few years ago, municipal governments have been reluctant to take on additional debt. We believe eventually this will change, but likely not for the foreseeable future. Looking ahead, the end of 2016 is just weeks away. The closing weeks of a year can be a good time to take a look at your financial situation with a goal of getting your finances in order. One way to help ensure you're doing the most with what you have is to consider investing a set amount each month, also known as dollar-cost averaging. Please call USAA Investments to speak with a financial advisor. We are committed to helping you meet your financial objectives. On behalf of everyone at USAA Investments, thank you for relying on us to help you with your investment needs. We appreciate the opportunity to serve you. Sincerely, /S/ BROOKS ENGLEHARDT Brooks Englehardt President USAA Investments Investments provided by USAA Investment Management Company and USAA Financial Advisors, Inc., both registered broker-dealers, and affiliates. Financial planning services and financial advice provided by USAA Financial Planning Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in California, License # 0E36312), a registered investment adviser and insurance agency and its wholly owned subsidiary, USAA Financial Advisors, Inc., a registered broker dealer. ================================================================================ ================================================================================ TABLE OF CONTENTS -------------------------------------------------------------------------------- FUND OBJECTIVE 1 MANAGERS' COMMENTARY ON THE FUND 2 INVESTMENT OVERVIEW 5 FINANCIAL INFORMATION Portfolio of Investments 16 Notes to Portfolio of Investments 23 Financial Statements 24 Notes to Financial Statements 27 EXPENSE EXAMPLE 40 ADVISORY AGREEMENT(S) 42
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS ABOUT THE FUND. (C)2016, USAA. All rights reserved. 211733-1116 ================================================================================ ================================================================================ FUND OBJECTIVE THE USAA NEW YORK BOND FUND (THE FUND) PROVIDES NEW YORK INVESTORS WITH A HIGH LEVEL OF CURRENT INTEREST INCOME THAT IS EXEMPT FROM FEDERAL INCOME TAX AND NEW YORK STATE AND NEW YORK CITY PERSONAL INCOME TAXES. -------------------------------------------------------------------------------- TYPES OF INVESTMENTS The Fund invests primarily in long-term investment-grade securities issued by the state of New York, its political subdivisions, municipalities and public authorities, instrumentalities, and by other government entities, the interest on which is exempt from federal income tax and New York State and New York City personal income tax. During normal market conditions, at least 80% of the Fund's net assets will consist of New York tax-exempt securities. The Fund's dollar-weighted average portfolio maturity is not restricted, but is expected to be greater than 10 years. IRA DISTRIBUTION WITHHOLDING DISCLOSURE We generally must withhold federal income tax at a rate of 10% of the taxable portion of your distribution and, if you live in a state that requires state income tax withholding, at your state's tax rate. However, you may elect not to have withholding apply or to have income tax withheld at a higher rate. Any withholding election that you make will apply to any subsequent distribution unless and until you change or revoke the election. If you wish to make a withholding election or change or revoke a prior withholding election, call (800) 531-USAA (8722) or (210) 531-8722. If you do not have a withholding election in place by the date of a distribution, federal income tax will be withheld from the taxable portion of your distribution at a rate of 10%. If you must pay estimated taxes, you may be subject to estimated tax penalties if your estimated tax payments are not sufficient and sufficient tax is not withheld from your distribution. For more specific information, please consult your tax adviser. ================================================================================ FUND OBJECTIVE | 1 ================================================================================ MANAGERS' COMMENTARY ON THE FUND -------------------------------------------------------------------------------- [PHOTO OF REGINA G. SHAFER] [PHOTO OF DALE R. HOFFMANN] REGINA G. SHAFER, CPA, CFA DALE R. HOFFMANN USAA Asset USAA Asset Management Company Management Company -------------------------------------------------------------------------------- o WHAT WERE THE MARKET CONDITIONS DURING THE REPORTING PERIOD? The tax-exempt bond market advanced during the reporting period ended September 30, 2016, as demand for municipal securities outweighed the amount of available supply. Although new issuance picked up, it remained low by historical standards. Furthermore, it was dominated by refunding bonds rather than new issues. In a bond refunding, issuers call existing high-interest bonds and replace them with new bonds that have lower coupon rates. Meanwhile, as demand for municipal bonds increased, municipal bond mutual funds also received positive investment inflows every week of the reporting period. Investors continued to prefer municipal securities for their tax-advantaged status as well as their relative stability. Municipal bonds also benefited from the performance of the U.S. Treasury market, which the tax-exempt bond market generally follows over time. Longer-term U.S. Treasury securities rallied on strong demand, especially from foreign investors who favored U.S. Treasuries because of their relatively higher yields compared to the government bonds of other developed countries. As U.S. Treasury prices rose, their yields (which move in the opposite direction) fell. During the reporting period, the yield on a 30-year U.S. Treasury security dropped from 2.61% at 3/31/16 to 2.32% at 9/30/16. Municipal credit quality remained strong as state and local governments continued to practice sound fiscal management and generally maintained healthy reserves. State and local revenues rose, though at a more moderate ================================================================================ 2 | USAA NEW YORK BOND FUND ================================================================================ pace than in the recent past. Numerous issuers also took steps to address their pension risks, in some cases proposing tax increases to deal with potential pension-funding shortfalls. Unlike corporate issuers, many state and municipal governments have broad taxing powers and are required by law to balance their budgets. o HOW DID THE USAA NEW YORK BOND FUND (THE FUND) PERFORM DURING THE REPORTING PERIOD? The Fund has two share classes: Fund Shares and Adviser Shares. For the reporting period ended September 30, 2016, the Fund Shares and Adviser Shares had a total return of 2.19% and 2.08%, respectively, versus an average return of 2.89% amongst the funds in the Lipper New York Municipal Debt Funds category. This compares to returns of 3.26% for the Lipper New York Municipal Debt Funds Index and 2.30% for the Bloomberg Barclays Municipal Bond Index*. The Fund Shares' and Adviser Shares' tax-exempt distributions over the prior 12 months produced a dividend yield of 3.43% and 3.23%, respectively, compared to the Lipper category average of 3.12%. USAA Asset Management Company (the Manager) is the Fund's investment adviser. The investment adviser provides day-to-day discretionary management for the Fund's assets. o WHAT ARE THE CONDITIONS IN THE STATE OF NEW YORK? New York, which has passed a series of on-time budgets, continues to be highly rated by the credit rating agencies. The state's finances appear to be in good shape due to a gradual economic recovery, but revenues are still dependent in some measure on the financial services industry. Although New York state is projecting future budget gaps, they appear Refer to page 8 for benchmark definitions. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. *Effective August 24, 2016, Bloomberg acquired Barclays Risk Analytics and Index Solutions, Ltd., which includes the Barclays indices. Thus, the Fund's benchmark is now called the Bloomberg Barclays Municipal Bond Index. ================================================================================ MANAGERS' COMMENTARY ON THE FUND | 3 ================================================================================ to be very manageable. Budget flexibility is enhanced by the state's $1.8 billion "rainy day" reserves. At the end of the reporting period, New York's general obligation bonds were rated Aa1 by Moody's Investors Service, AA+ by Standard & Poor's Ratings Services, and AA+ by Fitch Ratings, Inc. o WHAT STRATEGIES DID YOU EMPLOY DURING THE REPORTING PERIOD? We maintained our focus on income generation. Over the long-term, the Fund's income distribution, not its price appreciation, accounts for most of its total return. During the reporting period, the Fund continued to benefit from our independent research. In our efforts to find attractive opportunities, we continued to work with our in-house team of analysts to select investments for the Fund on a bond-by-bond basis. Each security is researched, using fundamental analysis that emphasizes an issuer's ability and willingness to repay its debt. Through our research, we seek both to recognize value and avoid potential risks. The Fund continues to be diversified by sector and issuer, limiting its exposure to an unexpected event. We also avoid bonds subject to the federal alternative minimum tax for individuals. Thank you for allowing us to help you with your investment needs. As interest rates rise, bond prices generally fall; given the historically low interest rate environment, risks associated with rising interest rates may be heightened. o Diversification is a technique intended to help reduce risk and does not guarantee a profit or prevent a loss. o Some income may be subject to state or local taxes but not the federal alternative minimum tax. ================================================================================ 4 | USAA NEW YORK BOND FUND ================================================================================ INVESTMENT OVERVIEW USAA NEW YORK BOND FUND SHARES (FUND SHARES) (Ticker Symbol: USNYX)
-------------------------------------------------------------------------------- 9/30/16 3/31/16 -------------------------------------------------------------------------------- Net Assets $217.5 Million $211.1 Million Net Asset Value Per Share $12.34 $12.28 LAST 12 MONTHS Tax-Exempt Dividends Per Share $0.424 $0.429 Capital Gain Distributions Per Share - - Dollar-Weighted Average Portfolio Maturity(+) 14.4 Years 14.6 Years (+)Obtained by multiplying the dollar value of each investment by the number of days left to its maturity, adding those figures together, and dividing them by the total dollar value of the Fund's portfolio. -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 9/30/16 -------------------------------------------------------------------------------- 3/31/16-9/30/16* 1 YEAR 5 YEARS 10 YEARS 2.19% 5.20% 4.52% 4.43% -------------------------------------------------------------------------------- 30-DAY SEC YIELD** AS OF 9/30/16 EXPENSE RATIO AS OF 3/31/16*** -------------------------------------------------------------------------------- 1.43% 0.66%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT USAA.COM. *Total returns for periods of less than one year are not annualized. This return is cumulative. **Calculated as prescribed by the Securities and Exchange Commission. ***The expense ratio represents the total annual operating expenses, before reductions of any expenses paid indirectly and including any acquired fund fees and expenses, as reported in the Fund's prospectus dated August 1, 2016, and is calculated as a percentage of average net assets. This expense ratio may differ from the expense ratio disclosed in the Financial Highlights, which excludes acquired fund fees and expenses. No adjustment has been made for taxes payable by shareholders on their reinvested net investment income and realized capital gain distributions. ================================================================================ INVESTMENT OVERVIEW | 5 ================================================================================ AVERAGE ANNUAL COMPOUNDED RETURNS WITH REINVESTMENT OF DIVIDENDS - PERIODS ENDED SEPTEMBER 30, 2016
-------------------------------------------------------------------------------- TOTAL RETURN = DIVIDEND RETURN + PRICE CHANGE -------------------------------------------------------------------------------- 10 YEARS 4.43% = 4.08% + 0.35% 5 YEARS 4.52% = 3.71% + 0.81% 1 YEAR 5.20% = 3.55% + 1.65%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT USAA.COM. ANNUAL TOTAL RETURNS AND COMPOUNDED DIVIDEND RETURNS FOR THE ONE-YEAR PERIODS ENDED SEPTEMBER 30, 2007-SEPTEMBER 30, 2016 [CHART OF ANNUAL TOTAL RETURNS AND COMPOUNDED DIVIDEND RETURNS]
TOTAL DIVIDEND CHANGE IN RETURN RETURN SHARE PRICE 9/30/07 1.84% 4.12% -2.28% 9/30/08 -4.50% 4.15% -8.65% 9/30/09 14.80% 5.23% 9.57% 9/30/10 6.60% 4.39% 2.21% 9/30/11 3.89% 4.32% -0.43% 9/30/12 9.86% 4.04% 5.82% 9/30/13 -3.59% 3.43% -7.02% 9/30/14 8.62% 3.99% 4.63% 9/30/15 3.08% 3.57% -0.49% 9/30/16 5.20% 3.55% 1.65%
[END CHART] NOTE THE ROLE THAT DIVIDEND RETURNS PLAY IN THE FUND SHARES' TOTAL RETURN OVER TIME. SHARE PRICES AND DIVIDEND RATES WILL VARY FROM PERIOD TO PERIOD. HOWEVER, DIVIDEND RETURNS GENERALLY ARE MORE CONSISTENT AND LESS VOLATILE THAN SHARE PRICES. Total return measures the price change in a share assuming the reinvestment of all net investment income and realized capital gain distributions, if any. Dividend return is the net investment income dividends received over the period, assuming reinvestment of all dividends. Share price change is the change in net asset value over the period adjusted for realized capital gain distributions. The returns quoted do not reflect adjustments made to the enclosed financial statements in accordance with U.S. generally accepted accounting principles or the deduction of taxes that a shareholder would pay on distributions (including capital gain distributions), redemptions of shares, or reinvested net investment income. ================================================================================ 6 | USAA NEW YORK BOND FUND ================================================================================ TAXABLE EQUIVALENT ILLUSTRATION To match the Fund Shares' Dividend Return for the period ended 9/30/16, and assuming New York state tax rates of: 6.65% 6.85% 6.85% 6.85% and assuming marginal federal tax rates of: 28.00% 36.80%* 38.80%* 43.40%* A FULLY TAXABLE INVESTMENT MUST PAY THE FOLLOWING:
PERIOD DIVIDEND RETURN -------------------------------------------------------------------------------- 10 Years 4.08% 6.07% 6.93% 7.16% 7.74% 5 Years 3.71% 5.52% 6.30% 6.51% 7.04% 1 Year 3.55% 5.28% 6.03% 6.23% 6.73%
To match the Fund Shares' closing 30-day SEC Yield of 1.43% on 09/30/16 A FULLY TAXABLE INVESTMENT MUST PAY: 2.13% 2.43% 2.51% 2.71% -------------------------------------------------------------------------------- Assuming the same marginal federal tax rates and combined New York state and city tax rates of: 10.30% 10.50% 10.50% 10.50% A FULLY TAXABLE INVESTMENT MUST PAY THE FOLLOWING:
PERIOD DIVIDEND RETURN -------------------------------------------------------------------------------- 10 Years 4.08% 6.32% 7.21% 7.45% 8.05% 5 Years 3.71% 5.74% 6.56% 6.77% 7.32% 1 Year 3.55% 5.50% 6.28% 6.48% 7.01%
To match the Fund Shares' closing 30-day SEC Yield of 1.43% on 09/30/16 A FULLY TAXABLE INVESTMENT MUST PAY: 2.21% 2.53% 2.61% 2.82% This table is based on a hypothetical investment calculated for illustrative purposes only. It is not an indication of performance for any of the USAA family of funds. Taxable equivalent returns or yields will vary depending on applicable tax rates. -------------------------------------------------------------------------------- Some income may be subject to federal, state, or local taxes, but not the alternative minimum tax. Based on 2015 tax rates or rates in effect as of the issuance of this report. The above marginal rates assume married, filing jointly. *The above marginal rates assume income exceeds $250,000 and investment income is subject to the 3.80% medicare tax which is applied for income over a specific level, depending on the federal income tax filing status. ================================================================================ INVESTMENT OVERVIEW | 7 ================================================================================ o CUMULATIVE PERFORMANCE COMPARISON o [CHART OF CUMULATIVE PERFORMANCE COMPARISON]
BLOOMBERG USAA NEW LIPPER NEW BARCLAYS YORK BOND YORK MUNICIPAL MUNICIPAL FUND DEBT FUNDS BOND INDEX SHARES INDEX 09/30/06 $10,000.00 $10,000.00 $10,000.00 10/31/06 10,062.71 10,058.00 10,068.50 11/30/06 10,146.59 10,159.00 10,150.66 12/31/06 10,110.74 10,108.00 10,107.92 01/31/07 10,084.85 10,089.00 10,083.61 02/28/07 10,217.74 10,217.00 10,210.26 03/31/07 10,192.55 10,177.00 10,174.85 04/30/07 10,222.72 10,219.00 10,209.09 05/31/07 10,177.46 10,160.00 10,161.44 06/30/07 10,124.72 10,094.00 10,105.29 07/31/07 10,203.21 10,145.00 10,162.64 08/31/07 10,159.19 10,021.00 10,074.20 09/30/07 10,309.52 10,183.00 10,212.49 10/31/07 10,355.47 10,237.00 10,256.03 11/30/07 10,421.50 10,241.00 10,279.86 12/31/07 10,450.43 10,228.00 10,285.62 01/31/08 10,582.21 10,343.00 10,396.46 02/29/08 10,097.73 9,774.00 9,872.03 03/31/08 10,386.34 10,094.00 10,140.87 04/30/08 10,507.88 10,257.00 10,270.57 05/31/08 10,571.41 10,331.00 10,345.04 06/30/08 10,452.09 10,242.00 10,239.93 07/31/08 10,491.82 10,227.00 10,235.73 08/31/08 10,614.60 10,331.00 10,337.13 09/30/08 10,116.83 9,725.00 9,776.78 10/31/08 10,013.57 9,493.00 9,519.89 11/30/08 10,045.40 9,438.00 9,439.14 12/31/08 10,191.86 9,434.00 9,428.20 01/31/09 10,564.91 9,833.00 9,840.07 02/28/09 10,620.41 9,937.00 9,947.80 03/31/09 10,622.35 9,956.00 9,908.39 04/30/09 10,834.56 10,191.00 10,169.13 05/31/09 10,949.17 10,333.00 10,360.44 06/30/09 10,846.60 10,269.00 10,285.93 07/31/09 11,028.07 10,433.00 10,436.78 08/31/09 11,216.61 10,688.00 10,697.71 09/30/09 11,619.14 11,164.00 11,204.14 10/31/09 11,375.24 10,889.00 10,946.90 11/30/09 11,469.23 10,956.00 10,991.28 12/31/09 11,507.99 11,036.00 11,074.85 01/31/10 11,567.92 11,081.00 11,125.80 02/28/10 11,680.05 11,188.00 11,231.63 03/31/10 11,652.09 11,188.00 11,252.53 04/30/10 11,793.69 11,338.00 11,399.40 05/31/10 11,882.15 11,453.00 11,491.13 06/30/10 11,889.21 11,444.00 11,455.89 07/31/10 12,037.46 11,574.00 11,586.99 08/31/10 12,313.06 11,880.00 11,862.98 09/30/10 12,293.82 11,901.00 11,878.72 10/31/10 12,259.77 11,851.00 11,861.73 11/30/10 12,014.62 11,562.00 11,530.27 12/31/10 11,781.79 11,274.00 11,263.61 01/31/11 11,695.00 11,100.00 11,111.46 02/28/11 11,881.18 11,314.00 11,259.30 03/31/11 11,841.59 11,271.00 11,206.11 04/30/11 12,053.65 11,508.00 11,408.27 05/31/11 12,259.63 11,773.00 11,624.21 06/30/11 12,302.40 11,825.00 11,682.54 07/31/11 12,427.95 11,949.00 11,794.59 08/31/11 12,640.57 12,156.00 11,959.67 09/30/11 12,771.24 12,367.00 12,175.51 10/31/11 12,723.76 12,322.00 12,124.97 11/30/11 12,798.93 12,385.00 12,158.56 12/31/11 13,042.41 12,649.00 12,393.24 01/31/12 13,344.04 13,035.00 12,753.49 02/29/12 13,357.19 13,042.00 12,780.25 03/31/12 13,270.40 12,955.00 12,706.69 04/30/12 13,423.49 13,111.00 12,854.47 05/31/12 13,534.92 13,259.00 12,987.12 06/30/12 13,520.39 13,248.00 12,978.02 07/31/12 13,734.67 13,481.00 13,213.15 08/31/12 13,750.31 13,514.00 13,235.52 09/30/12 13,833.37 13,583.00 13,310.51 10/31/12 13,872.40 13,634.00 13,367.26 11/30/12 14,100.94 13,918.00 13,631.89 12/31/12 13,926.66 13,685.00 13,410.53 01/31/13 13,984.66 13,755.00 13,514.39 02/28/13 14,027.02 13,806.00 13,550.87 03/31/13 13,966.53 13,746.00 13,460.04 04/30/13 14,119.63 13,907.00 13,630.52 05/31/13 13,947.15 13,729.00 13,469.39 06/30/13 13,552.23 13,168.00 12,956.26 07/31/13 13,433.74 12,988.00 12,745.14 08/31/13 13,242.02 12,776.00 12,439.40 09/30/13 13,527.03 13,095.00 12,701.97 10/31/13 13,633.90 13,194.00 12,799.02 11/30/13 13,605.80 13,171.00 12,751.52 12/31/13 13,571.05 13,135.00 12,678.86 01/31/14 13,835.44 13,440.00 12,929.45 02/28/14 13,997.67 13,620.00 13,128.95 03/31/14 14,021.21 13,660.00 13,169.50 04/30/14 14,189.67 13,829.00 13,328.65 05/31/14 14,372.39 14,011.00 13,566.13 06/30/14 14,384.85 14,018.00 13,521.04 07/31/14 14,410.18 14,014.00 13,544.63 08/31/14 14,584.73 14,185.00 13,761.40 09/30/14 14,599.54 14,224.00 13,797.19 10/31/14 14,699.62 14,315.00 13,872.13 11/30/14 14,725.09 14,331.00 13,902.63 12/31/14 14,799.29 14,410.00 13,993.27 01/31/15 15,061.60 14,640.00 14,245.26 02/28/15 14,906.29 14,529.00 14,121.10 03/31/15 14,949.34 14,583.00 14,157.80 04/30/15 14,870.85 14,507.00 14,078.35 05/31/15 14,829.74 14,478.00 14,093.26 06/30/15 14,816.31 14,437.00 14,004.46 07/31/15 14,923.59 14,554.00 14,093.51 08/31/15 14,952.94 14,594.00 14,139.71 09/30/15 15,061.18 14,662.00 14,237.72 10/31/15 15,121.12 14,719.00 14,291.33 11/30/15 15,181.20 14,773.00 14,351.80 12/31/15 15,287.92 14,893.00 14,438.88 01/31/16 15,470.36 15,018.00 14,578.29 02/29/16 15,494.59 15,025.00 14,612.33 03/31/16 15,543.73 15,093.00 14,675.29 04/30/16 15,658.07 15,212.00 14,771.39 05/31/16 15,700.42 15,266.00 14,850.40 06/30/16 15,950.14 15,508.00 15,157.97 07/31/16 15,959.83 15,475.00 15,160.60 08/31/16 15,981.42 15,493.00 15,191.48 09/30/16 15,901.69 15,427.00 15,154.26
[END CHART] Data from 9/30/06 through 9/30/16. The graph illustrates the comparison of a $10,000 hypothetical investment in the USAA New York Bond Fund Shares to the following benchmarks: o The unmanaged, broad-based Bloomberg Barclays Municipal Bond Index (the Index) tracks total return performance for the long-term, investment-grade, tax-exempt bond market. All tax-exempt bond funds will find it difficult to outperform the Index because the Index does not reflect any deduction for fees, expenses, or taxes. o The unmanaged Lipper New York Municipal Debt Funds Index measures the Fund's performance to that of the Lipper New York Municipal Debt Funds category. Past performance is no guarantee of future results, and the cumulative performance quoted does not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of shares. Indexes are unmanaged and you cannot invest directly in an index. The return information for the indexes does not reflect the deduction of any fees, expenses, or taxes, except that the Lipper index reflects the fees and expenses of the underlying funds included in the index. ================================================================================ 8 | USAA NEW YORK BOND FUND ================================================================================ o 12-MONTH DIVIDEND YIELD COMPARISON o [CHART OF 12-MONTH DIVIDEND YIELD COMPARISON]
USAA NEW LIPPER NEW YORK YORK BOND MUNICIPAL DEBT FUND SHARES FUNDS AVERAGE 09/30/07 4.20% 3.79% 09/30/08 4.79% 4.14% 09/30/09 4.29% 3.91% 09/30/10 4.08% 3.80% 09/30/11 4.07% 3.85% 09/30/12 3.66% 3.46% 09/30/13 3.80% 3.60% 09/30/14 3.67% 3.50% 09/30/15 3.55% 3.39% 09/30/16 3.43% 3.12%
[END CHART] The 12-month dividend yield is computed by dividing net investment income dividends paid during the previous 12 months by the latest adjusted month-end net asset value. The yields quoted do not reflect adjustments made to the enclosed financial statements in accordance with U.S. generally accepted accounting principles. The net asset value is adjusted for a portion of the capital gains, if any, distributed during the previous nine months. The graph represents data for periods ending 9/30/07 through 9/30/16. The Lipper New York Municipal Debt Funds Average is an average performance level of all New York municipal debt funds, reported by Lipper Inc., an independent organization that monitors the performance of mutual funds. ================================================================================ INVESTMENT OVERVIEW | 9 ================================================================================ USAA NEW YORK BOND FUND ADVISER SHARES (ADVISER SHARES) (Ticker Symbol: UNYBX)
-------------------------------------------------------------------------------- 9/30/16 3/31/16 -------------------------------------------------------------------------------- Net Assets $6.1 Million $5.9 Million Net Asset Value Per Share $12.31 $12.25 LAST 12 MONTHS Tax-Exempt Dividends Per Share $0.400 $0.405 Capital Gain Distributions Per Share - - -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 9/30/16 -------------------------------------------------------------------------------- 3/31/16-9/30/16* 1 YEAR 5 YEARS SINCE INCEPTION 8/01/10 2.08% 4.91% 4.25% 4.50% -------------------------------------------------------------------------------- 30-DAY SEC YIELD** AS OF 9/30/16 EXPENSE RATIO AS OF 3/31/16*** -------------------------------------------------------------------------------- 1.14% 0.85%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT USAA.COM. *Total returns for periods of less than one year are not annualized. This return is cumulative. **Calculated as prescribed by the Securities and Exchange Commission. ***The expense ratio represents the total annual operating expenses, before reductions of any expenses paid indirectly and including any acquired fund fees and expenses, as reported in the Fund's prospectus dated August 1, 2016, and is calculated as a percentage of average net assets. This expense ratio may differ from the expense ratio disclosed in the Financial Highlights, which excludes acquired fund fees and expenses. No adjustment has been made for taxes payable by shareholders on their reinvested net investment income and realized capital gain distributions. ================================================================================ 10 | USAA NEW YORK BOND FUND ================================================================================ TAXABLE EQUIVALENT ILLUSTRATION To match the Adviser Shares' closing 30-day SEC Yield of 1.14% on 09/30/16 and assuming New York state tax rates of: 6.65% 6.85% 6.85% 6.85% and assuming marginal federal tax rates of: 28.00% 36.80%* 38.80%* 43.40%* A FULLY TAXABLE INVESTMENT MUST PAY: 1.70% 1.94% 2.00% 2.16% -------------------------------------------------------------------------------- Assuming the same marginal federal tax rates and combined New York state and city tax rates of: 10.30% 10.50% 10.50% 10.50% To match the Adviser Shares' closing 30-day SEC Yield of 1.14% on 09/30/16 A FULLY TAXABLE INVESTMENT MUST PAY: 1.77% 2.02% 2.08% 2.25% This table is based on a hypothetical investment calculated for illustrative purposes only. It is not an indication of performance for any of the USAA family of funds. Taxable equivalent returns or yields will vary depending on applicable tax rates. -------------------------------------------------------------------------------- Some income may be subject to federal, state, or local taxes, but not the alternative minimum tax. Based on 2015 tax rates or rates in effect as of the issuance of this report. The above marginal rates assume married, filing jointly. *The above marginal rates assume income exceeds $250,000 and investment income is subject to the 3.80% medicare tax which is applied for income over a specific level, depending on the federal income tax filing status. ================================================================================ INVESTMENT OVERVIEW | 11 ================================================================================ o CUMULATIVE PERFORMANCE COMPARISON o [CHART OF CUMULATIVE PERFORMANCE COMPARISON]
BLOOMBERG USAA NEW LIPPER NEW BARCLAYS YORK BOND YORK MUNICIPAL MUNICIPAL FUND ADVISER DEBT FUNDS BOND INDEX SHARES INDEX 07/31/10 $10,000.00 $10,000.00 $10,000.00 08/31/10 10,228.95 10,261.40 10,238.20 09/30/10 10,212.97 10,276.56 10,251.78 10/31/10 10,184.68 10,230.94 10,237.11 11/30/10 9,981.03 9,978.54 9,951.05 12/31/10 9,787.61 9,727.30 9,720.91 01/31/11 9,715.50 9,575.63 9,589.60 02/28/11 9,870.17 9,758.50 9,717.20 03/31/11 9,837.28 9,721.10 9,671.29 04/30/11 10,013.45 9,923.55 9,845.76 05/31/11 10,184.57 10,150.34 10,032.13 06/30/11 10,220.10 10,193.17 10,082.47 07/31/11 10,324.40 10,298.51 10,179.17 08/31/11 10,501.03 10,475.33 10,321.64 09/30/11 10,609.58 10,655.04 10,507.92 10/31/11 10,570.14 10,615.08 10,464.30 11/30/11 10,632.58 10,667.43 10,493.29 12/31/11 10,834.86 10,893.33 10,695.83 01/31/12 11,085.43 11,223.57 11,006.74 02/29/12 11,096.35 11,227.44 11,029.83 03/31/12 11,024.25 11,149.74 10,966.35 04/30/12 11,151.44 11,282.60 11,093.89 05/31/12 11,244.01 11,408.15 11,208.37 06/30/12 11,231.93 11,397.03 11,200.51 07/31/12 11,409.94 11,595.30 11,403.44 08/31/12 11,422.94 11,612.22 11,422.75 09/30/12 11,491.93 11,678.65 11,487.47 10/31/12 11,524.36 11,720.66 11,536.44 11/30/12 11,714.22 11,962.68 11,764.82 12/31/12 11,569.44 11,758.73 11,573.79 01/31/13 11,617.62 11,818.02 11,663.42 02/28/13 11,652.81 11,860.35 11,694.90 03/31/13 11,602.56 11,806.98 11,616.51 04/30/13 11,729.74 11,943.25 11,763.65 05/31/13 11,586.46 11,775.73 11,624.58 06/30/13 11,258.38 11,275.81 11,181.73 07/31/13 11,159.95 11,118.64 10,999.53 08/31/13 11,000.68 10,932.66 10,735.67 09/30/13 11,237.45 11,206.55 10,962.27 10/31/13 11,326.23 11,289.22 11,046.03 11/30/13 11,302.88 11,267.28 11,005.03 12/31/13 11,274.02 11,234.14 10,942.33 01/31/14 11,493.66 11,491.20 11,158.59 02/28/14 11,628.43 11,643.01 11,330.77 03/31/14 11,647.98 11,677.47 11,365.77 04/30/14 11,787.93 11,820.04 11,503.12 05/31/14 11,939.72 11,972.41 11,708.07 06/30/14 11,950.07 11,977.14 11,669.15 07/31/14 11,971.12 11,971.27 11,689.52 08/31/14 12,116.12 12,113.80 11,876.60 09/30/14 12,128.43 12,146.25 11,907.48 10/31/14 12,211.57 12,218.74 11,972.17 11/30/14 12,232.73 12,232.09 11,998.48 12/31/14 12,294.37 12,295.50 12,076.71 01/31/15 12,512.28 12,500.71 12,294.19 02/28/15 12,383.26 12,393.97 12,187.03 03/31/15 12,419.02 12,437.74 12,218.71 04/30/15 12,353.82 12,380.72 12,150.13 05/31/15 12,319.66 12,343.71 12,163.00 06/30/15 12,308.51 12,306.07 12,086.37 07/31/15 12,397.63 12,401.62 12,163.22 08/31/15 12,422.01 12,446.71 12,203.09 09/30/15 12,511.93 12,502.33 12,287.68 10/31/15 12,561.73 12,537.27 12,333.95 11/30/15 12,611.63 12,593.11 12,386.14 12/31/15 12,700.29 12,679.89 12,461.29 01/31/16 12,851.86 12,787.71 12,581.60 02/29/16 12,871.98 12,792.28 12,610.98 03/31/16 12,912.80 12,848.52 12,665.32 04/30/16 13,007.79 12,948.00 12,748.26 05/31/16 13,042.97 12,992.00 12,816.45 06/30/16 13,250.42 13,196.00 13,081.89 07/31/16 13,258.47 13,166.00 13,084.16 08/31/16 13,276.41 13,178.00 13,110.81 09/30/16 13,210.17 13,118.00 13,078.69
[END CHART] Data from 7/31/10 through 9/30/16.* The graph illustrates the comparison of a $10,000 hypothetical investment in the USAA New York Bond Fund Adviser Shares to the benchmarks listed above (see page 8 for benchmark definitions). *The performance of the Bloomberg Barclays Municipal Bond Index and the Lipper New York Municipal Debt Funds Index is calculated from the end of the month, July 31, 2010, while the inception date of the Adviser Shares is August 1, 2010. There may be a slight variation of performance numbers because of this difference. Past performance is no guarantee of future results, and the cumulative performance quoted does not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of shares. Indexes are unmanaged and you cannot invest directly in an index. The return information for the indexes does not reflect the deduction of any fees, expenses, or taxes, except that the Lipper index reflects the fees and expenses of the underlying funds included in the index. ================================================================================ 12 | USAA NEW YORK BOND FUND ================================================================================ o 12-MONTH DIVIDEND YIELD COMPARISON o [CHART OF 12-MONTH DIVIDEND YIELD COMPARISON]
USAA NEW LIPPER NEW YORK BOND YORK MUNICIPAL FUND ADVISER DEBT FUNDS SHARES AVERAGE 09/30/11 3.86% 3.85% 09/30/12 3.45 3.46 09/30/13 3.58 3.60 09/30/14 3.44 3.50 09/30/15 3.32 3.39 09/30/16 3.23 3.12
[END CHART] The 12-month dividend yield is computed by dividing net investment income dividends paid during the previous 12 months by the latest adjusted month-end net asset value. The yields quoted do not reflect adjustments made to the enclosed financial statements in accordance with U.S. generally accepted accounting principles. The net asset value is adjusted for a portion of the capital gains, if any, distributed during the previous nine months. The graph represents data for periods ending 9/30/11 through 9/30/16. The Lipper New York Municipal Debt Funds Average is an average performance level of all New York municipal debt funds, reported by Lipper Inc., an independent organization that monitors the performance of mutual funds. ================================================================================ INVESTMENT OVERVIEW | 13 ================================================================================ o TOP 10 INDUSTRIES - 9/30/16 o (% of Net Assets) Education ............................................................... 18.4% Hospital ................................................................ 14.8% Special Assessment/Tax/Fee .............................................. 11.1% Water/Sewer Utility ..................................................... 9.7% Escrowed Bonds .......................................................... 8.8% General Obligation ...................................................... 5.8% Nursing/CCRC ............................................................ 4.5% Appropriated Debt ....................................................... 4.2% Toll Roads .............................................................. 4.0% Buildings ............................................................... 3.3%
You will find a complete list of securities that the Fund owns on pages 16-22. ================================================================================ 14 | USAA NEW YORK BOND FUND ================================================================================ o PORTFOLIO RATINGS MIX - 9/30/16 O [PIE CHART OF PORTFOLIO RATINGS MIX] AAA 10.3% AA 35.8% A 31.4% BBB 14.1% BELOW INVESTMENT-GRADE 2.1% UNRATED 6.3%
[END CHART] This chart reflects the highest long-term rating from a Nationally Recognized Statistical Rating Organization (NRSRO), with the four highest long-term credit ratings labeled, in descending order of credit quality, AAA, AA, A, and BBB. These categories represent investment-grade quality. NRSRO ratings are shown because they provide independent analysis of the credit quality of the Fund's investments. USAA Asset Management Company (the Manager) also performs its own fundamental credit analysis of each security. As part of its fundamental credit analysis, the Manager considers various criteria, including industry specific actions, peer comparisons, payment ranking, and structure specific characteristics. Any of the Fund's securities that are not rated by an NRSRO appear in the chart above as "Unrated," but these securities are analyzed and monitored by the Manager on an ongoing basis. Government securities that are issued or guaranteed as to principal and interest by the U.S. government and pre-refunded and escrowed-to-maturity municipal bonds that are not rated are treated as AAA for credit quality purposes. Percentages are of the total market value of the Fund's investments. You will find a complete list of securities that the Fund owns on pages 16-22. ================================================================================ INVESTMENT OVERVIEW | 15 ================================================================================ PORTFOLIO OF INVESTMENTS September 30, 2016 (unaudited) -------------------------------------------------------------------------------- o CATEGORIES AND DEFINITIONS FIXED-RATE INSTRUMENTS - Consist of municipal bonds, notes, and commercial paper. The interest rate is constant to maturity. Prior to maturity, the market price of a fixed-rate instrument generally varies inversely to the movement of interest rates. VARIABLE-RATE DEMAND NOTES (VRDNs) - Provide the right to sell the security at face value on either that day or within the rate-reset period. The interest rate is adjusted at a stipulated daily, weekly, monthly, quarterly, or other specified time interval to reflect current market conditions. VRDNs will normally trade as if the maturity is the earlier put date, even though stated maturity is longer. o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS EDC Economic Development Corp. ETM Escrowed to final maturity IDA Industrial Development Authority/Agency IDC Industrial Development Corp. MTA Metropolitan Transportation Authority PRE Pre-refunded to a date prior to maturity CREDIT ENHANCEMENTS - Adds the financial strength of the provider of the enhancement to support the issuer's ability to repay the principal and interest payments when due. The enhancement may be provided by a high-quality bank, insurance company or other corporation, or a ================================================================================ 16 | USAA NEW YORK BOND FUND ================================================================================ collateral trust. The enhancements do not guarantee the market values of the securities. (INS) Principal and interest payments are insured by one of the following: ACA Financial Guaranty Corp., AMBAC Assurance Corp., Assured Guaranty Corp., Assured Guaranty Municipal Corp., CIFG Assurance, N.A., or XL Capital Assurance. Although bond insurance reduces the risk of loss due to default by an issuer, such bonds remain subject to the risk that value may fluctuate for other reasons, and there is no assurance that the insurance company will meet its obligations. (LOC) Principal and interest payments are guaranteed by a bank letter of credit or other bank credit agreement. (NBGA) Principal and interest payments or, under certain circumstances, underlying mortgages are guaranteed by a nonbank guarantee agreement from the Federal Housing Administration or the State of New York Mortgage Agency. ================================================================================ PORTFOLIO OF INVESTMENTS | 17 ================================================================================ INVESTMENTS
------------------------------------------------------------------------------------------------------------------ PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------------ FIXED-RATE INSTRUMENTS (92.5%) NEW YORK (87.0%) $1,000 Albany Capital Resource Corp. (PRE) 6.00% 11/15/2025 $ 1,202 500 Albany IDA 5.00 7/01/2031 512 1,000 Albany IDA (PRE) 5.25 11/15/2032 1,050 1,000 Albany IDA (PRE) 5.25 11/15/2032 1,050 500 Buffalo and Erie County Industrial Land Dev. Corp. 6.00 10/01/2031 598 2,000 Buffalo and Erie County Industrial Land Dev. Corp. 5.00 7/01/2040 2,325 700 Build NYC Resource Corp. 5.00 6/01/2040 815 1,000 Build NYC Resource Corp. 5.00 8/01/2040 1,167 500 Build NYC Resource Corp. 5.00 7/01/2041 581 1,500 Build NYC Resource Corp. 5.00 8/01/2042 1,709 1,000 Build NYC Resource Corp. 5.50 4/01/2043 1,089 2,000 Build NYC Resource Corp. 5.00 7/01/2045 2,334 1,000 Canton Capital Resource Corp. (INS) (PRE) 5.00 5/01/2040 1,143 2,000 Chautauqua Tobacco Asset Securitization Corp. 5.00 6/01/2048 2,093 1,000 Convention Center Dev. Corp. 3.28(b) 11/15/2037 513 500 Convention Center Dev. Corp. 5.00 11/15/2045 599 500 Counties Tobacco Trust VI 5.00 6/01/2045 564 2,000 Dormitory Auth. (ETM) 5.30 2/15/2019 2,109 1,500 Dormitory Auth. (NBGA) 5.00 7/01/2024 1,504 3,500 Dormitory Auth. (INS) 5.00 7/01/2025 3,513 2,000 Dormitory Auth. 5.00 7/01/2026 2,268 1,000 Dormitory Auth. 5.00 7/01/2027 1,071 3,275 Dormitory Auth. (INS) 5.50 5/15/2030 4,495 500 Dormitory Auth. (INS) 5.00 7/01/2030 514 1,000 Dormitory Auth. 5.00 7/01/2031 1,127 1,000 Dormitory Auth. 5.00 1/15/2032 1,050 500 Dormitory Auth. (INS) 5.63 11/01/2032 594 2,500 Dormitory Auth. (NBGA) 5.00 6/01/2033 2,655 2,500 Dormitory Auth. (INS) (PRE) 5.00 7/01/2033 2,679 2,000 Dormitory Auth. (PRE) 5.25 7/01/2033 2,233 1,300 Dormitory Auth. 5.75 7/01/2033 1,435 2,000 Dormitory Auth. 5.00 2/15/2034 2,188 1,200 Dormitory Auth. (INS) (PRE) 5.00 7/01/2034 1,335 500 Dormitory Auth. 5.00 7/01/2034 597 1,000 Dormitory Auth. 5.25 7/01/2035 1,094 1,000 Dormitory Auth. (PRE) 5.00 7/01/2036 1,032 2,000 Dormitory Auth. (INS) 5.00 8/15/2036 2,058 1,950 Dormitory Auth. (NBGA) 4.75 2/15/2037 1,977 250 Dormitory Auth. (INS) 5.30 7/01/2037 258
================================================================================ 18 | USAA NEW YORK BOND FUND ================================================================================
------------------------------------------------------------------------------------------------------------------ PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------------ $ 500 Dormitory Auth. 5.00% 5/01/2038 $ 556 2,000 Dormitory Auth. (PRE) 5.00 7/01/2038 2,142 500 Dormitory Auth. 5.50 3/01/2039 550 500 Dormitory Auth. 5.00 5/01/2039 574 1,000 Dormitory Auth. 5.50 7/01/2040 1,148 2,000 Dormitory Auth. (INS) 5.50 7/01/2040 2,846 2,000 Dormitory Auth. 5.00 5/01/2041 2,275 1,000 Dormitory Auth. 4.00 7/01/2041 1,115 250 Dormitory Auth. 5.00 7/01/2042 279 1,000 Dormitory Auth. 5.00 5/01/2043 1,170 1,000 Dormitory Auth. 5.75 7/01/2043 1,208 1,500 Dormitory Auth. 5.00 7/01/2044 1,725 1,000 Dutchess County IDA (INS) 5.50 4/01/2030 1,147 1,250 Dutchess County Local Dev. Corp. 5.75 7/01/2040 1,427 2,000 Dutchess County Local Dev. Corp. 4.00 7/01/2041 2,179 1,000 Dutchess County Local Dev. Corp. 5.00 7/01/2044 1,163 2,000 Dutchess County Local Dev. Corp. 5.00 7/01/2045 2,358 600 Dutchess County Local Dev. Corp. 5.00 7/01/2046 709 1,000 Environmental Facilities Corp. 4.00 8/15/2046 1,119 250 Erie County IDA 5.25 5/01/2032 291 15 Housing Finance Agency (INS) 6.13 11/01/2020 15 2,500 Liberty Dev. Corp. 5.25 10/01/2035 3,349 560 Liberty Dev. Corp. 5.50 10/01/2037 776 1,000 Liberty Dev. Corp.(a) 5.00 11/15/2044 1,155 2,000 Long Island Power Auth. 5.00 5/01/2038 2,266 2,000 Long Island Power Auth. 5.00 9/01/2044 2,349 500 Monroe County IDC 5.25 10/01/2031 571 1,000 Monroe County IDC 5.00 12/01/2037 1,139 500 Monroe County IDC (INS) 5.00 1/15/2038 581 2,100 Monroe County IDC (NBGA) 5.50 8/15/2040 2,454 2,000 Monroe County IDC 5.00 12/01/2042 2,262 3,000 MTA 5.00 11/15/2035 3,628 1,500 MTA 5.25 11/15/2038 1,784 1,000 Nassau County 5.00 1/01/2038 1,190 1,000 Nassau County (INS) 5.00 4/01/2038 1,176 1,000 Nassau County Local Economic Assistance Corp. 5.00 7/01/2037 1,132 2,000 New York City 5.25 8/15/2023 2,164 1,885 New York City Health and Hospital Corp. 5.00 2/15/2025 1,985 1,000 New York City Housing Dev. Corp. 5.00 11/01/2042 1,075 1,000 New York City IDA (INS) 5.25 11/01/2037 1,047 17,090 New York City Municipal Water Finance Auth. 5.12(b) 6/15/2020 16,263 2,000 New York City Municipal Water Finance Auth. 5.00 6/15/2039 2,212 3,000 New York City Transitional Finance Auth. 5.00 1/15/2034 3,154 1,000 New York City Transitional Finance Auth. 5.13 1/15/2034 1,090
================================================================================ PORTFOLIO OF INVESTMENTS | 19 ================================================================================
------------------------------------------------------------------------------------------------------------------ PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------------ $1,000 New York City Transitional Finance Auth. 4.00% 8/01/2041 $ 1,107 1,250 New York City Transitional Finance Auth. 5.00 7/15/2043 1,487 2,000 New York City Trust for Cultural Resources 5.00 12/01/2039 2,228 1,000 New York City Trust for Cultural Resources 5.00 8/01/2043 1,158 1,000 New York City Trust for Cultural Resources 4.00 7/01/2046 1,089 825 Newburgh City 5.00 6/15/2023 944 870 Newburgh City 5.00 6/15/2024 989 1,000 Niagara Area Dev. Corp. 4.00 11/01/2024 1,013 750 Niagara Tobacco Asset Securitization Corp. 5.25 5/15/2040 866 1,500 Onondaga Civic Dev. Corp. 5.38 7/01/2040 1,655 1,000 Onondaga Civic Dev. Corp. 5.00 10/01/2040 1,162 1,000 Onondaga Civic Dev. Corp. 5.00 7/01/2042 1,122 1,000 Onondaga County Trust for Cultural Resources 5.00 12/01/2036 1,174 600 Rockland County 5.00 12/15/2021 676 1,265 Rockland County 3.75 10/01/2025 1,323 675 Saratoga County IDA 5.25 12/01/2032 704 1,000 Seneca County IDA (PRE) 5.00 10/01/2027 1,042 1,000 Southold Local Dev. Corp. 5.00 12/01/2045 1,117 500 St. Lawrence County IDA 4.00 7/01/2043 551 1,000 State 5.00 2/15/2039 1,096 220 Suffolk County EDC (PRE) 5.00 7/01/2028 260 1,280 Suffolk County EDC 5.00 7/01/2028 1,449 250 Suffolk County EDC 5.00 7/01/2033 291 2,600 Suffolk County IDA 5.00 11/01/2028 2,606 1,020 Suffolk Tobacco Asset Securitization Corp. 5.38 6/01/2028 1,059 1,450 Suffolk Tobacco Asset Securitization Corp. 5.00 6/01/2032 1,620 1,000 Thruway Auth. (PRE) 5.00 4/01/2028 1,082 1,000 Thruway Auth. 4.00 1/01/2056 1,067 1,000 Tompkins County Dev. Corp. (INS) 5.50 7/01/2033 1,153 1,500 Tompkins County Dev. Corp. 5.00 7/01/2044 1,691 1,500 Town of Hempstead IDA 4.50 7/01/2036 1,535 3,675 Triborough Bridge and Tunnel Auth. 5.00 11/15/2029 3,986 3,000 Triborough Bridge and Tunnel Auth. 5.00 11/15/2031 3,240 1,000 Triborough Bridge and Tunnel Auth. 3.70(b) 11/15/2032 653 2,000 Troy Capital Resource Corp. 5.00 9/01/2030 2,265 310 Upper Mohawk Valley Regional Water Finance Auth. (INS) 4.25 4/01/2036 310 1,685 Urban Dev. Corp. 5.00 1/01/2029 1,805 2,000 Urban Dev. Corp. 5.00 3/15/2036 2,188 870 Westchester County Health Care Corp. (PRE) 6.00 11/01/2030 1,044 130 Westchester County Health Care Corp. 6.00 11/01/2030 150 1,500 Westchester County Local Dev. Corp. 5.00 1/01/2034 1,693 1,000 Westchester County Local Dev. Corp. 5.00 11/01/2046 1,169
================================================================================ 20 | USAA NEW YORK BOND FUND ================================================================================
------------------------------------------------------------------------------------------------------------------ PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------------ $1,000 Yonkers (INS) 5.00% 10/01/2024 $ 1,163 665 Yonkers (INS) 3.00 7/01/2025 714 -------- 194,624 -------- GUAM (3.7%) 500 Government 5.00 1/01/2037 547 500 Government 5.00 12/01/2046 586 1,000 Government Business Privilege Tax 5.00 11/15/2039 1,151 1,000 International Airport Auth. (INS) 5.75 10/01/2043 1,217 1,000 Power Auth. (INS) 5.00 10/01/2030 1,175 500 Power Auth. (INS) 5.00 10/01/2039 586 1,000 Waterworks Auth. 5.00 7/01/2029 1,162 500 Waterworks Auth. 5.00 7/01/2035 568 1,000 Waterworks Auth. 5.50 7/01/2043 1,155 -------- 8,147 -------- PUERTO RICO (0.6%) 1,390 Industrial, Tourist, Educational, Medical and Environmental Control Facilities Financing Auth. 5.13 4/01/2032 1,280 -------- U.S. VIRGIN ISLANDS (1.2%) 2,000 Public Finance Auth. 5.00 10/01/2032 1,994 750 Water and Power Auth. 5.00 7/01/2018 758 -------- 2,752 -------- Total Fixed-Rate Instruments (cost: $189,278) 206,803 -------- VARIABLE-RATE DEMAND NOTES (6.2%) NEW YORK (6.2%) 1,425 Albany IDA (LOC - Citizens Financial Group) 1.05 5/01/2035 1,425 1,000 East Rochester Housing Auth. (LOC - Citizens Financial Group) 1.01 12/01/2036 1,000 6,000 Energy Research and Dev. Auth. (LOC - Mizuho Corporate Bank Ltd.) 0.86 5/01/2039 6,000 4,200 Housing Finance Agency (LOC - Wells Fargo & Co.) 0.88 11/01/2046 4,200 1,170 Monroe County IDA (LOC - Citizens Financial Group) 1.01 7/01/2027 1,170 -------- 13,795 -------- Total Variable-Rate Demand Notes (Cost: $13,795) 13,795 -------- UNITS ------------------------------------------------------------------------------------------------------------------ LIQUIDATING TRUST (0.2%) 200 Center for Medical Science, Inc.*(c),(d) (cost: $499) 560 -------- TOTAL INVESTMENTS (COST: $203,572) $221,158 ========
================================================================================ PORTFOLIO OF INVESTMENTS | 21 ================================================================================
------------------------------------------------------------------------------------------------------------------ ($ IN 000s) VALUATION HIERARCHY ------------------------------------------------------------------------------------------------------------------ ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL ------------------------------------------------------------------------------------------------------------------ Fixed-Rate Instruments $- $206,803 $ - $206,803 Variable-Rate Demand Notes - 13,795 - 13,795 Liquidating Trust - - 560 560 ------------------------------------------------------------------------------------------------------------------ Total $- $220,598 $560 $221,158 ------------------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or geographic region classifications.
------------------------------------------------------------------------------------------------------------------ RECONCILIATION OF LEVEL 3 INVESTMENTS ------------------------------------------------------------------------------------------------------------------ LIQUIDATING TRUST ------------------------------------------------------------------------------------------------------------------ Balance as of March 31, 2016 $550 Purchases - Sales - Transfers into Level 3 - Transfers out of Level 3 - Net realized gain (loss) on investments - Change in net unrealized appreciation/(depreciation) of investments 10 ------------------------------------------------------------------------------------------------------------------ Balance as of September 30, 2016 $560 ------------------------------------------------------------------------------------------------------------------
For the period of April 1, 2016, through September 30, 2016, there were no transfers of securities between levels. The Fund's policy is to recognize any transfers in and transfers out as of the beginning of the reporting period in which the event or circumstance that caused the transfer occurred. ================================================================================ 22 | USAA NEW YORK BOND FUND ================================================================================ NOTES TO PORTFOLIO OF INVESTMENTS September 30, 2016 (unaudited) -------------------------------------------------------------------------------- o GENERAL NOTES Market values of securities are determined by procedures and practices discussed in Note 1A to the financial statements. The Portfolio of Investments category percentages shown represent the percentages of the investments to net assets, and, in total, may not equal 100%. A category percentage of 0.0% represents less than 0.1% of net assets. o SPECIFIC NOTES (a) Restricted security that is not registered under the Securities Act of 1933. A resale of this security in the United States may occur in an exempt transaction to a qualified institutional buyer as defined by Rule 144A, and as such has been deemed liquid by USAA Asset Management Company (the Manager) under liquidity guidelines approved by USAA Mutual Funds Trust's Board of Trustees (the Board), unless otherwise noted as illiquid. (b) Zero-coupon security. Rate represents the effective yield at the date of purchase. (c) Security deemed illiquid by the Manager, under liquidity guidelines approved by the Board. The aggregate market value of these securities at September 30, 2016, was $560,000, which represented 0.2% of the Fund's net assets. (d) Restricted security that is not registered under the Securities Act of 1933. * Non-income-producing security. See accompanying notes to financial statements. ================================================================================ NOTES TO PORTFOLIO OF INVESTMENTS | 23 ================================================================================ STATEMENT OF ASSETS AND LIABILITIES (IN THOUSANDS) September 30, 2016 (unaudited) -------------------------------------------------------------------------------- ASSETS Investments in securities, at market value (cost of $203,572) $221,158 Cash 164 Receivables: Capital shares sold 139 Interest 2,505 Other 20 -------- Total assets 223,986 -------- LIABILITIES Payables: Capital shares redeemed 76 Dividends on capital shares 143 Accrued management fees 58 Accrued transfer agent's fees 1 Other accrued expenses and payables 55 -------- Total liabilities 333 -------- Net assets applicable to capital shares outstanding $223,653 ======== NET ASSETS CONSIST OF: Paid-in capital $209,526 Undistributed net investment income 1 Accumulated net realized loss on investments (3,460) Net unrealized appreciation of investments 17,586 -------- Net assets applicable to capital shares outstanding $223,653 ======== Net asset value, redemption price, and offering price per share: Fund Shares (net assets of $217,519/17,626 capital shares outstanding, no par value) $ 12.34 ======== Adviser Shares (net assets of $6,134/498 capital shares outstanding, no par value) $ 12.31 ========
See accompanying notes to financial statements. ================================================================================ 24 | USAA NEW YORK BOND FUND ================================================================================ STATEMENT OF OPERATIONS (IN THOUSANDS) Six-month period ended September 30, 2016 (unaudited) -------------------------------------------------------------------------------- INVESTMENT INCOME Interest income $ 4,440 -------- EXPENSES Management fees 394 Administration and servicing fees: Fund Shares 162 Adviser Shares 5 Transfer agent's fees: Fund Shares 24 Distribution and service fees (Note 6D): Adviser Shares 8 Custody and accounting fees: Fund Shares 32 Adviser Shares 1 Postage: Fund Shares 1 Shareholder reporting fees: Fund Shares 7 Trustees' fees 15 Professional fees 46 Other 8 -------- Total expenses 703 -------- NET INVESTMENT INCOME 3,737 -------- NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS Net realized gain 62 Change in net unrealized appreciation/(depreciation) 941 -------- Net realized and unrealized gain 1,003 -------- Increase in net assets resulting from operations $ 4,740 ========
See accompanying notes to financial statements. ================================================================================ FINANCIAL STATEMENTS | 25 ================================================================================ STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS) Six-month period ended September 30, 2016 (unaudited), and year ended March 31, 2016
----------------------------------------------------------------------------------------------- 9/30/2016 3/31/2016 ----------------------------------------------------------------------------------------------- FROM OPERATIONS Net investment income $ 3,737 $ 7,494 Net realized gain on investments 62 77 Change in net unrealized appreciation/(depreciation) of investments 941 (278) ----------------------- Increase in net assets resulting from operations 4,740 7,293 ----------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income: Fund Shares (3,638) (7,304) Adviser Shares (96) (186) ----------------------- Distributions to shareholders (3,734) (7,490) ----------------------- NET INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS (NOTE 5) Fund Shares 5,402 (304) Adviser Shares 253 221 ----------------------- Total net increase (decrease) in net assets from capital share transactions 5,655 (83) ----------------------- Net increase (decrease) in net assets 6,661 (280) NET ASSETS Beginning of period 216,992 217,272 ----------------------- End of period $223,653 $216,992 ======================= Undistributed (overdistribution of) net investment income: End of period $ 1 $ (2) =======================
See accompanying notes to financial statements. ================================================================================ 26 | USAA NEW YORK BOND FUND ================================================================================ NOTES TO FINANCIAL STATEMENTS September 30, 2016 (unaudited) -------------------------------------------------------------------------------- (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company Act of 1940, as amended (the 1940 Act), is an open-end management investment company organized as a Delaware statutory trust consisting of 54 separate funds. Additionally, the Fund qualifies as a registered investment company under Accounting Standards Codification Topic 946. The information presented in this semiannual report pertains only to the USAA New York Bond Fund (the Fund), which is classified as diversified under the 1940 Act. The Fund's investment objective is to provide New York investors with a high level of current interest income that is exempt from federal income tax and New York State and New York City personal income taxes. The Fund consists of two classes of shares: New York Bond Fund Shares (Fund Shares) and New York Bond Fund Adviser Shares (Adviser Shares). Each class of shares has equal rights to assets and earnings, except that each class bears certain class-related expenses specific to the particular class. These expenses include administration and servicing fees, transfer agent fees, postage, shareholder reporting fees, distribution and service (12b-1) fees, and certain registration and custodian fees. Expenses not attributable to a specific class, income, and realized gains or losses on investments are allocated to each class of shares based on each class' relative net assets. Each class has exclusive voting rights on matters related solely to that class and separate voting rights on matters that relate to all classes. The Adviser Shares permit investors to purchase shares through financial intermediaries, including banks, broker- dealers, insurance companies, investment advisers, plan sponsors, and financial professionals that provide various administrative and distribution services. A. SECURITY VALUATION - The Trust's Board of Trustees (the Board) has established the Valuation Committee (the Committee), and subject to ================================================================================ NOTES TO FINANCIAL STATEMENTS | 27 ================================================================================ Board oversight, the Committee administers and oversees the Fund's valuation policies and procedures, which are approved by the Board. Among other things, these policies and procedures allow the Fund to utilize independent pricing services, quotations from securities dealers, and a wide variety of sources and information to establish and adjust the fair value of securities as events occur and circumstances warrant. The Committee reports to the Board on a quarterly basis and makes recommendations to the Board as to pricing methodologies and services used by the Fund and presents additional information to the Board regarding application of the pricing and fair valuation policies and procedures during the preceding quarter. The Committee meets as often as necessary to make pricing and fair value determinations. In addition, the Committee holds regular monthly meetings to review prior actions taken by the Committee and USAA Asset Management Company (the Manager), an affiliate of the Fund. Among other things, these monthly meetings include a review and analysis of back testing reports, pricing service quotation comparisons, illiquid securities and fair value determinations, pricing movements, and daily stale price monitoring. The value of each security is determined (as of the close of trading on the New York Stock Exchange (NYSE) on each business day the NYSE is open) as set forth below: 1. Debt securities with maturities greater than 60 days are valued each business day by a pricing service (the Service) approved by the Board. The Service uses an evaluated mean between quoted bid and asked prices or the last sales price to value a security when, in the Service's judgment, these prices are readily available and are representative of the security's market value. For many securities, such prices are not readily available. The Service generally prices those securities based on methods which include consideration of yields or prices of securities of comparable quality, coupon, maturity, and type; indications as to values from dealers in securities; and general market conditions. Generally, debt securities are categorized in Level 2 of the fair value ================================================================================ 28 | USAA NEW YORK BOND FUND ================================================================================ hierarchy; however, to the extent the valuations include significant unobservable inputs, the securities would be categorized in Level 3. 2. Short-term debt securities with original or remaining maturities of 60 days or less may be valued at amortized cost, provided that amortized cost represents the fair value of such securities. 3. In the event that price quotations or valuations are not readily available, are not reflective of market value, or a significant event has been recognized in relation to a security or class of securities, the securities are valued in good faith by the Committee in accordance with valuation procedures approved by the Board. The effect of fair value pricing is that securities may not be priced on the basis of quotations from the primary market in which they are traded and the actual price realized from the sale of a security may differ materially from the fair value price. Valuing these securities at fair value is intended to cause the Fund's net asset value (NAV) to be more reliable than it otherwise would be. Fair value methods used by the Manager include, but are not limited to, obtaining market quotations from secondary pricing services, broker-dealers, other pricing services, or widely used quotation systems. General factors considered in determining the fair value of securities include fundamental analytical data, the nature and duration of any restrictions on disposition of the securities, evaluation of credit quality, and an evaluation of the forces that influenced the market in which the securities are purchased and sold. B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The three-level valuation hierarchy disclosed in the Portfolio of Investments is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows: Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) in active markets for identical securities. Level 2 - inputs to the valuation methodology are other significant observable inputs, including quoted prices for similar securities, inputs ================================================================================ NOTES TO FINANCIAL STATEMENTS | 29 ================================================================================ that are observable for the securities, either directly or indirectly, and market-corroborated inputs such as market indexes. Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value measurement, including the Manager's own assumptions in determining the fair value. The inputs or methodologies used for valuing securities are not necessarily an indication of the risks associated with investing in those securities. The valuation of securities falling in the Level 3 category are primarily supported by the value derived based upon the use of inputs such as real property appraisals. However, these securities are included in the Level 3 category due to limited market transparency and/or a lack of corroboration to support the quoted prices. Refer to the Portfolio of Investments for a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining value. C. FEDERAL TAXES - The Fund's policy is to comply with the requirements of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies and to distribute substantially all of its taxable income and net capital gains, if any, to its shareholders. Therefore, no federal income tax provision is required. D. INVESTMENTS IN SECURITIES - Securities transactions are accounted for on the date the securities are purchased or sold (trade date). Gains or losses from sales of investment securities are computed on the identified cost basis. Interest income is recorded daily on the accrual basis. Premiums and discounts are amortized over the life of the respective securities, using the effective yield method for long-term securities and the straight-line method for short-term securities. The Fund concentrates its investments in New York tax-exempt securities and, therefore, may be exposed to more credit risk than portfolios with a broader geographical diversification. E. SECURITIES PURCHASED ON A DELAYED-DELIVERY OR WHEN-ISSUED BASIS - Delivery and payment for securities that have been purchased by the Fund on a delayed-delivery or when-issued basis can take place a month or more ================================================================================ 30 | USAA NEW YORK BOND FUND ================================================================================ after the trade date. During the period prior to settlement, these securities do not earn interest, are subject to market fluctuation, and may increase or decrease in value prior to their delivery. The Fund maintains segregated assets with a market value equal to or greater than the amount of its purchase commitments. The purchase of securities on a delayed-delivery or when-issued basis may increase the volatility of the Fund's NAV to the extent that the Fund makes such purchases while remaining substantially fully invested. F. EXPENSES PAID INDIRECTLY - Through arrangements with the Fund's custodian and other banks utilized by the Fund for cash management purposes, realized credits, if any, generated from cash balances in the Fund's bank accounts may be used to directly reduce the Fund's expenses. For the six-month period ended September 30, 2016, custodian and other bank credits reduced the Fund's expenses by less than $500. G. REDEMPTION FEES - All share classes held in the Fund less than 60 days are subject to a redemption fee equal to 1.00% of the proceeds of the redeemed or exchanged shares. All redemption fees paid will be accounted for by the Fund as an addition to paid in capital. For the six-month period ended September 30, 2016, the Fund Shares and Adviser Shares did not charge any redemption fees. H. INDEMNIFICATIONS - Under the Trust's organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Trust. In addition, in the normal course of business, the Trust enters into contracts that contain a variety of representations and warranties that provide general indemnifications. The Trust's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Trust that have not yet occurred. However, the Trust expects the risk of loss to be remote. I. USE OF ESTIMATES - The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that may affect the reported amounts in the financial statements. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 31 ================================================================================ (2) LINE OF CREDIT The Fund participates in a joint, short-term, revolving, committed loan agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate of the Manager. The purpose of the agreement is to meet temporary or emergency cash needs, including redemption requests that might otherwise require the untimely disposition of securities. Subject to availability, the Fund may borrow from CAPCO an amount up to 5% of the Fund's total assets at an interest rate based on the London Interbank Offered Rate (LIBOR), plus 100.0 basis points. The USAA Funds that are party to the loan agreement are assessed facility fees by CAPCO in the amount of 12.0 basis points of the amount of the committed loan agreement. Prior to September 30, 2016, the maximum annual facility fee was 9.0 basis points of the amount of the committed loan agreement. The facility fees are allocated among the USAA Funds based on their respective average net assets for the period. The USAA Funds may request an optional increase of the committed loan agreement from $500 million up to $750 million. If the USAA Funds increase the committed loan agreement, the assessed facility fee on the amount of the additional commitment will be 13.0 basis points. For the six-month period ended September 30, 2016, the Fund paid CAPCO facility fees of $1,000, which represents 0.3% of the total fees paid to CAPCO by the USAA Funds. The Fund had no borrowings under this agreement during the six-month period ended September 30, 2016. (3) DISTRIBUTIONS The tax basis of distributions and any accumulated undistributed net investment income will be determined as of the Fund's tax year-end of March 31, 2017, in accordance with applicable federal tax law. Net investment income is accrued daily as dividends and distributed to shareholders monthly. Distributions of realized gains from security transactions not offset by capital losses are made annually in the succeeding fiscal year or as otherwise required to avoid the payment of federal income taxes. ================================================================================ 32 | USAA NEW YORK BOND FUND ================================================================================ The Fund is permitted to carry forward post-enactment capital losses indefinitely. Additionally, such capital losses that are carried forward will retain their character as short-term and/or long-term capital losses. Post-enactment capital loss carryforwards must be used before pre-enactment capital loss carryforwards. As a result, pre-enactment capital loss carryforwards may be more likely to expire unused. At March 31, 2016, the Fund had both pre-enactment capital loss carryforwards and post-enactment capital loss carryforwards for federal income tax purposes as shown in the table below. If not offset by subsequent capital gains, the pre-enactment capital loss carryforwards will expire as shown below. It is unlikely that the Board will authorize a distribution of capital gains realized in the future until the capital loss carryforwards have been used or expire.
CAPITAL LOSS CARRYFORWARDS ---------------------------------------------- EXPIRES SHORT-TERM LONG-TERM ------------- ---------- ---------- 2019 $ 1,000 $ - No Expiration 815,000 2,706,000 ------------- -------- ---------- Total $816,000 $2,706,000 ======== ==========
For the six-month period ended September 30, 2016, the Fund did not incur any income tax, interest, or penalties, and has recorded no liability for net unrecognized tax benefits relating to uncertain income tax positions. On an ongoing basis, the Manager will monitor the Fund's tax basis to determine if adjustments to this conclusion are necessary. The statute of limitations on the Fund's tax return filings generally remain open for the three preceding fiscal reporting year ends and remain subject to examination by the Internal Revenue Service and state taxing authorities. (4) INVESTMENT TRANSACTIONS Cost of purchases and proceeds from sales/maturities of securities, excluding short-term securities, for the six-month period ended September 30, 2016, were $10,553,000 and $12,460,000, respectively. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 33 ================================================================================ As of September 30, 2016, the cost of securities, including short-term securities, for federal income tax purposes, was approximately the same as the cost reported in the financial statements. Gross unrealized appreciation and depreciation of investments as of September 30, 2016, were $17,781,000 and $195,000, respectively, resulting in net unrealized appreciation of $17,586,000. (5) CAPITAL SHARE TRANSACTIONS At September 30, 2016, there were an unlimited number of shares of capital stock at no par value authorized for the Fund. Capital share transactions for all classes were as follows, in thousands:
SIX-MONTH PERIOD ENDED YEAR ENDED SEPTEMBER 30, 2016 MARCH 31, 2016 ----------------------------------------------------------------------------------------------------- SHARES AMOUNT SHARES AMOUNT ------------------------------------------------------------ FUND SHARES: Shares sold 624 $ 7,733 885 $ 10,806 Shares issued from reinvested dividends 240 2,979 496 6,035 Shares redeemed (428) (5,310) (1,412) (17,145) ------------------------------------------------------------ Net increase (decrease) from capital share transactions 436 $ 5,402 (31) $ (304) ============================================================ ADVISER SHARES: Shares sold 25 $ 307 25 $ 308 Shares issued from reinvested dividends 1 13 1 16 Shares redeemed (6) (67) (8) (103) ------------------------------------------------------------ Net increase from capital share transactions 20 $ 253 18 $ 221 ============================================================
(6) TRANSACTIONS WITH MANAGER A. MANAGEMENT FEES - The Manager provides investment management services to the Fund pursuant to an Advisory Agreement. Under this agreement, the Manager is responsible for managing the business and affairs of the ================================================================================ 34 | USAA NEW YORK BOND FUND ================================================================================ Fund, and for directly managing the day-to-day investment of the Fund's assets, subject to the authority of and supervision by the Board. The investment management fee for the Fund is comprised of a base fee and a performance adjustment. The Fund's base fee is accrued daily and paid monthly as a percentage of aggregate average net assets of the USAA New York Bond Fund and USAA New York Money Market Fund combined, which on an annual basis is equal to 0.50% of the first $50 million, 0.40% of that portion over $50 million but not over $100 million, and 0.30% of that portion over $100 million. These fees are allocated on a proportional basis to each Fund monthly based upon average net assets. For the six-month period ended September 30, 2016, the Fund's effective annualized base fee was 0.35% of the Fund's average net assets for the same period. The performance adjustment is calculated separately for each share class on a monthly basis by comparing each class' performance over the performance period to that of the Lipper New York Municipal Debt Funds Index. The Lipper New York Municipal Debt Funds Index tracks the total return performance of funds that limit their assets to those securities that are exempt from taxation in New York State and New York City. The performance period for each share class consists of the current month plus the previous 35 months. The following table is utilized to determine the extent of the performance adjustment:
OVER/UNDER PERFORMANCE RELATIVE TO INDEX ANNUAL ADJUSTMENT RATE (IN BASIS POINTS)(1) (IN BASIS POINTS)(1) ------------------------------------------------------------------- +/- 20 to 50 +/- 4 +/- 51 to 100 +/- 5 +/- 101 and greater +/- 6
(1)Based on the difference between average annual performance of the relevant share class of the Fund and its relevant index, rounded to the nearest basis point. Average net assets of the share class are calculated over a rolling 36-month period. Each class' annual performance adjustment rate is multiplied by the average net assets of each respective class over the entire performance period, which is then multiplied by a fraction, the numerator of which is ================================================================================ NOTES TO FINANCIAL STATEMENTS | 35 ================================================================================ the number of days in the month and the denominator of which is 365 (366 in leap years). The resulting amount is then added to (in the case of overperformance), or subtracted from (in the case of underperformance) the base fee. Under the performance fee arrangement, each share class will pay a positive performance fee adjustment for a performance period whenever the share class outperforms the Lipper New York Municipal Debt Funds Index over that period, even if the share class had overall negative returns during the performance period. For the six-month period ended September 30, 2016, the Fund incurred total management fees, paid or payable to the Manager, of $394,000, which included a performance adjustment for the Fund Shares and Adviser Shares of $7,000 and less than $(500), respectively. For the Fund Shares and Adviser Shares, the performance adjustments were 0.01% and (0.01%), respectively. B. ADMINISTRATION AND SERVICING FEES - The Manager provides certain administration and servicing functions for the Fund. For such services, the Manager receives a fee accrued daily and paid monthly at an annualized rate of 0.15% of average net assets for both the Fund Shares and Adviser Shares. For the six-month period ended September 30, 2016, the Fund Shares and Adviser Shares incurred administration and servicing fees, paid or payable to the Manager, of $162,000 and $5,000, respectively. In addition to the services provided under its Administration and Servicing Agreement with the Fund, the Manager also provides certain compliance and legal services for the benefit of the Fund. The Board has approved the reimbursement of a portion of these expenses incurred by the Manager. For the six-month period ended September 30, 2016, the Fund reimbursed the Manager $3,000 for these compliance and legal services. These expenses are included in the professional fees on the Fund's Statement of Operations. C. TRANSFER AGENT'S FEES - USAA Transfer Agency Company, d/b/a USAA Shareholder Account Services (SAS), an affiliate of the Manager, provides transfer agent services to the Fund Shares and Adviser Shares based on ================================================================================ 36 | USAA NEW YORK BOND FUND ================================================================================ an annual charge of $25.50 per shareholder account plus out-of-pocket expenses. SAS pays a portion of these fees to certain intermediaries for the administration and servicing of accounts that are held with such intermediaries. For the six-month period ended September 30, 2016, the Fund Shares and Adviser Shares incurred transfer agent's fees, paid or payable to SAS, of $24,000 and less than $500, respectively. D. DISTRIBUTION AND SERVICE (12b-1) FEES - The Fund has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Adviser Shares. Under the plan, the Adviser Shares pay fees to USAA Investment Management Company (IMCO), the distributor, for distribution and shareholder services. IMCO pays all or a portion of such fees to intermediaries that make the Adviser Shares available for investment by their customers. The fee is accrued daily and paid monthly at an annual rate of 0.25% of the Adviser Shares' average net assets. Adviser Shares are offered and sold without imposition of an initial sales charge or a contingent deferred sales charge. For the six-month period ended September 30, 2016, the Adviser Shares incurred distribution and service (12b-1) fees of $8,000. E. UNDERWRITING SERVICES - IMCO provides exclusive underwriting and distribution of the Fund's shares on a continuing best-efforts basis and receives no fee or other compensation for these services, but may receive 12b-1 fees as described above, with respect to Adviser Shares. (7) TRANSACTIONS WITH AFFILIATES The Manager is indirectly wholly owned by United Services Automobile Association (USAA), a large, diversified financial services institution. At September 30, 2016, USAA and its affiliates owned 420,000 Adviser Shares, which represents 84.3% of the Adviser Shares outstanding and 2.3% of the Fund's total outstanding shares. Certain trustees and officers of the Fund are also directors, officers, and/or employees of the Manager. None of the affiliated trustees or Fund officers received any compensation from the Fund. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 37 ================================================================================ (8) FINANCIAL HIGHLIGHTS - FUND SHARES Per share operating performance for a share outstanding throughout each period is as follows:
SIX-MONTH PERIOD ENDED SEPTEMBER 30, YEAR ENDED MARCH 31, ------------------------------------------------------------------------------- 2016 2016 2015 2014 2013 2012 ------------------------------------------------------------------------------- Net asset value at beginning of period $ 12.28 $ 12.29 $ 11.93 $ 12.47 $ 12.18 $ 11.03 ------------------------------------------------------------------------------ Income (loss) from investment operations: Net investment income .21 .43 .44 .45 .45 .47 Net realized and unrealized gain (loss) .06 (.01) .36 (.54) .29 1.15 ------------------------------------------------------------------------------ Total from investment operations .27 .42 .80 (.09) .74 1.62 ------------------------------------------------------------------------------ Less distributions from: Net investment income (.21) (.43) (.44) (.45) (.45) (.47) ------------------------------------------------------------------------------ Net asset value at end of period $ 12.34 $ 12.28 $ 12.29 $ 11.93 $ 12.47 $ 12.18 ============================================================================== Total return (%)* 2.19 3.50 6.76 (.63) 6.12 14.93 Net assets at end of period (000) $217,519 $211,136 $211,634 $194,083 $217,464 $196,957 Ratios to average net assets:** Expenses (%)(a) .63(b) .66 .66 .67 .65 .66 Net investment income (%) 3.36(b) 3.53 3.58 3.80 3.59 4.01 Portfolio turnover (%) 5 10 5 6 8 11
* Assumes reinvestment of all net investment income and realized capital gain distributions, if any, during the period. Includes adjustments in accordance with U.S. generally accepted accounting principles and could differ from the Lipper reported return. Total returns for periods of less than one year are not annualized. ** For the six-month period ended September 30, 2016, average net assets were $215,852,000. (a) Reflects total annual operating expenses of the Fund Shares before reductions of any expenses paid indirectly. The Fund Shares' expenses paid indirectly decreased the expense ratios by less than 0.01%. (b) Annualized. The ratio is not necessarily indicative of 12 months of operations. ================================================================================ 38 | USAA NEW YORK BOND FUND ================================================================================ (8) FINANCIAL HIGHLIGHTS (CONTINUED) - ADVISER SHARES Per share operating performance for a share outstanding throughout each period is as follows:
SIX-MONTH PERIOD ENDED SEPTEMBER 30, YEAR ENDED MARCH 31, ------------------------------------------------------------------------------- 2016 2016 2015 2014 2013 2012 ------------------------------------------------------------------------------- Net asset value at beginning of period $12.25 $12.26 $11.90 $12.47 $12.18 $11.03 ---------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income .20 .41 .41 .42 .42 .45 Net realized and unrealized gain (loss) .05 (.01) .36 (.57) .29 1.15 ---------------------------------------------------------------------------- Total from investment operations .25 .40 .77 (.15) .71 1.60 ---------------------------------------------------------------------------- Less distributions from: Net investment income (.19) (.41) (.41) (.42) (.42) (.45) ---------------------------------------------------------------------------- Net asset value at end of period $12.31 $12.25 $12.26 $11.90 $12.47 $12.18 ============================================================================ Total return (%)* 2.08 3.30 6.51 (1.10) 5.90 14.69 Net assets at end of period (000) $6,134 $5,856 $5,638 $5,339 $6,334 $5,201 Ratios to average net assets:** Expenses (%)(a) .84(c) .85 .90(b) .89 .85 .87 Expenses, excluding reimbursements (%)(a) .84(c) .85 .90 .89 .85 .87 Net investment income (%) 3.15(c) 3.34 3.34 3.57 3.39 3.79 Portfolio turnover (%) 5 10 5 6 8 11
* Assumes reinvestment of all net investment income and realized capital gain distributions, if any, during the period. Includes adjustments in accordance with U.S. generally accepted accounting principles and could differ from the Lipper reported return. Total returns for periods of less than one year are not annualized. ** For the six-month period ended September 30, 2016, average net assets were $6,076,000. (a) Reflects total annual operating expenses of the Adviser Shares before reductions of any expenses paid indirectly. The Adviser Shares' expenses paid indirectly decreased the expense ratios by less than 0.01%. (b) Prior to August 1, 2014, the Manager had voluntarily agreed to limit the annual expenses of the Adviser Shares to 0.90% of the Adviser Shares' average net assets. (c) Annualized. The ratio is not necessarily indicative of 12 months of operations. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 39 ================================================================================ EXPENSE EXAMPLE September 30, 2016 (unaudited) -------------------------------------------------------------------------------- EXAMPLE As a shareholder of the Fund, you incur two types of costs: direct costs, such as wire fees, redemption fees, and low balance fees; and indirect costs, including management fees, transfer agency fees, distribution and service (12b-1) fees, and other Fund operating expenses. This example is intended to help you understand your indirect costs, also referred to as "ongoing costs" (in dollars), of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire six-month period of April 1, 2016, through September 30, 2016. ACTUAL EXPENSES The line labeled "actual" under each share class in the table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested at the beginning of the period, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number for your share class in the "actual" line under the heading "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The line labeled "hypothetical" under each share class in the table provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratios for each class and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual ================================================================================ 40 | USAA NEW YORK BOND FUND ================================================================================ return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any direct costs, such as wire fees, redemption fees, or low balance fees. Therefore, the line labeled "hypothetical" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these direct costs were included, your costs would have been higher.
EXPENSES PAID BEGINNING ENDING DURING PERIOD* ACCOUNT VALUE ACCOUNT VALUE APRIL 1, 2016 - APRIL 1, 2016 SEPTEMBER 30, 2016 SEPTEMBER 30, 2016 ---------------------------------------------------------------- FUND SHARES Actual $1,000.00 $1,021.90 $3.19 Hypothetical (5% return before expenses) 1,000.00 1,021.91 3.19 ADVISER SHARES Actual 1,000.00 1,020.80 4.26 Hypothetical (5% return before expenses) 1,000.00 1,020.86 4.26
*Expenses are equal to the Fund's annualized expense ratio of 0.63% for Fund Shares and 0.84% for Adviser Shares, which are net of any expenses paid indirectly, multiplied by the average account value over the period, multiplied by 183 days/365 days (to reflect the one-half-year period). The Fund's actual ending account values are based on its actual total returns of 2.19% for Fund Shares and 2.08% for Adviser Shares for the six-month period of April 1, 2016, through September 30, 2016. ================================================================================ EXPENSE EXAMPLE | 41 ================================================================================ ADVISORY AGREEMENT(S) September 30, 2016 (unaudited) -------------------------------------------------------------------------------- At an in-person meeting of the Board of Trustees (the Board) held on April 22, 2016, the Board, including the Trustees who are not "interested persons" (as that term is defined in the Investment Company Act of 1940, as amended) of the Trust (the Independent Trustees), approved for an annual period the continuance of the Advisory Agreement between the Trust and the Manager with respect to the Fund. In advance of the meeting, the Trustees received and considered a variety of information relating to the Advisory Agreement and the Manager and were given the opportunity to ask questions and request additional information from management. The information provided to the Board included, among other things: (i) a separate report prepared by an independent third party, which provided a statistical analysis comparing the Fund's investment performance, expenses, and fees to comparable investment companies; (ii) information concerning the services rendered to the Fund, as well as information regarding the Manager's revenues and costs of providing services to the Fund and compensation paid to affiliates of the Manager; and (iii) information about the Manager's operations and personnel. Prior to voting, the Independent Trustees reviewed the proposed continuation of the Advisory Agreement with management and with experienced counsel retained by the Independent Trustees (Independent Counsel) and received materials from such Independent Counsel discussing the legal standards for their consideration of the proposed continuation of the Advisory Agreement with respect to the Fund. The Independent Trustees also reviewed the proposed continuation of the Advisory Agreement with respect to the Fund in private sessions with Independent Counsel at which no representatives of management were present. At each regularly scheduled meeting of the Board and its committees, the Board receives and reviews, among other things, information concerning the Fund's performance and related services provided by the Manager. At the meeting at which the renewal of the Advisory Agreement is ================================================================================ 42 | USAA NEW YORK BOND FUND ================================================================================ considered, particular focus is given to information concerning Fund performance, comparability of fees and total expenses as compared to comparable investment companies, and the Manager's profitability with respect to the Fund. However, the Board noted that the evaluation process with respect to the Manager is an ongoing one. In this regard, the Board's and its committees' consideration of the Advisory Agreement included information previously received at such meetings. ADVISORY AGREEMENT After full consideration of a variety of factors, the Board, including the Independent Trustees, voted to approve the Advisory Agreement. In approving the Advisory Agreement, the Trustees did not identify any single factor as controlling, and each Trustee may have attributed different weights to various factors. Throughout their deliberations, the Independent Trustees were represented and assisted by Independent Counsel. NATURE, EXTENT, AND QUALITY OF SERVICES - In considering the nature, extent, and quality of the services provided by the Manager under the Advisory Agreement, the Board reviewed information provided by the Manager relating to its operations and personnel. The Board also took into account its knowledge of the Manager's management and the quality of the performance of the Manager's duties through Board meetings, discussions, and reports during the preceding year. The Board considered the fees paid to the Manager and the services provided to the Fund by the Manager under the Advisory Agreement, as well as other services provided by the Manager and its affiliates under other agreements, and the personnel who provide these services. In addition to the investment advisory services provided to the Fund, the Manager and its affiliates provide administrative services, stockholder services, oversight of Fund accounting, marketing services, assistance in meeting legal and regulatory requirements, and other services necessary for the operation of the Fund and the Trust. The Board considered the Manager's management style and the performance of the Manager's duties under the Advisory Agreement. The Board considered the level and depth of knowledge of the Manager, including the professional experience and qualifications of its senior and investment personnel, as well ================================================================================ ADVISORY AGREEMENT(S) | 43 ================================================================================ as current staffing levels. The allocation of the Fund's brokerage, including the Manager's process for monitoring "best execution," also was considered. The Manager's role in coordinating the activities of the Fund's other service providers also was considered. The Board also considered the Manager's risk management processes. The Board considered the Manager's financial condition and that it had the financial wherewithal to continue to provide the same scope and high quality of services under the Advisory Agreement. In reviewing the Advisory Agreement, the Board focused on the experience, resources, and strengths of the Manager and its affiliates in managing the Fund, as well as the other funds in the Trust. The Board also reviewed the compliance and administrative services provided to the Fund by the Manager, including the Manager's oversight of the Fund's day-to-day operations and oversight of Fund accounting. The Trustees, guided also by information obtained from their experiences as trustees of the Trust, also focused on the quality of the Manager's compliance and administrative staff. EXPENSES AND PERFORMANCE - In connection with its consideration of the Advisory Agreement, the Board evaluated the Fund's advisory fees and total expense ratio as compared to other open-end investment companies deemed to be comparable to the Fund as determined by the independent third party in its report. The Fund's expenses were compared to (i) a group of investment companies chosen by the independent third party to be comparable to the Fund based upon certain factors, including fund type, comparability of investment objective and classification, sales load type (in this case, investment companies with front-end loads and no sales loads), asset size, and expense components (the "expense group") and (ii) a larger group of investment companies that includes all front-end load and no-load retail open-end investment companies with the same investment classification/objective as the Fund regardless of asset size, excluding outliers (the "expense universe"). Among other data, the Board noted that the Fund's management fee rate - which includes advisory and administrative services and the effects of any performance adjustment - was equal to the median of its expense group and below the median of its expense universe. The data indicated that the Fund's total expense ratio was below the median of its expense group and its ================================================================================ 44 | USAA NEW YORK BOND FUND ================================================================================ expense universe. The Board took into account the various services provided to the Fund by the Manager and its affiliates, including the high quality of services provided by the Manager. The Board also noted the level and method of computing the management fee, including any performance adjustment to such fee. In considering the Fund's performance, the Board noted that it reviews at its regularly scheduled meetings information about the Fund's performance results. The Trustees also reviewed various comparative data provided to them in connection with their consideration of the renewal of the Advisory Agreement, including, among other information, a comparison of the Fund's average annual total return with its Lipper index and with that of other mutual funds deemed to be in its peer group by the independent third party in its report (the "performance universe"). The Fund's performance universe consisted of the Fund and all retail and institutional open-end investment companies with the same classification/objective as the Fund regardless of asset size or primary channel of distribution. This comparison indicated that, among other data, the Fund's performance was above the average of its performance universe and its Lipper index for the one-, three-, five-, and ten-year periods ended December 31, 2015. The Board also noted that the Fund's percentile performance ranking was in the top 45% of its performance universe for the one- and three-year periods ended December 31, 2015, and was in the top 20% of its performance universe for the five- and ten-year periods ended December 31, 2015. COMPENSATION AND PROFITABILITY - The Board took into consideration the level and method of computing the management fee. The information considered by the Board included operating profit margin information for the Manager's business as a whole. The Board also received and considered profitability information related to the management revenues from the Fund. This information included a review of the methodology used in the allocation of certain costs to the Fund. The Trustees reviewed the profitability of the Manager's relationship with the Fund before tax expenses. In reviewing the overall profitability of the management fee to the Manager, the Board also considered the fact that affiliates provide shareholder servicing and administrative services to the Fund for which they receive compensation. The ================================================================================ ADVISORY AGREEMENT(S) | 45 ================================================================================ Board also considered the possible direct and indirect benefits to the Manager from its relationship with the Trust, including that the Manager may derive reputational and other benefits from its association with the Fund. The Board took into account the high quality of services received by the Fund from the Manager. The Trustees recognized that the Manager should be entitled to earn a reasonable level of profits in exchange for the level of services it provides to the Fund and the entrepreneurial risk that it assumes as Manager. ECONOMIES OF SCALE - The Board noted that the Fund has advisory fee breakpoints that allow the Fund to participate in economies of scale and that such economies of scale currently were reflected in the advisory fee. The Board also considered the effect of the Fund's growth and size on its performance and fees, noting that the Fund may realize additional economies of scale if assets increase proportionally more than some expenses. The Board determined that the current investment management fee structure was reasonable. CONCLUSIONS - The Board reached the following conclusions regarding the Fund's Advisory Agreement with the Manager, among others: (i) the Manager has demonstrated that it possesses the capability and resources to perform the duties required of it under the Advisory Agreement; (ii) the Manager maintains an appropriate compliance program; (iii) the performance of the Fund is reasonable in relation to the performance of funds with similar investment objectives and to relevant indices; (iv) the Fund's advisory expenses are reasonable in relation to those of similar funds and to the services to be provided by the Manager; and (v) the Manager's and its affiliates' level of profitability from its relationship with the Fund is reasonable in light of the nature and high quality of services provided by the Manager and the type of fund. Based on its conclusions, the Board determined that continuation of the Advisory Agreement would be in the best interests of the Fund and its shareholders. ================================================================================ 46 | USAA NEW YORK BOND FUND ================================================================================ TRUSTEES Daniel S. McNamara Robert L. Mason, Ph.D. Jefferson C. Boyce Dawn M. Hawley Paul L. McNamara Barbara B. Ostdiek, Ph.D. Michael F. Reimherr -------------------------------------------------------------------------------- ADMINISTRATOR AND USAA Asset Management Company INVESTMENT ADVISER P.O. Box 659453 San Antonio, Texas 78265-9825 -------------------------------------------------------------------------------- UNDERWRITER AND USAA Investment Management Company DISTRIBUTOR P.O. Box 659453 San Antonio, Texas 78265-9825 -------------------------------------------------------------------------------- TRANSFER AGENT USAA Shareholder Account Services 9800 Fredericksburg Road San Antonio, Texas 78288 -------------------------------------------------------------------------------- CUSTODIAN AND State Street Bank and Trust Company ACCOUNTING AGENT P.O. Box 1713 Boston, Massachusetts 02105 -------------------------------------------------------------------------------- INDEPENDENT Ernst & Young LLP REGISTERED PUBLIC 100 West Houston St., Suite 1700 ACCOUNTING FIRM San Antonio, Texas 78205 -------------------------------------------------------------------------------- MUTUAL FUND Under "My Accounts" on SELF-SERVICE 24/7 usaa.com select your mutual fund AT USAA.COM account and either click the link or select 'I want to...' and select OR CALL the desired action. (800) 531-USAA (8722) (210) 531-8722 -------------------------------------------------------------------------------- Copies of the Manager's proxy voting policies and procedures, approved by the Trust's Board of Trustees for use in voting proxies on behalf of the Fund, are available without charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722; (ii) at USAA.COM; and (iii) in summary within the Statement of Additional Information on the SEC's website at HTTP://WWW.SEC.GOV. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge (i) at USAA.COM; and (ii) on the SEC's website at HTTP://WWW.SEC.GOV. The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. These Forms N-Q are available at no charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722; (ii) at USAA.COM; and (iii) on the SEC's website at HTTP://WWW.SEC.GOV. These Forms N-Q also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling (800) 732-0330. ================================================================================ -------------- USAA PRSRT STD 9800 Fredericksburg Road U.S. Postage San Antonio, TX 78288 PAID USAA -------------- >> SAVE PAPER AND FUND COSTS Under MY PROFILE on USAA.COM select MANAGE PREFERENCES Set your DOCUMENT PREFERENCES to USAA DOCUMENTS ONLINE. [LOGO OF USAA] USAA We know what it means to serve.(R) ============================================================================= 39608-1116 (C)2016, USAA. All rights reserved. [LOGO OF USAA] USAA(R) [GRAPHIC OF USAA NEW YORK MONEY MARKET FUND] ============================================================ SEMIANNUAL REPORT USAA NEW YORK MONEY MARKET FUND SEPTEMBER 30, 2016 ============================================================= ================================================================================ ================================================================================ PRESIDENT'S MESSAGE "THE CLOSING WEEKS OF A YEAR CAN BE A GOOD TIME TO TAKE A LOOK AT YOUR FINANCIAL SITUATION [PHOTO OF BROOKS ENGLEHARDT] WITH A GOAL OF GETTING YOUR FINANCES IN ORDER." -------------------------------------------------------------------------------- NOVEMBER 2016 Investors were generally rewarded during the reporting period ended September 30, 2016. Most asset classes posted gains as global growth concerns eased and many of the world's central banks, including the Federal Reserve (the Fed), maintained accommodative monetary policies. Stock prices generally climbed, despite two brief setbacks. In June 2016, a brief retreat followed the United Kingdom's unexpected vote to withdraw from the European Union (commonly known as Brexit). In September 2016, stocks fell--before quickly recovering--on concerns about a potential Fed interest rate increase. Meanwhile, bond prices recorded positive returns during the reporting period. As bond prices rose, longer-term interest rates, which move in the opposite direction, fell. As you know, the Fed only has direct control over short-term interest rates. Bond prices and longer-term interest rates are determined by buyers and sellers, sometimes based on their views of Fed policy. During the reporting period, market expectations about potential Fed interest rate increases shifted into the future. The Fed, which in December 2015 had raised short-term interest rates for the first time since 2008, also initially signaled that four interest rate increases were on tap for 2016. However, policymakers backed off that forecast in March 2016, just before the reporting period began, indicating that only two interest rate increases were on the table. They pointed to the global market turmoil during the first six weeks of 2016 as a contributing factor. Policymakers subsequently hinted there would be a single interest rate increase, but ultimately left interest rates unchanged. In our view, December 2016 is the Fed's only remaining window of opportunity to increase short-term interest rates. It is unlikely to act at its November 2016 meeting, which is just days before the presidential election. We believe that as of this writing, the futures market, which generally is a proxy for investor sentiment, indicates approximately a two-thirds chance that the Fed would raise rates in December 2016. ================================================================================ ================================================================================ This begs the question: Is it good or bad if low interest rates persist? We think it depends on your perspective. On one hand, consumers and businesses are able to continue borrowing at affordable interest rates. On the other hand, savers may continue to see returns lower than the rate of inflation. At USAA Investments, we believe the Fed is likely to raise interest rates at a gradual pace. We've long held the belief that interest rates will stay lower for longer than many market participants expect. Currently, there is no urgency for the Fed to act. Interest rate increases are typically a response to an overheating economy, and the U.S. remains in slow-growth mode with low inflation. Americans are still carrying large amounts of household debt, so higher interest rates are likely to hinder their spending and slow what little growth there is. Tax-exempt bonds, like most other fixed-income investments, generated positive returns during the reporting period. Municipal bonds performed well, as investors continued to favor them for their tax-advantaged status. At the same time, municipal issuance remained low, though it has increased since January 2016. Still, the supply is far from enough to satisfy demand and we expect municipal bonds to continue to benefit from this situation for some time to come. Although state and local finances are in better shape than they were a few years ago, municipal governments have been reluctant to take on additional debt. We believe eventually this will change, but likely not for the foreseeable future. Looking ahead, the end of 2016 is just weeks away. The closing weeks of a year can be a good time to take a look at your financial situation with a goal of getting your finances in order. One way to help ensure you're doing the most with what you have is to consider investing a set amount each month, also known as dollar-cost averaging. Please call USAA Investments to speak with a financial advisor. We are committed to helping you meet your financial objectives. On behalf of everyone at USAA Investments, thank you for relying on us to help you with your investment needs. We appreciate the opportunity to serve you. Sincerely, /S/ BROOKS ENGLEHARDT Brooks Englehardt President USAA Investments Investments provided by USAA Investment Management Company and USAA Financial Advisors, Inc., both registered broker-dealers, and affiliates. Financial planning services and financial advice provided by USAA Financial Planning Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in California, License # 0E36312), a registered investment adviser and insurance agency and its wholly owned subsidiary, USAA Financial Advisors, Inc., a registered broker dealer. ================================================================================ ================================================================================ TABLE OF CONTENTS -------------------------------------------------------------------------------- FUND OBJECTIVE 1 MANAGER'S COMMENTARY ON THE FUND 2 INVESTMENT OVERVIEW 5 FINANCIAL INFORMATION Portfolio of Investments 10 Notes to Portfolio of Investments 14 Financial Statements 15 Notes to Financial Statements 18 EXPENSE EXAMPLE 27 ADVISORY AGREEMENT(S) 29
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS ABOUT THE FUND. (C)2016, USAA. All rights reserved. 211736-1116 ================================================================================ ================================================================================ FUND OBJECTIVE THE USAA NEW YORK MONEY MARKET FUND (THE FUND) PROVIDES NEW YORK INVESTORS WITH A HIGH LEVEL OF CURRENT INTEREST INCOME THAT IS EXEMPT FROM FEDERAL INCOME TAX AND NEW YORK STATE AND NEW YORK CITY PERSONAL INCOME TAXES AND HAS A FURTHER OBJECTIVE OF PRESERVING CAPITAL AND MAINTAINING LIQUIDITY. -------------------------------------------------------------------------------- TYPES OF INVESTMENTS The Fund primarily invests in high-quality New York tax-exempt securities with remaining maturities of 397 days or less. During normal market conditions, at least 80% of the Fund's net assets will consist of New York tax-exempt securities. IRA DISTRIBUTION WITHHOLDING DISCLOSURE We generally must withhold federal income tax at a rate of 10% of the taxable portion of your distribution and, if you live in a state that requires state income tax withholding, at your state's tax rate. However, you may elect not to have withholding apply or to have income tax withheld at a higher rate. Any withholding election that you make will apply to any subsequent distribution unless and until you change or revoke the election. If you wish to make a withholding election or change or revoke a prior withholding election, call (800) 531-USAA (8722) or (210) 531-8722. If you do not have a withholding election in place by the date of a distribution, federal income tax will be withheld from the taxable portion of your distribution at a rate of 10%. If you must pay estimated taxes, you may be subject to estimated tax penalties if your estimated tax payments are not sufficient and sufficient tax is not withheld from your distribution. For more specific information, please consult your tax adviser. ================================================================================ FUND OBJECTIVE | 1 ================================================================================ MANAGER'S COMMENTARY ON THE FUND DALE R. HOFFMANN [PHOTO OF DALE R. HOFFMANN] USAA Asset Management Company -------------------------------------------------------------------------------- o WHAT WERE THE MARKET CONDITIONS DURING THE REPORTING PERIOD? When the reporting period began in April 2016, investors were still digesting the change in the Federal Reserve's (the Fed) guidance on short-term interest-rate increases. At its March policy meeting, the Fed had called for two interest rate increases in 2016, down from the four it had forecast in December 2015. Ultimately, however, the Fed remained steady, leaving the federal funds target rate in a range between 0.25% and 0.50% throughout the reporting period. Although the Fed did not change its monetary policy, interest rates on money market securities rose, largely due to shifting market dynamics. At the beginning of the reporting period, the SIFMA Municipal Swap Index*, the index of seven-day variable rate demand notes (VRDNs), stood at 0.40%. It stayed near that level through July 2016 and then climbed 44 basis points to close the reporting period at 0.84%. (A basis point is 1/100th of a percent.) During August and September 2016, shortly before the Securities and Exchanges Commission's money market fund reform became effective, a large number of money market funds sold VRDNs as they liquidated, consolidated, or shifted assets into treasury money market funds. This caused inventories of VRDNs to increase, leading many dealers to raise interest rates in order to attract buyers. *The SIFMA Municipal Swap Index is a 7-day high-grade market index comprised of tax-exempt variable-rate demand obligations (VRDOs) with certain characteristics. The index is calculated and published by Bloomberg. The index is overseen by SIFMA's Municipal Swap Index Committee. ================================================================================ 2 | USAA NEW YORK MONEY MARKET FUND ================================================================================ o HOW DID THE USAA NEW YORK MONEY MARKET FUND (THE FUND) PERFORM DURING THE REPORTING PERIOD? For the reporting period ended September 30, 2016, the Fund had a return of 0.02%, compared to an average return 0.05% for the tax-exempt money market funds category, according to iMoneyNet, Inc. USAA Asset Management Company (the Manager) is the Fund's investment adviser. The investment adviser provides day-to-day discretionary management for the Fund's assets. o WHAT ARE THE CONDITIONS IN THE STATE OF NEW YORK? New York, which has passed a series of on-time budgets, continues to be highly rated by credit rating agencies. The state's finances appear to be in good shape due to a gradual economic recovery, but revenues are still dependent in some measure on the financial services industry. Although New York State is projecting future budget gaps, they appear to be very manageable. Budget flexibility is enhanced by the state's $1.8 billion "rainy day" reserves. At the end of the reporting period, New York's general obligation bonds were rated Aa1 by Moody's Investors Service, AA+ by Standard & Poor's Ratings, and AA+ by Fitch Ratings. o WHAT WERE YOUR STRATEGIES IN THIS ENVIRONMENT? We continued to focus our purchases on VRDNs, which added to the Fund's yield during the reporting period. Because the VRDNs owned by the Fund can be sold at par value (100% of face value) upon seven days or less notice, the Fund had the flexibility to take advantage of higher interest rates. Many of the Fund's VRDNs also are guaranteed by a bank letter-of-credit for the payment of both principal and interest, providing the Fund with a certain degree of stability. Refer to page 7 for benchmark definition. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. ================================================================================ MANAGER'S COMMENTARY ON THE FUND | 3 ================================================================================ In addition, the Fund benefited from investments with longer maturities. We continued to work with our in-house team of analysts to help us identify attractive opportunities for the Fund. They also continue to analyze and monitor in the Fund's portfolio. We appreciate the opportunity to help you with your investment needs. As interest rates rise, bond prices generally fall; given the historically low interest rate environment, risks associated with rising interest rates may be heightened. o VRDNs are securities for which the interest rate is reset periodically; typically weekly, although reset intervals may vary. o Investing in securities products involves risk, including possible loss of principal. o Some income may be subject to state or local taxes but not the federal alternative minimum tax. ================================================================================ 4 | USAA NEW YORK MONEY MARKET FUND ================================================================================ INVESTMENT OVERVIEW USAA NEW YORK MONEY MARKET FUND (THE FUND) (Ticker Symbol: UNYXX)
-------------------------------------------------------------------------------- 9/30/16 3/31/16 -------------------------------------------------------------------------------- Net Assets $78.8 Million $85.7 Million Net Asset Value Per Share $1.00 $1.00 Dollar-Weighted Average Portfolio Maturity(+) 18 Days 11 Days (+)Obtained by multiplying the dollar value of each investment by the number of days left to its maturity, adding those figures together, and dividing them by the total dollar value of the Fund's portfolio. -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 9/30/16 -------------------------------------------------------------------------------- 3/31/16-9/30/16* 1 YEAR 5 YEARS 10 YEARS 0.02% 0.04% 0.02% 0.66% -------------------------------------------------------------------------------- 7-DAY YIELD AS OF 9/30/16 -------------------------------------------------------------------------------- UNSUBSIDIZED -0.01% SUBSIDIZED 0.27% -------------------------------------------------------------------------------- EXPENSE RATIOS AS OF 3/31/16** -------------------------------------------------------------------------------- BEFORE REIMBURSEMENT 0.88% AFTER REIMBURSEMENT 0.60%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT USAA.COM. *Total returns for periods of less than one year are not annualized. This return is cumulative. **The expense ratios represent the total annual operating expenses, before reductions of any expenses paid indirectly and including any acquired fund fees and expenses, as reported in the Fund's prospectus dated August 1, 2016, and are calculated as a percentage of average net assets. USAA Asset Management Company (the Manager) has agreed, through August 1, 2017, to make payments or waive management, administration, and other fees so that the total annual operating expenses of the Fund (exclusive of commission recapture, expense offset arrangements, acquired fund fees and expenses, and extraordinary expenses) do not exceed an annual rate of 0.60% of the Fund's average net assets. This reimbursement ================================================================================ INVESTMENT OVERVIEW | 5 ================================================================================ arrangement may not be changed or terminated during this time period without approval of the Fund's Board of Trustees and may be changed or terminated by the Manager at any time after August 1, 2017. If the total annual operating expense ratio of the Fund is lower than 0.60%, the Fund will operate at the lower expense ratio. These expense ratios may differ from the expense ratios disclosed in the Financial Highlights. YOU COULD LOSE MONEY BY INVESTING IN THE FUND. ALTHOUGH THE FUND SEEKS TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1 PER SHARE, IT CANNOT GUARANTEE IT WILL DO SO. THE FUND MAY IMPOSE A FEE UPON THE SALE OF YOUR SHARES OR MAY TEMPORARILY SUSPEND YOUR ABILITY TO SELL SHARES IF THE FUND'S LIQUIDITY FALLS BELOW REQUIRED MINIMUMS BECAUSE OF MARKET CONDITIONS OR OTHER FACTORS. AN INVESTMENT IN THE FUND IS NOT A DEPOSIT IN USAA FEDERAL SAVINGS BANK, OR ANY OTHER BANK, AND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. THE FUND'S SPONSOR HAS NO LEGAL OBLIGATION TO PROVIDE FINANCIAL SUPPORT TO THE FUND, AND YOU SHOULD NOT EXPECT THAT THE SPONSOR WILL PROVIDE FINANCIAL SUPPORT TO THE FUND AT ANY TIME. Total return measures the price change in a share assuming the reinvestment of all net investment income and realized capital gain distributions, if any. The total returns quoted do not reflect adjustments made to the enclosed financial statements in accordance with U.S. generally accepted accounting principles or the deduction of taxes that a shareholder would pay on net investment income and realized capital gain distributions, including reinvested distributions, or redemptions of shares. Yields and returns fluctuate. The seven-day yield quotation more closely reflects current earnings of the Fund than the total return quotation. ================================================================================ 6 | USAA NEW YORK MONEY MARKET FUND ================================================================================ o 7-DAY YIELD COMPARISON o [CHART OF 7-DAY YIELD COMPARISON]
iMoneyNet USAA NEW YORK AVERAGE MONEY MARKET FUND 9/28/2015 0.01% 0.01% 10/26/2015 0.01 0.01 11/30/2015 0.01 0.01 12/28/2015 0.01 0.01 1/25/2016 0.01 0.01 2/29/2016 0.01 0.01 3/28/2016 0.01 0.01 4/25/2016 0.03 0.03 5/23/2016 0.04 0.04 6/27/2016 0.05 0.05 7/25/2016 0.05 0.05 8/29/2016 0.09 0.09 9/26/2016 0.20 0.20
[END CHART] Data represents the last Monday of each month. Ending date 9/26/16. The graph tracks the USAA New York Money Market Fund's seven-day yield against an average of money market fund yields of all state-specific and retail state tax-free and municipal money funds calculated by iMoneyNet, Inc. iMoneyNet, Inc. is an organization that tracks the performance of money market funds. Past performance is no guarantee of future results. ================================================================================ INVESTMENT OVERVIEW | 7 ================================================================================ o TOP 10 INDUSTRIES - 9/30/16 o (% of Net Assets) Education ................................................................ 13.3% Buildings ................................................................ 11.0% Nursing/CCRC ............................................................. 10.8% Community Service ........................................................ 10.0% Multifamily Housing ...................................................... 8.2% Special Assessment/Tax/Fee ............................................... 8.0% Hospital ................................................................. 7.5% General Obligation ....................................................... 7.2% Electric Utilities ....................................................... 4.6% Real Estate Tax/Fee ...................................................... 4.5%
o PORTFOLIO MIX - 9/30/16 o [PIE CHART OF PORTFOLIO MIX] VARIABLE-RATE DEMAND NOTES 92.2% FIXED-RATE INSTRUMENTS 7.6%
[END CHART] Percentages are of the net assets of the Fund and may not equal 100%. You will find a complete list of securities that the Fund owns on pages 10-13. ================================================================================ 8 | USAA NEW YORK MONEY MARKET FUND ================================================================================ o CUMULATIVE PERFORMANCE OF $10,000 o [CHART OF CUMULATIVE PERFORMANCE]
USAA NEW YORK MONEY MARKET FUND 09/30/06 $10,000.00 10/31/06 10,024.00 11/30/06 10,049.00 12/31/06 10,077.00 01/31/07 10,101.00 02/28/07 10,125.00 03/31/07 10,151.00 04/30/07 10,177.00 05/31/07 10,205.00 06/30/07 10,232.00 07/31/07 10,258.00 08/31/07 10,288.00 09/30/07 10,313.00 10/31/07 10,339.00 11/30/07 10,366.00 12/31/07 10,391.00 01/31/08 10,413.00 02/29/08 10,431.00 03/31/08 10,452.00 04/30/08 10,469.00 05/31/08 10,489.00 06/30/08 10,502.00 07/31/08 10,517.00 08/31/08 10,532.00 09/30/08 10,559.00 10/31/08 10,592.00 11/30/08 10,603.00 12/31/08 10,613.00 01/31/09 10,616.00 02/28/09 10,619.00 03/31/09 10,624.00 04/30/09 10,630.00 05/31/09 10,637.00 06/30/09 10,643.00 07/31/09 10,648.00 08/31/09 10,652.00 09/30/09 10,655.00 10/31/09 10,656.00 11/30/09 10,656.00 12/31/09 10,663.00 01/31/10 10,664.00 02/28/10 10,664.00 03/31/10 10,664.00 04/30/10 10,664.00 05/31/10 10,664.00 06/30/10 10,664.00 07/31/10 10,664.00 08/31/10 10,664.00 09/30/10 10,664.00 10/31/10 10,665.00 11/30/10 10,665.00 12/31/10 10,669.00 01/31/11 10,669.00 02/28/11 10,669.00 03/31/11 10,669.00 04/30/11 10,669.00 05/31/11 10,669.00 06/30/11 10,669.00 07/31/11 10,669.00 08/31/11 10,669.00 09/30/11 10,669.00 10/31/11 10,670.00 11/30/11 10,670.00 12/31/11 10,670.00 01/31/12 10,670.00 02/29/12 10,670.00 03/31/12 10,670.00 04/30/12 10,670.00 05/31/12 10,670.00 06/30/12 10,670.00 07/31/12 10,670.00 08/31/12 10,671.00 09/30/12 10,671.00 10/31/12 10,671.00 11/30/12 10,671.00 12/31/12 10,672.00 01/31/13 10,672.00 02/28/13 10,672.00 03/31/13 10,672.00 04/30/13 10,672.00 05/31/13 10,672.00 06/30/13 10,672.00 07/31/13 10,672.00 08/31/13 10,673.00 09/30/13 10,673.00 10/31/13 10,673.00 11/30/13 10,673.00 12/31/13 10,673.00 01/31/14 10,673.00 02/28/14 10,673.00 03/31/14 10,673.00 04/30/14 10,673.00 05/31/14 10,673.00 06/30/14 10,673.00 07/31/14 10,673.00 08/31/14 10,674.00 09/30/14 10,674.00 10/31/14 10,674.00 11/30/14 10,674.00 12/31/14 10,677.00 01/31/15 10,677.00 02/28/15 10,677.00 03/31/15 10,677.00 04/30/15 10,677.00 05/31/15 10,677.00 06/30/15 10,678.00 07/31/15 10,678.00 08/31/15 10,678.00 09/30/15 10,678.00 10/31/15 10,678.00 11/30/15 10,678.00 12/31/15 10,679.00 01/31/16 10,679.00 02/29/16 10,679.00 03/31/16 10,679.00 04/30/16 10,679.00 05/31/16 10,679.00 06/30/16 10,679.00 07/31/16 10,680.00 08/31/16 10,680.00 09/30/16 10,682.00
[END CHART] Data from 9/30/06 through 9/30/16. The graph illustrates the performance of a hypothetical $10,000 investment in the USAA New York Money Market Fund. Past performance is no guarantee of future results. The cumulative performance quoted does not reflect the deduction of taxes that a shareholder would pay on reinvested net investment income and realized capital gain distributions or on the redemption of shares. Some income may be subject to federal, state, or local taxes. For seven-day yield information, please refer to the Fund's Investment Overview. ================================================================================ INVESTMENT OVERVIEW | 9 ================================================================================ PORTFOLIO OF INVESTMENTS September 30, 2016 (unaudited) -------------------------------------------------------------------------------- o CATEGORIES AND DEFINITIONS VARIABLE-RATE DEMAND NOTES (VRDNs) - Provide the right to sell the security at face value on either that day or within the rate-reset period. The interest rate is adjusted at a stipulated daily, weekly, monthly, quarterly, or other specified time interval to reflect current market conditions. The effective maturity of these instruments is deemed to be less than 397 days in accordance with detailed regulatory requirements. FIXED-RATE INSTRUMENTS - Consist of municipal bonds, notes, and commercial paper. The interest rate is constant to maturity. Prior to maturity, the market price of a fixed-rate instrument generally varies inversely to the movement of interest rates. o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS CSD Central School District IDA Industrial Development Authority/Agency MTA Metropolitan Transportation Authority CREDIT ENHANCEMENTS - Adds the financial strength of the provider of the enhancement to support the issuer's ability to repay the principal and interest payments when due. The enhancement may be provided by a high-quality bank, insurance company or other corporation, or a collateral trust. The enhancements do not guarantee the values of the securities. The Fund's purchases consist of securities meeting the requirements to qualify as "eligible securities" under the Securities and Exchange Commission (SEC) regulations applicable to money market funds. In order to qualify as an eligible security, the USAA Mutual Funds Trust's ================================================================================ 10 | USAA NEW YORK MONEY MARKET FUND ================================================================================ Board of Trustees (the Board), must determine that the particular investment presents minimal credit risk in accordance with these SEC regulations. With respect to quality, eligible securities generally are rated or subject to a guarantee that is rated in one of the two highest categories for short-term securities by at least two Nationally Recognized Statistical Rating Organizations (NRSROs), or by one NRSRO if the security is rated by only one NRSRO, or if unrated, determined by USAA Asset Management Company (the Manager) to be of comparable quality. (LIQ) Liquidity enhancement that may, under certain circumstances, provide for repayment of principal and interest upon demand from the Royal Bank of Canada. (LOC) Principal and interest payments are guaranteed by a bank letter of credit or other bank credit agreement. ================================================================================ PORTFOLIO OF INVESTMENTS | 11 ================================================================================ INVESTMENTS
----------------------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) ----------------------------------------------------------------------------------------------------------------- VARIABLE-RATE DEMAND NOTES (92.2%) NEW YORK (92.2%) $1,420 Albany IDA (LOC - Citizens Financial Group) 1.05% 5/01/2035 $ 1,420 6,170 Build New York City Resource Corp. (LOC - Toronto-Dominion Bank) 1.08 12/01/2045 6,170 2,245 Chautauqua County IDA (LOC - Citizens Financial Group) 0.95 8/01/2027 2,245 3,600 Energy Research and Development Auth. (LOC - Mizuho Corporate Bank Ltd.) 0.86 5/01/2039 3,600 1,280 Erie County IDA (LOC - Key Bank, N.A.) 0.96 6/01/2022 1,280 3,600 Housing Finance Agency (LOC - Landesbank Hessen-Thuringen) 0.84 11/01/2037 3,600 2,800 Housing Finance Agency (LOC - Landesbank Hessen-Thuringen) 0.87 5/01/2042 2,800 3,500 Housing Finance Agency (LOC - Wells Fargo & Co.) 0.88 11/01/2046 3,500 3,575 Hudson Yards (LIQ) (LOC - Royal Bank of Canada)(a) 0.92 2/15/2019 3,575 2,500 Liberty Development Corp. (LIQ) (LOC - Royal Bank of Canada)(a) 0.92 11/15/2019 2,500 2,585 Monroe County IDA (LOC - Manufacturers & Traders Trust Co.) 0.89 12/01/2034 2,585 2,700 MTA (LOC - BNP Paribas) 0.89 11/15/2045 2,700 3,600 MTA (LOC - U.S. Bancorp) 0.88 11/15/2050 3,600 2,700 New York City (LOC - Sumitomo Mitsui Banking Corp.) 0.85 9/01/2035 2,700 1,600 New York City (LOC - Manufacturers & Traders Trust Co.) 1.08 12/01/2040 1,600 2,700 New York City Health and Hospitals Corp. (LOC - JP Morgan Chase & Co.) 0.81 2/15/2026 2,700 765 New York City IDA (LOC - Toronto-Dominion Bank) 1.08 12/01/2027 765 3,455 New York City IDA (LOC - JP Morgan Chase & Co.) 1.08 12/01/2034 3,455 900 New York City IDA (LOC - Banco Santander SA) 1.11 5/01/2036 900 3,105 New York City IDA (LOC - Key Bank, N.A.) 0.92 7/01/2038 3,105 2,840 Onondaga County IDA (LOC - Manufacturers & Traders Trust Co.) 0.89 12/01/2031 2,840 1,805 Ontario County IDA (LOC - Key Bank, N.A.) 0.88 7/01/2030 1,805
================================================================================ 12 | USAA NEW YORK MONEY MARKET FUND ================================================================================
----------------------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) ----------------------------------------------------------------------------------------------------------------- $2,630 Ramapo Housing Auth. (LOC - Manufacturers & Traders Trust Co.) 0.94% 12/01/2029 $ 2,630 5,885 Tompkins County IDA (LOC - Bank of America Corp.) 0.96 2/01/2037 5,885 3,570 Triborough Bridge and Tunnel Auth. (LOC - State Street Bank and Trust Co.) 0.80 1/01/2032 3,570 1,145 Westchester County IDA (LOC - JP Morgan Chase & Co.) 0.91 10/01/2028 1,145 ------- 72,675 ------- Total Variable-Rate Demand Notes (cost: $72,675) 72,675 ------- FIXED-RATE INSTRUMENTS (7.6%) NEW YORK (7.6%) 1,500 Chenango Valley CSD 1.50 7/14/2017 1,507 3,000 New York City Municipal Water Finance Auth. 0.70 10/06/2016 3,000 1,500 Waverly CSD 2.00 7/28/2017 1,512 ------- 6,019 ------- Total Fixed-Rate Instruments (cost: $6,019) 6,019 ------- TOTAL INVESTMENTS (COST: $78,694) $78,694 ======= ----------------------------------------------------------------------------------------------------------------- ($ IN 000s) VALUATION HIERARCHY ----------------------------------------------------------------------------------------------------------------- ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL ----------------------------------------------------------------------------------------------------------------- Variable-Rate Demand Notes $- $72,675 $- $72,675 Fixed-Rate Instruments - 6,019 - 6,019 ----------------------------------------------------------------------------------------------------------------- Total $- $78,694 $- $78,694 -----------------------------------------------------------------------------------------------------------------
================================================================================ PORTFOLIO OF INVESTMENTS | 13 ================================================================================ NOTES TO PORTFOLIO OF INVESTMENTS September 30, 2016 (unaudited) -------------------------------------------------------------------------------- o GENERAL NOTES Values of securities are determined by procedures and practices discussed in Note 1A to the financial statements. The cost of securities at September 30, 2016, for federal income tax purposes, was approximately the same as that reported in the financial statements. The Portfolio of Investments category percentages shown represent the percentages of the investments to net assets, and, in total, may not equal 100%. A category percentage of 0.0% represents less than 0.1% of net assets. o SPECIFIC NOTES (a) Restricted security that is not registered under the Securities Act of 1933. A resale of this security in the United States may occur in an exempt transaction to a qualified institutional buyer as defined by Rule 144A, and as such has been deemed liquid by the Manager under liquidity guidelines approved by USAA Mutual Funds Trust's Board of Trustees (the Board), unless otherwise noted as illiquid. See accompanying notes to financial statements. ================================================================================ 14 | USAA NEW YORK MONEY MARKET FUND ================================================================================ STATEMENT OF ASSETS AND LIABILITIES (IN THOUSANDS) September 30, 2016 (unaudited) -------------------------------------------------------------------------------- ASSETS Investments in securities (amortized cost approximates market value) $78,694 Cash 323 Receivables: Capital shares sold 88 USAA Asset Management Company (Note 4D) 40 Interest 62 ------- Total assets 79,207 ------- LIABILITIES Payables: Capital shares redeemed 303 Dividends on capital shares 1 Accrued management fees 23 Other accrued expenses and payables 57 ------- Total liabilities 384 ------- Net assets applicable to capital shares outstanding $78,823 ======= NET ASSETS CONSIST OF: Paid-in capital $78,823 ------- Net assets applicable to capital shares outstanding $78,823 ======= Capital shares outstanding, unlimited number of shares authorized, no par value 78,824 ======= Net asset value, redemption price, and offering price per share $ 1.00 =======
See accompanying notes to financial statements. ================================================================================ FINANCIAL STATEMENTS | 15 ================================================================================ STATEMENT OF OPERATIONS (IN THOUSANDS) Six-month period ended September 30, 2016 (unaudited) -------------------------------------------------------------------------------- INVESTMENT INCOME Interest income $ 218 ----- EXPENSES Management fees 146 Administration and servicing fees 42 Transfer agent's fees 71 Custody and accounting fees 40 Postage 2 Shareholder reporting fees 8 Trustees' fees 15 Professional fees 47 Other 7 ----- Total expenses 378 Expenses reimbursed (178) ----- Net expenses 200 ----- NET INVESTMENT INCOME 18 ----- Increase in net assets resulting from operations $ 18 =====
See accompanying notes to financial statements. ================================================================================ 16 | USAA NEW YORK MONEY MARKET FUND ================================================================================ STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS) Six-month period ended September 30, 2016 (unaudited), and year ended March 31, 2016
---------------------------------------------------------------------------------------------- 9/30/2016 3/31/2016 ---------------------------------------------------------------------------------------------- FROM OPERATIONS Net investment income $ 18 $ 8 Net realized gain on investments - 7 --------------------------- Increase in net assets resulting from operations 18 15 --------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income (18) (8) Net realized gains - (7) --------------------------- Distributions to shareholders (18) (15) --------------------------- FROM CAPITAL SHARE TRANSACTIONS Proceeds from shares sold 40,804 72,202 Reinvested dividends 17 15 Cost of shares redeemed (47,694) (71,484) --------------------------- Increase (decrease) in net assets from capital share transactions (6,873) 733 --------------------------- Net increase (decrease) in net assets (6,873) 733 NET ASSETS Beginning of period 85,696 84,963 --------------------------- End of period $ 78,823 $ 85,696 =========================== CHANGE IN SHARES OUTSTANDING Shares sold 40,804 72,203 Shares issued for dividends reinvested 17 15 Shares redeemed (47,694) (71,484) --------------------------- Increase (decrease) in shares outstanding (6,873) 734 ===========================
See accompanying notes to financial statements. ================================================================================ FINANCIAL STATEMENTS | 17 ================================================================================ NOTES TO FINANCIAL STATEMENTS September 30, 2016 (unaudited) -------------------------------------------------------------------------------- (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company Act of 1940, as amended (the 1940 Act), is an open-end management investment company organized as a Delaware statutory trust consisting of 54 separate funds. Additionally, the Fund qualifies as a registered investment company under Accounting Standards Codification Topic 946. The information presented in this semiannual report pertains only to the USAA New York Money Market Fund (the Fund), which is classified as diversified under the 1940 Act. The Fund's investment objective is to provide New York investors with a high level of current interest income that is exempt from federal income tax and New York State and New York City personal income taxes, with a further objective of preserving capital and maintaining liquidity. A. SECURITY VALUATION - The Trust's Board of Trustees (the Board) has established the Valuation Committee (the Committee), and subject to Board oversight, the Committee administers and oversees the Fund's valuation policies and procedures, which are approved by the Board. Among other things, these policies and procedures allow the Fund to utilize independent pricing services, quotations from securities dealers, and a wide variety of sources and information to establish and adjust the fair value of securities as events occur and circumstances warrant. The Committee reports to the Board on a quarterly basis and makes recommendations to the Board as to pricing methodologies and services used by the Fund and presents additional information to the Board regarding application of the pricing and fair valuation policies and procedures during the preceding quarter. ================================================================================ 18 | USAA NEW YORK MONEY MARKET FUND ================================================================================ The Committee meets as often as necessary to make pricing and fair value determinations. In addition, the Committee holds regular monthly meetings to review prior actions taken by the Committee and USAA Asset Management Company (the Manager), an affiliate of the Fund. Among other things, these monthly meetings include a review and analysis of back testing reports, pricing service quotation comparisons, illiquid securities and fair value determinations, pricing movements, and daily stale price monitoring. The value of each security is determined (as of the close of trading on the New York Stock Exchange (NYSE) on each business day the NYSE is open) as set forth below: 1. All securities held in the Fund are short-term debt securities which are valued pursuant to Rule 2a-7 under the 1940 Act. This method values a security at its purchase price, and thereafter, assumes a constant amortization to maturity of any premiums or discounts. 2. Securities for which amortized cost valuations are considered unreliable or whose values have been materially affected by a significant event are valued in good faith at fair value, using methods determined by the Committee, under procedures to stabilize net assets and valuation procedures approved by the Board. B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The three-level valuation hierarchy disclosed in the Portfolio of Investments is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows: Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) in active markets for identical securities. Level 2 - inputs to the valuation methodology are other significant observable inputs, including quoted prices for similar securities, inputs that are observable for the securities, either directly or indirectly, and market-corroborated inputs such as market indexes. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 19 ================================================================================ Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value measurement, including the Manager's own assumptions in determining the fair value. The inputs or methodologies used for valuing securities are not necessarily an indication of the risks associated with investing in those securities. For example, money market securities are valued using amortized cost, in accordance with rules under the 1940 Act. Generally, amortized cost approximates the current fair value of a security, but since the value is not obtained from a quoted price in an active market, such securities are reflected as Level 2. C. FEDERAL TAXES - The Fund's policy is to comply with the requirements of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies and to distribute substantially all of its taxable income and net capital gains, if any, to its shareholders. Therefore, no federal income tax provision is required. D. INVESTMENTS IN SECURITIES - Securities transactions are accounted for on the date the securities are purchased or sold (trade date). Gains or losses from sales of investment securities are computed on the identified cost basis. Interest income is recorded daily on the accrual basis. Premiums and discounts are amortized over the life of the respective securities using the straight-line method. The Fund concentrates its investments in New York tax-exempt securities and, therefore, may be exposed to more credit risk than portfolios with a broader geographical diversification. E. SECURITIES PURCHASED ON A DELAYED-DELIVERY OR WHEN-ISSUED BASIS - Delivery and payment for securities that have been purchased by the Fund on a delayed-delivery or when-issued basis can take place a month or more after the trade date. During the period prior to settlement, these securities do not earn interest, are subject to market fluctuation, and may increase or decrease in value prior to their delivery. The Fund maintains segregated assets with a market value equal to or greater than the amount of its purchase commitments. F. EXPENSES PAID INDIRECTLY - Through arrangements with the Fund's custodian and other banks utilized by the Fund for cash management ================================================================================ 20 | USAA NEW YORK MONEY MARKET FUND ================================================================================ purposes, realized credits, if any, generated from cash balances in the Fund's bank accounts may be used to directly reduce the Fund's expenses. For the six-month period ended September 30, 2016, custodian and other bank credits reduced the Fund's expenses by less than $500. G. INDEMNIFICATIONS - Under the Trust's organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Trust. In addition, in the normal course of business, the Trust enters into contracts that contain a variety of representations and warranties that provide general indemnifications. The Trust's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Trust that have not yet occurred. However, the Trust expects the risk of loss to be remote. H. USE OF ESTIMATES - The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that may affect the reported amounts in the financial statements. (2) LINE OF CREDIT The Fund participates in a joint, short-term, revolving, committed loan agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate of the Manager. The purpose of the agreement is to meet temporary or emergency cash needs, including redemption requests that might otherwise require the untimely disposition of securities. Subject to availability, the Fund may borrow from CAPCO an amount up to 5% of the Fund's total assets at an interest rate based on the London Interbank Offered Rate (LIBOR), plus 100.0 basis points. The USAA Funds that are party to the loan agreement are assessed facility fees by CAPCO in the amount of 12.0 basis points of the amount of the committed loan agreement. Prior to September 30, 2016, the maximum annual facility fee was 9.0 basis points of the amount of the committed loan agreement. The facility fees are allocated among the USAA Funds based on their respective average net assets for the period. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 21 ================================================================================ The USAA Funds may request an optional increase of the committed loan agreement from $500 million up to $750 million. If the USAA Funds increase the committed loan agreement, the assessed facility fee on the amount of the additional commitment will be 13.0 basis points. For the six-month period ended September 30, 2016, the Fund paid CAPCO facility fees of less than $500, which represents 0.1% of the total fees paid to CAPCO by the USAA Funds. The Fund had no borrowings under this agreement during the six-month period ended September 30, 2016. (3) DISTRIBUTIONS The tax basis of distributions and any accumulated undistributed net investment income will be determined as of the Fund's tax year-end of March 31, 2017, in accordance with applicable federal tax law. Net investment income is accrued daily as dividends and distributed to shareholders monthly. Distributions of realized gains from security transactions not offset by capital losses are made annually in the succeeding fiscal year or as otherwise required to avoid the payment of federal taxes. At March 31, 2016, the Fund had no capital loss carryforwards, for federal income tax purposes. For the six-month period ended September 30, 2016, the Fund did not incur any income tax, interest, or penalties, and has recorded no liability for net unrecognized tax benefits relating to uncertain income tax positions. On an ongoing basis, the Manager will monitor the Fund's tax basis to determine if adjustments to this conclusion are necessary. The statute of limitations on the Fund's tax return filings generally remain open for the three preceding fiscal reporting year ends and remain subject to examination by the Internal Revenue Service and state taxing authorities. (4) TRANSACTIONS WITH MANAGER A. MANAGEMENT FEES - The Manager provides investment management services to the Fund pursuant to an Advisory Agreement. Under this agreement, the Manager is responsible for managing the business and affairs of the Fund, and for directly managing the day-to-day investment ================================================================================ 22 | USAA NEW YORK MONEY MARKET FUND ================================================================================ of the Fund's assets, subject to the authority of and supervision by the Board. The Fund's investment management fee is accrued daily and paid monthly as a percentage of aggregate average net assets of the USAA New York Bond Fund and USAA New York Money Market Fund combined, which on an annual basis is equal to 0.50% of the first $50 million, 0.40% of that portion over $50 million but not over $100 million, and 0.30% of that portion over $100 million. These fees are allocated on a proportional basis to each Fund monthly based upon average net assets. For the six-month period ended September 30, 2016, the Fund incurred total management fees, paid or payable to the Manager, of $146,000, resulting in an effective annualized management fee of 0.35% of the Fund's average net assets for the same period. B. ADMINISTRATION AND SERVICING FEES - The Manager provides certain administration and servicing functions for the Fund. For such services, the Manager receives a fee accrued daily and paid monthly at an annualized rate of 0.10% of the Fund's average net assets. For the six-month period ended September 30, 2016, the Fund incurred administration and servicing fees, paid or payable to the Manager, of $42,000. In addition to the services provided under its Administration and Servicing Agreement with the Fund, the Manager also provides certain compliance and legal services for the benefit of the Fund. The Board has approved the reimbursement of a portion of these expenses incurred by the Manager. For the six-month period ended September 30, 2016, the Fund reimbursed the Manager $1,000 for these compliance and legal services. These expenses are included in the professional fees on the Fund's Statement of Operations. C. TRANSFER AGENT'S FEES - USAA Transfer Agency Company, d/b/a USAA Shareholder Account Services (SAS), an affiliate of the Manager, provides transfer agent services to the Fund. The Fund's transfer agent's fees are accrued daily and paid monthly at an annualized rate of 0.15% of the Fund's average net assets, plus out-of-pocket expenses. SAS pays a portion of these fees to certain intermediaries for the administration and servicing of accounts that are held with such intermediaries. Prior to ================================================================================ NOTES TO FINANCIAL STATEMENTS | 23 ================================================================================ June 1, 2016, the Fund paid transfer agent service fees based on an annual charge of $25.50 per shareholder account. For the six-month period ended September 30, 2016, the Fund incurred transfer agent's fees, paid or payable to SAS, of $71,000. D. EXPENSE LIMITATION - The Manager agreed, through August 1, 2017, to limit the total annual operating expenses of the Fund to 0.60% of its average net assets, excluding extraordinary expenses, and before reductions of any expenses paid indirectly, and to reimburse the Fund for all expenses in excess of that amount. This expense limitation arrangement may not be changed or terminated through August 1, 2017, without approval of the Board, and may be changed or terminated by the Manager at any time after that date. The Manager also has voluntarily agreed, on a temporary basis, to reimburse management, administrative, or other fees to limit the Fund's expenses and attempt to prevent a negative yield. The Manager may modify or terminate this arrangement at any time. For the six-month period ended September 30, 2016, the Fund incurred reimbursable expenses of $178,000, of which $40,000 was receivable from the Manager. E. UNDERWRITING SERVICES - USAA Investment Management Company provides exclusive underwriting and distribution of the Fund's shares on a continuing best-efforts basis and receives no fee or other compensation for these services. (5) TRANSACTIONS WITH AFFILIATES The Manager is indirectly wholly owned by United Services Automobile Association (USAA), a large, diversified financial services institution. Certain trustees and officers of the Fund are also directors, officers, and/or employees of the Manager. None of the affiliated trustees or Fund officers received any compensation from the Fund. (6) REGULATORY MATTERS In July 2014, the Securities and Exchange Commission (SEC) adopted amendments to the rules that govern money market funds that will affect the manner in which money market funds are structured and operated. ================================================================================ 24 | USAA NEW YORK MONEY MARKET FUND ================================================================================ The amendments also will allow money market funds to impose liquidity fees and suspend redemptions temporarily (redemption gates), and will impose new requirements related to diversification, stress testing, and disclosure. Money market funds that qualify as "retail" (Retail MMFs) or "government" will be permitted to continue to utilize amortized cost to value their portfolio securities and to transact at a stable $1 net asset value per share as they do today. Effective October 14, 2016, the Fund operates as a Retail MMF and, in doing so, will have the ability to impose liquidity fees and redemption gates. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 25 ================================================================================ (7) FINANCIAL HIGHLIGHTS Per share operating performance for a share outstanding throughout each period is as follows:
SIX-MONTH PERIOD ENDED SEPTEMBER 30, YEAR ENDED MARCH 31, -------------------------------------------------------------------------------- 2016 2016 2015 2014 2013 2012 -------------------------------------------------------------------------------- Net asset value at beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income(a) .00 .00 .00 .00 .00 .00 Net realized and unrealized gain (loss)(a) .00 .00 .00 (.00) .00 .00 ------------------------------------------------------------------------------- Total from investment operations(a) .00 .00 .00 .00 .00 .00 ------------------------------------------------------------------------------- Less distributions from: Net investment income(a) (.00) (.00) (.00) (.00) (.00)(a) (.00) Realized capital gains - (.00)(a) (.00)(a) - (.00) - ------------------------------------------------------------------------------- Total distributions(a) (.00) (.00) (.00) (.00) (.00) (.00) ------------------------------------------------------------------------------- Net asset value at end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 =============================================================================== Total return (%)*,(c) .02 .02 .04 .01 .02 .01(b) Net assets at end of period (000) $78,823 $85,696 $84,963 $98,928 $97,796 $100,012 Ratios to average net assets:** Expenses (%)(c),(d) .48(e) .14 .17 .21 .33 .45(b) Expenses, excluding reimbursements (%)(d) .91(e) .88 .79 .77 .73 .73 Net investment income (%) .04(e) .01 .01 .01 .01 .01
* Assumes reinvestment of all net investment income and realized capital gain distributions, if any, during the period. Includes adjustments in accordance with U.S. generally accepted accounting principles and could differ from the iMoneyNet reported return. Total returns for periods of less than one year are not annualized. ** For the six-month period ended September 30, 2016, average net assets were $83,200,000. (a) Represents less than $0.01 per share. (b) During the year ended March 31, 2012, SAS reimbursed the Fund $1,000 for corrections in fees paid for the administration and servicing of certain accounts. The effect of this reimbursement on the Fund's total return was less than 0.01%. The reimbursement decreased the Fund's expense ratio by 0.01%. This decrease is excluded from the expense ratio in the Financial Highlights table. (c) In addition to the Fund's 0.60% annual expense cap, the Manager has voluntarily agreed, on a temporary basis, to reimburse management, administrative, or other fees to limit the Fund's expenses and attempt to prevent a negative yield. (d) Reflects total annual operating expenses of the Fund before reductions of any expenses paid indirectly. The Fund's expenses paid indirectly decreased the expense ratios by less than 0.01%. (e) Annualized. The ratio is not necessarily indicative of 12 months of operations. ================================================================================ 26 | USAA NEW YORK MONEY MARKET FUND ================================================================================ EXPENSE EXAMPLE September 30, 2016 (unaudited) -------------------------------------------------------------------------------- EXAMPLE As a shareholder of the Fund, you incur two types of costs: direct costs, such as wire fees, redemption fees, and low balance fees; and indirect costs, including management fees, transfer agency fees, and other Fund operating expenses. This example is intended to help you understand your indirect costs, also referred to as "ongoing costs" (in dollars), of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire six-month period of April 1, 2016, through September 30, 2016. ACTUAL EXPENSES The line labeled "actual" in the table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested at the beginning of the period, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "actual" line under the heading "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The line labeled "hypothetical" in the table provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to ================================================================================ EXPENSE EXAMPLE | 27 ================================================================================ compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any direct costs, such as wire fees, redemption fees, or low balance fees. Therefore, the line labeled "hypothetical" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these direct costs were included, your costs would have been higher.
EXPENSES PAID BEGINNING ENDING DURING PERIOD* ACCOUNT VALUE ACCOUNT VALUE APRIL 1, 2016 - APRIL 1, 2016 SEPTEMBER 30, 2016 SEPTEMBER 30, 2016 ----------------------------------------------------------------- Actual $1,000.00 $1,000.20** $2.41** Hypothetical (5% return before expenses) 1,000.00 1,022.66** 2.43**
*Expenses are equal to the Fund's annualized expense ratio of 0.48%, which is net of any reimbursements and expenses paid indirectly, multiplied by the average account value over the period, multiplied by 183 days/365 days (to reflect the one-half-year period). The Fund's actual ending account value is based on its actual total return of 0.02% for the six-month period of April 1, 2016, through September 30, 2016. **The Fund's annualized expense ratio of 0.48% above reflects a change in the transfer agency fee structure from a per-account fee to an asset-based fee effective June 1, 2016. Had this change been in effect for the entire six-month period of April 1, 2016, through September 30, 2016, the Fund's expense ratio would have been 0.52%, net of expenses paid indirectly, and the values in the table above would be as shown below.
EXPENSES PAID BEGINNING ENDING DURING PERIOD ACCOUNT VALUE ACCOUNT VALUE APRIL 1, 2016 - APRIL 1, 2016 SEPTEMBER 30, 2016 SEPTEMBER 30, 2016 ----------------------------------------------------------------- Actual $1,000.00 $1,000.20 $2.61 Hypothetical (5% return before expenses) 1,000.00 1,022.46 2.64
================================================================================ 28 | USAA NEW YORK MONEY MARKET FUND ================================================================================ ADVISORY AGREEMENT(S) September 30, 2016 (unaudited) -------------------------------------------------------------------------------- At an in-person meeting of the Board of Trustees (the Board) held on April 22, 2016, the Board, including the Trustees who are not "interested persons" (as that term is defined in the Investment Company Act of 1940, as amended) of the Trust (the Independent Trustees), approved for an annual period the continuance of the Advisory Agreement between the Trust and the Manager with respect to the Fund. In advance of the meeting, the Trustees received and considered a variety of information relating to the Advisory Agreement and the Manager and were given the opportunity to ask questions and request additional information from management. The information provided to the Board included, among other things: (i) a separate report prepared by an independent third party, which provided a statistical analysis comparing the Fund's investment performance, expenses, and fees to comparable investment companies; (ii) information concerning the services rendered to the Fund, as well as information regarding the Manager's revenues and costs of providing services to the Fund and compensation paid to affiliates of the Manager; and (iii) information about the Manager's operations and personnel. Prior to voting, the Independent Trustees reviewed the proposed continuation of the Advisory Agreement with management and with experienced counsel retained by the Independent Trustees (Independent Counsel) and received materials from such Independent Counsel discussing the legal standards for their consideration of the proposed continuation of the Advisory Agreement with respect to the Fund. The Independent Trustees also reviewed the proposed continuation of the Advisory Agreement with respect to the Fund in private sessions with their Independent Counsel at which no representatives of management were present. At each regularly scheduled meeting of the Board and its committees, the Board receives and reviews, among other things, information concerning the Fund's performance and related services provided by the Manager. ================================================================================ ADVISORY AGREEMENT(S) | 29 ================================================================================ At the meeting at which the renewal of the Advisory Agreement is considered, particular focus is given to information concerning Fund performance, comparability of fees and total expenses, and profitability. However, the Board noted that the evaluation process with respect to the Manager is an ongoing one. In this regard, the Board's and its committees' consideration of the Advisory Agreement included information previously received at such meetings. ADVISORY AGREEMENT After full consideration of a variety of factors, the Board, including the Independent Trustees, voted to approve the Advisory Agreement. In approving the Advisory Agreement, the Trustees did not identify any single factor as controlling, and each Trustee may have attributed different weights to various factors. Throughout their deliberations, the Independent Trustees were represented and assisted by Independent Counsel. NATURE, EXTENT, AND QUALITY OF SERVICES - In considering the nature, extent, and quality of the services provided by the Manager under the Advisory Agreement, the Board reviewed information provided by the Manager relating to its operations and personnel. The Board also took into account its knowledge of the Manager's management and the quality of the performance of the Manager's duties through Board meetings, discussions, and reports during the preceding year. The Board considered the fees paid to the Manager and the services provided to the Fund by the Manager under the Advisory Agreement, as well as other services provided by the Manager and its affiliates under other agreements, and the personnel who provide these services. In addition to the investment advisory services provided to the Fund, the Manager and its affiliates provide administrative services, stockholder services, oversight of Fund accounting, marketing services, assistance in meeting legal and regulatory requirements, and other services necessary for the operation of the Fund and the Trust. The Board considered the Manager's management style and the performance of its duties under the Advisory Agreement. The Board considered the level and depth of knowledge of the Manager, including the professional experience and qualifications of its senior and investment personnel, as well as current staffing levels. The allocation of the Fund's brokerage, including the Manager's ================================================================================ 30 | USAA NEW YORK MONEY MARKET FUND ================================================================================ process for monitoring "best execution," also was considered. The Manager's role in coordinating the activities of the Fund's other service providers was also considered. The Board also considered the Manager's risk management processes. The Board considered the Manager's financial condition and that it had the financial wherewithal to continue to provide the same scope and high quality of services under the Advisory Agreement. In reviewing the Advisory Agreement, the Board focused on the experience, resources, and strengths of the Manager and its affiliates in managing the Fund, as well as the other funds in the Trust. The Board also reviewed the compliance and administrative services provided to the Fund by the Manager, including the Manager's oversight of the Fund's day-to-day operations and oversight of Fund accounting. The Trustees, guided also by information obtained from their experiences as trustees of the Trust, also focused on the quality of the Manager's compliance and administrative staff. EXPENSES AND PERFORMANCE - In connection with its consideration of the Advisory Agreement, the Board evaluated the Fund's advisory fees and total expense ratio as compared to other open-end investment companies deemed to be comparable to the Fund as determined by the independent third party in its report. The Fund's expenses were compared to (i) a group of investment companies chosen by the independent third party to be comparable to the Fund based upon certain factors, including fund type, comparability of investment objective and classification, sales load type (in this case, investment companies with no sales loads), asset size, and expense components (the "expense group") and (ii) a larger group of investment companies that includes the Fund and all other no-load retail open-end investment companies with same investment classifications/objectives as the Fund regardless of asset size, excluding outliers (the "expense universe"). Among other data, the Board noted that the Fund's management fee rate - which includes advisory and administrative services as well as any fee waivers or reimbursements - was equal to the median of its expense group and its expense universe. The data indicated that the Fund's total expense ratio, after reimbursements, was above the median of its expense group and its expense universe. The Board took into account the various services provided to the Fund by the Manager and its affiliates, including the nature and high quality of the services provided ================================================================================ ADVISORY AGREEMENT(S) | 31 ================================================================================ by the Manager. The Board also noted the level and method of computing the management fee. The Board took into account management's discussion of the Fund's expenses, noting that the Manager had reimbursed all/a significant portion of Fund expenses during the previous year. In considering the Fund's performance, the Board noted that it reviews at its regularly scheduled meetings information about the Fund's performance results. The Trustees also reviewed various comparative data provided to them in connection with their consideration of the renewal of the Advisory Agreement, including, among other information, a comparison of the Fund's average annual total return with its Lipper index and with that of other mutual funds deemed to be in its peer group by the independent third party in its report (the "performance universe"). The Fund's performance universe consisted of the Fund and all retail and institutional open-end investment companies with same classification/objective as the Fund regardless of asset size or primary channel of distribution. This comparison indicated that, among other data, the Fund's performance was above the average of its performance universe and its Lipper index for the one-, three-, and ten-year periods ended December 31, 2015 and was lower than the average of its performance universe and above its Lipper index for the five-year period ended December 31, 2015. The Board also noted that the Fund's percentile performance ranking was in the top 25% of its performance universe for the one- and ten-year periods ended December 31, 2015, was in the top 10% of its performance universe for the three-year period ended December 31, 2015, and was in the top 40% of its performance universe for the five-year period ended December 31, 2015. The Board also took into account management's discussion regarding current market conditions. COMPENSATION AND PROFITABILITY - The Board took into consideration the level and method of computing the management fee. The information considered by the Board included operating profit margin information for the Manager's business as a whole. The Board also received and considered profitability information related to the management revenues from the Fund. This information included a review of the methodology used in the allocation of certain costs to the Fund. The Trustees reviewed the profitability of the Manager's relationship with the Fund before tax expenses, noting that the ================================================================================ 32 | USAA NEW YORK MONEY MARKET FUND ================================================================================ Manager has reimbursed a portion of its management fee for the Fund. In reviewing the overall profitability of the management fee to the Manager, the Board also considered the fact that affiliates provide shareholder servicing and administrative services to the Fund for which they receive compensation. The Board also considered the possible direct and indirect benefits to the Manager from its relationship with the Trust, including that the Manager may derive reputational and other benefits from its association with the Fund. The Board also took into account the high quality of services provided by the Manager. The Trustees recognized that the Manager should be entitled to earn a reasonable level of profits in exchange for the level of services it provides to the Fund and the entrepreneurial risk that it assumes as Manager. ECONOMIES OF SCALE - The Board noted that the Fund has advisory fee breakpoints that allow the Fund to participate in economies of scale and that such economies of scale currently were reflected in the advisory fee. The Board also considered the effect of the Fund's growth and size on its performance and fees, noting that the Fund may realize additional economies of scale if assets increase proportionally more than some expenses. The Board also considered the fee waiver and expense reimbursement arrangements by the Manager. The Board determined that the current investment management fee structure was reasonable. CONCLUSIONS - The Board reached the following conclusions regarding the Fund's Advisory Agreement with the Manager, among others: (i) the Manager has demonstrated that it possesses the capability and resources to perform the duties required of it under the Advisory Agreement; (ii) the Manager maintains an appropriate compliance program; (iii) the performance of the Fund is reasonable in relation to the performance of funds with similar investment objectives and to relevant indices; (iv) the Fund's advisory expenses are reasonable in relation to those of similar funds and to the services to be provided by the Manager; and (v) the Manager's and its affiliates level of profitability from its relationship with the Fund is reasonable in light of the nature and high quality of services provided by the Manager and the type of fund. Based on its conclusions, the Board determined that continuation of the Advisory Agreement would be in the best interests of the Fund and its shareholders. ================================================================================ ADVISORY AGREEMENT(S) | 33 ================================================================================ TRUSTEES Daniel S. McNamara Robert L. Mason, Ph.D. Jefferson C. Boyce Dawn M. Hawley Paul L. McNamara Barbara B. Ostdiek, Ph.D. Michael F. Reimherr -------------------------------------------------------------------------------- ADMINISTRATOR AND USAA Asset Management Company INVESTMENT ADVISER P.O. Box 659453 San Antonio, Texas 78265-9825 -------------------------------------------------------------------------------- UNDERWRITER AND USAA Investment Management Company DISTRIBUTOR P.O. Box 659453 San Antonio, Texas 78265-9825 -------------------------------------------------------------------------------- TRANSFER AGENT USAA Shareholder Account Services 9800 Fredericksburg Road San Antonio, Texas 78288 -------------------------------------------------------------------------------- CUSTODIAN AND State Street Bank and Trust Company ACCOUNTING AGENT P.O. Box 1713 Boston, Massachusetts 02105 -------------------------------------------------------------------------------- INDEPENDENT Ernst & Young LLP REGISTERED PUBLIC 100 West Houston St., Suite 1700 ACCOUNTING FIRM San Antonio, Texas 78205 -------------------------------------------------------------------------------- MUTUAL FUND Under "My Accounts" on SELF-SERVICE 24/7 usaa.com select your mutual fund AT USAA.COM account and either click the link or select 'I want to...' and select OR CALL the desired action. (800) 531-USAA (8722) (210) 531-8722 -------------------------------------------------------------------------------- Copies of the Manager's proxy voting policies and procedures, approved by the Trust's Board of Trustees for use in voting proxies on behalf of the Fund, are available without charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722; (ii) at USAA.COM; and (iii) in summary within the Statement of Additional Information on the SEC's website at HTTP://WWW.SEC.GOV. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge (i) at USAA.COM; and (ii) on the SEC's website at HTTP://WWW.SEC.GOV. The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. These Forms N-Q are available at no charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722; (ii) at USAA.COM; and (iii) on the SEC's website at HTTP://WWW.SEC.GOV. These Forms N-Q also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling (800) 732-0330. ================================================================================ -------------- USAA PRSRT STD 9800 Fredericksburg Road U.S. Postage San Antonio, TX 78288 PAID USAA -------------- >> SAVE PAPER AND FUND COSTS Under MY PROFILE on USAA.COM select MANAGE PREFERENCES Set your DOCUMENT PREFERENCES to USAA DOCUMENTS ONLINE. [LOGO OF USAA] USAA We know what it means to serve.(R) ============================================================================= 39610-1116 (C)2016, USAA. All rights reserved. [LOGO OF USAA] USAA(R) [GRAPHIC OF USAA TAX EXEMPT INTERMEDIATE-TERM FUND] ============================================================== SEMIANNUAL REPORT USAA TAX EXEMPT INTERMEDIATE-TERM FUND FUND SHARES o ADVISER SHARES SEPTEMBER 30, 2016 ============================================================== ================================================================================ ================================================================================ PRESIDENT'S MESSAGE "THE CLOSING WEEKS OF A YEAR CAN BE A GOOD TIME TO TAKE A LOOK AT YOUR FINANCIAL SITUATION [PHOTO OF BROOKS ENGLEHARDT] WITH A GOAL OF GETTING YOUR FINANCES IN ORDER." -------------------------------------------------------------------------------- NOVEMBER 2016 Investors were generally rewarded during the reporting period ended September 30, 2016. Most asset classes posted gains as global growth concerns eased and many of the world's central banks, including the Federal Reserve (the Fed), maintained accommodative monetary policies. Stock prices generally climbed, despite two brief setbacks. In June 2016, a brief retreat followed the United Kingdom's unexpected vote to withdraw from the European Union (commonly known as Brexit). In September 2016, stocks fell--before quickly recovering--on concerns about a potential Fed interest rate increase. Meanwhile, bond prices recorded positive returns during the reporting period. As bond prices rose, longer-term interest rates, which move in the opposite direction, fell. As you know, the Fed only has direct control over short-term interest rates. Bond prices and longer-term interest rates are determined by buyers and sellers, sometimes based on their views of Fed policy. During the reporting period, market expectations about potential Fed interest rate increases shifted into the future. The Fed, which in December 2015 had raised short-term interest rates for the first time since 2008, also initially signaled that four interest rate increases were on tap for 2016. However, policymakers backed off that forecast in March 2016, just before the reporting period began, indicating that only two interest rate increases were on the table. They pointed to the global market turmoil during the first six weeks of 2016 as a contributing factor. Policymakers subsequently hinted there would be a single interest rate increase, but ultimately left interest rates unchanged. In our view, December 2016 is the Fed's only remaining window of opportunity to increase short-term interest rates. It is unlikely to act at its November 2016 meeting, which is just days before the presidential election. We believe that as of this writing, the futures market, which generally is a proxy for investor sentiment, indicates approximately a two-thirds chance that the Fed would raise rates in December 2016. ================================================================================ ================================================================================ This begs the question: Is it good or bad if low interest rates persist? We think it depends on your perspective. On one hand, consumers and businesses are able to continue borrowing at affordable interest rates. On the other hand, savers may continue to see returns lower than the rate of inflation. At USAA Investments, we believe the Fed is likely to raise interest rates at a gradual pace. We've long held the belief that interest rates will stay lower for longer than many market participants expect. Currently, there is no urgency for the Fed to act. Interest rate increases are typically a response to an overheating economy, and the U.S. remains in slow-growth mode with low inflation. Americans are still carrying large amounts of household debt, so higher interest rates are likely to hinder their spending and slow what little growth there is. Tax-exempt bonds, like most other fixed-income investments, generated positive returns during the reporting period. Municipal bonds performed well, as investors continued to favor them for their tax-advantaged status. At the same time, municipal issuance remained low, though it has increased since January 2016. Still, the supply is far from enough to satisfy demand and we expect municipal bonds to continue to benefit from this situation for some time to come. Although state and local finances are in better shape than they were a few years ago, municipal governments have been reluctant to take on additional debt. We believe eventually this will change, but likely not for the foreseeable future. Looking ahead, the end of 2016 is just weeks away. The closing weeks of a year can be a good time to take a look at your financial situation with a goal of getting your finances in order. One way to help ensure you're doing the most with what you have is to consider investing a set amount each month, also known as dollar-cost averaging. Please call USAA Investments to speak with a financial advisor. We are committed to helping you meet your financial objectives. On behalf of everyone at USAA Investments, thank you for relying on us to help you with your investment needs. We appreciate the opportunity to serve you. Sincerely, /S/ BROOKS ENGLEHARDT Brooks Englehardt President USAA Investments Investments provided by USAA Investment Management Company and USAA Financial Advisors, Inc., both registered broker-dealers, and affiliates. Financial planning services and financial advice provided by USAA Financial Planning Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in California, License # 0E36312), a registered investment adviser and insurance agency and its wholly owned subsidiary, USAA Financial Advisors, Inc., a registered broker dealer. ================================================================================ ================================================================================ TABLE OF CONTENTS -------------------------------------------------------------------------------- FUND OBJECTIVE 1 MANAGERS' COMMENTARY ON THE FUND 2 INVESTMENT OVERVIEW 5 FINANCIAL INFORMATION Portfolio of Investments 16 Notes to Portfolio of Investments 45 Financial Statements 47 Notes to Financial Statements 50 EXPENSE EXAMPLE 63 ADVISORY AGREEMENT(S) 65
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS ABOUT THE FUND. (C)2016, USAA. All rights reserved. 211745-1116 ================================================================================ ================================================================================ FUND OBJECTIVE THE USAA TAX EXEMPT INTERMEDIATE-TERM FUND (THE FUND) PROVIDES INVESTORS WITH INTEREST INCOME THAT IS EXEMPT FROM FEDERAL INCOME TAX. -------------------------------------------------------------------------------- TYPES OF INVESTMENTS The Fund invests primarily in investment-grade securities, the interest from which is exempt from federal income tax. During normal market conditions, at least 80% of the Fund's net assets will consist of tax-exempt securities. The Fund's dollar-weighted average portfolio maturity is between three and 10 years. IRA DISTRIBUTION WITHHOLDING DISCLOSURE We generally must withhold federal income tax at a rate of 10% of the taxable portion of your distribution and, if you live in a state that requires state income tax withholding, at your state's tax rate. However, you may elect not to have withholding apply or to have income tax withheld at a higher rate. Any withholding election that you make will apply to any subsequent distribution unless and until you change or revoke the election. If you wish to make a withholding election or change or revoke a prior withholding election, call (800) 531-USAA (8722) or (210) 531-8722. If you do not have a withholding election in place by the date of a distribution, federal income tax will be withheld from the taxable portion of your distribution at a rate of 10%. If you must pay estimated taxes, you may be subject to estimated tax penalties if your estimated tax payments are not sufficient and sufficient tax is not withheld from your distribution. For more specific information, please consult your tax adviser. ================================================================================ FUND OBJECTIVE | 1 ================================================================================ MANAGERS' COMMENTARY ON THE FUND -------------------------------------------------------------------------------- [PHOTO OF REGINA G. SHAFER] [PHOTO OF DALE R. HOFFMANN] REGINA G. SHAFER, CPA, CFA DALE R. HOFFMANN USAA Asset USAA Asset Management Company Management Company -------------------------------------------------------------------------------- o WHAT WERE THE MARKET CONDITIONS DURING THE REPORTING PERIOD? The tax-exempt bond market advanced during the reporting period ended September 30, 2016, as demand for municipal securities outweighed the amount of available supply. Although new issuance picked up, it remained low by historical standards. Furthermore, it was dominated by refunding bonds rather than new issues. In a bond refunding, issuers call existing high-interest bonds and replace them with new bonds that have lower coupon rates. Meanwhile, as demand for municipal bonds increased, municipal bond mutual funds also received positive investment inflows every week of the reporting period. Investors continue to prefer municipal securities for their tax-advantaged status as well as their relative stability. Municipal bonds also benefited from the performance of the U.S. Treasury market, which the tax-exempt bond market generally follows over time. Intermediate-term U.S. Treasury securities rallied on strong demand, especially from foreign investors who favored U.S. Treasuries because of their relatively higher yields compared to the government bonds of other developed countries. As U.S. Treasury prices rose, their yields (which move in the opposite direction) fell. During the reporting period, the yield on a 10-year Treasury security dropped from 1.77% as of 3/31/16 to 1.60% as of 9/30/16. Municipal credit quality remained strong as state and local governments continued to practice sound fiscal management and generally maintained healthy reserves. State and local revenues rose, though at a more moderate ================================================================================ 2 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND ================================================================================ pace than in the recent past. Numerous issuers also took steps to address their pension risks, in some cases proposing tax increases to deal with potential pension-funding shortfalls. Unlike corporate issuers, many state and municipal governments have broad taxing powers and are required by law to balance their budgets. o HOW DID THE USAA TAX EXEMPT INTERMEDIATE-TERM FUND (THE FUND) PERFORM DURING THE REPORTING PERIOD? The Fund has two share classes: Fund Shares and Adviser Shares. For the reporting period ended September 30, 2016, the Fund Shares and Adviser Shares had a total return of 2.27% and 2.06%, respectively, versus an average return of 1.84% amongst the funds in the Lipper Intermediate Municipal Debt Funds category. This compares to returns of 1.82% for the Lipper Intermediate Municipal Debt Funds Index and 2.30% for the Bloomberg Barclays Municipal Bond Index*. The Fund Shares' and Adviser Shares' tax-exempt distributions over the prior 12 months produced a dividend yield of 3.13% and 2.86%, respectively, compared to the Lipper category average of 2.11%. USAA Asset Management Company is the Fund's investment adviser. The investment adviser provides day-to-day discretionary management for the Fund's assets. o WHAT STRATEGIES DID YOU EMPLOY DURING THE REPORTING PERIOD? We maintained our focus on income generation. Over the long-term, the Fund's income distribution, not its price appreciation, accounts for most of its total return. Due to the Fund's income orientation, it generally invests in bonds in the BBB and A rated categories. Refer to page 8 for benchmark definitions. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. *Effective August 24, 2016, Bloomberg acquired Barclays Risk Analytics and Index Solutions, Ltd., which includes the Barclays indices. Thus, the Fund's benchmark is now called the Bloomberg Barclays Municipal Bond Index. ================================================================================ MANAGERS' COMMENTARY ON THE FUND | 3 ================================================================================ During the reporting period, the Fund continued to benefit from our independent research. In our efforts to find attractive opportunities, we continued to work with our in-house team of analysts to select investments for the Fund on a bond-by-bond basis. Each security is researched, using fundamental analysis that emphasizes an issuer's ability and willingness to repay its debt. Through our research, we seek both to recognize value and avoid potential risks. The Fund continued to maintain a diversified portfolio of more than 600 municipal bonds, primarily of investment-grade, that are continuously monitored by our team of analysts. The Fund is diversified by sector, issuer, and geography, limiting its exposure to an unexpected event. We also avoid bonds subject to the federal alternative minimum tax for individuals. Thank you for allowing us to help you with your investment needs. As interest rates rise, bond prices generally fall; given the historically low interest rate environment, risks associated with rising interest rates may be heightened. o Diversification is a technique intended to help reduce risk and does not guarantee a profit or prevent a loss. o Some income may be subject to state or local taxes but not the federal alternative minimum tax. ================================================================================ 4 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND ================================================================================ INVESTMENT OVERVIEW USAA TAX EXEMPT INTERMEDIATE-TERM FUND SHARES (FUND SHARES) (Ticker Symbol: USATX)
-------------------------------------------------------------------------------- 9/30/16 3/31/16 -------------------------------------------------------------------------------- Net Assets $4.7 Billion $4.3 Billion Net Asset Value Per Share $13.71 $13.61 LAST 12 MONTHS Tax-Exempt Dividends Per Share $0.429 $0.442 Capital Gain Distributions Per Share - - Dollar-Weighted Average Portfolio Maturity(+) 9.9 Years 9.6 Years (+)Obtained by multiplying the dollar value of each investment by the number of days left to its maturity, adding those figures together, and dividing them by the total dollar value of the Fund's portfolio. -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 9/30/16 -------------------------------------------------------------------------------- 3/31/16-9/30/16* 1 YEAR 5 YEARS 10 YEARS 2.27% 5.26% 4.39% 4.48% -------------------------------------------------------------------------------- 30-DAY SEC YIELD** AS OF 9/30/16 EXPENSE RATIO AS OF 3/31/16*** -------------------------------------------------------------------------------- 1.53% 0.54%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT USAA.COM. *Total returns for periods of less than one year are not annualized. This return is cumulative. **Calculated as prescribed by the Securities and Exchange Commission. ***The expense ratio represents the total annual operating expenses, before reductions of any expenses paid indirectly and including any acquired fund fees and expenses, as reported in the Fund's prospectus dated August 1, 2016, and is calculated as a percentage of average net assets. This expense ratio may differ from the expense ratio disclosed in the Financial Highlights, which excludes acquired fund fees and expenses. No adjustment has been made for taxes payable by shareholders on their reinvested net investment income and realized capital gain distributions. ================================================================================ INVESTMENT OVERVIEW | 5 ================================================================================ AVERAGE ANNUAL COMPOUNDED RETURNS WITH REINVESTMENT OF DIVIDENDS - PERIODS ENDED SEPTEMBER 30, 2016
---------------------------------------------------------------------------------------------- TOTAL RETURN = DIVIDEND RETURN + PRICE CHANGE ---------------------------------------------------------------------------------------------- 10 YEARS 4.48% = 4.07% + 0.41% 5 YEARS 4.39% = 3.57% + 0.82% 1 YEAR 5.26% = 3.25% + 2.01%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT USAA.COM. ANNUAL TOTAL RETURNS AND COMPOUNDED DIVIDEND RETURNS FOR THE ONE-YEAR PERIODS ENDED SEPTEMBER 30, 2007-SEPTEMBER 30, 2016 [CHART OF ANNUAL TOTAL RETURNS AND COMPOUNDED DIVIDEND RETURNS]
TOTAL RETURN DIVIDEND RETURN CHANGE IN SHARE PRICE 9/30/07 2.43% 4.21% -1.78% 9/30/08 -2.92% 4.29% -7.21% 9/30/09 13.72% 5.44% 8.28% 9/30/10 6.35% 4.52% 1.83% 9/30/11 3.93% 4.41% -0.48% 9/30/12 8.34% 4.07% 4.27% 9/30/13 -0.43% 3.51% -3.94% 9/30/14 6.63% 3.75% 2.88% 9/30/15 2.40% 3.28% -0.88% 9/30/16 5.26% 3.25% 2.01%
[END CHART] NOTE THE ROLE THAT DIVIDEND RETURNS PLAY IN THE FUND SHARES' TOTAL RETURN OVER TIME. SHARE PRICES AND DIVIDEND RATES WILL VARY FROM PERIOD TO PERIOD. HOWEVER, DIVIDEND RETURNS GENERALLY ARE MORE CONSISTENT AND LESS VOLATILE THAN SHARE PRICES. Total return measures the price change in a share assuming the reinvestment of all net investment income and realized capital gain distributions, if any. Dividend return is the net investment income dividends received over the period, assuming reinvestment of all dividends. Share price change is the change in net asset value over the period adjusted for realized capital gain distributions. The returns quoted do not reflect adjustments made to the enclosed financial statements in accordance with U.S. generally accepted accounting principles or the deduction of taxes that a shareholder would pay on distributions (including capital gain distributions), redemptions of shares, or reinvested net investment income. ================================================================================ 6 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND ================================================================================ TAXABLE EQUIVALENT ILLUSTRATION To match the Fund Shares' Dividend Return for the period ended 9/30/16, and assuming marginal federal tax rates of: 28.00% 36.80%* 38.80%* 43.40%* A FULLY TAXABLE INVESTMENT MUST PAY THE FOLLOWING:
PERIOD DIVIDEND RETURN -------------------------------------------------------------------------------- 10 Years 4.07% 5.65% 6.44% 6.65% 7.19% 5 Years 3.57% 4.96% 5.65% 5.83% 6.31% 1 Year 3.25% 4.51% 5.14% 5.31% 5.74% To match the Fund Shares' closing 30-day SEC Yield of 1.53% on 09/30/16 A FULLY TAXABLE INVESTMENT MUST PAY: 2.13% 2.42% 2.50% 2.70%
This table is based on a hypothetical investment calculated for illustrative purposes only. It is not an indication of performance for any of the USAA family of funds. Taxable equivalent returns or yields will vary depending on applicable tax rates. -------------------------------------------------------------------------------- Some income may be subject to federal, state, or local taxes, but not the alternative minimum tax. Based on 2015 tax rates or rates in effect as of the issuance of this report. The above marginal rates assume married, filing jointly. *The above marginal rates assume income exceeds $250,000 and investment income is subject to the 3.80% medicare tax which is applied for income over a specific level, depending on the federal income tax filing status. ================================================================================ INVESTMENT OVERVIEW | 7 ================================================================================ o CUMULATIVE PERFORMANCE COMPARISON o [CHART OF CUMULATIVE PERFORMANCE COMPARISON]
BLOOMBERG USAA TAX EXEMPT LIPPER BARCLAYS MUNICIPAL INTERMEDIATE-TERM INTERMEDIATE MUNICIPAL BOND INDEX FUND SHARES DEBT FUNDS INDEX 09/30/06 $10,000.00 $10,000.00 $10,000.00 10/31/06 10,062.71 10,049.00 10,046.75 11/30/06 10,146.59 10,129.00 10,108.81 12/31/06 10,110.74 10,094.00 10,073.79 01/31/07 10,084.85 10,080.00 10,052.39 02/28/07 10,217.74 10,208.00 10,159.61 03/31/07 10,192.55 10,175.00 10,149.62 04/30/07 10,222.72 10,209.00 10,175.56 05/31/07 10,177.46 10,159.00 10,136.01 06/30/07 10,124.72 10,102.00 10,097.77 07/31/07 10,203.21 10,161.00 10,162.47 08/31/07 10,159.19 10,083.00 10,155.33 09/30/07 10,309.52 10,242.00 10,278.10 10/31/07 10,355.47 10,279.00 10,307.18 11/30/07 10,421.50 10,310.00 10,377.07 12/31/07 10,450.43 10,286.00 10,396.74 01/31/08 10,582.21 10,427.00 10,566.43 02/29/08 10,097.73 9,931.00 10,187.94 03/31/08 10,386.34 10,219.00 10,405.87 04/30/08 10,507.88 10,322.00 10,464.48 05/31/08 10,571.41 10,403.00 10,526.83 06/30/08 10,452.09 10,303.00 10,422.49 07/31/08 10,491.82 10,301.00 10,469.40 08/31/08 10,614.60 10,415.00 10,582.66 09/30/08 10,116.83 9,943.00 10,186.13 10/31/08 10,013.57 9,688.00 10,070.76 11/30/08 10,045.40 9,651.00 10,088.92 12/31/08 10,191.86 9,533.00 10,160.25 01/31/09 10,564.91 10,037.00 10,572.43 02/28/09 10,620.41 10,079.00 10,529.40 03/31/09 10,622.35 10,094.00 10,522.61 04/30/09 10,834.56 10,340.00 10,701.27 05/31/09 10,949.17 10,577.00 10,822.60 06/30/09 10,846.60 10,490.00 10,736.63 07/31/09 11,028.07 10,689.00 10,914.58 08/31/09 11,216.61 10,858.00 11,029.42 09/30/09 11,619.14 11,307.00 11,345.76 10/31/09 11,375.24 11,123.00 11,122.06 11/30/09 11,469.23 11,232.00 11,291.95 12/31/09 11,507.99 11,275.00 11,314.20 01/31/10 11,567.92 11,349.00 11,375.94 02/28/10 11,680.05 11,461.00 11,487.74 03/31/10 11,652.09 11,414.00 11,425.89 04/30/10 11,793.69 11,556.00 11,535.54 05/31/10 11,882.15 11,640.00 11,614.01 06/30/10 11,889.21 11,638.00 11,616.48 07/31/10 12,037.46 11,780.00 11,767.12 08/31/10 12,313.06 12,028.00 12,005.00 09/30/10 12,293.82 12,024.00 11,965.77 10/31/10 12,259.77 11,985.00 11,937.04 11/30/10 12,014.62 11,772.00 11,757.94 12/31/10 11,781.79 11,595.00 11,587.65 01/31/11 11,695.00 11,497.00 11,525.57 02/28/11 11,881.18 11,698.00 11,690.05 03/31/11 11,841.59 11,675.00 11,656.35 04/30/11 12,053.65 11,860.00 11,833.13 05/31/11 12,259.63 12,042.00 11,999.57 06/30/11 12,302.40 12,113.00 12,028.07 07/31/11 12,427.95 12,232.00 12,135.97 08/31/11 12,640.57 12,388.00 12,298.54 09/30/11 12,771.24 12,499.00 12,350.61 10/31/11 12,723.76 12,464.00 12,301.36 11/30/11 12,798.93 12,554.00 12,393.43 12/31/11 13,042.41 12,773.00 12,613.43 01/31/12 13,344.04 13,062.00 12,853.38 02/29/12 13,357.19 13,064.00 12,857.09 03/31/12 13,270.40 12,990.00 12,750.63 04/30/12 13,423.49 13,147.00 12,893.53 05/31/12 13,534.92 13,257.00 12,973.77 06/30/12 13,520.39 13,260.00 12,951.96 07/31/12 13,734.67 13,428.00 13,120.69 08/31/12 13,750.31 13,463.00 13,133.52 09/30/12 13,833.37 13,539.00 13,209.34 10/31/12 13,872.40 13,590.00 13,237.52 11/30/12 14,100.94 13,823.00 13,424.00 12/31/12 13,926.66 13,693.00 13,273.73 01/31/13 13,984.66 13,750.00 13,313.66 02/28/13 14,027.02 13,830.00 13,365.61 03/31/13 13,966.53 13,809.00 13,324.11 04/30/13 14,119.63 13,929.00 13,442.20 05/31/13 13,947.15 13,801.00 13,280.00 06/30/13 13,552.23 13,454.00 12,965.07 07/31/13 13,433.74 13,405.00 12,923.88 08/31/13 13,242.02 13,257.00 12,785.82 09/30/13 13,527.03 13,481.00 13,007.89 10/31/13 13,633.90 13,585.00 13,105.14 11/30/13 13,605.80 13,558.00 13,067.99 12/31/13 13,571.05 13,550.00 13,044.36 01/31/14 13,835.44 13,781.00 13,243.72 02/28/14 13,997.67 13,907.00 13,368.23 03/31/14 14,021.21 13,926.00 13,342.32 04/30/14 14,189.67 14,060.00 13,478.11 05/31/14 14,372.39 14,206.00 13,612.33 06/30/14 14,384.85 14,202.00 13,605.60 07/31/14 14,410.18 14,232.00 13,627.59 08/31/14 14,584.73 14,357.00 13,753.11 09/30/14 14,599.54 14,374.00 13,759.19 10/31/14 14,699.62 14,459.00 13,827.44 11/30/14 14,725.09 14,475.00 13,832.85 12/31/14 14,799.29 14,548.00 13,876.70 01/31/15 15,061.60 14,726.00 14,086.50 02/28/15 14,906.29 14,604.00 13,963.90 03/31/15 14,949.34 14,641.00 13,987.46 04/30/15 14,870.85 14,584.00 13,933.23 05/31/15 14,829.74 14,548.00 13,881.61 06/30/15 14,816.31 14,523.00 13,867.88 07/31/15 14,923.59 14,609.00 13,945.69 08/31/15 14,952.94 14,625.00 13,967.20 09/30/15 15,061.18 14,719.00 14,052.76 10/31/15 15,121.12 14,761.00 14,109.69 11/30/15 15,181.20 14,821.00 14,152.29 12/31/15 15,287.92 14,931.00 14,240.07 01/31/16 15,470.36 15,077.00 14,389.13 02/29/16 15,494.59 15,088.00 14,397.87 03/31/16 15,543.73 15,150.00 14,439.73 04/30/16 15,658.07 15,247.00 14,527.94 05/31/16 15,700.42 15,307.00 14,539.46 06/30/16 15,950.14 15,548.00 14,734.44 07/31/16 15,959.83 15,530.00 14,734.48 08/31/16 15,981.42 15,557.00 14,754.15 09/30/16 15,901.69 15,496.00 14,702.85
[END CHART] Data from 9/30/06 through 9/30/16. The graph illustrates the comparison of a $10,000 hypothetical investment in the USAA Tax Exempt Intermediate-Term Fund Shares to the following benchmarks: o The unmanaged, broad-based Bloomberg Barclays Municipal Bond Index (Index) tracks total return performance for the long-term, investment-grade, tax-exempt bond market. All tax-exempt bond funds will find it difficult to outperform the index because the index does not reflect any deduction for fees, expenses, or taxes. o The unmanaged Lipper Intermediate Municipal Debt Funds Index measures the Fund's performance to that of the Lipper Intermediate Municipal Debt Funds category. Past performance is no guarantee of future results, and the cumulative performance quoted does not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of shares. Indexes are unmanaged and you cannot invest directly in an index. The return information for the indexes does not reflect the deduction of any fees, expenses, or taxes, except that the Lipper index reflects the fees and expenses of the underlying funds included in the index. ================================================================================ 8 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND ================================================================================ o 12-MONTH DIVIDEND YIELD COMPARISON o [CHART OF 12-MONTH DIVIDEND YIELD COMPARISON]
USAA TAX EXEMPT LIPPER INTERMEDIATE INTERMEDIATE-TERM MUNICIPAL DEBT FUND SHARES FUNDS AVERAGE 09/30/07 4.25% 3.48% 09/30/08 4.78% 3.62% 09/30/09 4.53% 3.77% 09/30/10 4.26% 3.11% 09/30/11 4.23% 2.89% 09/30/12 3.77% 2.53% 09/30/13 3.70% 2.40% 09/30/14 3.53% 2.35% 09/30/15 3.28% 2.21% 09/30/16 3.13% 2.11%
[END CHART] The 12-month dividend yield is computed by dividing net investment income dividends paid during the previous 12 months by the latest adjusted month-end net asset value. The yields quoted do not reflect adjustments made to the enclosed financial statements in accordance with U.S. generally accepted accounting principles. The net asset value is adjusted for a portion of the capital gains, if any, distributed during the previous nine months. The graph represents data for periods ending 9/30/07 to 9/30/16. The Lipper Intermediate Municipal Debt Funds Average is an average performance level of all intermediate-term municipal debt funds, reported by Lipper Inc., an independent organization that monitors the performance of mutual funds. ================================================================================ INVESTMENT OVERVIEW | 9 ================================================================================ USAA TAX EXEMPT INTERMEDIATE-TERM FUND ADVISER SHARES (ADVISER SHARES) (Ticker Symbol: UTEIX)
-------------------------------------------------------------------------------- 9/30/16 3/31/16 -------------------------------------------------------------------------------- Net Assets $49.1 Million $42.1 Million Net Asset Value Per Share $13.70 $13.61 LAST 12 MONTHS Tax-Exempt Dividends Per Share $0.392 $0.406 Capital Gain Distributions Per Share - - -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 9/30/16 -------------------------------------------------------------------------------- 3/31/16-9/30/16* 1 YEAR 5 YEARS SINCE INCEPTION 8/01/10 2.06% 4.90% 4.14% 4.30% -------------------------------------------------------------------------------- 30-DAY SEC YIELD** AS OF 9/30/16 -------------------------------------------------------------------------------- UNSUBSIDIZED 1.20% SUBSIDIZED 1.27% -------------------------------------------------------------------------------- EXPENSE RATIOS AS OF 3/31/16*** -------------------------------------------------------------------------------- BEFORE REIMBURSEMENT 0.88% AFTER REIMBURSEMENT 0.80%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT USAA.COM. *Total returns for periods of less than one year are not annualized. This return is cumulative. **Calculated as prescribed by the Securities and Exchange Commission. ***The expense ratios represent the total annual operating expenses, before reductions of any expenses paid indirectly and including any acquired fund fees and expenses, as reported in the Fund's prospectus dated August 1, 2016, and is calculated as a percentage of average net assets. USAA Asset Management Company (the Manager) has agreed, through August 1, 2017, to make payments or waive management, administration, and other fees so that the total annual operating expenses of the Adviser Shares (exclusive of commission recapture, expense offset arrangements, acquired fund fees and expenses, and extraordinary expenses) do not exceed an annual rate of 0.80% of the Adviser Shares' average net assets. This reimbursement arrangement may not be changed or terminated during this time period without approval of the Fund's Board of Trustees and may be changed or terminated by the Manager at any time after August 1, 2017. If the total annual operating expense ratio of the Adviser Shares is lower than 0.80%, the Adviser Shares will operate at the lower expense ratio. These expense ratios may differ from the expense ratios disclosed in the Financial Highlights, which excludes acquired fund fees and expenses. No adjustment has been made for taxes payable by shareholders on their reinvested net investment income and realized capital gain distributions. ================================================================================ 10 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND ================================================================================ TAXABLE EQUIVALENT ILLUSTRATION To match the Adviser Shares' closing 30-day SEC Yield of 1.27% on 09/30/16 and assuming marginal federal tax rates of: 28.00% 36.80%* 38.80%* 43.40%* A FULLY TAXABLE INVESTMENT MUST PAY: 1.76% 2.01% 2.08% 2.24% This table is based on a hypothetical investment calculated for illustrative purposes only. It is not an indication of performance for any of the USAA family of funds. Taxable equivalent returns or yields will vary depending on applicable tax rates. -------------------------------------------------------------------------------- Some income may be subject to federal, state, or local taxes, but not the alternative minimum tax. Based on 2015 tax rates or rates in effect as of the issuance of this report. The above marginal rates assume married, filing jointly. *The above marginal rates assume income exceeds $250,000 and investment income is subject to the 3.80% medicare tax which is applied for income over a specific level, depending on the federal income tax filing status. ================================================================================ INVESTMENT OVERVIEW | 11 ================================================================================ o CUMULATIVE PERFORMANCE COMPARISON o [CHART OF CUMULATIVE PERFORMANCE COMPARISON]
BLOOMBERG USAA TAX EXEMPT LIPPER INTERMEDIATE BARCLAYS MUNICIPAL INTERMEDIATE-TERM FUND MUNICIPAL DEBT BOND INDEX ADVISER SHARES FUNDS INDEX 07/31/10 $10,000.00 $10,000.00 $10,000.00 08/31/10 10,228.95 10,207.68 10,202.16 09/30/10 10,212.97 10,202.67 10,168.82 10/31/10 10,184.68 10,167.09 10,144.40 11/30/10 9,981.03 9,984.70 9,992.20 12/31/10 9,787.61 9,832.59 9,847.48 01/31/11 9,715.50 9,748.28 9,794.73 02/28/11 9,870.17 9,916.64 9,934.51 03/31/11 9,837.28 9,895.97 9,905.86 04/30/11 10,013.45 10,050.71 10,056.10 05/31/11 10,184.57 10,203.26 10,197.55 06/30/11 10,220.10 10,261.88 10,221.77 07/31/11 10,324.40 10,360.40 10,313.46 08/31/11 10,501.03 10,491.11 10,451.62 09/30/11 10,609.58 10,583.24 10,495.87 10/31/11 10,570.14 10,551.47 10,454.01 11/30/11 10,632.58 10,626.58 10,532.26 12/31/11 10,834.86 10,810.00 10,719.21 01/31/12 11,085.43 11,052.37 10,923.13 02/29/12 11,096.35 11,052.74 10,926.29 03/31/12 11,024.25 10,988.14 10,835.82 04/30/12 11,151.44 11,118.74 10,957.26 05/31/12 11,244.01 11,209.88 11,025.45 06/30/12 11,231.93 11,210.95 11,006.91 07/31/12 11,409.94 11,350.27 11,150.31 08/31/12 11,422.94 11,377.82 11,161.20 09/30/12 11,491.93 11,440.78 11,225.64 10/31/12 11,524.36 11,481.61 11,249.59 11/30/12 11,714.22 11,676.37 11,408.07 12/31/12 11,569.44 11,563.63 11,280.36 01/31/13 11,617.62 11,610.80 11,314.29 02/28/13 11,652.81 11,676.34 11,358.44 03/31/13 11,602.56 11,656.81 11,323.17 04/30/13 11,729.74 11,764.81 11,423.53 05/31/13 11,586.46 11,643.43 11,285.69 06/30/13 11,258.38 11,351.37 11,018.05 07/31/13 11,159.95 11,307.72 10,983.05 08/31/13 11,000.68 11,178.99 10,865.72 09/30/13 11,237.45 11,368.12 11,054.44 10/31/13 11,326.23 11,454.22 11,137.09 11/30/13 11,302.88 11,429.28 11,105.51 12/31/13 11,274.02 11,420.42 11,085.44 01/31/14 11,493.66 11,610.77 11,254.86 02/28/14 11,628.43 11,715.55 11,360.66 03/31/14 11,647.98 11,731.40 11,338.65 04/30/14 11,787.93 11,842.39 11,454.04 05/31/14 11,939.72 11,961.83 11,568.11 06/30/14 11,950.07 11,958.08 11,562.39 07/31/14 11,971.12 11,980.86 11,581.08 08/31/14 12,116.12 12,082.67 11,687.75 09/30/14 12,128.43 12,095.44 11,692.91 10/31/14 12,211.57 12,161.99 11,750.92 11/30/14 12,232.73 12,166.19 11,755.51 12/31/14 12,294.37 12,223.63 11,792.77 01/31/15 12,512.28 12,379.68 11,971.07 02/28/15 12,383.26 12,275.11 11,866.88 03/31/15 12,419.02 12,296.25 11,886.91 04/30/15 12,353.82 12,254.48 11,840.81 05/31/15 12,319.66 12,221.93 11,796.95 06/30/15 12,308.51 12,198.52 11,785.28 07/31/15 12,397.63 12,265.52 11,851.40 08/31/15 12,422.01 12,278.33 11,869.68 09/30/15 12,511.93 12,355.22 11,942.40 10/31/15 12,561.73 12,386.18 11,990.78 11/30/15 12,611.63 12,426.08 12,026.98 12/31/15 12,700.29 12,512.29 12,101.58 01/31/16 12,851.86 12,644.66 12,228.25 02/29/16 12,871.98 12,650.94 12,235.68 03/31/16 12,912.80 12,699.87 12,271.25 04/30/16 13,007.79 12,778.00 12,346.22 05/31/16 13,042.97 12,825.00 12,356.01 06/30/16 13,250.42 13,015.00 12,521.71 07/31/16 13,258.47 13,006.00 12,521.74 08/31/16 13,276.41 13,026.00 12,538.46 09/30/16 13,210.17 12,963.00 12,494.86
[END CHART] Data from 7/31/10 through 9/30/16.* The graph illustrates the comparison of a $10,000 hypothetical investment in the USAA Tax Exempt Intermediate-Term Fund Adviser Shares to the benchmarks listed above (see page 8 for benchmark definitions). *The performance of the Bloomberg Barclays Municipal Bond Index and the Lipper Intermediate Municipal Debt Funds Index is calculated from the end of the month, July 31, 2010, while the inception date of the Adviser Shares is August 1, 2010. There may be a slight variation of performance numbers because of this difference. Past performance is no guarantee of future results, and the cumulative performance quoted does not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of shares. Indexes are unmanaged and you cannot invest directly in an index. The return information for the indexes does not reflect the deduction of any fees, expenses, or taxes, except that the Lipper index reflects the fees and expenses of the underlying funds included in the index. ================================================================================ 12 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND ================================================================================ o 12-MONTH DIVIDEND YIELD COMPARISON o [CHART OF 12-MONTH DIVIDEND YIELD COMPARISON]
USAA TAX EXEMPT LIPPER INTERMEDIATE INTERMEDIATE-TERM FUND MUNICIPAL DEBT ADVISER SHARES FUNDS AVERAGE 09/30/11 4.02% 2.89% 09/30/12 3.57% 2.53% 09/30/13 3.48% 2.40% 09/30/14 3.32% 2.35% 09/30/15 3.04% 2.21% 09/30/16 2.86% 2.11%
[END CHART] The 12-month dividend yield is computed by dividing net investment income dividends paid during the previous 12 months by the latest adjusted month-end net asset value. The yields quoted do not reflect adjustments made to the enclosed financial statements in accordance with U.S. generally accepted accounting principles. The net asset value is adjusted for a portion of the capital gains, if any, distributed during the previous nine months. The graph represents data for periods ending 9/30/11 to 9/30/16. The Lipper Intermediate Municipal Debt Funds Average is an average performance level of all intermediate-term municipal debt funds, reported by Lipper Inc., an independent organization that monitors the performance of mutual funds. ================================================================================ INVESTMENT OVERVIEW | 13 ================================================================================ o TOP 10 INDUSTRIES - 9/30/16 o (% of Net Assets) Hospital ............................................................ 20.7% Special Assessment/Tax/Fee .......................................... 10.7% Education ........................................................... 9.0% General Obligation .................................................. 8.8% Toll Roads .......................................................... 8.6% Electric Utilities .................................................. 8.4% Escrowed Bonds ...................................................... 6.2% Appropriated Debt ................................................... 5.0% Airport/Port ........................................................ 4.7% Electric/Gas Utilities .............................................. 3.7%
You will find a complete list of securities that the Fund owns on pages 16-44. ================================================================================ 14 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND ================================================================================ o PORTFOLIO RATINGS MIX - 9/30/16 o [PIE CHART OF PORTFOLIO RATINGS MIX] AAA 4.1% AA 32.7% A 42.1% BBB 14.7% BELOW INVESTMENT-GRADE 3.5% UNRATED 2.9%
[END CHART] This chart reflects the highest long-term rating from a Nationally Recognized Statistical Rating Organization (NRSRO), with the four highest long-term credit ratings labeled, in descending order of credit quality, AAA, AA, A, and BBB. These categories represent investment-grade quality. NRSRO ratings are shown because they provide independent analysis of the credit quality of the Fund's investments. USAA Asset Management Company (the Manager) also performs its own fundamental credit analysis of each security. As part of its fundamental credit analysis, the Manager considers various criteria, including industry specific actions, peer comparisons, payment ranking, and structure specific characteristics. Any of the Fund's securities that are not rated by an NRSRO appear in the chart above as "Unrated," but these securities are analyzed and monitored by the Manager on an ongoing basis. Government securities that are issued or guaranteed as to principal and interest by the U.S. government and pre-refunded and escrowed-to-maturity municipal bonds that are not rated are treated as AAA for credit quality purposes. Percentages are of the total market value of the Fund's investments. You will find a complete list of securities that the Fund owns on pages 16-44. ================================================================================ INVESTMENT OVERVIEW | 15 ================================================================================ PORTFOLIO OF INVESTMENTS September 30, 2016 (unaudited) -------------------------------------------------------------------------------- o CATEGORIES AND DEFINITIONS FIXED-RATE INSTRUMENTS - Consist of municipal bonds, notes, and commercial paper. The interest rate is constant to maturity. Prior to maturity, the market price of a fixed-rate instrument generally varies inversely to the movement of interest rates. PUT BONDS - Provide the right to sell the bond at face value at specific tender dates prior to final maturity. The put feature shortens the effective maturity of the security. ADJUSTABLE-RATE NOTES - Similar to variable-rate demand notes in the fact that the interest rate is adjusted periodically to reflect current market conditions. These interest rates are adjusted at a given time, such as monthly or quarterly. However, these securities do not offer the right to sell the security at face value prior to maturity. VARIABLE-RATE DEMAND NOTES (VRDNs) - Provide the right to sell the security at face value on either that day or within the rate-reset period. The interest rate is adjusted at a stipulated daily, weekly, monthly, quarterly, or other specified time interval to reflect current market conditions. VRDNs will normally trade as if the maturity is the earlier put date, even though stated maturity is longer. o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS CCD Community College District EDA Economic Development Authority EDC Economic Development Corp. ETM Escrowed to final maturity IDA Industrial Development Authority/Agency IDC Industrial Development Corp. ================================================================================ 16 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND ================================================================================ ISD Independent School District MTA Metropolitan Transportation Authority PRE Pre-refunded to a date prior to maturity USD Unified School District CREDIT ENHANCEMENTS - Adds the financial strength of the provider of the enhancement to support the issuer's ability to repay the principal and interest payments when due. The enhancement may be provided by a high- quality bank, insurance company or other corporation, or a collateral trust. The enhancements do not guarantee the market values of the securities. (INS) Principal and interest payments are insured by one of the following: ACA Financial Guaranty Corp., AMBAC Assurance Corp., Assured Guaranty Corp., Assured Guaranty Municipal Corp., Build America Mutual Assurance Co., Financial Guaranty Insurance Co., National Public Finance Guarantee Corp., or Radian Asset Assurance, Inc. Although bond insurance reduces the risk of loss due to default by an issuer, such bonds remain subject to the risk that value may fluctuate for other reasons, and there is no assurance that the insurance company will meet its obligations. (LIQ) Liquidity enhancement that may, under certain circumstances, provide for repayment of principal and interest upon demand from one of the following: Barclays Bank plc, Citibank, N.A., Deutsche Bank A.G., Dexia Credit Local, or Wells Fargo Bank, N.A. (LOC) Principal and interest payments are guaranteed by a bank letter of credit or other bank credit agreement. (NBGA) Principal and interest payments or, under certain circumstances, underlying mortgages, are guaranteed by a nonbank guarantee agreement from one of the following: Federal Home Loan Mortgage Corp., Federal Housing Administration, Georgia-Pacific LLC, Michigan School Bond Qualification and Loan Program, Pennsylvania Public School Intercept Program, or Texas Permanent School Fund. ================================================================================ PORTFOLIO OF INVESTMENTS | 17 ================================================================================ INVESTMENTS
------------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------------- FIXED-RATE INSTRUMENTS (84.2%) ALABAMA (1.7%) $ 5,000 Lower Alabama Gas District 5.00% 9/01/2027 $ 6,193 7,000 Lower Alabama Gas District 5.00 9/01/2028 8,688 35,000 Lower Alabama Gas District 5.00 9/01/2034 44,535 5,955 Montgomery Medical Clinic Board 5.00 3/01/2033 6,945 1,750 Montgomery Medical Clinic Board 5.00 3/01/2036 2,013 4,605 Private Colleges and Universities Facilities Auth. (INS) 4.75 9/01/2026 4,620 8,000 Special Care Facilities Financing Auth. 5.00 2/01/2036 9,484 ---------- 82,478 ---------- ARIZONA (1.8%) 20,310 Apache County IDA 4.50 3/01/2030 22,761 6,000 Health Facilities Auth. 5.00 2/01/2027 6,919 3,270 Phoenix Civic Improvement Corp. (INS) 5.50 7/01/2024 4,118 2,115 Phoenix Civic Improvement Corp. (INS) 5.50 7/01/2025 2,703 8,315 Phoenix IDA(a) 3.75 7/01/2024 8,550 11,100 Phoenix IDA(a) 5.00 7/01/2034 12,508 1,675 Phoenix IDA 5.00 7/01/2036 1,905 4,250 Phoenix IDA 5.00 10/01/2036 5,004 2,680 Pima County IDA 4.50 6/01/2030 3,017 2,000 Pinal County IDA (INS) 5.25 10/01/2020 2,005 1,250 Pinal County IDA (INS) 5.25 10/01/2022 1,253 2,000 Pinal County IDA (INS) 4.50 10/01/2025 2,002 3,540 State (INS) 5.00 10/01/2019 3,953 7,275 State (INS) 5.25 10/01/2020 8,156 ---------- 84,854 ---------- ARKANSAS (0.1%) 4,290 Pulaski Technical College (INS) 5.00 9/01/2030 5,165 ---------- CALIFORNIA (8.1%) 4,500 Alameda Corridor Transportation Auth. 5.00 10/01/2035 5,424 3,000 Alameda Corridor Transportation Auth. 5.00 10/01/2036 3,601 500 Anaheim Public Financing Auth. 5.00 5/01/2028 617 500 Anaheim Public Financing Auth. 5.00 5/01/2029 613 1,000 Anaheim Public Financing Auth. 5.00 5/01/2030 1,222 1,510 Cerritos CCD 5.02(b) 8/01/2025 1,242 1,000 Cerritos CCD 5.24(b) 8/01/2027 771 1,000 Cerritos CCD 5.41(b) 8/01/2028 740 1,520 Chula Vista Financing Auth. 5.00 9/01/2027 1,869
================================================================================ 18 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND ================================================================================
------------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------------- $ 1,700 Chula Vista Financing Auth. 5.00% 9/01/2028 $ 2,072 1,785 Chula Vista Financing Auth. 5.00 9/01/2029 2,158 2,635 Chula Vista Financing Auth. 5.00 9/01/2030 3,187 2,095 Chula Vista Financing Auth. 5.00 9/01/2031 2,521 5,000 City and County of San Francisco Airport Commission 5.25 5/01/2022 5,557 7,000 City and County of San Francisco Airport Commission 5.25 5/01/2023 7,775 5,000 City and County of San Francisco Airport Commission 4.90 5/01/2029 5,584 1,250 Communities Dev. Auth. 5.00 5/15/2032 1,525 2,000 Communities Dev. Auth. 5.00 5/15/2033 2,431 1,250 Communities Dev. Auth. 5.00 5/15/2034 1,511 2,000 Communities Dev. Auth. 5.00 5/15/2035 2,404 2,000 Coronado Community Dev. Agency (INS) 5.00 9/01/2024 2,007 6,810 El Camino CCD 4.25(b) 8/01/2026 5,411 7,665 El Camino CCD 4.42(b) 8/01/2027 5,871 5,500 El Camino CCD 4.58(b) 8/01/2028 4,032 5,500 Foothill/Eastern Transportation Corridor Agency (INS) 4.25(b) 1/15/2035 2,971 46,605 Golden State Tobacco Securitization Corp. (INS) 4.17(b) 6/01/2025 39,708 2,000 Health Facilities Financing Auth. 5.00 8/15/2027 2,365 5,000 Health Facilities Financing Auth.(c) 5.25 8/15/2031 5,956 2,540 Health Facilities Financing Auth. 4.00 3/01/2033 2,866 2,700 Health Facilities Financing Auth. 4.00 3/01/2034 3,020 3,000 Health Facilities Financing Auth. 4.00 3/01/2035 3,340 1,000 Irvine City 5.00 9/02/2029 1,169 5,000 Irvine USD Special Tax District (INS) 5.25 9/01/2019 5,605 2,500 Irvine USD Special Tax District (INS) 4.50 9/01/2020 2,741 6,745 Kern County Board of Education (INS) 5.00 6/01/2026 6,764 1,300 Los Angeles County 5.00 3/01/2023 1,595 3,500 Pittsburg Redevelopment Agency (INS) 5.00 9/01/2027 4,457 2,640 Pittsburg Redevelopment Agency (INS) 5.00 9/01/2028 3,322 6,400 Public Works Board 5.50 4/01/2021 7,138 6,755 Public Works Board 5.60 4/01/2022 7,549 3,000 Public Works Board 5.13 3/01/2023 3,423 3,130 Public Works Board 5.75 4/01/2023 3,509 1,185 Public Works Board 5.00 11/01/2023 1,441 2,500 Public Works Board 5.25 3/01/2024 2,857 2,000 Public Works Board 5.00 11/01/2024 2,449 1,250 Public Works Board 5.00 3/01/2025 1,513 2,000 Public Works Board 5.38 3/01/2025 2,287 1,365 Public Works Board 5.00 3/01/2026 1,661 10,000 Public Works Board 5.00 4/01/2028 11,894 7,000 Public Works Board 5.00 11/01/2028 8,439 5,000 Public Works Board 5.00 4/01/2029 5,920 11,465 Public Works Board 5.00 10/01/2031 14,016
================================================================================ PORTFOLIO OF INVESTMENTS | 19 ================================================================================
------------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------------- $ 2,000 Salinas Union High School District (INS) 4.37%(b) 10/01/2016 $ 2,000 775 San Diego Public Facilities Financing Auth. 5.00 10/15/2030 959 1,000 San Diego Public Facilities Financing Auth. 5.00 10/15/2031 1,229 1,000 San Diego Public Facilities Financing Auth. 5.00 10/15/2032 1,224 1,635 San Diego Public Facilities Financing Auth. 5.00 10/15/2033 1,994 1,000 San Diego Public Facilities Financing Auth. 5.00 10/15/2034 1,215 1,250 San Diego Public Facilities Financing Auth. 5.00 10/15/2035 1,512 3,000 San Jose USD (INS) (PRE) 4.50 6/01/2024 3,019 500 School Finance Auth.(a) 5.00 8/01/2031 580 1,600 School Finance Auth.(a) 5.00 8/01/2036 1,845 4,035 South Orange County Public Financing Auth. (INS) 5.00 8/15/2022 4,048 4,920 South Orange County Public Financing Auth. (INS) 5.00 8/15/2025 4,936 20,000 State 5.25 10/01/2022 22,639 27,445 State 5.75 4/01/2027 30,743 10,240 State 5.00 8/01/2032 12,707 10,000 State Univ. 5.00 11/01/2029 12,477 10,000 State Univ. 5.00 11/01/2033 12,462 1,000 Statewide Communities Dev. Auth. 5.13 5/15/2031 1,154 6,930 Tobacco Securitization Auth. 4.75 6/01/2025 7,041 1,605 Tulare City (INS) 5.00 11/15/2032 1,958 1,570 Tulare City (INS) 5.00 11/15/2033 1,908 3,655 Tulare City (INS) 5.00 11/15/2034 4,433 2,340 Tulare City (INS) 5.00 11/15/2035 2,825 3,470 Tuolumne Wind Project Auth. (PRE) 5.00 1/01/2022 3,790 10,000 Upland City 6.00 1/01/2026 11,741 2,000 Washington Township Health Care District 5.75 7/01/2024 2,235 3,500 Washington Township Health Care District 5.00 7/01/2025 3,919 ---------- 386,713 ---------- COLORADO (2.6%) 5,000 Adams and Arapahoe Counties Joint School District No. 28J 3.20(b) 12/01/2022 4,524 30,955 Denver Health and Hospital Auth. 4.75 12/01/2027 31,138 255 Health Facilities Auth. 5.25 6/01/2023 256 2,750 Health Facilities Auth. 5.00 6/01/2028 3,196 1,000 Health Facilities Auth. 5.00 12/01/2028 1,173 1,500 Health Facilities Auth. 5.00 12/01/2029 1,751 2,310 Health Facilities Auth. 5.00 6/01/2031 2,665 2,000 Health Facilities Auth. 5.00 6/01/2032 2,286 2,470 Health Facilities Auth. 5.00 6/01/2033 2,819 6,385 Health Facilities Auth. 5.00 6/01/2034 7,272 3,385 Health Facilities Auth. 5.00 6/01/2035 3,847 4,000 Health Facilities Auth. 5.00 12/01/2035 4,582 1,250 Park Creek Metropolitan District 5.00 12/01/2032 1,478
================================================================================ 20 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND ================================================================================
------------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------------- $ 1,000 Park Creek Metropolitan District 5.00% 12/01/2034 $ 1,172 10,000 Regional Transportation District 5.00 6/01/2025 11,310 7,585 Regional Transportation District 5.00 6/01/2029 8,840 14,175 Regional Transportation District 5.00 6/01/2030 16,634 15,005 Regional Transportation District 5.00 6/01/2031 17,547 ---------- 122,490 ---------- CONNECTICUT (0.6%) 1,120 Hartford City (INS) 5.00 7/01/2028 1,316 2,400 Hartford City (INS) 5.00 7/01/2032 2,745 10,000 Health and Educational Facilities Auth. 5.00 7/01/2034 11,725 7,259 Mashantucket (Western) Pequot Tribe(d),(e) 6.05 7/01/2031 283 1,000 New Haven (INS) 5.00 8/15/2030 1,220 1,000 New Haven (INS) 5.00 8/15/2032 1,210 1,000 New Haven (INS) 5.00 8/15/2033 1,205 1,350 New Haven (INS) 5.00 8/15/2034 1,623 5,000 State 5.00 11/15/2035 5,991 ---------- 27,318 ---------- DISTRICT OF COLUMBIA (0.4%) 375 District of Columbia 5.00 7/01/2023 433 3,870 District of Columbia 5.63 10/01/2025 4,171 5,000 District of Columbia 5.75 10/01/2026 5,401 6,000 District of Columbia 5.75 10/01/2027 6,468 1,280 District of Columbia 6.00 7/01/2033 1,559 ---------- 18,032 ---------- FLORIDA (6.4%) 2,500 Broward County Airport System 5.00 10/01/2024 2,777 2,000 Broward County School Board 5.00 7/01/2029 2,439 2,000 Broward County School Board 5.00 7/01/2030 2,425 2,325 Halifax Hospital Medical Center 5.00 6/01/2035 2,743 2,750 Halifax Hospital Medical Center 5.00 6/01/2036 3,255 8,000 Hillsborough County IDA 5.65 5/15/2018 8,562 3,500 Jacksonville 5.00 10/01/2028 4,106 1,250 Lake County School Board (INS) 5.00 6/01/2029 1,497 2,225 Lake County School Board (INS) 5.00 6/01/2030 2,650 2,500 Lee County 5.00 10/01/2023 3,090 2,700 Lee County 5.00 10/01/2024 3,397 4,000 Lee County 5.00 10/01/2033 4,773 7,245 Lee County IDA 5.00 10/01/2028 7,794 3,750 Lee County School Board 5.00 8/01/2028 4,581 6,560 Miami Beach City Health Facilities Auth. 5.00 11/15/2029 7,559 7,500 Miami-Dade County 3.75 12/01/2018 7,920 8,375 Miami-Dade County (INS) (PRE) 4.75 11/01/2023 8,404
================================================================================ PORTFOLIO OF INVESTMENTS | 21 ================================================================================
------------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------------- $ 2,345 Miami-Dade County (INS) (PRE) 5.00% 10/01/2024 $ 2,442 9,830 Miami-Dade County (INS) (PRE) 4.75 11/01/2024 9,865 2,000 Miami-Dade County 5.00 10/01/2025 2,412 3,670 Miami-Dade County (INS) (PRE) 5.00 10/01/2025 3,821 6,440 Miami-Dade County 5.00 10/01/2026 7,378 2,500 Miami-Dade County (INS) (PRE) 5.00 10/01/2026 2,603 7,000 Miami-Dade County 5.00 10/01/2027 8,011 10,000 Miami-Dade County Expressway Auth. 5.00 7/01/2028 11,873 7,000 Miami-Dade County Expressway Auth. 5.00 7/01/2029 8,280 1,000 Miami-Dade County Expressway Auth. 5.00 7/01/2029 1,202 2,000 Miami-Dade County Expressway Auth. 5.00 7/01/2030 2,403 1,610 Miami-Dade County Expressway Auth. 5.00 7/01/2030 1,925 2,000 Miami-Dade County Expressway Auth. 5.00 7/01/2031 2,392 1,255 Miami-Dade County Expressway Auth. 5.00 7/01/2031 1,495 2,000 Miami-Dade County Expressway Auth. 5.00 7/01/2032 2,374 2,000 Miami-Dade County Expressway Auth. 5.00 7/01/2033 2,369 2,000 Miami-Dade County Expressway Auth. 5.00 7/01/2034 2,363 4,750 Miami-Dade County Health Facilities Auth. 5.00 8/01/2027 5,586 4,950 Miami-Dade County Health Facilities Auth. 5.00 8/01/2028 5,766 5,250 Miami-Dade County Health Facilities Auth. 5.00 8/01/2029 6,072 3,500 Miami-Dade County Health Facilities Auth. 5.00 8/01/2030 4,026 5,780 Miami-Dade County Health Facilities Auth. 5.00 8/01/2031 6,618 10,000 Miami-Dade County School Board (INS) (PRE) 5.00 2/01/2024 10,946 12,000 Miami-Dade County School Board (INS) (PRE) 5.25 5/01/2025 12,833 12,000 Orange County Health Facility Auth. 5.25 10/01/2022 13,473 5,000 Orange County Health Facility Auth. 5.38 10/01/2023 5,623 4,000 Orange County Health Facility Auth. 5.00 10/01/2035 4,851 3,055 Osceola County School Board 5.00 6/01/2028 3,625 7,595 Palm Beach County Health Facilities Auth. 5.00 11/15/2023 8,911 1,995 Pinellas County Educational Facilities Auth. 5.00 10/01/2021 2,305 1,080 Pinellas County Educational Facilities Auth. 4.00 10/01/2022 1,212 1,415 Pinellas County Educational Facilities Auth. 4.00 10/01/2023 1,579 2,045 Pinellas County Educational Facilities Auth.(c) 5.38 10/01/2026 2,365 1,895 Pinellas County Educational Facilities Auth. 5.00 10/01/2027 2,140 2,615 Pinellas County Educational Facilities Auth.(c) 6.50 10/01/2031 3,142 3,195 Port St. Lucie Special Assessment 4.00 7/01/2031 3,529 2,000 Port St. Lucie Special Assessment 4.00 7/01/2032 2,198 2,785 Port St. Lucie Special Assessment 4.00 7/01/2033 3,048 1,500 Port St. Lucie Utility System 4.00 9/01/2030 1,698 1,000 Port St. Lucie Utility System 4.00 9/01/2031 1,124 7,370 Saint Lucie County (INS) 5.00 10/01/2028 8,793 2,045 Saint Lucie County School Board 5.00 7/01/2025 2,472 1,500 Saint Lucie County School Board 5.00 7/01/2026 1,801
================================================================================ 22 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND ================================================================================
------------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------------- $ 3,195 Southeast Overtown/Park West Community Redevelopment Agency(a) 5.00% 3/01/2030 $ 3,618 8,970 Sunshine State Governmental Financing Commission 5.00 9/01/2019 9,980 5,525 Sunshine State Governmental Financing Commission 5.00 9/01/2020 6,336 1,055 Sunshine State Governmental Financing Commission (INS) 5.00 9/01/2021 1,242 1,000 Volusia County Educational Facilities Auth. 5.00 10/15/2028 1,199 1,000 Volusia County Educational Facilities Auth. 5.00 10/15/2029 1,194 1,500 Volusia County Educational Facilities Auth. 5.00 10/15/2030 1,784 1,560 Volusia County Educational Facilities Auth. 5.00 10/15/2032 1,844 ---------- 304,113 ---------- GEORGIA (0.4%) 10,000 Burke County Dev. Auth. 7.00 1/01/2023 10,702 3,600 Glynn-Brunswick Memorial Hospital Auth. (PRE) 5.25 8/01/2023 3,885 400 Glynn-Brunswick Memorial Hospital Auth. 5.25 8/01/2023 431 3,000 Private Colleges and Universities Auth. 5.25 10/01/2027 3,480 2,000 Private Colleges and Universities Auth. 5.25 10/01/2027 2,348 ---------- 20,846 ---------- GUAM (0.4%) 1,500 Guam 5.00 12/01/2030 1,809 2,000 Guam 5.00 12/01/2031 2,401 1,000 Power Auth. (INS) 5.00 10/01/2027 1,182 1,000 Power Auth. 5.00 10/01/2029 1,156 1,000 Power Auth. (INS) 5.00 10/01/2030 1,175 1,000 Power Auth. 5.00 10/01/2030 1,151 695 Power Auth. 5.00 10/01/2031 795 1,000 Power Auth. (INS) 5.00 10/01/2032 1,188 750 Waterworks Auth. 5.00 7/01/2023 887 600 Waterworks Auth. 5.00 7/01/2024 719 750 Waterworks Auth. 5.00 7/01/2025 893 1,000 Waterworks Auth. 5.00 7/01/2028 1,155 1,000 Waterworks Auth. 5.00 7/01/2029 1,162 3,000 Waterworks Auth. 5.25 7/01/2033 3,453 1,250 Waterworks Auth. 5.00 7/01/2036 1,455 ---------- 20,581 ---------- ILLINOIS (11.9%) 260 Bedford Park Village 4.60 12/01/2017 260 3,328 Chicago 6.63 12/01/2022 3,343 30,000 Chicago (INS) 4.45(b) 1/01/2023 24,156 1,000 Chicago 5.00 1/01/2031 1,139 2,000 Chicago 5.00 11/01/2031 2,319 1,000 Chicago 5.00 1/01/2032 1,134
================================================================================ PORTFOLIO OF INVESTMENTS | 23 ================================================================================
------------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------------- $ 2,000 Chicago 5.00% 11/01/2033 $ 2,299 6,525 Chicago Midway Airport 5.00 1/01/2027 7,624 11,750 Chicago Midway Airport 5.00 1/01/2029 13,849 5,175 Chicago Midway Airport 5.00 1/01/2030 6,062 8,910 Chicago Midway Airport 5.00 1/01/2031 10,385 6,000 Chicago Midway Airport 5.00 1/01/2032 6,968 1,635 Chicago Midway Airport 5.25 1/01/2033 1,900 3,500 Chicago Midway Airport 4.00 1/01/2034 3,831 3,000 Chicago Midway Airport 4.00 1/01/2035 3,271 3,500 Chicago Wastewater Transmission 5.00 1/01/2033 4,019 1,000 Chicago Wastewater Transmission 5.00 1/01/2034 1,145 1,250 Chicago Wastewater Transmission 5.00 1/01/2035 1,428 1,500 Chicago Water 5.00 11/01/2028 1,802 725 Chicago Water 5.00 11/01/2029 868 1,000 Chicago Water 5.00 11/01/2029 1,201 1,000 Chicago Water 5.00 11/01/2030 1,191 1,000 Chicago Water 5.00 11/01/2031 1,182 9,000 Chicago-O'Hare International Airport 5.25 1/01/2024 10,025 3,620 Chicago-O'Hare International Airport (INS) 5.00 1/01/2028 4,293 1,500 Chicago-O'Hare International Airport (INS) 5.00 1/01/2029 1,776 13,480 Chicago-O'Hare International Airport 5.25 1/01/2029 16,104 2,150 Chicago-O'Hare International Airport (INS) 5.13 1/01/2030 2,545 11,560 Chicago-O'Hare International Airport 5.00 1/01/2033 13,788 5,675 Chicago-O'Hare International Airport 5.00 1/01/2034 6,750 2,500 Cook County 5.00 11/15/2031 2,977 4,500 Educational Facilities Auth. 4.45 11/01/2036 4,846 2,370 Finance Auth. (ETM) 5.50 5/01/2017 2,435 4,340 Finance Auth. (ETM) 5.75 5/01/2018 4,672 2,080 Finance Auth. 5.00 2/15/2020 2,313 1,710 Finance Auth. 5.00 2/15/2022 1,920 750 Finance Auth. 5.25 4/01/2022 759 2,000 Finance Auth. 5.00 4/01/2023 2,002 3,400 Finance Auth. (INS) (PRE) 5.00 11/01/2023 3,690 7,140 Finance Auth. 5.13 2/15/2025 8,005 4,165 Finance Auth. 5.00 4/01/2025 4,168 8,210 Finance Auth. 4.50 5/15/2025 9,226 7,665 Finance Auth. 5.38 8/15/2026 8,985 8,000 Finance Auth. 4.50 11/15/2026 8,038 1,750 Finance Auth. 5.40 4/01/2027 1,768 8,250 Finance Auth. 5.50 7/01/2028 9,849 20,000 Finance Auth. 3.90 3/01/2030 21,750 1,000 Finance Auth. 5.00 5/15/2030 1,198 1,875 Finance Auth. 5.00 5/15/2031 2,143
================================================================================ 24 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND ================================================================================
------------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------------- $ 1,000 Finance Auth. 4.00% 10/01/2031 $ 1,110 1,000 Finance Auth. 4.00 10/01/2032 1,104 3,385 Finance Auth. 5.00 9/01/2034 3,840 1,000 Finance Auth. 4.00 10/01/2034 1,092 3,700 Finance Auth. 5.00 11/15/2034 4,369 3,500 Finance Auth. 5.00 12/01/2034 4,098 1,100 Finance Auth. 5.00 5/15/2035 1,293 4,000 Finance Auth. 5.00 8/15/2035 4,624 3,000 Finance Auth. 5.00 11/15/2035 3,535 5,000 Finance Auth. 4.00 12/01/2035 5,345 18,000 Finance Auth. 4.00 2/15/2036 18,068 1,400 Finance Auth. 5.00 5/15/2036 1,566 3,000 Finance Auth. 4.00 12/01/2036 3,202 1,835 Herrin Community USD (INS) 5.00 12/01/2028 2,121 1,925 Herrin Community USD (INS) 5.00 12/01/2029 2,214 2,025 Herrin Community USD (INS) 5.00 12/01/2030 2,320 6,000 Herrin Community USD (INS) 5.00 12/01/2034 6,766 315 Housing Dev. Auth. 4.55 7/01/2021 316 365 Housing Dev. Auth. 4.60 7/01/2023 366 2,800 Kane, Cook and Dupage Counties 5.00 1/01/2032 3,223 4,000 Kane, Cook and Dupage Counties 5.00 1/01/2033 4,591 5,000 Kendall Kane and Will Counties Community Unit School District 5.00 2/01/2035 5,867 6,000 Kendall Kane and Will Counties Community Unit School District 5.00 2/01/2036 7,013 3,495 Lake County Community Unit School District (INS) (ETM) 5.13(b) 12/01/2016 3,490 4,555 Lake County Community Unit School District (INS) 5.13(b) 12/01/2016 4,545 2,500 Metropolitan Pier and Exposition Auth. (INS) 5.20 6/15/2017 2,563 1,290 Metropolitan Pier and Exposition Auth. (INS) (PRE) 5.30 6/15/2018 1,344 1,210 Metropolitan Pier and Exposition Auth. (INS) 5.30 6/15/2018 1,259 1,065 Metropolitan Pier and Exposition Auth. (INS) (PRE) 5.40 6/15/2019 1,110 2,935 Metropolitan Pier and Exposition Auth. (INS) 5.40 6/15/2019 3,054 5,000 Metropolitan Pier and Exposition Auth. (INS) 5.70(b) 6/15/2026 3,653 14,650 Municipal Electric Agency 4.00 2/01/2033 15,933 1,800 Northern Illinois Municipal Power Agency 4.00 12/01/2031 1,995 2,100 Northern Illinois Municipal Power Agency 4.00 12/01/2032 2,322 4,000 Northern Illinois Municipal Power Agency 4.00 12/01/2033 4,404 5,000 Northern Illinois Municipal Power Agency 4.00 12/01/2035 5,444 4,715 Northern Illinois Municipal Power Agency 4.00 12/01/2036 5,113 7,095 Railsplitter Tobacco Settlement Auth. 5.00 6/01/2018 7,533 10,000 Railsplitter Tobacco Settlement Auth. 5.50 6/01/2023 11,713 3,000 Sports Facilities Auth. (INS) 5.25 6/15/2030 3,484
================================================================================ PORTFOLIO OF INVESTMENTS | 25 ================================================================================
------------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------------- $ 5,000 Sports Facilities Auth. (INS) 5.25% 6/15/2031 $ 5,791 5,000 Sports Facilities Auth. (INS) 5.25 6/15/2032 5,750 8,500 Springfield 5.00 12/01/2030 10,279 3,000 Springfield (INS) 5.00 3/01/2034 3,534 3,700 Springfield School District No. 186 (INS) 5.00 2/01/2024 4,433 7,200 Springfield School District No. 186 (INS) 5.00 2/01/2025 8,555 4,215 Springfield School District No. 186 (INS) 5.00 2/01/2026 4,977 5,000 State (INS) 5.00 1/01/2021 5,468 10,000 State (INS) 5.00 4/01/2029 11,210 12,475 State Univ. 4.00 4/01/2033 13,478 5,000 Toll Highway Auth. 5.00 12/01/2032 6,082 6,000 Toll Highway Auth. 5.00 1/01/2033 7,314 5,870 Toll Highway Auth. 5.00 1/01/2034 7,032 2,500 Toll Highway Auth. 5.00 1/01/2034 3,043 5,600 Toll Highway Auth. 5.00 1/01/2035 6,680 2,000 Toll Highway Auth. 5.00 1/01/2035 2,421 7,000 Toll Highway Auth. 5.00 1/01/2036 8,319 2,500 Toll Highway Auth. 5.00 1/01/2036 3,011 5,225 Village of Gilberts (INS) 5.00 3/01/2030 5,972 3,000 Village of Volo (INS) 5.00 3/01/2034 3,538 1,250 Village of Volo (INS) 4.00 3/01/2036 1,307 14,070 Will County Forest Preserve District (INS) 5.40(b) 12/01/2017 13,870 ---------- 566,467 ---------- INDIANA (1.1%) 1,470 Finance Auth. 5.00 5/01/2024 1,771 20,000 Finance Auth. (INS) 4.55 12/01/2024 20,125 1,200 Finance Auth. 5.00 5/01/2027 1,410 1,900 Finance Auth. 5.00 10/01/2027 1,970 10,500 Finance Auth. 5.00 6/01/2032 11,351 3,000 Jasper County (INS) 5.85 4/01/2019 3,297 6,500 Richmond Hospital Auth. 5.00 1/01/2035 7,565 6,000 Rockport (INS) 4.63 6/01/2025 6,121 ---------- 53,610 ---------- IOWA (1.2%) 1,325 Finance Auth. (INS) 5.00 12/01/2021 1,335 1,390 Finance Auth. (INS) 5.00 12/01/2022 1,400 1,460 Finance Auth. (INS) 5.00 12/01/2023 1,470 1,535 Finance Auth. (INS) 5.00 12/01/2024 1,546 1,610 Finance Auth. (INS) 5.00 12/01/2025 1,621 1,690 Finance Auth. (INS) 5.00 12/01/2026 1,701 5,425 Finance Auth. 4.00 8/15/2035 5,861 30,555 Finance Auth. 4.00 8/15/2036 32,906
================================================================================ 26 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND ================================================================================
------------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------------- $ 2,475 Waterloo Community School District 5.00% 7/01/2024 $ 2,725 2,775 Waterloo Community School District 5.00 7/01/2025 3,054 4,510 Waterloo Community School District 5.00 7/01/2027 4,956 ---------- 58,575 ---------- KANSAS (0.0%) 35 Wyandotte County 6.07(b) 6/01/2021 27 ---------- KENTUCKY (0.9%) 2,410 Ashland Medical Center 4.00 2/01/2036 2,499 2,000 Commonwealth Property and Buildings Commission 5.00 2/01/2032 2,399 2,250 Commonwealth Property and Buildings Commission 5.00 2/01/2033 2,689 6,130 Economic Dev. Finance Auth. 4.05(b) 10/01/2024 4,997 7,500 Economic Dev. Finance Auth. (INS) 5.75 12/01/2028 7,929 3,830 Louisville/Jefferson County Metro Government 5.00 12/01/2022 4,479 2,760 Louisville/Jefferson County Metro Government 5.00 12/01/2023 3,210 7,160 Louisville/Jefferson County Metro Government 5.00 12/01/2024 8,286 3,725 Pikeville City Hospital Improvement 5.75 3/01/2026 4,264 ---------- 40,752 ---------- LOUISIANA (2.6%) 2,750 Jefferson Parish Hospital District No. 1 (INS) (PRE)(c) 5.50 1/01/2026 3,251 3,000 Jefferson Parish Hospital District No. 1 (INS) (PRE)(c) 5.38 1/01/2031 3,531 3,750 Local Government Environmental Facilities and Community Dev. Auth. 6.50 8/01/2029 4,416 700 New Orleans 5.00 6/01/2031 832 1,150 New Orleans 5.00 6/01/2032 1,362 1,500 New Orleans 5.00 12/01/2033 1,772 1,500 New Orleans 5.00 6/01/2034 1,764 1,500 New Orleans 5.00 12/01/2035 1,760 14,000 Public Facilities Auth. 3.50 6/01/2030 14,609 8,995 Public Facilities Auth. 5.00 7/01/2033 10,686 2,250 Public Facilities Auth. 5.00 5/15/2034 2,693 13,550 Public Facilities Auth. 5.00 7/01/2034 16,005 3,500 Public Facilities Auth. 4.00 5/15/2035 3,786 1,500 Public Facilities Auth. 4.00 5/15/2036 1,620 2,000 Public Facilities Auth. (INS) 5.00 6/01/2036 2,318 5,330 Shreveport (INS) 5.00 12/01/2031 6,427 5,125 Shreveport (INS) 5.00 12/01/2032 6,158 1,515 Shreveport (INS) 5.00 12/01/2033 1,821 1,500 Shreveport (INS) 5.00 12/01/2034 1,797 1,510 Shreveport (INS) 5.00 12/01/2035 1,801 6,000 State 5.00 8/01/2028 7,514 2,440 Terrebonne Parish Hospital Service District No. 1 5.00 4/01/2022 2,742 2,570 Terrebonne Parish Hospital Service District No. 1 5.00 4/01/2023 2,885
================================================================================ PORTFOLIO OF INVESTMENTS | 27 ================================================================================
------------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------------- $ 2,000 Terrebonne Parish Hospital Service District No. 1 4.65% 4/01/2024 $ 2,197 4,250 Terrebonne Parish Hospital Service District No. 1 5.00 4/01/2028 4,705 5,000 Tobacco Settlement Financing Corp. 5.00 5/15/2023 5,964 10,000 Tobacco Settlement Financing Corp. 5.25 5/15/2031 11,309 ---------- 125,725 ---------- MAINE (0.4%) 1,635 Health and Higher Educational Facilities Auth. 5.00 7/01/2024 1,924 1,000 Health and Higher Educational Facilities Auth. 5.00 7/01/2026 1,161 11,500 Health and Higher Educational Facilities Auth. 6.00 7/01/2026 12,965 1,000 Health and Higher Educational Facilities Auth. 5.00 7/01/2027 1,157 ---------- 17,207 ---------- MARYLAND (0.4%) 2,500 EDC 6.20 9/01/2022 2,803 5,000 Health and Higher Educational Facilities Auth. (PRE) 6.00 1/01/2028 5,324 1,000 Health and Higher Educational Facilities Auth. 5.00 7/01/2033 1,208 1,000 Health and Higher Educational Facilities Auth. 5.00 7/01/2033 1,177 1,000 Health and Higher Educational Facilities Auth. 5.00 7/01/2034 1,205 2,200 Health and Higher Educational Facilities Auth. 5.00 7/01/2034 2,584 1,310 Health and Higher Educational Facilities Auth. 5.00 7/01/2035 1,567 1,000 Health and Higher Educational Facilities Auth. 5.00 7/01/2036 1,195 ---------- 17,063 ---------- MASSACHUSETTS (1.1%) 5,545 Bay Transportation Auth. (PRE) 4.60(b) 7/01/2022 4,383 5,000 Bay Transportation Auth. (PRE) 4.70(b) 7/01/2024 3,584 1,600 Bay Transportation Auth. (PRE) 4.73(b) 7/01/2025 1,092 640 Dev. Finance Agency 5.00 7/01/2020 707 1,480 Dev. Finance Agency 5.00 7/01/2022 1,694 4,500 Dev. Finance Agency 6.25 1/01/2027 5,325 1,720 Dev. Finance Agency 5.00 7/01/2027 1,915 2,000 Dev. Finance Agency 5.00 7/01/2030 2,180 2,000 Dev. Finance Agency 5.00 7/01/2030 2,414 1,675 Dev. Finance Agency 5.00 7/01/2031 2,009 2,155 Dev. Finance Agency 5.00 4/15/2033 2,470 1,500 Dev. Finance Agency 5.00 7/01/2035 1,762 2,000 Dev. Finance Agency 5.00 7/01/2036 2,359 1,000 Dev. Finance Agency 5.00 7/01/2036 1,169 3,110 Health and Educational Facilities Auth. 5.00 7/01/2019 3,411 9,000 Health and Educational Facilities Auth. 6.00 7/01/2024 10,104 4,000 Health and Educational Facilities Auth. 5.00 7/15/2027 4,109 110 Water Pollution Abatement Trust 4.75 8/01/2025 110 ---------- 50,797 ----------
================================================================================ 28 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND ================================================================================
------------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------------- MICHIGAN (2.3%) $ 3,000 Building Auth. 5.00% 10/15/2029 $ 3,617 2,000 Finance Auth. (NBGA) 5.00 5/01/2024 2,415 1,700 Finance Auth. (NBGA) 5.00 5/01/2025 2,078 8,200 Finance Auth. 5.00 12/01/2034 9,935 6,000 Finance Auth. 4.00 11/15/2035 6,388 4,600 Finance Auth. 5.00 12/01/2035 5,552 9,000 Finance Auth. 4.00 11/15/2036 9,574 10,000 Grand Traverse County Hospital Finance Auth. 5.00 7/01/2029 11,346 2,675 Hospital Finance Auth. 5.00 11/15/2019 2,690 3,400 Hospital Finance Auth. 5.00 11/15/2022 3,418 12,000 Kent Hospital Finance Auth. 5.00 11/15/2029 13,774 2,775 Livonia Public Schools School District (INS) 5.00 5/01/2032 3,342 2,875 Livonia Public Schools School District (INS) 5.00 5/01/2033 3,449 2,965 Livonia Public Schools School District (INS) 5.00 5/01/2034 3,543 3,065 Livonia Public Schools School District (INS) 5.00 5/01/2035 3,651 2,770 Livonia Public Schools School District (INS) 5.00 5/01/2036 3,287 10,050 State Building Auth. (INS) (PRE) 4.81(b) 10/15/2022 7,554 7,950 State Building Auth. (INS) 4.81(b) 10/15/2022 5,975 3,000 State Trunk Line Fund 5.00 11/01/2019 3,370 2,000 State Trunk Line Fund 5.00 11/01/2020 2,248 ---------- 107,206 ---------- MINNESOTA (0.3%) 1,080 Chippewa County 5.38 3/01/2022 1,094 5,120 Chippewa County 5.50 3/01/2027 5,182 1,650 Higher Education Facilities Auth. (PRE) 4.50 10/01/2027 1,650 850 Higher Education Facilities Auth. 4.50 10/01/2027 850 3,500 St. Paul Housing and Redevelopment Auth. (PRE) 5.25 5/15/2026 3,520 1,750 St. Paul Housing and Redevelopment Auth. 5.00 11/15/2029 2,105 1,275 St. Paul Housing and Redevelopment Auth. 5.00 11/15/2030 1,532 ---------- 15,933 ---------- MISSISSIPPI (0.3%) 2,000 Dev. Bank 5.00 4/01/2028 2,367 7,000 Dev. Bank (INS) 5.00 9/01/2030 8,209 1,650 Hospital Equipment and Facilities Auth. 5.00 12/01/2016 1,658 1,000 Hospital Equipment and Facilities Auth. 5.25 12/01/2021 1,006 ---------- 13,240 ---------- MISSOURI (1.1%) 1,780 Cape Girardeau County Health Care Facilities IDA 5.00 6/01/2025 2,085 17,545 Cape Girardeau County Health Care Facilities IDA 5.00 6/01/2027 17,580 2,555 Cape Girardeau County Health Care Facilities IDA 5.00 6/01/2027 2,966 2,740 Cape Girardeau County Health Care Facilities IDA 6.00 3/01/2033 3,001
================================================================================ PORTFOLIO OF INVESTMENTS | 29 ================================================================================
------------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------------- $ 1,000 Cass County 5.00% 5/01/2022 $ 1,003 3,315 Cass County 5.38 5/01/2022 3,325 2,000 Cass County 5.50 5/01/2027 2,006 1,000 Dev. Finance Board 5.00 6/01/2030 1,150 4,215 Dev. Finance Board 5.00 6/01/2031 4,825 2,310 Health and Educational Facilities Auth. 5.00 5/01/2030 2,594 2,350 Health and Educational Facilities Auth. 5.25 5/01/2033 2,656 1,760 Riverside IDA (INS) 5.00 5/01/2020 1,832 1,380 Saint Louis County IDA 5.00 9/01/2023 1,604 2,750 Saint Louis County IDA 5.50 9/01/2033 3,215 1,330 St. Joseph IDA (PRE) 5.00 4/01/2027 1,359 2,110 Stoddard County IDA 6.00 3/01/2037 2,287 ---------- 53,488 ---------- MONTANA (0.2%) 8,500 Forsyth 3.90 3/01/2031 9,119 ---------- NEBRASKA (0.1%) 1,250 Douglas County Hospital Auth. 5.00 11/01/2028 1,501 1,600 Douglas County Hospital Auth. 5.00 11/01/2030 1,902 2,400 Public Power Generation Agency 5.00 1/01/2037 2,880 ---------- 6,283 ---------- NEVADA (1.7%) 2,865 Clark County 5.00 5/15/2020 2,875 3,660 Clark County 5.00 7/01/2026 4,640 2,220 Clark County 5.00 7/01/2027 2,833 20,470 Clark County 5.00 7/01/2032 24,534 10,845 Clark County 5.00 7/01/2033 12,955 18,000 Humboldt County 5.15 12/01/2024 19,776 2,000 Las Vegas Convention and Visitors Auth. 4.00 7/01/2033 2,186 4,560 Las Vegas Convention and Visitors Auth. 4.00 7/01/2034 4,963 5,075 Las Vegas Convention and Visitors Auth. 4.00 7/01/2035 5,501 ---------- 80,263 ---------- NEW JERSEY (4.1%) 1,135 Bayonne City (INS) 5.00 7/01/2034 1,352 1,000 Bayonne City (INS) 5.00 7/01/2035 1,187 1,000 Casino Reinvestment Dev. Auth. (INS) 5.00 11/01/2029 1,133 1,000 Casino Reinvestment Dev. Auth. (INS) 5.00 11/01/2030 1,130 7,300 EDA (ETM) 5.25 9/01/2019 8,199 2,700 EDA 5.25 9/01/2019 2,964 5,000 EDA (INS) 5.00 7/01/2022 5,049 7,300 EDA (PRE) 5.25 9/01/2022 8,608 2,700 EDA 5.25 9/01/2022 3,037
================================================================================ 30 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND ================================================================================
------------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------------- $ 3,500 EDA 4.45% 6/01/2023 $ 3,832 18,410 EDA 5.00 3/01/2025 20,931 10,000 EDA (INS) 5.00 6/15/2025 11,959 5,125 EDA 5.00 6/15/2025 5,961 2,500 EDA 5.00 6/15/2026 2,789 9,000 EDA 5.25 6/15/2033 10,282 500 Educational Facilities Auth. 4.00 7/01/2032 555 500 Educational Facilities Auth. 4.00 7/01/2033 553 750 Educational Facilities Auth. 4.00 7/01/2034 827 1,250 Educational Facilities Auth. 4.00 7/01/2035 1,373 1,800 Educational Facilities Auth. (INS) 4.00 7/01/2036 1,932 4,535 Essex County Improvement Auth. (INS) 6.00 11/01/2025 5,269 2,000 Health Care Facilities Financing Auth. (INS) 5.00 7/01/2027 2,443 1,500 Health Care Facilities Financing Auth. (INS) 5.00 7/01/2030 1,799 1,455 New Brunswick Parking Auth. (INS) 5.00 9/01/2035 1,770 2,000 New Brunswick Parking Auth. (INS) 5.00 9/01/2036 2,421 500 Newark Housing Auth. (INS) 4.00 12/01/2029 548 750 Newark Housing Auth. (INS) 4.00 12/01/2030 818 500 Newark Housing Auth. (INS) 4.00 12/01/2031 543 500 South Jersey Transportation Auth. 5.00 11/01/2030 584 750 South Jersey Transportation Auth. 5.00 11/01/2031 872 1,085 South Jersey Transportation Auth. 5.00 11/01/2034 1,249 1,000 State Building Auth. 4.00 6/15/2030 1,041 20,000 State Turnpike Auth. 5.00 1/01/2021 21,745 7,675 State Turnpike Auth. 5.00 1/01/2034 9,314 10,000 State Turnpike Auth. 5.00 1/01/2034 12,080 4,725 State Turnpike Auth. 5.00 1/01/2035 5,713 5,000 Tobacco Settlement Financing Corp. 5.00 6/01/2017 5,149 5,000 Transportation Trust Fund Auth. (INS) 5.25 12/15/2022 5,837 20,000 Transportation Trust Fund Auth. 4.47(b) 12/15/2025 14,256 2,000 Transportation Trust Fund Auth. 5.25 6/15/2033 2,280 3,000 Transportation Trust Fund Auth. 5.25 6/15/2034 3,413 ---------- 192,797 ---------- NEW MEXICO (0.5%) 20,000 Farmington Pollution Control 4.70 5/01/2024 22,241 ---------- NEW YORK (7.4%) 2,500 Albany IDA (PRE) 5.75 11/15/2022 2,639 3,700 Chautauqua Tobacco Asset Securitization Corp. 5.00 6/01/2034 4,015 4,760 Dormitory Auth. 5.30 2/15/2017 4,779 12,560 Dormitory Auth. (ETM) 5.30 2/15/2019 13,243 24,935 Dormitory Auth. (PRE) 5.00 7/01/2022 25,732 15 Dormitory Auth. (ETM) 5.00 5/01/2023 18
================================================================================ PORTFOLIO OF INVESTMENTS | 31 ================================================================================
------------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------------- $ 735 Dormitory Auth. 5.00% 5/01/2023 $ 861 15 Dormitory Auth. (PRE) 5.00 5/01/2024 18 735 Dormitory Auth. 5.00 5/01/2024 854 25 Dormitory Auth. (PRE) 5.00 5/01/2025 31 1,175 Dormitory Auth. 5.00 5/01/2025 1,355 20 Dormitory Auth. (PRE) 5.00 5/01/2026 25 980 Dormitory Auth. 5.00 5/01/2026 1,122 1,000 Dormitory Auth. (INS) 5.00 10/01/2027 1,245 1,000 Dormitory Auth. (INS) 5.00 10/01/2028 1,237 1,300 Dormitory Auth. (INS) 5.00 10/01/2029 1,600 20,000 Dormitory Auth. 5.00 2/15/2032 24,450 2,000 Erie County IDA 5.00 5/01/2028 2,424 17,075 Long Island Power Auth. 5.00 4/01/2023 18,404 5,000 Monroe County IDC (NBGA) 5.75 8/15/2030 5,909 2,000 MTA 6.25 11/15/2023 2,226 8,000 MTA (PRE) 6.25 11/15/2023 8,916 2,500 MTA (INS) (PRE) 5.00 11/15/2024 2,617 6,800 MTA (PRE) 5.00 11/15/2024 7,118 16,565 MTA 5.00 11/15/2024 16,656 2,000 MTA 5.00 11/15/2034 2,429 10,000 MTA 5.00 11/15/2034 12,146 3,000 MTA 5.00 11/15/2035 3,628 2,000 MTA 5.00 11/15/2035 2,418 29,550 MTA 4.00 11/15/2036 32,850 1,100 Nassau County 5.00 1/01/2035 1,319 1,150 Nassau County 5.00 1/01/2036 1,374 5,000 New York City 5.13 11/15/2022 5,453 2,625 New York City (PRE) 5.13 12/01/2022 2,757 1,705 New York City 5.13 12/01/2022 1,791 3,610 New York City (PRE) 5.13 12/01/2023 3,792 2,390 New York City 5.13 12/01/2023 2,510 815 New York City (PRE) 5.00 8/01/2024 844 4,425 New York City 5.00 8/01/2024 4,580 5,000 New York City 5.25 11/15/2024 5,461 2,995 New York City (PRE) 5.00 2/01/2025 3,162 2,005 New York City 5.00 2/01/2025 2,115 10,000 New York City 4.00 8/01/2032 11,375 3,500 New York City Transitional Finance Auth. 5.00 1/15/2022 3,831 5 New York City Transitional Finance Auth. (PRE) 5.00 5/01/2026 6 24,995 New York City Transitional Finance Auth. 5.00 5/01/2026 27,618 15,350 New York City Transitional Finance Auth. 5.00 7/15/2034 18,513 12,485 New York City Transitional Finance Auth. 5.00 7/15/2035 15,016 13,420 New York City Transitional Finance Auth. 4.00 2/01/2036 14,956
================================================================================ 32 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND ================================================================================
------------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------------- $ 575 Newburgh City 5.00% 6/15/2023 $ 658 2,250 Niagara Area Dev. Corp. 4.00 11/01/2024 2,280 1,670 Niagara Falls City School District (INS) 5.00 6/15/2023 2,036 1,450 Niagara Falls City School District (INS) 5.00 6/15/2024 1,795 1,670 Niagara Falls City School District (INS) 5.00 6/15/2025 2,050 1,585 Rockland County 3.50 10/01/2021 1,657 1,190 Rockland County 3.63 10/01/2022 1,245 1,560 Rockland County 3.63 10/01/2023 1,633 1,665 Rockland County 3.63 10/01/2024 1,743 790 Saratoga County Capital Resource Corp. 5.00 12/01/2028 942 220 Suffolk County EDC (PRE) 5.00 7/01/2028 260 1,280 Suffolk County EDC 5.00 7/01/2028 1,449 1,350 Westchester County Local Dev. Corp. 5.00 1/01/2028 1,559 2,600 Yonkers (INS)(c) 5.00 10/01/2023 3,045 ---------- 349,790 ---------- NORTH CAROLINA (0.7%) 3,000 Eastern Municipal Power Agency (PRE) 5.00 1/01/2024 3,151 5,000 Eastern Municipal Power Agency (PRE) 5.00 1/01/2026 5,450 1,500 Medical Care Commission 5.00 10/01/2025 1,748 4,805 Medical Care Commission 6.38 7/01/2026 5,721 5,500 Medical Care Commission 5.00 7/01/2027 5,702 1,850 Medical Care Commission 5.00 10/01/2030 2,082 2,000 Municipal Power Agency No. 1 (PRE) 5.25 1/01/2020 2,109 3,600 Turnpike Auth. (INS) 5.00 1/01/2022 3,878 3,330 Turnpike Auth. (INS) 5.13 1/01/2024 3,604 ---------- 33,445 ---------- NORTH DAKOTA (0.3%) 11,085 Grand Forks City Health Care System 5.00 12/01/2029 12,512 ---------- OHIO (1.8%) 9,000 Air Quality Dev. Auth. 5.70 8/01/2020 8,667 3,000 American Municipal Power, Inc. (PRE) 5.00 2/15/2021 3,400 2,760 American Municipal Power, Inc. (PRE) 5.00 2/15/2022 3,128 7,165 Buckeye Tobacco Settlement Financing Auth. 5.13 6/01/2024 7,013 2,000 Cleveland Airport System 5.00 1/01/2030 2,286 1,000 Cleveland Airport System 5.00 1/01/2031 1,140 2,805 Dayton City School District 5.00 11/01/2028 3,649 3,655 Dayton City School District 5.00 11/01/2029 4,807 3,160 Dayton City School District 5.00 11/01/2030 4,173 2,000 Dayton City School District 5.00 11/01/2031 2,658 555 Fairview Park City (INS) 4.13 12/01/2020 557 4,365 Hamilton County (INS) 4.30(b) 12/01/2025 3,533 1,350 Hamilton County Healthcare(f) 5.00 1/01/2031 1,565
================================================================================ PORTFOLIO OF INVESTMENTS | 33 ================================================================================
------------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------------- $ 1,400 Hamilton County Healthcare(f) 5.00% 1/01/2036 $ 1,595 9,000 Hancock County Hospital Facilities 6.50 12/01/2030 10,830 750 Southeastern Ohio Port Auth. 5.50 12/01/2029 846 750 Southeastern Ohio Port Auth. 5.00 12/01/2035 810 1,000 State 5.00 5/01/2031 1,184 500 State 5.00 5/01/2033 588 7,210 State Hospital System 5.00 1/15/2034 8,640 6,000 State Hospital System 5.00 1/15/2035 7,168 3,070 State Hospital System 5.00 1/15/2036 3,656 2,000 Turnpike and Infrastructure Commission 5.25 2/15/2029 2,430 ---------- 84,323 ---------- OKLAHOMA (0.6%) 5,360 Cherokee Nation (INS)(a) 4.60 12/01/2021 5,386 2,705 Chickasaw Nation(a) 5.38 12/01/2017 2,760 5,000 Chickasaw Nation(a) 6.00 12/01/2025 5,479 2,020 Comanche County Hospital Auth. 5.00 7/01/2021 2,219 1,400 Norman Regional Hospital Auth. 5.50 9/01/2024 1,406 13,100 Norman Regional Hospital Auth. 5.00 9/01/2027 13,378 ---------- 30,628 ---------- OREGON (0.1%) 1,000 Washington, Yamhill and Multnomah Counties Hillsboro School District No. 1J (INS) (PRE) 4.58(b) 6/15/2025 691 5,900 Washington, Yamhill and Multnomah Counties Hillsboro School District No. 1J (INS) (PRE) 4.59(b) 6/15/2026 3,895 ---------- 4,586 ---------- PENNSYLVANIA (5.0%) 1,410 Allegheny County Higher Education Building Auth. (PRE) 5.13 3/01/2025 1,657 1,000 Allegheny County IDA 5.00 9/01/2021 1,002 1,220 Allegheny County IDA 5.10 9/01/2026 1,222 1,500 Allegheny County Sanitary Auth. (INS) 4.00 12/01/2033 1,677 1,475 Allegheny County Sanitary Auth. (INS) 4.00 12/01/2034 1,640 5,000 Beaver County IDA 2.15 3/01/2017 4,993 3,000 Bethlehem Auth. (INS) 5.00 11/15/2030 3,535 1,885 Butler County Hospital Auth. 5.00 7/01/2035 2,182 1,000 Chester County IDA 5.00 10/01/2034 1,105 6,000 Commonwealth 4.00 9/15/2031 6,710 5,000 Commonwealth 4.00 9/15/2032 5,550 5,000 Commonwealth 4.00 9/15/2034 5,532 5,000 Commonwealth Financing Auth. 5.00 6/01/2034 5,816 6,500 Cumberland County Municipal Auth. 4.00 12/01/2026 6,921 2,000 Dauphin County General Auth. 4.00 6/01/2030 2,214
================================================================================ 34 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND ================================================================================
------------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------------- $ 1,000 Dauphin County General Auth. 4.00% 6/01/2031 $ 1,101 1,000 Delaware County Auth. 5.00 10/01/2025 1,094 2,720 Delaware River Port Auth. 5.00 1/01/2025 3,127 13,000 Economic Dev. Financing Auth. 4.00 10/01/2023 14,355 1,730 Higher Educational Facilities Auth. 5.25 7/15/2025 2,059 2,020 Higher Educational Facilities Auth. 5.25 7/15/2026 2,388 2,125 Higher Educational Facilities Auth. 5.25 7/15/2027 2,496 2,245 Higher Educational Facilities Auth. 5.25 7/15/2028 2,623 2,415 Higher Educational Facilities Auth. 5.00 7/15/2030 2,754 1,625 Higher Educational Facilities Auth. 5.00 7/01/2032 1,847 1,965 Higher Educational Facilities Auth. 5.25 7/15/2033 2,266 1,615 Lancaster County Hospital Auth. (PRE) 5.00 11/01/2026 1,621 5,000 Luzerne County (INS) 5.00 11/15/2029 5,835 1,200 Montgomery County IDA 5.00 11/15/2023 1,408 2,750 Montgomery County IDA 5.00 11/15/2024 3,210 1,000 Montour School District (INS) 5.00 4/01/2033 1,196 1,500 Montour School District (INS) 5.00 4/01/2034 1,786 1,500 Montour School District (INS) 5.00 4/01/2035 1,781 1,525 Northeastern Hospital and Education Auth. 5.00 3/01/2037 1,765 3,250 Philadelphia Gas Works 5.00 10/01/2031 3,946 2,050 Philadelphia Gas Works 4.00 10/01/2036 2,248 1,250 Public School Building Auth. (NBGA) 5.00 4/01/2023 1,398 15,380 Public School Building Auth. (INS) 4.00 12/01/2031 16,832 1,500 Turnpike Commission 5.00 12/01/2032 1,768 3,500 Turnpike Commission 5.00 12/01/2032 4,150 4,345 Turnpike Commission 5.00 12/01/2033 5,108 7,145 Turnpike Commission 5.00 12/01/2033 8,440 25,000 Turnpike Commission 4.00 6/01/2034 27,128 3,000 Turnpike Commission 5.00 12/01/2034 3,507 6,250 Turnpike Commission 5.00 12/01/2034 7,322 2,000 Turnpike Commission 5.00 12/01/2034 2,395 10,655 Turnpike Commission 5.00 6/01/2035 12,435 3,320 Turnpike Commission 5.00 12/01/2035 3,875 5,700 Turnpike Commission 5.00 12/01/2035 6,652 2,000 Turnpike Commission 5.00 12/01/2035 2,388 8,255 Turnpike Commission 5.00 6/01/2036 9,613 5,750 Turnpike Commission 5.00 6/01/2036 6,704 3,690 Turnpike Commission 5.00 12/01/2036 4,297 ---------- 236,674 ---------- PUERTO RICO (0.1%) 2,600 Industrial, Tourist, Educational, Medical, and Environmental Control Facilities Financing Auth. 5.00 4/01/2027 2,458 ----------
================================================================================ PORTFOLIO OF INVESTMENTS | 35 ================================================================================
------------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------------- RHODE ISLAND (0.4%) $ 2,000 Health and Educational Building Corp. 6.00% 9/01/2033 $ 2,595 2,000 Tobacco Settlement Financing Corp. 5.00 6/01/2028 2,320 2,000 Tobacco Settlement Financing Corp. 5.00 6/01/2029 2,288 2,500 Tobacco Settlement Financing Corp. 5.00 6/01/2030 2,848 1,350 Turnpike and Bridge Auth. 5.00 10/01/2033 1,621 4,345 Turnpike and Bridge Auth. 5.00 10/01/2035 5,182 ---------- 16,854 ---------- SOUTH CAROLINA (1.4%) 5,870 Association of Governmental Organizations Educational Facilities Corp. (INS) (PRE) 4.75 12/01/2026 5,910 6,325 Association of Governmental Organizations Educational Facilities Corp. (INS) (PRE) 4.75 12/01/2026 6,368 5,000 Lexington County Health Services District, Inc. 5.00 11/01/2024 5,217 7,335 Lexington County Health Services District, Inc. 5.00 11/01/2026 7,651 7,200 Piedmont Municipal Power Agency (INS) 5.00 1/01/2028 8,238 2,700 Piedmont Municipal Power Agency (INS) 5.00 1/01/2028 3,089 9,835 Public Service Auth. 5.00 12/01/2034 11,992 7,000 Public Service Auth. 5.00 12/01/2035 8,501 8,500 Public Service Auth. 5.00 12/01/2036 10,226 ---------- 67,192 ---------- SOUTH DAKOTA (0.0%) 1,700 Health and Educational Facilities Auth. 5.00 11/01/2024 1,894 ---------- TENNESSEE (0.3%) 5,000 Davidson County Health and Educational Facilities Board 5.00 7/01/2035 6,040 5,110 Jackson Health, Educational, and Housing Facility Board (PRE) 5.25 4/01/2023 5,446 1,890 Jackson Health, Educational, and Housing Facility Board 5.25 4/01/2023 2,012 ---------- 13,498 ---------- TEXAS (11.3%) 2,300 Austin (INS) 5.00 11/15/2024 2,308 5,610 Austin Utility Systems (INS) 5.15(b) 5/15/2017 5,574 425 Bastrop ISD (NBGA) (ETM) 5.60(b) 2/15/2017 424 2,730 Bastrop ISD (NBGA) 5.60(b) 2/15/2017 2,722 3,485 Bexar County Health Facilities Dev. Corp. 5.00 7/01/2027 3,556 2,740 Board of Managers, Joint Guadalupe County - City of Seguin Hospital 5.00 12/01/2025 3,108 2,990 Board of Managers, Joint Guadalupe County - City of Seguin Hospital 5.00 12/01/2027 3,324
================================================================================ 36 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND ================================================================================
------------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------------- $ 1,640 Board of Managers, Joint Guadalupe County - City of Seguin Hospital 5.00% 12/01/2028 $ 1,817 1,600 Board of Managers, Joint Guadalupe County - City of Seguin Hospital 5.00 12/01/2029 1,772 1,700 Board of Managers, Joint Guadalupe County - City of Seguin Hospital 5.00 12/01/2030 1,876 5,150 Board of Managers, Joint Guadalupe County - City of Seguin Hospital 5.25 12/01/2035 5,757 4,240 Boerne ISD (NBGA) 3.66(b) 2/01/2026 3,204 2,680 Central Regional Mobility Auth. (INS) (PRE) 4.55 1/01/2020 2,706 3,445 Central Regional Mobility Auth. (INS) (PRE) 4.60 1/01/2021 3,478 700 Central Regional Mobility Auth. 5.00 1/01/2021 802 500 Central Regional Mobility Auth. 5.00 1/01/2022 588 885 Central Regional Mobility Auth. 5.90(b) 1/01/2022 762 500 Central Regional Mobility Auth. 5.00 1/01/2023 599 7,000 Central Regional Mobility Auth.(c) 6.25(b) 1/01/2024 5,638 2,500 Central Regional Mobility Auth. (PRE) 5.75 1/01/2025 2,880 2,535 Central Regional Mobility Auth. 6.50(b) 1/01/2026 1,892 3,500 Central Regional Mobility Auth. 5.00 1/01/2033 3,949 1,250 Central Regional Mobility Auth. 5.00 1/01/2034 1,472 1,700 Central Regional Mobility Auth. 5.00 1/01/2034 2,017 1,100 Central Regional Mobility Auth. 5.00 1/01/2035 1,290 1,650 Central Regional Mobility Auth. 5.00 1/01/2035 1,950 1,625 Central Regional Mobility Auth. 5.00 1/01/2036 1,916 1,750 Clifton Higher Education Finance Corp. (NBGA) 4.00 8/15/2029 2,001 1,300 Clifton Higher Education Finance Corp. (NBGA) 4.00 8/15/2032 1,459 1,800 Corpus Christi Utility System 4.00 7/15/2032 2,010 1,100 Corpus Christi Utility System 4.00 7/15/2033 1,225 1,050 Corpus Christi Utility System 4.00 7/15/2034 1,164 1,000 Corpus Christi Utility System 4.00 7/15/2035 1,104 2,000 Dallas/Fort Worth International Airport 5.25 11/01/2028 2,464 7,500 Dallas/Fort Worth International Airport 5.25 11/01/2029 9,230 1,000 Decatur Hospital Auth. 5.25 9/01/2029 1,117 1,000 Decatur Hospital Auth. 5.00 9/01/2034 1,077 1,215 Downtown Redevelopment Auth. (INS) 5.00 9/01/2029 1,450 1,380 Downtown Redevelopment Auth. (INS) 5.00 9/01/2030 1,639 2,000 Downtown Redevelopment Auth. (INS) 5.00 9/01/2031 2,361 1,500 Downtown Redevelopment Auth. (INS) 5.00 9/01/2032 1,763 2,680 Downtown Redevelopment Auth. (INS) 5.00 9/01/2033 3,140 4,710 Harris County Cultural Education Facilities Finance Corp. 5.00 12/01/2027 5,581 1,400 Harris County Cultural Education Facilities Finance Corp. 5.00 6/01/2028 1,593
================================================================================ PORTFOLIO OF INVESTMENTS | 37 ================================================================================
------------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------------- $40,000 Harris County IDC 5.00% 2/01/2023 $ 44,240 750 Harris County Municipal Utility District (INS) 5.00 3/01/2030 900 2,030 Harris County Municipal Utility District (INS) 5.00 3/01/2031 2,425 2,500 Harris County Municipal Utility District (INS) 5.00 3/01/2032 2,974 4,350 Harris County Regional Water Auth. 4.00 12/15/2035 4,811 5,615 Houston 5.00 9/01/2032 6,653 5,345 Houston 5.00 9/01/2033 6,312 2,150 Houston 5.00 9/01/2034 2,537 1,575 Houston 5.00 9/01/2035 1,851 4,000 Houston Airport System 5.00 7/01/2024 4,279 7,000 Houston Airport System 5.00 7/01/2025 7,485 2,300 Houston Convention & Entertainment Facilities Department 5.00 9/01/2029 2,765 1,000 Houston Convention & Entertainment Facilities Department 5.00 9/01/2030 1,194 3,850 Houston Higher Education Finance Corp. 5.25 9/01/2031 4,480 4,075 Houston Higher Education Finance Corp. 5.25 9/01/2032 4,727 3,885 Houston ISD Public Facility Corp. (INS) 5.40(b) 9/15/2017 3,841 10,000 Houston Utility System 5.00 11/15/2034 12,385 4,000 Karnes County Hospital District 5.00 2/01/2029 4,501 4,000 Karnes County Hospital District 5.00 2/01/2034 4,452 740 Laredo Waterworks and Sewer System 4.00 3/01/2032 820 1,000 Laredo Waterworks and Sewer System 4.00 3/01/2033 1,104 1,000 Laredo Waterworks and Sewer System 4.00 3/01/2034 1,100 1,500 Laredo Waterworks and Sewer System 4.00 3/01/2035 1,644 1,500 Laredo Waterworks and Sewer System 4.00 3/01/2036 1,638 605 Marlin ISD Public Facility Corp.(d) 5.85 2/15/2018 616 3,100 Mesquite Health Facilities Dev. Corp. 5.00 2/15/2026 3,700 1,075 Mesquite Health Facilities Dev. Corp. 5.00 2/15/2035 1,208 2,040 Midlothian Dev. Auth. (INS) 5.00 11/15/2018 2,050 2,235 Midlothian Dev. Auth. (INS) 5.00 11/15/2021 2,246 1,695 Midlothian Dev. Auth. (INS) 5.00 11/15/2026 1,699 2,025 Midlothian Dev. Auth. 5.13 11/15/2026 2,028 2,155 New Braunfels ISD (NBGA) 3.04(b) 2/01/2023 1,870 7,500 New Hope Cultural Education Facilities Corp. 5.00 7/01/2030 8,630 1,000 New Hope Cultural Education Facilities Corp. 5.00 11/01/2031 1,179 9,000 New Hope Cultural Education Facilities Corp. 5.00 7/01/2035 10,172 1,475 New Hope Cultural Education Facilities Corp. 4.00 11/01/2036 1,568 1,635 Newark Higher Education Finance Corp. 4.00 4/01/2032 1,799 2,000 Newark Higher Education Finance Corp. 4.00 4/01/2033 2,185 4,470 Newark Higher Education Finance Corp. 4.00 4/01/2034 4,868 1,650 Newark Higher Education Finance Corp. 4.00 4/01/2035 1,791 2,150 Newark Higher Education Finance Corp. 4.00 4/01/2036 2,327
================================================================================ 38 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND ================================================================================
------------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------------- $ 7,000 North East Texas Regional Mobility Auth. 5.00% 1/01/2036 $ 8,198 5,485 North East Texas Regional Mobility Auth. 5.00 1/01/2036 6,361 2,190 North Texas Tollway Auth. (PRE) 6.00 1/01/2023 2,329 310 North Texas Tollway Auth. 6.00 1/01/2023 328 15,000 North Texas Tollway Auth. 6.00 1/01/2025 16,695 20,000 North Texas Tollway Auth. (INS) 3.85(b) 1/01/2029 14,286 1,500 North Texas Tollway Auth. 5.00 1/01/2031 1,792 8,000 North Texas Tollway Auth. 5.00 1/01/2032 9,542 1,515 North Texas Tollway Auth. 5.00 1/01/2034 1,834 7,500 North Texas Tollway Auth. 5.00 1/01/2034 8,952 1,200 North Texas Tollway Auth. 5.00 1/01/2035 1,446 1,385 North Texas Tollway Auth. 5.00 1/01/2036 1,663 2,230 Permanent Univ. Fund 5.00 7/01/2032 2,759 3,250 Permanent Univ. Fund 5.00 7/01/2033 4,006 2,500 Permanent Univ. Fund 5.00 7/01/2034 3,070 9,205 Sabine River Auth. (INS) 4.95 3/01/2018 9,639 2,000 San Leanna Education Facilities Corp. 5.00 6/01/2018 2,049 940 San Leanna Education Facilities Corp. (PRE) 5.13 6/01/2023 967 1,025 San Leanna Education Facilities Corp. 5.13 6/01/2023 1,048 475 San Leanna Education Facilities Corp. (PRE) 5.13 6/01/2024 489 525 San Leanna Education Facilities Corp. 5.13 6/01/2024 536 1,270 San Leanna Education Facilities Corp. (PRE) 5.13 6/01/2025 1,306 275 San Leanna Education Facilities Corp. 5.13 6/01/2025 281 1,645 Tarrant County Cultural Education Facilities Finance Corp. (PRE) 5.25 11/15/2022 1,727 2,105 Tarrant County Cultural Education Facilities Finance Corp. 5.25 11/15/2022 2,199 1,100 Tarrant County Cultural Education Facilities Finance Corp. 6.00 11/15/2026 1,105 8,890 Tarrant County Cultural Education Facilities Finance Corp.(f) 4.00 5/15/2027 9,242 8,300 Tarrant County Cultural Education Facilities Finance Corp. 5.13 5/15/2027 8,353 14,565 Tarrant County Cultural Education Facilities Finance Corp.(f) 4.00 5/15/2031 14,868 13,000 Transportation Commission (PRE) 4.50 4/01/2026 13,246 7,235 Transportation Commission 5.00 10/01/2026 9,461 10,000 Transportation Commission 5.00 8/15/2033 11,738 8,500 Transportation Commission 5.00 8/15/2034 9,957 6,987 Trophy Club Public Improvement District No. 1 (INS) 5.00 6/01/2033 8,192 7,170 Tyler Health Facilities Dev. Corp. 5.25 11/01/2019 7,415 7,945 Tyler Health Facilities Dev. Corp. 5.25 11/01/2021 8,199 3,360 Tyler Health Facilities Dev. Corp. 5.25 11/01/2022 3,464
================================================================================ PORTFOLIO OF INVESTMENTS | 39 ================================================================================
------------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------------- $ 3,800 Tyler Health Facilities Dev. Corp. 5.25% 11/01/2023 $ 3,914 8,745 Tyler Health Facilities Dev. Corp. (PRE) 5.25 7/01/2026 8,962 10,000 Tyler Health Facilities Dev. Corp. (PRE)(c) 5.50 7/01/2027 11,367 7,875 Univ. of Texas System (PRE) 4.25 8/15/2025 7,976 2,125 Univ. of Texas System 4.25 8/15/2025 2,151 5,970 Williamson County (INS) (PRE) 5.13 2/15/2022 6,066 ---------- 535,991 ---------- U.S. VIRGIN ISLANDS (0.2%) 6,500 Public Finance Auth.(a) 5.00 9/01/2030 7,463 ---------- UTAH (0.2%) 18,631 Jordanelle Special Service District(a),(d),(g) 4.44 8/01/2030 8,382 ---------- VERMONT (0.3%) 9,000 EDA 5.00 12/15/2020 10,322 2,500 Educational and Health Buildings Financing Agency 5.00 12/01/2036 2,988 ---------- 13,310 ---------- VIRGINIA (0.8%) 1,750 Albemarle County IDA 5.00 1/01/2024 1,759 2,290 College Building Auth. 5.00 6/01/2021 2,292 11,280 College Building Auth. 5.00 6/01/2026 11,286 2,150 Fairfax County Economic Dev. Auth. 5.00 10/01/2036 2,527 14,924 Farms of New Kent Community Dev. Auth.(d),(h) 5.13 3/01/2036 3,730 10,000 Roanoke County EDA 5.00 7/01/2025 11,369 1,000 Small Business Financing Auth. 5.13 9/01/2022 1,035 750 Stafford County EDA 5.00 6/15/2033 905 2,620 Stafford County EDA 5.00 6/15/2034 3,153 1,930 Stafford County EDA 5.00 6/15/2035 2,315 ---------- 40,371 ---------- WASHINGTON (0.1%) 5,000 Tobacco Settlement Auth. 5.25 6/01/2031 5,591 ---------- WISCONSIN (0.5%) 1,500 Health and Educational Facilities Auth. (PRE) 5.00 8/15/2026 1,830 2,000 Health and Educational Facilities Auth. 5.00 7/15/2028 2,281 1,935 Health and Educational Facilities Auth. (PRE) 5.00 8/15/2029 2,360 5,000 Health and Educational Facilities Auth. 5.13 4/15/2031 5,773 1,000 Health and Educational Facilities Auth. 5.00 8/15/2034 1,175 9,830 Health and Educational Facilities Auth. 4.00 11/15/2036 10,854 1,500 Public Finance Auth. 4.05 11/01/2030 1,575 ---------- 25,848 ---------- Total Fixed-Rate Instruments (cost: $3,754,034) 3,994,193 ----------
================================================================================ 40 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND ================================================================================
------------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------------- PUT BONDS (7.0%) ARIZONA (1.0%) $16,000 Health Facilities Auth. 2.69%(i) 2/01/2048 $ 16,287 30,000 Health Facilities Auth. 2.69(i) 2/01/2048 30,473 ---------- 46,760 ---------- ARKANSAS (0.6%) 29,000 Dev. Finance Auth. 2.39(i) 9/01/2044 28,759 ---------- CALIFORNIA (0.8%) 10,000 Bay Area Toll Auth. 1.74(i) 4/01/2045 9,998 17,000 Bay Area Toll Auth. 1.94(i) 4/01/2045 17,179 8,500 Health Facilities Financing Auth. 2.00 10/01/2036 8,552 ---------- 35,729 ---------- FLORIDA (0.4%) 16,000 Putnam County Dev. Auth. (INS) 5.35 3/15/2042 17,018 ---------- ILLINOIS (0.2%) 7,500 Educational Facilities Auth. 4.75 11/01/2036 7,521 ---------- INDIANA (0.1%) 4,000 Rockport Pollution Control 1.75 6/01/2025 4,021 ---------- LOUISIANA (0.4%) 16,750 St. Charles Parish 4.00 12/01/2040 18,578 ---------- MASSACHUSETTS (0.1%) 6,000 Dev. Finance Agency (PRE) 5.75 12/01/2042 6,735 ---------- MICHIGAN (0.3%) 15,000 Hospital Finance Auth. 6.00 12/01/2034 15,876 ---------- MISSISSIPPI (0.3%) 2,170 Hospital Equipment and Facilities Auth. 1.40 9/01/2018 2,170 14,000 Hospital Equipment and Facilities Auth. 1.40 9/01/2022 14,000 ---------- 16,170 ---------- NEW JERSEY (0.4%) 20,000 Transportation Trust Fund Auth. 2.04(i) 6/15/2034 19,221 ---------- NEW MEXICO (0.9%) 10,000 Farmington 4.75 6/01/2040 10,236 20,000 Farmington 5.20 6/01/2040 22,495 12,000 Farmington Pollution Control 1.88 4/01/2033 12,023 ---------- 44,754 ---------- OHIO (0.6%) 30,000 Ohio Water Dev. Auth. 4.00 12/01/2033 27,912 ----------
================================================================================ PORTFOLIO OF INVESTMENTS | 41 ================================================================================
------------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------------- PENNSYLVANIA (0.6%) $ 8,800 Beaver County IDA 2.70% 4/01/2035 $ 8,389 11,000 Berks County Municipal Auth. 2.34(i) 11/01/2039 11,085 8,750 Economic Dev. Financing Auth. 2.55 11/01/2041 8,517 ---------- 27,991 ---------- TEXAS (0.3%) 14,935 San Antonio Housing Trust Finance Corp. (NBGA) 3.50 4/01/2043 15,845 ---------- Total Put Bonds (cost: $327,182) 332,890 ---------- ADJUSTABLE-RATE NOTES (0.4%) NEW JERSEY (0.4%) 10,000 EDA 2.39 9/01/2027 9,178 10,000 EDA 2.44 3/01/2028 9,114 ---------- Total Adjustable-Rate Notes (cost: $20,000) 18,292 ---------- VARIABLE-RATE DEMAND NOTES (8.3%) ARIZONA (0.4%) 20,000 Phoenix IDA (LIQ) (LOC - Barclays Bank PLC)(a) 1.03 6/01/2036 20,000 ---------- CALIFORNIA (0.5%) 2,300 Infrastructure and Economic Dev. Bank (LOC - California Bank & Trust) 1.04 10/01/2028 2,300 5,780 State (LIQ) (LOC - Dexia Credit Local)(a) 1.02 8/01/2027 5,780 10,985 State (LIQ) (LOC - Dexia Credit Local)(a) 1.02 8/01/2027 10,985 4,815 Victorville Joint Powers Financing Auth. (LOC - BNP Paribas) 1.49 5/01/2040 4,815 ---------- 23,880 ---------- COLORADO (0.3%) 13,015 Health Facilities Auth. (LIQ)(a) 1.04 10/01/2034 13,015 ---------- CONNECTICUT (0.1%) 5,000 State (j) 0.92 7/01/2017 5,000 ---------- DISTRICT OF COLUMBIA (0.4%) 20,560 District (LIQ) (LOC - Deutsche Bank A.G.)(a) 1.11 10/01/2041 20,560 ---------- FLORIDA (0.9%) 29,500 Escambia County 0.92 4/01/2039 29,500 8,000 Martin County 0.88 7/15/2022 8,000 3,400 Putnam County Dev. Auth. 0.88 9/01/2024 3,400 ---------- 40,900 ----------
================================================================================ 42 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND ================================================================================
------------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------------- GEORGIA (0.1%) $ 1,100 Appling County Dev. Auth. 0.93% 9/01/2029 $ 1,100 6,000 Appling County Dev. Auth. 0.93 9/01/2041 6,000 ---------- 7,100 ---------- IDAHO (0.2%) 10,155 Housing and Finance Association(j) 1.03 1/01/2038 10,155 ---------- ILLINOIS (1.1%) 7,000 Chicago Board of Education (LIQ) (LOC - Deutsche Bank A.G.)(a) 1.36 12/01/2039 7,000 13,800 State (LIQ) (LOC - Deutsche Bank A.G.)(a) 1.07 7/01/2033 13,800 29,495 State (LIQ) (LOC - Deutsche Bank A.G.)(a) 1.17 2/01/2039 29,495 ---------- 50,295 ---------- KENTUCKY (0.1%) 5,000 Economic Dev. Finance Auth. (INS) (LIQ)(a) 1.04 1/04/2018 5,000 ---------- LOUISIANA (1.4%) 1,000 Public Facilities Auth. 0.83 12/01/2043 1,000 35,100 St. James Parish 1.02 11/01/2040 35,100 30,000 St. James Parish 1.02 11/01/2040 30,000 ---------- 66,100 ---------- MISSISSIPPI (0.1%) 5,000 Perry County Pollution Control (NBGA)(a) 0.94 2/01/2022 5,000 ---------- OKLAHOMA (0.2%) 8,300 Garfield County Industrial Auth. 0.84 1/01/2025 8,300 ---------- PENNSYLVANIA (0.3%) 15,200 Emmaus General Auth. (INS) (LIQ) 0.88 12/01/2028 15,200 ---------- SOUTH CAROLINA (0.0%) 1,545 Jobs EDA (LIQ) (LOC - Deutsche Bank A.G.)(a) 1.03 11/01/2029 1,545 ---------- TENNESSEE (0.6%) 30,000 Chattanooga Health, Educational and Housing Facilities Board 0.98 5/01/2039 30,000 ---------- TEXAS (1.2%) 12,000 Port of Port Arthur Navigation District 0.93 12/01/2039 12,000 3,100 Port of Port Arthur Navigation District 0.94 12/01/2039 3,100 5,100 Port of Port Arthur Navigation District 0.94 12/01/2039 5,100 23,900 Port of Port Arthur Navigation District 0.93 11/01/2040 23,900 1,300 Port of Port Arthur Navigation District 0.94 11/01/2040 1,300 9,800 Weslaco Health Facilities Dev. Corp. (LOC - Compass Bank) 1.24 6/01/2038 9,800 ---------- 55,200 ----------
================================================================================ PORTFOLIO OF INVESTMENTS | 43 ================================================================================
------------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------------- WYOMING (0.4%) $17,700 Gillette 0.93% 1/01/2018 $ 17,700 ---------- Total Variable-Rate Demand Notes (cost: $394,950) 394,950 ---------- TOTAL INVESTMENTS (COST: $4,496,166) $4,740,325 ========== ------------------------------------------------------------------------------------------------------------------- ($ IN 000s) VALUATION HIERARCHY ------------------------------------------------------------------------------------------------------------------- ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL ------------------------------------------------------------------------------------------------------------------- Fixed-Rate Instruments $- $3,982,081 $12,112 $3,994,193 Put Bonds - 332,890 - 332,890 Adjustable-Rate Notes - 18,292 - 18,292 Variable-Rate Demand Notes - 394,950 - 394,950 ------------------------------------------------------------------------------------------------------------------- Total $- $4,728,213 $12,112 $4,740,325 ------------------------------------------------------------------------------------------------------------------- Refer to the Portfolio of Investments for additional industry, country, or geographic region classifications. ------------------------------------------------------------------------------------------------------------------- RECONCILIATION OF LEVEL 3 INVESTMENTS ------------------------------------------------------------------------------------------------------------------- FIXED-RATE INSTRUMENTS ------------------------------------------------------------------------------------------------------------------- Balance as of March 31, 2016 $12,117 Purchases - Sales - Transfers into Level 3 - Transfers out of Level 3 - Net realized gain (loss) on investments - Change in net unrealized appreciation/(depreciation) of investments (5) ------------------------------------------------------------------------------------------------------------------- Balance as of September 30, 2016 $12,112 -------------------------------------------------------------------------------------------------------------------
For the period of April 1, 2016, through September 30, 2016, there were no transfers of securities between levels. The Fund's policy is to recognize any transfers in and transfers out as of the beginning of the reporting period in which the event or circumstance that caused the transfer occurred. ================================================================================ 44 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND ================================================================================ NOTES TO PORTFOLIO OF INVESTMENTS September 30, 2016 (unaudited) -------------------------------------------------------------------------------- o GENERAL NOTES Market values of securities are determined by procedures and practices discussed in Note 1A to the financial statements. The Portfolio of Investments category percentages shown represent the percentages of the investments to net assets, and, in total, may not equal 100%. A category percentage of 0.0% represents less than 0.1% of net assets. o SPECIFIC NOTES (a) Restricted security that is not registered under the Securities Act of 1933. A resale of this security in the United States may occur in an exempt transaction to a qualified institutional buyer as defined by Rule 144A, and as such has been deemed liquid by USAA Asset Management Company (the Manager) under liquidity guidelines approved by USAA Mutual Funds Trust's Board of Trustees (the Board), unless otherwise noted as illiquid. (b) Zero-coupon security. Rate represents the effective yield at the date of purchase. (c) At September 30, 2016, the security, or a portion thereof, was segregated to cover delayed-delivery and/or when-issued purchases. (d) Security deemed illiquid by the Manager, under liquidity guidelines approved by the Board. The aggregate market value of these securities at September 30, 2016, was $13,010,000, which represented 0.3% of the Fund's net assets. ================================================================================ NOTES TO PORTFOLIO OF INVESTMENTS | 45 ================================================================================ (e) Pay-in-kind (PIK) - security in which the issuer will have or has the option to make all or a portion of the interest or dividend payments in additional securities. (f) At September 30, 2016, the aggregate market value of securities purchased on a delayed-delivery basis was $27,270,000, which included when-issued securities of $24,110,000. (g) At September 30, 2016, the issuer was in default with respect to portions of interest and/or principal payments. (h) At September 30, 2016, the issuer was in default with respect to interest and/or principal payments. (i) Variable-rate or floating-rate security - interest rate is adjusted periodically. The interest rate disclosed represents the rate at September 30, 2016. (j) Variable-rate remarketed obligation - Structured similarly to variable-rate demand notes and has a tender option that is supported by a best efforts remarketing agent. See accompanying notes to financial statements. ================================================================================ 46 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND ================================================================================ STATEMENT OF ASSETS AND LIABILITIES (IN THOUSANDS) September 30, 2016 (unaudited) -------------------------------------------------------------------------------- ASSETS Investments in securities, at market value (cost of $4,496,166) $4,740,325 Receivables: Capital shares sold 3,504 USAA Asset Management Company (Note 6C) 5 Interest 50,411 ---------- Total assets 4,794,245 ---------- LIABILITIES Payables: Securities purchased 43,394 Capital shares redeemed 3,257 Dividends on capital shares 1,954 Bank overdraft 138 Accrued management fees 1,251 Accrued transfer agent's fees 74 Other accrued expenses and payables 126 ---------- Total liabilities 50,194 ---------- Net assets applicable to capital shares outstanding $4,744,051 ========== NET ASSETS CONSIST OF: Paid-in capital $4,533,872 Overdistribution of net investment income (16) Accumulated net realized loss on investments (33,964) Net unrealized appreciation of investments 244,159 ---------- Net assets applicable to capital shares outstanding $4,744,051 ========== Net asset value, redemption price, and offering price per share: Fund Shares (net assets of $4,694,936/342,582 capital shares outstanding, no par value) $ 13.70 ========== Adviser Shares (net assets of $49,115/3,584 capital shares outstanding, no par value) $ 13.70 ==========
See accompanying notes to financial statements. ================================================================================ FINANCIAL STATEMENTS | 47 ================================================================================ STATEMENT OF OPERATIONS (IN THOUSANDS) Six-month period ended September 30, 2016 (unaudited) -------------------------------------------------------------------------------- INVESTMENT INCOME Interest income $81,815 ------- EXPENSES Management fees 7,339 Administration and servicing fees: Fund Shares 3,428 Adviser Shares 34 Transfer agent's fees: Fund Shares 745 Adviser Shares 15 Distribution and service fees (Note 6E): Adviser Shares 57 Custody and accounting fees: Fund Shares 253 Adviser Shares 3 Postage: Fund Shares 33 Adviser Shares 1 Shareholder reporting fees: Fund Shares 25 Trustees' fees 15 Registration fees: Fund Shares 83 Adviser Shares 15 Professional fees 209 Other 26 ------- Total expenses 12,281 Expenses reimbursed: Adviser Shares (13) ------- Net expenses 12,268 ------- NET INVESTMENT INCOME 69,547 ------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized loss (895) Change in net unrealized appreciation/(depreciation) 29,532 ------- Net realized and unrealized gain 28,637 ------- Increase in net assets resulting from operations $98,184 =======
See accompanying notes to financial statements. ================================================================================ 48 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND ================================================================================ STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS) Six-month period ended September 30, 2016 (unaudited), and year ended March 31, 2016
-------------------------------------------------------------------------------------------------------- 9/30/2016 3/31/2016 -------------------------------------------------------------------------------------------------------- FROM OPERATIONS Net investment income $ 69,547 $ 131,923 Net realized loss on investments (895) (4,699) Change in net unrealized appreciation/(depreciation) of investments 29,532 14,350 --------------------------- Increase in net assets resulting from operations 98,184 141,574 --------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income: Fund Shares (69,034) (130,732) Adviser Shares (631) (1,102) --------------------------- Distributions to shareholders (69,665) (131,834) --------------------------- NET INCREASE IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS (NOTE 5) Fund Shares 334,316 428,201 Adviser Shares 6,802 5,143 --------------------------- Total net increase in net assets from capital share transactions 341,118 433,344 --------------------------- Net increase in net assets 369,637 443,084 NET ASSETS Beginning of period 4,374,414 3,931,330 --------------------------- End of period $4,744,051 $4,374,414 =========================== Undistributed (overdistribution of) net investment income: End of period $ (16) $ 102 ===========================
See accompanying notes to financial statements. ================================================================================ FINANCIAL STATEMENTS | 49 ================================================================================ NOTES TO FINANCIAL STATEMENTS September 30, 2016 (unaudited) -------------------------------------------------------------------------------- (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company Act of 1940, as amended (the 1940 Act), is an open-end management investment company organized as a Delaware statutory trust consisting of 54 separate funds. Additionally, the Fund qualifies as a registered investment company under Accounting Standards Codification Topic 946. The information presented in this semiannual report pertains only to the USAA Tax Exempt Intermediate-Term Fund (the Fund), which is classified as diversified under the 1940 Act. The Fund's investment objective is to provide investors with interest income that is exempt from federal income tax. The Fund consists of two classes of shares: Tax Exempt Intermediate-Term Fund Shares (Fund Shares) and Tax Exempt Intermediate-Term Fund Adviser Shares (Adviser Shares). Each class of shares has equal rights to assets and earnings, except that each class bears certain class-related expenses specific to the particular class. These expenses include administration and servicing fees, transfer agent fees, postage, shareholder reporting fees, distribution and service (12b-1) fees, and certain registration and custodian fees. Expenses not attributable to a specific class, income, and realized gains or losses on investments are allocated to each class of shares based on each class' relative net assets. Each class has exclusive voting rights on matters related solely to that class and separate voting rights on matters that relate to all classes. The Adviser Shares permit investors to purchase shares through financial intermediaries, including banks, broker-dealers, insurance companies, investment advisers, plan sponsors, and financial professionals that provide various administrative and distribution services. A. SECURITY VALUATION - The Trust's Board of Trustees (the Board) has established the Valuation Committee (the Committee), and subject to ================================================================================ 50 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND ================================================================================ Board oversight, the Committee administers and oversees the Fund's valuation policies and procedures, which are approved by the Board. Among other things, these policies and procedures allow the Fund to utilize independent pricing services, quotations from securities dealers, and a wide variety of sources and information to establish and adjust the fair value of securities as events occur and circumstances warrant. The Committee reports to the Board on a quarterly basis and makes recommendations to the Board as to pricing methodologies and services used by the Fund and presents additional information to the Board regarding application of the pricing and fair valuation policies and procedures during the preceding quarter. The Committee meets as often as necessary to make pricing and fair value determinations. In addition, the Committee holds regular monthly meetings to review prior actions taken by the Committee and USAA Asset Management Company (the Manager), an affiliate of the Fund. Among other things, these monthly meetings include a review and analysis of back testing reports, pricing service quotation comparisons, illiquid securities and fair value determinations, pricing movements, and daily stale price monitoring. The value of each security is determined (as of the close of trading on the New York Stock Exchange (NYSE) on each business day the NYSE is open) as set forth below: 1. Debt securities with maturities greater than 60 days are valued each business day by a pricing service (the Service) approved by the Board. The Service uses an evaluated mean between quoted bid and asked prices or the last sales price to value a security when, in the Service's judgment, these prices are readily available and are representative of the security's market value. For many securities, such prices are not readily available. The Service generally prices those securities based on methods which include consideration of yields or prices of securities of comparable quality, coupon, maturity, and type; indications as to values from dealers in securities; and general market conditions. Generally, debt securities are ================================================================================ NOTES TO FINANCIAL STATEMENTS | 51 ================================================================================ categorized in Level 2 of the fair value hierarchy; however, to the extent the valuations include significant unobservable inputs, the securities would be categorized in Level 3. 2. Short-term debt securities with original or remaining maturities of 60 days or less may be valued at amortized cost, provided that amortized cost represents the fair value of such securities. 3. In the event that price quotations or valuations are not readily available, are not reflective of market value, or a significant event has been recognized in relation to a security or class of securities, the securities are valued in good faith by the Committee in accordance with valuation procedures approved by the Board. The effect of fair value pricing is that securities may not be priced on the basis of quotations from the primary market in which they are traded and the actual price realized from the sale of a security may differ materially from the fair value price. Valuing these securities at fair value is intended to cause the Fund's net asset value (NAV) to be more reliable than it otherwise would be. Fair value methods used by the Manager include, but are not limited to, obtaining market quotations from secondary pricing services, broker-dealers, other pricing services, or widely used quotation systems. General factors considered in determining the fair value of securities include fundamental analytical data, the nature and duration of any restrictions on disposition of the securities, evaluation of credit quality, and an evaluation of the forces that influenced the market in which the securities are purchased and sold. B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The three-level valuation hierarchy disclosed in the Portfolio of Investments is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows: Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) in active markets for identical securities. ================================================================================ 52 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND ================================================================================ Level 2 - inputs to the valuation methodology are other significant observable inputs, including quoted prices for similar securities, inputs that are observable for the securities, either directly or indirectly, and market-corroborated inputs such as market indexes. Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value measurement, including the Manager's own assumptions in determining the fair value. The inputs or methodologies used for valuing securities are not necessarily an indication of the risks associated with investing in those securities. The valuation of securities falling in the Level 3 category are primarily supported by the value derived based upon the use of inputs such as real property appraisals and other relevant information related to the securities. However, these securities are included in the Level 3 category due to limited market transparency and/or a lack of corroboration to support the quoted prices. Refer to the Portfolio of Investments for a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining value. C. FEDERAL TAXES - The Fund's policy is to comply with the requirements of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies and to distribute substantially all of its taxable income and net capital gains, if any, to its shareholders. Therefore, no federal income tax provision is required. D. INVESTMENTS IN SECURITIES - Securities transactions are accounted for on the date the securities are purchased or sold (trade date). Gains or losses from sales of investment securities are computed on the identified cost basis. Interest income is recorded daily on the accrual basis. Premiums and discounts are amortized over the life of the respective securities, using the effective yield method for long-term securities and the straight- line method for short-term securities. E. SECURITIES PURCHASED ON A DELAYED-DELIVERY OR WHEN-ISSUED BASIS - Delivery and payment for securities that have been purchased by the Fund on a ================================================================================ NOTES TO FINANCIAL STATEMENTS | 53 ================================================================================ delayed-delivery or when-issued basis can take place a month or more after the trade date. During the period prior to settlement, these securities do not earn interest, are subject to market fluctuation, and may increase or decrease in value prior to their delivery. The Fund maintains segregated assets with a market value equal to or greater than the amount of its purchase commitments. The purchase of securities on a delayed-delivery or when-issued basis may increase the volatility of the Fund's NAV to the extent that the Fund makes such purchases while remaining substantially fully invested. As of September 30, 2016, the Fund's outstanding delayed-delivery commitments, including interest purchased, were $27,224,000; which included when-issued securities of $24,033,000. F. EXPENSES PAID INDIRECTLY - Through arrangements with the Fund's custodian and other banks utilized by the Fund for cash management purposes, realized credits, if any, generated from cash balances in the Fund's bank accounts may be used to directly reduce the Fund's expenses. For the six-month period ended September 30, 2016, custodian and other bank credits reduced the Fund's expenses by less than $500. G. REDEMPTION FEES - All shares classes held in the Fund less than 60 days are subject to a redemption fee equal to 1.00% of the proceeds of the redeemed or exchanged shares. All redemption fees paid will be accounted for by the Fund as an addition to paid in capital. For the six-month period ended September 30, 2016, the Fund Shares did not charge any redemption fees and the Adviser Shares charged redemption fees which were less than $500. H. INDEMNIFICATIONS - Under the Trust's organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Trust. In addition, in the normal course of business, the Trust enters into contracts that contain a variety of representations and warranties that provide general indemnifications. The Trust's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Trust that have not yet occurred. However, the Trust expects the risk of loss to be remote. ================================================================================ 54 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND ================================================================================ I. USE OF ESTIMATES - The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that may affect the reported amounts in the financial statements. (2) LINE OF CREDIT The Fund participates in a joint, short-term, revolving, committed loan agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate of the Manager. The purpose of the agreement is to meet temporary or emergency cash needs, including redemption requests that might otherwise require the untimely disposition of securities. Subject to availability, the Fund may borrow from CAPCO an amount up to 5% of the Fund's total assets at an interest rate based on the London Interbank Offered Rate (LIBOR), plus 100.0 basis points. The USAA Funds that are party to the loan agreement are assessed facility fees by CAPCO in the amount of 12.0 basis points of the amount of the committed loan agreement. Prior to September 30, 2016, the maximum annual facility fee was 9.0 basis points of the amount of the committed loan agreement. The facility fees are allocated among the USAA Funds based on their respective average net assets for the period. The USAA Funds may request an optional increase of the committed loan agreement from $500 million up to $750 million. If the USAA Funds increase the committed loan agreement, the assessed facility fee on the amount of the additional commitment will be 13.0 basis points. For the six-month period ended September 30, 2016, the Fund paid CAPCO facility fees of $15,000, which represents 6.4% of the total fees paid to CAPCO by the USAA Funds. The Fund had no borrowings under this agreement during the six-month period ended September 30, 2016. (3) DISTRIBUTIONS The tax basis of distributions and any accumulated undistributed net investment income will be determined as of the Fund's tax year-end of March 31, 2017, in accordance with applicable federal tax law. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 55 ================================================================================ Net investment income is accrued daily as dividends and distributed to shareholders monthly. Distributions of realized gains from security transactions not offset by capital losses are made annually in the succeeding fiscal year or as otherwise required to avoid the payment of federal income taxes. At March 31, 2016, the Fund had net capital loss carryforwards of $32,998,000, for federal income tax purposes, as shown in the table below. It is unlikely that the Board will authorize a distribution of capital gains realized in the future until the capital loss carryforwards have been used.
CAPITAL LOSS CARRYFORWARDS -------------------------------------- TAX CHARACTER -------------------------------------- (NO EXPIRATION) BALANCE --------------- ----------- Short-Term $ 7,461,000 Long-Term 25,537,000 ----------- Total $32,998,000 ===========
For the six-month period ended September 30, 2016, the Fund did not incur any income tax, interest, or penalties, and has recorded no liability for net unrecognized tax benefits relating to uncertain income tax positions. On an ongoing basis, the Manager will monitor the Fund's tax basis to determine if adjustments to this conclusion are necessary. The statute of limitations on the Fund's tax return filings generally remain open for the three preceding fiscal reporting year ends and remain subject to examination by the Internal Revenue Service and state taxing authorities. (4) INVESTMENT TRANSACTIONS Cost of purchases and proceeds from sales/maturities of securities, excluding short-term securities, for the six-month period ended September 30, 2016, were $536,900,000 and $265,901,000, respectively. As of September 30, 2016, the cost of securities, including short-term securities, for federal income tax purposes, was approximately the same as the cost reported in the financial statements. Gross unrealized appreciation and depreciation of investments as of September 30, 2016, were $276,329,000 and $32,170,000, respectively, resulting in net unrealized appreciation of $244,159,000. ================================================================================ 56 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND ================================================================================ (5) CAPITAL SHARE TRANSACTIONS At September 30, 2016, there were an unlimited number of shares of capital stock at no par value authorized for the Fund. Capital share transactions for all classes were as follows, in thousands:
SIX-MONTH PERIOD ENDED YEAR ENDED SEPTEMBER 30, 2016 MARCH 31, 2016 ----------------------------------------------------------------------------------- SHARES AMOUNT SHARES AMOUNT ------------------------------------------------ FUND SHARES: Shares sold 39,421 $ 541,947 59,717 $ 806,744 Shares issued from reinvested dividends 4,368 60,071 8,344 112,490 Shares redeemed (19,481) (267,702) (36,459) (491,033) ------------------------------------------------ Net increase from capital share transactions 24,308 $ 334,316 31,602 $ 428,201 ================================================ ADVISER SHARES: Shares sold 980 $ 13,481 1,105 $ 14,935 Shares issued from reinvested dividends 37 508 65 869 Shares redeemed* (523) (7,187) (793) (10,661) ------------------------------------------------ Net increase from capital share transactions 494 $ 6,802 377 $ 5,143 ================================================ *Net of redemption fees, if any.
(6) TRANSACTIONS WITH MANAGER A. MANAGEMENT FEES - The Manager provides investment management services to the Fund pursuant to an Advisory Agreement. Under this agreement, the Manager is responsible for managing the business and affairs of the Fund, and for directly managing the day-to-day investment of the Fund's assets, subject to the authority of and supervision by the Board. The investment management fee for the Fund is comprised of a base fee and a performance adjustment. The Fund's base fee is accrued daily and paid monthly at an annualized rate of 0.28% of the Fund's average net assets. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 57 ================================================================================ The performance adjustment is calculated separately for each share class on a monthly basis by comparing each class' performance over the performance period to that of the Lipper Intermediate Municipal Debt Funds Index. The Lipper Intermediate Municipal Debt Funds Index tracks the total return performance of Funds that invest in municipal debt issues with dollar-weighted average maturities of five to ten years. The performance period for each class consists of the current month plus the previous 35 months. The following table is utilized to determine the extent of the performance adjustment:
OVER/UNDER PERFORMANCE RELATIVE TO INDEX ANNUAL ADJUSTMENT RATE (IN BASIS POINTS)(1) (IN BASIS POINTS)(1) ------------------------------------------------------------------- +/- 20 to 50 +/- 4 +/- 51 to 100 +/- 5 +/- 101 and greater +/- 6
(1) Based on the difference between average annual performance of the relevant share class of the Fund and its relevant index, rounded to the nearest basis point. Average net assets of the share class are calculated over a rolling 36-month period. Each class' annual performance adjustment rate is multiplied by the average net assets of each respective class over the entire performance period, which is then multiplied by a fraction, the numerator of which is the number of days in the month and the denominator of which is 365 (366 in leap years). The resulting amount is then added to (in the case of overperformance), or subtracted from (in the case of underperformance) the base fee. Under the performance fee arrangement, each class will pay a positive performance fee adjustment for a performance period whenever the class outperforms the Lipper Intermediate Municipal Debt Funds Index over that period, even if the class had overall negative returns during the performance period. For the six-month period ended September 30, 2016, the Fund incurred total management fees, paid or payable to the Manager, of $7,339,000, which included a performance adjustment for the Fund Shares and Adviser Shares of $870,000 and $5,000, respectively. For the Fund ================================================================================ 58 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND ================================================================================ Shares and Adviser Shares, the performance adjustments were 0.04% and 0.02%, respectively. B. ADMINISTRATION AND SERVICING FEES - The Manager provides certain administration and servicing functions for the Fund. For such services, the Manager receives a fee accrued daily and paid monthly at an annualized rate of 0.15% of average net assets for both the Fund Shares and Adviser Shares. For the six-month period ended September 30, 2016, the Fund Shares and Adviser Shares incurred administration and servicing fees, paid or payable to the Manager, of $3,428,000 and $34,000, respectively. In addition to the services provided under its Administration and Servicing Agreement with the Fund, the Manager also provides certain compliance and legal services for the benefit of the Fund. The Board has approved the reimbursement of a portion of these expenses incurred by the Manager. For the six-month period ended September 30, 2016, the Fund reimbursed the Manager $64,000 for these compliance and legal services. These expenses are included in the professional fees on the Fund's Statement of Operations. C. EXPENSE LIMITATION - The Manager agreed, through August 1, 2017, to limit the total annual operating expenses of the Adviser Shares to 0.80% of its average net assets, excluding extraordinary expenses and before reductions of any expenses paid indirectly, and to reimburse the Adviser Shares for all expenses in excess of that amount. This expense limitation arrangement may not be changed or terminated through August 1, 2017, without approval of the Board, and may be changed or terminated by the Manager at any time after that date. For the six-month period ended September 30, 2016, the Adviser Shares incurred reimbursable expenses of $13,000, of which $5,000 was receivable from the Manager. D. TRANSFER AGENT'S FEES - USAA Transfer Agency Company, d/b/a USAA Shareholder Account Services (SAS), an affiliate of the Manager, provides transfer agent services to the Fund Shares and Adviser Shares based on an annual charge of $25.50 per shareholder account plus out-of-pocket expenses. SAS pays a portion of these fees to certain intermediaries for the administration and servicing of accounts that are held with such ================================================================================ NOTES TO FINANCIAL STATEMENTS | 59 ================================================================================ intermediaries. For the six-month period ended September 30, 2016, the Fund Shares and Adviser Shares incurred transfer agent's fees, paid or payable to SAS, of $745,000 and $15,000, respectively. E. DISTRIBUTION AND SERVICE (12b-1) FEES - The Fund has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Adviser Shares. Under the plan, the Adviser Shares pay fees to USAA Investment Management Company (IMCO), the distributor, for distribution and shareholder services. IMCO pays all or a portion of such fees to intermediaries that make the Adviser Shares available for investment by their customers. The fee is accrued daily and paid monthly at an annual rate of 0.25% of the Adviser Shares' average net assets. Adviser Shares are offered and sold without imposition of an initial sales charge or a contingent deferred sales charge. For the six-month period ended September 30, 2016, the Adviser Shares incurred distribution and service (12b-1) fees of $57,000. F. UNDERWRITING SERVICES - IMCO provides exclusive underwriting and distribution of the Fund's shares on a continuing best-efforts basis and receives no fee or other compensation for these services, but may receive 12b-1 fees as described above, with respect to Adviser Shares. (7) TRANSACTIONS WITH AFFILIATES The Manager is indirectly wholly owned by United Services Automobile Association (USAA), a large, diversified financial services institution. At September 30, 2016, USAA and its affiliates owned 378,000 Adviser Shares, which represents 10.5% of the Adviser Shares outstanding and 0.1% of the Fund's total outstanding shares. Certain trustees and officers of the Fund are also directors, officers, and/or employees of the Manager. None of the affiliated trustees or Fund officers received any compensation from the Fund. ================================================================================ 60 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND ================================================================================ (8) FINANCIAL HIGHLIGHTS - FUND SHARES Per share operating performance for a share outstanding throughout each period is as follows:
SIX-MONTH PERIOD ENDED SEPTEMBER 30, YEAR ENDED MARCH 31, ------------------------------------------------------------------------------------ 2016 2016 2015 2014 2013 2012 ------------------------------------------------------------------------------------ Net asset value at beginning of period $ 13.61 $ 13.59 $ 13.36 $ 13.75 $ 13.41 $ 12.56 ------------------------------------------------------------------------------------ Income (loss) from investment operations: Net investment income .21 .44 .45 .50 .50 .54 Net realized and unrealized gain (loss) .09 .02 .23 (.39) .34 .85 ------------------------------------------------------------------------------------ Total from investment operations .30 .46 .68 .11 .84 1.39 ------------------------------------------------------------------------------------ Less distributions from: Net investment income (.21) (.44) (.45) (.50) (.50) (.54) Realized capital gains - - - - - (.00)(a) ------------------------------------------------------------------------------------ Total distributions (.21) (.44) (.45) (.50) (.50) (.54) ------------------------------------------------------------------------------------ Net asset value at end of period $ 13.70 $ 13.61 $ 13.59 $ 13.36 $ 13.75 $ 13.41 ==================================================================================== Total return (%)* 2.19 3.48 5.14 .85 6.31 11.25 Net assets at end of period (000) $4,694,936 $4,332,360 $3,894,482 $3,381,571 $3,387,366 $3,231,474 Ratios to average net assets:** Expenses (%)(b) .53(c) .54 .55 .55 .54 .54 Net investment income (%) 3.01(c) 3.28 3.31 3.72 3.63 4.11 Portfolio turnover (%) 6 10 4 10 11 13
* Assumes reinvestment of all net investment income and realized capital gain distributions, if any, during the period. Includes adjustments in accordance with U.S. generally accepted accounting principles and could differ from the Lipper reported return. Total returns for periods of less than one year are not annualized. ** For the six-month period ended September 30, 2016, average net assets were $4,561,765,000. (a) Represents less than $0.01 per share. (b) Reflects total annual operating expenses of the Fund Shares before reductions of any expenses paid indirectly. The Fund Shares' expenses paid indirectly decreased the expense ratios by less than 0.01%. (c) Annualized. The ratio is not necessarily indicative of 12 months of operations. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 61 ================================================================================ (8) FINANCIAL HIGHLIGHTS (CONTINUED) - ADVISER SHARES Per share operating performance for a share outstanding throughout each period is as follows:
SIX-MONTH PERIOD ENDED SEPTEMBER 30, YEAR ENDED MARCH 31, -------------------------------------------------------------------------------- 2016 2016 2015 2014 2013 2012 -------------------------------------------------------------------------------- Net asset value at beginning of period $ 13.61 $ 13.58 $ 13.36 $ 13.75 $13.41 $12.56 -------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income .19 .41 .42 .47 .47 .51 Net realized and unrealized gain (loss) .09 .03 .22 (.39) .34 .85 -------------------------------------------------------------------------------- Total from investment operations .28 .44 .64 .08 .81 1.36 -------------------------------------------------------------------------------- Less distributions from: Net investment income (.19) (.41) (.42) (.47) (.47) (.51) Realized capital gains - - - - - (.00)(a) -------------------------------------------------------------------------------- Total distributions (.19) (.41) (.42) (.47) (.47) (.51) -------------------------------------------------------------------------------- Redemption fees added to beneficial interests .00(a) .00(a) - - - - -------------------------------------------------------------------------------- Net asset value at end of period $ 13.70 $ 13.61 $ 13.58 $ 13.36 $13.75 $13.41 ================================================================================ Total return (%)* 2.06 3.28 4.81 .64 6.10 11.03 Net assets at end of period (000) $49,115 $42,054 $36,848 $20,166 $7,451 $5,843 Ratios to average net assets:** Expenses (%)(b) .80(d) .80 .79(c) .75 .75 .75 Expenses, excluding reimbursements (%)(b) .86(d) .88 .88 .96 1.14 1.38 Net investment income (%) 2.74(d) 3.02 3.06 3.51 3.41 3.90 Portfolio turnover (%) 6 10 4 10 11 13
* Assumes reinvestment of all net investment income and realized capital gain distributions, if any, during the period. Includes adjustments in accordance with U.S. generally accepted accounting principles and could differ from the Lipper reported return. Total returns for periods of less than one year are not annualized. ** For the six-month period ended September 30, 2016, average net assets were $45,898,000. (a) Represents less than $0.01 per share. (b) Reflects total annual operating expenses of the Adviser Shares before reductions of any expenses paid indirectly. The Adviser Shares' expenses paid indirectly decreased the expense ratios by less than 0.01%. (c) Effective August 1, 2014, the Manager voluntarily agreed to limit the annual expenses of the Adviser Shares to 0.80% of the Adviser Shares' average net assets. Prior to this date, the voluntary expense limit was 0.75%. (d) Annualized. The ratio is not necessarily indicative of 12 months of operations. ================================================================================ 62 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND ================================================================================ EXPENSE EXAMPLE September 30, 2016 (unaudited) -------------------------------------------------------------------------------- EXAMPLE As a shareholder of the Fund, you incur two types of costs: direct costs, such as wire fees, redemption fees, and low balance fees; and indirect costs, including management fees, transfer agency fees, distribution and service (12b-1) fees, and other Fund operating expenses. This example is intended to help you understand your indirect costs, also referred to as "ongoing costs" (in dollars), of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire six-month period of April 1, 2016, through September 30, 2016. ACTUAL EXPENSES The line labeled "actual" under each share class in the table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested at the beginning of the period, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number for your share class in the "actual" line under the heading "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The line labeled "hypothetical" under each share class in the table provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratios for each class and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual ================================================================================ EXPENSE EXAMPLE | 63 ================================================================================ return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any direct costs, such as wire fees, redemption fees, or low balance fees. Therefore, the line labeled "hypothetical" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these direct costs were included, your costs would have been higher.
EXPENSES PAID BEGINNING ENDING DURING PERIOD* ACCOUNT VALUE ACCOUNT VALUE APRIL 1, 2016 - APRIL 1, 2016 SEPTEMBER 30, 2016 SEPTEMBER 30, 2016 ------------------------------------------------------------- FUND SHARES Actual $1,000.00 $1,021.90 $2.69 Hypothetical (5% return before expenses) 1,000.00 1,022.41 2.69 ADVISER SHARES Actual 1,000.00 1,020.60 4.05 Hypothetical (5% return before expenses) 1,000.00 1,021.06 4.05
*Expenses are equal to the annualized expense ratio of 0.53% for Fund Shares and 0.80% for Adviser Shares, which are net of any reimbursements and expenses paid indirectly, multiplied by the average account value over the period, multiplied by 183 days/365 days (to reflect the one-half-year period). The Fund's actual ending account values are based on its actual total returns of 2.19% for Fund Shares and 2.06% for Adviser Shares for the six-month period of April 1, 2016, through September 30, 2016. ================================================================================ 64 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND ================================================================================ ADVISORY AGREEMENT(S) September 30, 2016 (unaudited) -------------------------------------------------------------------------------- At an in-person meeting of the Board of Trustees (the Board) held on April 22, 2016, the Board, including the Trustees who are not "interested persons" (as that term is defined in the Investment Company Act of 1940, as amended) of the Trust (the Independent Trustees), approved for an annual period the continuance of the Advisory Agreement between the Trust and the Manager with respect to the Fund. In advance of the meeting, the Trustees received and considered a variety of information relating to the Advisory Agreement and the Manager and were given the opportunity to ask questions and request additional information from management. The information provided to the Board included, among other things: (i) a separate report prepared by an independent third party, which provided a statistical analysis comparing the Fund's investment performance, expenses, and fees to comparable investment companies; (ii) information concerning the services rendered to the Fund, as well as information regarding the Manager's revenues and costs of providing services to the Fund and compensation paid to affiliates of the Manager; and (iii) information about the Manager's operations and personnel. Prior to voting, the Independent Trustees reviewed the proposed continuation of the Advisory Agreement with management and with experienced counsel retained by the Independent Trustees (Independent Counsel) and received materials from such Independent Counsel discussing the legal standards for their consideration of the proposed continuation of the Advisory Agreement with respect to the Fund. The Independent Trustees also reviewed the proposed continuation of the Advisory Agreement with respect to the Fund in private sessions with their Independent Counsel at which no representatives of management were present. At each regularly scheduled meeting of the Board and its committees, the Board receives and reviews, among other things, information concerning the Fund's performance and related services provided by the Manager. At the meeting at which the renewal of the Advisory Agreement is considered, particular focus is given to information concerning Fund performance, ================================================================================ ADVISORY AGREEMENT(S) | 65 ================================================================================ comparability of fees and total expenses, and profitability. However, the Board noted that the evaluation process with respect to the Manager is an ongoing one. In this regard, the Board's and its committees' consideration of the Advisory Agreement included information previously received at such meetings. ADVISORY AGREEMENT After full consideration of a variety of factors, the Board, including the Independent Trustees, voted to approve the Advisory Agreement. In approving the Advisory Agreement, the Trustees did not identify any single factor as controlling, and each Trustee may have attributed different weights to various factors. Throughout their deliberations, the Independent Trustees were represented and assisted by Independent Counsel. NATURE, EXTENT, AND QUALITY OF SERVICES - In considering the nature, extent, and quality of the services provided by the Manager under the Advisory Agreement, the Board reviewed information provided by the Manager relating to its operations and personnel. The Board also took into account its knowledge of the Manager's management and the quality of the performance of the Manager's duties through Board meetings, discussions, and reports during the preceding year. The Board considered the fees paid to the Manager and the services provided to the Fund by the Manager under the Advisory Agreement, as well as other services provided by the Manager and its affiliates under other agreements, and the personnel who provide these services. In addition to the investment advisory services provided to the Fund, the Manager and its affiliates provide administrative services, stockholder services, oversight of Fund accounting, marketing services, assistance in meeting legal and regulatory requirements, and other services necessary for the operation of the Fund and the Trust. The Board considered the Manager's management style and the performance of its duties under the Advisory Agreement. The Board considered the level and depth of knowledge of the Manager, including the professional experience and qualifications of its senior and investment personnel, as well as current staffing levels. The allocation of the Fund's brokerage, including the Manager's process for monitoring "best execution," also was considered. The Manager's role in coordinating the activities of the Fund's other service providers also ================================================================================ 66 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND ================================================================================ was considered. The Board also considered the Manager's risk management processes. The Board considered the Manager's financial condition and that it had the financial wherewithal to continue to provide the same scope and high quality of services under the Advisory Agreement. In reviewing the Advisory Agreement, the Board focused on the experience, resources, and strengths of the Manager and its affiliates in managing the Fund, as well as the other funds in the Trust. The Board also reviewed the compliance and administrative services provided to the Fund by the Manager, including the Manager's oversight of the Fund's day-to-day operations and oversight of Fund accounting. The Trustees, guided also by information obtained from their experiences as trustees of the Trust, also focused on the quality of the Manager's compliance and administrative staff. EXPENSES AND PERFORMANCE - In connection with its consideration of the Advisory Agreement, the Board evaluated the Fund's advisory fees and total expense ratio as compared to other open-end investment companies deemed to be comparable to the Fund as determined by the independent third party in its report. The Fund's expenses were compared to (i) a group of investment companies chosen by the independent third party to be comparable to the Fund based upon certain factors, including fund type, comparability of investment objective and classification, sales load type (in this case, investment companies with no sales loads), asset size, and expense components (the "expense group") and (ii) a larger group of investment companies that includes all no-load retail open-end investment companies with same investment classifications/objectives as the Fund regardless of asset size, excluding outliers (the "expense universe"). Among other data, the Board noted that the Fund's management fee rate - which includes advisory and administrative services and the effects of any performance adjustment - was above the median of its expense group and its expense universe. The data indicated that the Fund's total expense ratio was below the median of its expense group and above the median of its expense universe. The Board took into account the various services provided to the Fund by the Manager and its affiliates, including the high quality of services provided by the Manager. The Board also took into account management's discussion of the Fund's ================================================================================ ADVISORY AGREEMENT(S) | 67 ================================================================================ expenses. The Board also noted the level and method of computing the management fee, including any performance adjustment to such fee. In considering the Fund's performance, the Board noted that it reviews at its regularly scheduled meetings information about the Fund's performance results. The Trustees also reviewed various comparative data provided to them in connection with their consideration of the renewal of the Advisory Agreement, including, among other information, a comparison of the Fund's average annual total return with its Lipper index and with that of other mutual funds deemed to be in its peer group by the independent third party in its report (the "performance universe"). The Fund's performance universe consisted of the Fund and all retail and institutional open-end investment companies with the same classification/objective as the Fund regardless of asset size or primary channel of distribution. This comparison indicated that, among other data, the Fund's performance was above the average of its performance universe and equal to its Lipper index for the one-year period ended December 31, 2015 and was above the average of its performance universe and its Lipper index for the three-, five-, and ten-year periods ended December 31, 2015. The Board also noted that the Fund's percentile performance ranking was in the top 35% of its performance universe for the one-year period ended December 31, 2015, was in the top 10% of its performance universe for the three- and ten-year periods ended December 31, 2015, and was in the top 15% of its performance universe for the five-year period ended December 31, 2015. COMPENSATION AND PROFITABILITY - The Board took into consideration the level and method of computing the management fee. The information considered by the Board included operating profit margin information for the Manager's business as a whole. The Board also received and considered profitability information related to the management revenues from the Fund. This information included a review of the methodology used in the allocation of certain costs to the Fund. The Trustees reviewed the profitability of the Manager's relationship with the Fund before tax expenses. In reviewing the overall profitability of the management fee to the Manager, the Board also considered the fact that affiliates provide shareholder servicing and administrative services to the Fund for which they receive compensation. The Board also considered the possible direct and indirect benefits to the Manager ================================================================================ 68 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND ================================================================================ from its relationship with the Trust, including that the Manager may derive reputational and other benefits from its association with the Fund. The Board also took into account the high quality of services received by the Fund from the Manager. The Trustees recognized that the Manager should be entitled to earn a reasonable level of profits in exchange for the level of services it provides to the Fund and the entrepreneurial risk that it assumes as Manager. ECONOMIES OF SCALE - The Board considered whether there should be changes in the management fee rate or structure in order to enable the Fund to participate in any economies of scale. The Board took into account management's discussion of the current advisory fee structure. The Board also considered the effect of the Fund's growth and size on its performance and fees, noting that if the Fund's assets increase over time, the Fund may realize other economies of scale if assets increase proportionally more than some expenses. The Board determined that the current investment management fee structure was reasonable. CONCLUSIONS - The Board reached the following conclusions regarding the Fund's Advisory Agreement with the Manager, among others: (i) the Manager has demonstrated that it possesses the capability and resources to perform the duties required of it under the Advisory Agreement; (ii) the Manager maintains an appropriate compliance program; (iii) the performance of the Fund is reasonable in relation to the performance of funds with similar investment objectives and to relevant indices; (iv) the Fund's advisory expenses are reasonable in relation to those of similar funds and to the services to be provided by the Manager; and (v) the Manager's and its affiliates' level of profitability from its relationship with the Fund is reasonable in light of the nature and high quality of services provided by the Manager and the type of fund. Based on its conclusions, the Board determined that continuation of the Advisory Agreement would be in the best interests of the Fund and its shareholders. ================================================================================ ADVISORY AGREEMENT(S) | 69 ================================================================================ TRUSTEES Daniel S. McNamara Robert L. Mason, Ph.D. Jefferson C. Boyce Dawn M. Hawley Paul L. McNamara Barbara B. Ostdiek, Ph.D. Michael F. Reimherr -------------------------------------------------------------------------------- ADMINISTRATOR AND USAA Asset Management Company INVESTMENT ADVISER P.O. Box 659453 San Antonio, Texas 78265-9825 -------------------------------------------------------------------------------- UNDERWRITER AND USAA Investment Management Company DISTRIBUTOR P.O. Box 659453 San Antonio, Texas 78265-9825 -------------------------------------------------------------------------------- TRANSFER AGENT USAA Shareholder Account Services 9800 Fredericksburg Road San Antonio, Texas 78288 -------------------------------------------------------------------------------- CUSTODIAN AND State Street Bank and Trust Company ACCOUNTING AGENT P.O. Box 1713 Boston, Massachusetts 02105 -------------------------------------------------------------------------------- INDEPENDENT Ernst & Young LLP REGISTERED PUBLIC 100 West Houston St., Suite 1700 ACCOUNTING FIRM San Antonio, Texas 78205 -------------------------------------------------------------------------------- MUTUAL FUND Under "My Accounts" on SELF-SERVICE 24/7 usaa.com select your mutual fund AT USAA.COM account and either click the link or select 'I want to...' and select OR CALL the desired action. (800) 531-USAA (8722) (210) 531-8722 -------------------------------------------------------------------------------- Copies of the Manager's proxy voting policies and procedures, approved by the Trust's Board of Trustees for use in voting proxies on behalf of the Fund, are available without charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722; (ii) at USAA.COM; and (iii) in summary within the Statement of Additional Information on the SEC's website at HTTP://WWW.SEC.GOV. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge (i) at USAA.COM; and (ii) on the SEC's website at HTTP://WWW.SEC.GOV. The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. These Forms N-Q are available at no charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722; (ii) at USAA.COM; and (iii) on the SEC's website at HTTP://WWW.SEC.GOV. These Forms N-Q also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling (800) 732-0330. ================================================================================ -------------- USAA PRSRT STD 9800 Fredericksburg Road U.S. Postage San Antonio, TX 78288 PAID USAA -------------- >> SAVE PAPER AND FUND COSTS Under MY PROFILE on USAA.COM select MANAGE PREFERENCES Set your DOCUMENT PREFERENCES to USAA DOCUMENTS ONLINE. [LOGO OF USAA] USAA We know what it means to serve.(R) ============================================================================= 39594-1116 (C)2016, USAA. All rights reserved. [LOGO OF USAA] USAA(R) [GRAPHIC OF USAA TAX EXEMPT LONG-TERM FUND] ============================================================== SEMIANNUAL REPORT USAA TAX EXEMPT LONG-TERM FUND FUND SHARES o ADVISER SHARES SEPTEMBER 30, 2016 ============================================================== ================================================================================ ================================================================================ PRESIDENT'S MESSAGE "THE CLOSING WEEKS OF A YEAR CAN BE A GOOD TIME TO TAKE A LOOK AT YOUR FINANCIAL SITUATION [PHOTO OF BROOKS ENGLEHARDT] WITH A GOAL OF GETTING YOUR FINANCES IN ORDER." -------------------------------------------------------------------------------- NOVEMBER 2016 Investors were generally rewarded during the reporting period ended September 30, 2016. Most asset classes posted gains as global growth concerns eased and many of the world's central banks, including the Federal Reserve (the Fed), maintained accommodative monetary policies. Stock prices generally climbed, despite two brief setbacks. In June 2016, a brief retreat followed the United Kingdom's unexpected vote to withdraw from the European Union (commonly known as Brexit). In September 2016, stocks fell--before quickly recovering--on concerns about a potential Fed interest rate increase. Meanwhile, bond prices recorded positive returns during the reporting period. As bond prices rose, longer-term interest rates, which move in the opposite direction, fell. As you know, the Fed only has direct control over short-term interest rates. Bond prices and longer-term interest rates are determined by buyers and sellers, sometimes based on their views of Fed policy. During the reporting period, market expectations about potential Fed interest rate increases shifted into the future. The Fed, which in December 2015 had raised short-term interest rates for the first time since 2008, also initially signaled that four interest rate increases were on tap for 2016. However, policymakers backed off that forecast in March 2016, just before the reporting period began, indicating that only two interest rate increases were on the table. They pointed to the global market turmoil during the first six weeks of 2016 as a contributing factor. Policymakers subsequently hinted there would be a single interest rate increase, but ultimately left interest rates unchanged. In our view, December 2016 is the Fed's only remaining window of opportunity to increase short-term interest rates. It is unlikely to act at its November 2016 meeting, which is just days before the presidential election. We believe that as of this writing, the futures market, which generally is a proxy for investor sentiment, indicates approximately a two-thirds chance that the Fed would raise rates in December 2016. ================================================================================ ================================================================================ This begs the question: Is it good or bad if low interest rates persist? We think it depends on your perspective. On one hand, consumers and businesses are able to continue borrowing at affordable interest rates. On the other hand, savers may continue to see returns lower than the rate of inflation. At USAA Investments, we believe the Fed is likely to raise interest rates at a gradual pace. We've long held the belief that interest rates will stay lower for longer than many market participants expect. Currently, there is no urgency for the Fed to act. Interest rate increases are typically a response to an overheating economy, and the U.S. remains in slow-growth mode with low inflation. Americans are still carrying large amounts of household debt, so higher interest rates are likely to hinder their spending and slow what little growth there is. Tax-exempt bonds, like most other fixed-income investments, generated positive returns during the reporting period. Municipal bonds performed well, as investors continued to favor them for their tax-advantaged status. At the same time, municipal issuance remained low, though it has increased since January 2016. Still, the supply is far from enough to satisfy demand and we expect municipal bonds to continue to benefit from this situation for some time to come. Although state and local finances are in better shape than they were a few years ago, municipal governments have been reluctant to take on additional debt. We believe eventually this will change, but likely not for the foreseeable future. Looking ahead, the end of 2016 is just weeks away. The closing weeks of a year can be a good time to take a look at your financial situation with a goal of getting your finances in order. One way to help ensure you're doing the most with what you have is to consider investing a set amount each month, also known as dollar-cost averaging. Please call USAA Investments to speak with a financial advisor. We are committed to helping you meet your financial objectives. On behalf of everyone at USAA Investments, thank you for relying on us to help you with your investment needs. We appreciate the opportunity to serve you. Sincerely, /S/ BROOKS ENGLEHARDT Brooks Englehardt President USAA Investments Investments provided by USAA Investment Management Company and USAA Financial Advisors, Inc., both registered broker-dealers, and affiliates. Financial planning services and financial advice provided by USAA Financial Planning Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in California, License # 0E36312), a registered investment adviser and insurance agency and its wholly owned subsidiary, USAA Financial Advisors, Inc., a registered broker dealer. ================================================================================ ================================================================================ TABLE OF CONTENTS -------------------------------------------------------------------------------- FUND OBJECTIVE 1 MANAGERS' COMMENTARY ON THE FUND 2 INVESTMENT OVERVIEW 5 FINANCIAL INFORMATION Portfolio of Investments 16 Notes to Portfolio of Investments 34 Financial Statements 36 Notes to Financial Statements 39 EXPENSE EXAMPLE 52 ADVISORY AGREEMENT(S) 54
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS ABOUT THE FUND. (C)2016, USAA. All rights reserved. 211741-1116 ================================================================================ ================================================================================ FUND OBJECTIVE THE USAA TAX EXEMPT LONG-TERM FUND (THE FUND) PROVIDES INVESTORS WITH INTEREST INCOME THAT IS EXEMPT FROM FEDERAL INCOME TAX. -------------------------------------------------------------------------------- TYPES OF INVESTMENTS The Fund invests primarily in investment-grade securities, the interest from which is exempt from federal income tax. During normal market conditions, at least 80% of the Fund's net assets will consist of tax-exempt securities. The Fund's dollar-weighted average portfolio maturity is 10 years or more. IRA DISTRIBUTION WITHHOLDING DISCLOSURE We generally must withhold federal income tax at a rate of 10% of the taxable portion of your distribution and, if you live in a state that requires state income tax withholding, at your state's tax rate. However, you may elect not to have withholding apply or to have income tax withheld at a higher rate. Any withholding election that you make will apply to any subsequent distribution unless and until you change or revoke the election. If you wish to make a withholding election or change or revoke a prior withholding election, call (800) 531-USAA (8722) or (210) 531-8722. If you do not have a withholding election in place by the date of a distribution, federal income tax will be withheld from the taxable portion of your distribution at a rate of 10%. If you must pay estimated taxes, you may be subject to estimated tax penalties if your estimated tax payments are not sufficient and sufficient tax is not withheld from your distribution. For more specific information, please consult your tax adviser. ================================================================================ FUND OBJECTIVE | 1 ================================================================================ MANAGERS' COMMENTARY ON THE FUND -------------------------------------------------------------------------------- [PHOTO OF JOHN C. BONNELL] [PHOTO OF DALE R. HOFFMANN] JOHN C. BONNELL, CFA DALE R. HOFFMANN USAA Asset USAA Asset Management Company Management Company -------------------------------------------------------------------------------- o WHAT WERE THE MARKET CONDITIONS DURING THE REPORTING PERIOD? The tax-exempt bond market advanced during the reporting period ended September 30, 2016, as demand for municipal securities outweighed the amount of available supply. Although new issuance picked up, it remained low by historical standards. Furthermore, it was dominated by refunding bonds rather than new issues. In a bond refunding, issuers call existing high-interest bonds and replace them with new bonds that have lower coupon rates. Meanwhile, as demand for municipal bonds increased, municipal bond mutual funds also received positive investment inflows every week of the reporting period. Investors continued to prefer municipal securities for their tax-advantaged status as well as their relative stability. Municipal bonds also benefited from the performance of the U.S. Treasury market, which the tax-exempt bond market generally follows over time. Longer-term U.S. Treasury securities rallied on strong demand, especially from foreign investors who favored U.S. Treasuries because of their relatively higher yields compared to the government bonds of other developed countries. As U.S. Treasury prices rose, their yields (which move in the opposite direction) fell. During the reporting period, the yield on a 30-year U.S. Treasury security dropped from 2.61% as of 3/31/16 to 2.32% as of 9/30/16. Municipal credit quality remained strong as state and local governments continued to practice sound fiscal management and generally maintained healthy reserves. State and local revenues rose, though at a more moderate ================================================================================ 2 | USAA TAX EXEMPT LONG-TERM FUND ================================================================================ pace than in the recent past. Numerous issuers also took steps to address their pension risks, in some cases proposing tax increases to deal with potential pension-funding shortfalls. Unlike corporate issuers, many state and municipal governments have broad taxing powers and are required by law to balance their budgets. o HOW DID THE USAA TAX EXEMPT LONG-TERM FUND (THE FUND) PERFORM DURING THE REPORTING PERIOD? The Fund has two share classes: Fund Shares and Adviser Shares. For the reporting period ended September 30, 2016, the Fund Shares and Adviser Shares had a total return of 2.53% and 2.37%, respectively, versus an average return 2.48% amongst the funds in the Lipper General & Insured Municipal Debt Funds category. This compares to returns of 2.78% for the Lipper General & Insured Municipal Debt Funds Index and 2.30% for the Bloomberg Barclays Municipal Bond Index*. The Fund Shares' and Adviser Shares' tax-exempt distributions over the prior 12 months produced a dividend yield of 4.09% and 3.79%, respectively, compared to the Lipper category average of 2.87%. USAA Asset Management Company (the Manager) is the Fund's investment adviser. The investment adviser provides day-to-day discretionary management for the Fund's assets. o WHAT STRATEGIES DID YOU EMPLOY DURING THE REPORTING PERIOD? We maintained our focus on income generation. Over the long-term, the Fund's income distribution, not its price appreciation, accounts for most of its total return . Due to our income orientation, the Fund generally invests in bonds in the BBB and A rated categories. Refer to page 8 for benchmark definitions. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. *Effective August 24, 2016, Bloomberg acquired Barclays Risk Analytics and Index Solutions, Ltd., which includes the Barclays indices. Thus, the Fund's benchmark is now called the Bloomberg Barclays Municipal Bond Index. ================================================================================ MANAGERS' COMMENTARY ON THE FUND | 3 ================================================================================ During the reporting period, the Fund continued to benefit from our independent research. In our efforts to find attractive opportunities, we continued to work with our in-house team of analysts to select investments for the Fund on a bond-by-bond basis. Each security is researched, using fundamental analysis that emphasizes an issuer's ability and willingness to repay its debt. Through our research, we seek both to recognize value and avoid potential risks. The Fund continued to maintain a diversified portfolio of more than 400 longer-term, primarily investment-grade municipal bonds, which are continuously monitored by our team of analysts. The Fund is diversified by sector, issuer, and geography, limiting its exposure to an unexpected event. We also avoid bonds subject to the federal alternative minimum tax for individuals. Thank you for allowing us to help you with your investment needs. As interest rates rise, bond prices generally fall; given the historically low interest rate environment, risks associated with rising interest rates may be heightened. o Diversification is a technique intended to help reduce risk and does not guarantee a profit or prevent a loss. o Some income may be subject to state or local taxes but not the federal alternative minimum tax. ================================================================================ 4 | USAA TAX EXEMPT LONG-TERM FUND ================================================================================ INVESTMENT OVERVIEW USAA TAX EXEMPT LONG-TERM FUND SHARES (FUND SHARES) (Ticker Symbol: USTEX)
-------------------------------------------------------------------------------- 9/30/16 3/31/16 -------------------------------------------------------------------------------- Net Assets $2.5 Billion $2.4 Billion Net Asset Value Per Share $13.80 $13.73 LAST 12 MONTHS Tax-Exempt Dividends Per Share $0.565 $0.578 Capital Gain Distributions Per Share - - Dollar-Weighted Average Portfolio Maturity(+) 15.4 Years 15.1 Years (+)Obtained by multiplying the dollar value of each investment by the number of days left to its maturity, adding those figures together, and dividing them by the total dollar value of the Fund's portfolio. -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 9/30/16 -------------------------------------------------------------------------------- 3/31/16 - 9/30/16* 1 YEAR 5 YEARS 10 YEARS 2.53% 5.71% 5.37% 4.64% -------------------------------------------------------------------------------- 30-DAY SEC YIELD** AS OF 9/30/16 EXPENSE RATIO AS OF 3/31/16*** -------------------------------------------------------------------------------- 1.83% 0.51%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT USAA.COM. *Total returns for periods of less than one year are not annualized. This return is cumulative. **Calculated as prescribed by the Securities and Exchange Commission. ***The expense ratio represents the total annual operating expenses, before reductions of any expenses paid indirectly and including any acquired fund fees and expenses, as reported in the Fund's prospectus dated August 1, 2016, and is calculated as a percentage of average net assets. This expense ratio may differ from the expense ratio disclosed in the Financial Highlights, which excludes acquired fund fees and expenses. No adjustment has been made for taxes payable by shareholders on their reinvested net investment income and realized capital gain distributions. ================================================================================ INVESTMENT OVERVIEW | 5 ================================================================================ AVERAGE ANNUAL COMPOUNDED RETURNS WITH REINVESTMENT OF DIVIDENDS - PERIODS ENDED SEPTEMBER 30, 2016
-------------------------------------------------------------------------------- TOTAL RETURN = DIVIDEND RETURN + PRICE CHANGE -------------------------------------------------------------------------------- 10 YEARS 4.64% = 4.65% + -0.01% 5 YEARS 5.37% = 4.25% + 1.12% 1 YEAR 5.71% = 4.24% + 1.47%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT USAA.COM. ANNUAL TOTAL RETURNS AND COMPOUNDED DIVIDEND RETURNS FOR THE ONE-YEAR PERIODS ENDED SEPTEMBER 30, 2007-SEPTEMBER 30, 2016 [CHART OF ANNUAL TOTAL RETURNS AND COMPOUNDED DIVIDEND RETURNS]
TOTAL DIVIDEND CHANGE IN RETURN RETURN SHARE PRICE 9/30/2007 1.88% 4.46% -2.58% 9/30/2008 -5.63% 4.55% -10.18% 9/30/2009 14.62% 6.29% 8.33% 9/30/2010 6.30% 5.07% 1.23% 9/30/2011 3.49% 4.90% -1.41% 9/30/2012 11.04% 4.49% 6.55% 9/30/2013 -2.03% 3.79% -5.82% 9/30/2014 9.27% 4.54% 4.73% 9/30/2015 3.36% 4.23% -0.87% 9/30/2016 5.71% 4.24% 1.47%
[END CHART] NOTE THE ROLE THAT DIVIDEND RETURNS PLAY IN THE FUND SHARES' TOTAL RETURN OVER TIME. SHARE PRICES AND DIVIDEND RATES WILL VARY FROM PERIOD TO PERIOD. HOWEVER, DIVIDEND RETURNS GENERALLY ARE MORE CONSISTENT AND LESS VOLATILE THAN SHARE PRICES. Total return measures the price change in a share assuming the reinvestment of all net investment income and realized capital gain distributions, if any. Dividend return is the net investment income dividends received over the period, assuming reinvestment of all dividends. Share price change is the change in net asset value over the period adjusted for realized capital gain distributions. The returns quoted do not reflect adjustments made to the enclosed financial statements in accordance with U.S. generally accepted accounting principles or the deduction of taxes that a shareholder would pay on distributions (including capital gain distributions), redemptions of shares, or reinvested net investment income. ================================================================================ 6 | USAA TAX EXEMPT LONG-TERM FUND ================================================================================ TAXABLE EQUIVALENT ILLUSTRATION To match the Fund Shares' Dividend Return for the period ended 9/30/16, and assuming marginal federal tax rates of: 28.00% 36.80%* 38.80%* 43.40%* A FULLY TAXABLE INVESTMENT MUST PAY THE FOLLOWING:
PERIOD DIVIDEND RETURN -------------------------------------------------------------------------------- 10 Years 4.65% 6.46% 7.36% 7.60% 8.22% 5 Years 4.25% 5.90% 6.72% 6.94% 7.51% 1 Year 4.24% 5.89% 6.71% 6.93% 7.49%
To match the Fund Shares' closing 30-day SEC Yield of 1.83%, on 09/30/16 A FULLY TAXABLE INVESTMENT MUST PAY: 2.54% 2.90% 2.99% 3.23% This table is based on a hypothetical investment calculated for illustrative purposes only. It is not an indication of performance for any of the USAA family of funds. Taxable equivalent returns or yields will vary depending on applicable tax rates. -------------------------------------------------------------------------------- Some income may be subject to federal, state, or local taxes, but not the alternative minimum tax. Based on 2015 tax rates or rates in effect as of the issuance of this report. The above marginal rates assume married, filing jointly. *The above marginal rates assume income exceeds $250,000 and investment income is subject to the 3.80% medicare tax which is applied for income over a specific level, depending on the federal income tax filing status. ================================================================================ INVESTMENT OVERVIEW | 7 ================================================================================ o CUMULATIVE PERFORMANCE COMPARISON o [CHART OF CUMULATIVE PERFORMANCE COMPARISON]
BLOOMBERG USAA TAX EXEMPT LIPPER GENERAL & INSURED BARCLAYS MUNICIPAL LONG-TERM MUNICIPAL DEBT BOND INDEX FUND SHARES FUNDS INDEX 09/30/06 $10,000.00 $10,000.00 $10,000.00 10/31/06 10,062.71 10,071.00 10,064.88 11/30/06 10,146.59 10,179.00 10,149.19 12/31/06 10,110.74 10,124.00 10,112.56 01/31/07 10,084.85 10,101.00 10,092.51 02/28/07 10,217.74 10,233.00 10,213.28 03/31/07 10,192.55 10,199.00 10,187.30 04/30/07 10,222.72 10,228.00 10,218.90 05/31/07 10,177.46 10,178.00 10,175.25 06/30/07 10,124.72 10,114.00 10,118.74 07/31/07 10,203.21 10,151.00 10,167.62 08/31/07 10,159.19 9,994.00 10,070.62 09/30/07 10,309.52 10,187.00 10,214.14 10/31/07 10,355.47 10,227.00 10,243.86 11/30/07 10,421.50 10,232.00 10,261.18 12/31/07 10,450.43 10,186.00 10,252.43 01/31/08 10,582.21 10,308.00 10,374.07 02/29/08 10,097.73 9,695.00 9,844.31 03/31/08 10,386.34 9,996.00 10,106.60 04/30/08 10,507.88 10,169.00 10,241.99 05/31/08 10,571.41 10,267.00 10,320.05 06/30/08 10,452.09 10,145.00 10,181.81 07/31/08 10,491.82 10,086.00 10,171.58 08/31/08 10,614.60 10,185.00 10,266.56 09/30/08 10,116.83 9,613.00 9,722.10 10/31/08 10,013.57 9,177.00 9,426.38 11/30/08 10,045.40 9,083.00 9,317.10 12/31/08 10,191.86 8,909.00 9,283.25 01/31/09 10,564.91 9,381.00 9,721.18 02/28/09 10,620.41 9,459.00 9,817.31 03/31/09 10,622.35 9,463.00 9,783.24 04/30/09 10,834.56 9,753.00 10,063.36 05/31/09 10,949.17 10,069.00 10,294.94 06/30/09 10,846.60 9,982.00 10,189.98 07/31/09 11,028.07 10,154.00 10,350.84 08/31/09 11,216.61 10,405.00 10,614.00 09/30/09 11,619.14 11,018.00 11,154.30 10/31/09 11,375.24 10,773.00 10,865.58 11/30/09 11,469.23 10,784.00 10,898.65 12/31/09 11,507.99 10,877.00 11,000.68 01/31/10 11,567.92 10,943.00 11,054.80 02/28/10 11,680.05 11,039.00 11,159.07 03/31/10 11,652.09 11,033.00 11,167.08 04/30/10 11,793.69 11,176.00 11,313.68 05/31/10 11,882.15 11,244.00 11,373.31 06/30/10 11,889.21 11,238.00 11,359.44 07/31/10 12,037.46 11,381.00 11,494.26 08/31/10 12,313.06 11,678.00 11,787.86 09/30/10 12,293.82 11,712.00 11,797.57 10/31/10 12,259.77 11,677.00 11,772.72 11/30/10 12,014.62 11,324.00 11,447.62 12/31/10 11,781.79 11,027.00 11,183.41 01/31/11 11,695.00 10,856.00 11,043.81 02/28/11 11,881.18 11,055.00 11,221.93 03/31/11 11,841.59 11,012.00 11,180.21 04/30/11 12,053.65 11,223.00 11,367.38 05/31/11 12,259.63 11,496.00 11,610.16 06/30/11 12,302.40 11,588.00 11,689.08 07/31/11 12,427.95 11,744.00 11,812.98 08/31/11 12,640.57 11,881.00 11,971.70 09/30/11 12,771.24 12,124.00 12,151.66 10/31/11 12,723.76 12,092.00 12,113.89 11/30/11 12,798.93 12,155.00 12,163.69 12/31/11 13,042.41 12,405.00 12,408.72 01/31/12 13,344.04 12,803.00 12,798.01 02/29/12 13,357.19 12,848.00 12,836.25 03/31/12 13,270.40 12,808.00 12,776.17 04/30/12 13,423.49 12,956.00 12,941.13 05/31/12 13,534.92 13,104.00 13,077.96 06/30/12 13,520.39 13,120.00 13,072.52 07/31/12 13,734.67 13,325.00 13,322.44 08/31/12 13,750.31 13,382.00 13,358.51 09/30/12 13,833.37 13,459.00 13,449.10 10/31/12 13,872.40 13,541.00 13,513.81 11/30/12 14,100.94 13,792.00 13,793.76 12/31/12 13,926.66 13,620.00 13,588.64 01/31/13 13,984.66 13,729.00 13,679.12 02/28/13 14,027.02 13,773.00 13,721.33 03/31/13 13,966.53 13,717.00 13,646.37 04/30/13 14,119.63 13,879.00 13,809.53 05/31/13 13,947.15 13,738.00 13,636.07 06/30/13 13,552.23 13,223.00 13,131.31 07/31/13 13,433.74 13,071.00 12,957.75 08/31/13 13,242.02 12,841.00 12,724.80 09/30/13 13,527.03 13,185.00 13,029.10 10/31/13 13,633.90 13,283.00 13,131.11 11/30/13 13,605.80 13,252.00 13,097.87 12/31/13 13,571.05 13,240.00 13,066.31 01/31/14 13,835.44 13,616.00 13,370.69 02/28/14 13,997.67 13,776.00 13,550.83 03/31/14 14,021.21 13,831.00 13,601.92 04/30/14 14,189.67 14,026.00 13,786.65 05/31/14 14,372.39 14,191.00 14,004.13 06/30/14 14,384.85 14,220.00 14,001.66 07/31/14 14,410.18 14,250.00 14,027.86 08/31/14 14,584.73 14,353.00 14,210.09 09/30/14 14,599.54 14,408.00 14,270.01 10/31/14 14,699.62 14,516.00 14,366.46 11/30/14 14,725.09 14,531.00 14,388.27 12/31/14 14,799.29 14,635.00 14,493.26 01/31/15 15,061.60 14,887.00 14,755.44 02/28/15 14,906.29 14,744.00 14,605.30 03/31/15 14,949.34 14,771.00 14,656.00 04/30/15 14,870.85 14,704.00 14,576.78 05/31/15 14,829.74 14,680.00 14,532.76 06/30/15 14,816.31 14,667.00 14,500.87 07/31/15 14,923.59 14,789.00 14,594.87 08/31/15 14,952.94 14,816.00 14,627.68 09/30/15 15,061.18 14,891.00 14,723.89 10/31/15 15,121.12 14,940.00 14,796.42 11/30/15 15,181.20 15,012.00 14,871.58 12/31/15 15,287.92 15,124.00 14,989.29 01/31/16 15,470.36 15,248.00 15,126.95 02/29/16 15,494.59 15,267.00 15,135.72 03/31/16 15,543.73 15,353.00 15,220.88 04/30/16 15,658.07 15,464.00 15,335.84 05/31/16 15,700.42 15,538.00 15,407.49 06/30/16 15,950.14 15,759.00 15,663.77 07/31/16 15,959.83 15,754.00 15,666.03 08/31/16 15,981.42 15,793.00 15,709.06 09/30/16 15,901.69 15,746.00 15,644.37
[END CHART] Data from 9/30/06 through 9/30/16. The graph illustrates the comparison of a $10,000 hypothetical investment in the USAA Tax Exempt Long-Term Fund Shares to the following benchmarks: o The unmanaged, broad-based Bloomberg Barclays Municipal Bond Index (Index) tracks total return performance for the long-term, investment-grade, tax-exempt bond market. All tax-exempt bond funds will find it difficult to outperform the Index because the Index does not reflect any deduction for fees, expenses, or taxes. o The unmanaged Lipper General & Insured Municipal Debt Funds Index measures the Fund's performance to that of the Lipper General & Insured Municipal Debt Funds category. Past performance is no guarantee of future results, and the cumulative performance quoted does not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of shares. Indexes are unmanaged and you cannot invest directly in an index. The return information for the indexes does not reflect the deduction of any fees, expenses, or taxes, except that the Lipper index reflects the fees and expenses of the underlying funds included in the index. ================================================================================ 8 | USAA TAX EXEMPT LONG-TERM FUND ================================================================================ o 12-MONTH DIVIDEND YIELD COMPARISON o [CHART OF 12-MONTH DIVIDEND YIELD COMPARISON]
USAA TAX LIPPER GENERAL EXEMPT LONG-TERM & INSURED MUNICIPAL FUND SHARES DEBT FUNDS AVERAGE 09/30/07 4.60% 3.85% 09/30/08 5.35 4.29 09/30/09 5.06 4.01 09/30/10 4.76 3.84 09/30/11 4.66 3.91 09/30/12 4.01 3.37 09/30/13 4.12 3.26 09/30/14 4.17 3.22 09/30/15 4.22 3.14 09/30/16 4.09 2.87
[END CHART] The 12-month dividend yield is computed by dividing net investment income dividends paid during the previous 12 months by the latest adjusted month-end net asset value. The yields quoted do not reflect adjustments made to the enclosed financial statements in accordance with U.S. generally accepted accounting principles. The net asset value is adjusted for a portion of the capital gains, if any, distributed during the previous nine months. The graph represents data for periods ending 9/30/07 to 9/30/16. The Lipper General & Insured Municipal Debt Funds Average is an average performance level of all general municipal debt funds, reported by Lipper Inc., an independent organization that monitors the performance of mutual funds. ================================================================================ INVESTMENT OVERVIEW | 9 ================================================================================ USAA TAX EXEMPT LONG-TERM FUND ADVISER SHARES (ADVISER SHARES) (Ticker Symbol: UTELX)
-------------------------------------------------------------------------------- 9/30/16 3/31/16 -------------------------------------------------------------------------------- Net Assets $12.8 Million $11.2 Million Net Asset Value Per Share $13.78 $13.71 LAST 12 MONTHS Tax-Exempt Dividends Per Share $0.522 $0.538 Capital Gain Distributions Per Share - - -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 9/30/16 -------------------------------------------------------------------------------- 3/31/16 - 9/30/16* 1 YEAR 5 YEARS SINCE INCEPTION 8/01/10 2.37% 5.39% 5.02% 5.06% -------------------------------------------------------------------------------- 30-DAY SEC YIELD** AS OF 9/30/16 -------------------------------------------------------------------------------- UNSUBSIDIZED 1.30% SUBSIDIZED 1.49% -------------------------------------------------------------------------------- EXPENSE RATIOS AS OF 3/31/16*** -------------------------------------------------------------------------------- BEFORE REIMBURSEMENT 0.90% AFTER REIMBURSEMENT 0.80%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT USAA.COM. *Total returns for periods of less than one year are not annualized. This return is cumulative. **Calculated as prescribed by the Securities and Exchange Commission. ***The expense ratios represent the total annual operating expenses, before reductions of any expenses paid indirectly and including any acquired fund fees and expenses, as reported in the Fund's prospectus dated August 1, 2016, and is calculated as a percentage of average net assets. USAA Asset Management Company (the Manager) has agreed, through August 1, 2017, to make payments or waive management, administration, and other fees so that the total annual operating expenses of the Adviser Shares (exclusive of commission recapture, expense offset arrangements, acquired fund fees and expenses, and extraordinary expenses) do not exceed an annual rate of 0.80% of the Adviser Shares' average net assets. This reimbursement arrangement may not be changed or terminated during this time period without approval of the Fund's Board of Trustees and may be changed or terminated by the Manager at any time after August 1, 2017. If the total annual operating expense ratio of the Adviser Shares is lower than 0.80%, the Adviser Shares will operate at the lower expense ratio. These expense ratios may differ from the expense ratios disclosed in the Financial Highlights, which excludes acquired fund fees and expenses. No adjustment has been made for taxes payable by shareholders on their reinvested net investment income and realized capital gain distributions. ================================================================================ 10 | USAA TAX EXEMPT LONG-TERM FUND ================================================================================ TAXABLE EQUIVALENT ILLUSTRATION To match the Adviser Shares' closing 30-day SEC Yield of 1.49% on 09/30/16 and assuming marginal federal tax rates of: 28.00% 36.80%* 38.80%* 43.40%* A FULLY TAXABLE INVESTMENT MUST PAY: 2.07% 2.36% 2.43% 2.63% This table is based on a hypothetical investment calculated for illustrative purposes only. It is not an indication of performance for any of the USAA family of funds. Taxable equivalent returns or yields will vary depending on applicable tax rates. -------------------------------------------------------------------------------- Some income may be subject to federal, state, or local taxes, but not the alternative minimum tax. Based on 2015 tax rates or rates in effect as of the issuance of this report. The above marginal rates assume married, filing jointly. *The above marginal rates assume income exceeds $250,000 and investment income is subject to the 3.80% medicare tax which is applied for income over a specific level, depending on the federal income tax filing status. ================================================================================ INVESTMENT OVERVIEW | 11 ================================================================================ o CUMULATIVE PERFORMANCE COMPARISON o [CHART OF CUMULATIVE PERFORMANCE COMPARISON]
LIPPER GENERAL USAA TAX BLOOMBERG & INSURED MUNICIPAL EXEMPT LONG-TERM BARCLAYS DEBT FUNDS FUND ADVISER MUNICIPAL BOND INDEX SHARES INDEX 07/31/10 $10,000.00 $10,000.00 $10,000.00 08/31/10 10,255.42 10,257.04 10,228.95 09/30/10 10,263.87 10,277.14 10,212.97 10/31/10 10,242.26 10,250.63 10,184.68 11/30/10 9,959.42 9,937.52 9,981.03 12/31/10 9,729.56 9,674.00 9,787.61 01/31/11 9,608.10 9,520.42 9,715.50 02/28/11 9,763.07 9,692.41 9,870.17 03/31/11 9,726.78 9,651.06 9,837.28 04/30/11 9,889.61 9,825.30 10,013.45 05/31/11 10,100.83 10,068.87 10,184.57 06/30/11 10,169.49 10,146.23 10,220.10 07/31/11 10,277.29 10,279.94 10,324.40 08/31/11 10,415.37 10,397.24 10,501.03 09/30/11 10,571.94 10,606.89 10,609.58 10/31/11 10,539.08 10,575.95 10,570.14 11/30/11 10,582.40 10,628.49 10,632.58 12/31/11 10,795.57 10,844.06 10,834.86 01/31/12 11,134.26 11,181.59 11,085.43 02/29/12 11,167.53 11,226.23 11,096.35 03/31/12 11,115.26 11,189.08 11,024.25 04/30/12 11,258.77 11,314.94 11,151.44 05/31/12 11,377.81 11,441.29 11,244.01 06/30/12 11,373.09 11,443.58 11,231.93 07/31/12 11,590.52 11,628.25 11,409.94 08/31/12 11,621.90 11,674.32 11,422.94 09/30/12 11,700.70 11,739.01 11,491.93 10/31/12 11,757.01 11,798.62 11,524.36 11/30/12 12,000.56 12,022.84 11,714.22 12/31/12 11,822.11 11,868.10 11,569.44 01/31/13 11,900.82 11,952.59 11,617.62 02/28/13 11,937.54 11,996.17 11,652.81 03/31/13 11,872.33 11,944.95 11,602.56 04/30/13 12,014.28 12,082.77 11,729.74 05/31/13 11,863.37 11,953.94 11,586.46 06/30/13 11,424.23 11,496.85 11,258.38 07/31/13 11,273.23 11,361.16 11,159.95 08/31/13 11,070.57 11,155.44 11,000.68 09/30/13 11,335.31 11,454.79 11,237.45 10/31/13 11,424.06 11,536.87 11,326.23 11/30/13 11,395.14 11,506.92 11,302.88 12/31/13 11,367.68 11,493.04 11,274.02 01/31/14 11,632.49 11,813.88 11,493.66 02/28/14 11,789.21 11,950.53 11,628.43 03/31/14 11,833.67 11,998.07 11,647.98 04/30/14 11,994.38 12,155.13 11,787.93 05/31/14 12,183.59 12,303.46 11,939.72 06/30/14 12,181.44 12,317.71 11,950.07 07/31/14 12,204.23 12,349.97 11,971.12 08/31/14 12,362.77 12,426.09 12,116.12 09/30/14 12,414.90 12,472.82 12,128.43 10/31/14 12,498.81 12,560.55 12,211.57 11/30/14 12,517.79 12,583.06 12,232.73 12/31/14 12,609.13 12,669.17 12,294.37 01/31/15 12,837.23 12,874.70 12,512.28 02/28/15 12,706.60 12,748.80 12,383.26 03/31/15 12,750.71 12,770.41 12,419.02 04/30/15 12,681.79 12,709.42 12,353.82 05/31/15 12,643.50 12,686.06 12,319.66 06/30/15 12,615.75 12,672.22 12,308.51 07/31/15 12,697.53 12,780.35 12,397.63 08/31/15 12,726.07 12,794.80 12,422.01 09/30/15 12,809.77 12,856.90 12,511.93 10/31/15 12,872.88 12,903.77 12,561.73 11/30/15 12,938.26 12,955.00 12,611.63 12/31/15 13,040.67 13,044.37 12,700.29 01/31/16 13,160.43 13,153.07 12,851.86 02/29/16 13,168.07 13,166.11 12,871.98 03/31/16 13,242.15 13,236.40 12,912.80 04/30/16 13,342.17 13,338.00 13,007.79 05/31/16 13,404.50 13,388.00 13,042.97 06/30/16 13,627.47 13,576.00 13,250.42 07/31/16 13,629.44 13,577.00 13,258.47 08/31/16 13,666.87 13,597.00 13,276.41 09/30/16 13,610.59 13,553.00 13,210.17
[END CHART] Data from 7/31/10 through 9/30/16.* The graph illustrates the comparison of a $10,000 hypothetical investment in the USAA Tax Exempt Long-Term Fund Adviser Shares to the benchmarks listed above (see page 8 for benchmark definitions). *The performance of the Lipper General & Insured Municipal Debt Funds Index and the Bloomberg Barclays Municipal Bond Index is calculated from the end of the month, July 31, 2010, while the inception date of the Adviser Shares is August 1, 2010. There may be a slight variation of performance numbers because of this difference. Past performance is no guarantee of future results, and the cumulative performance quoted does not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of shares. Indexes are unmanaged and you cannot invest directly in an index. The return information for the indexes does not reflect the deduction of any fees, expenses, or taxes, except that the Lipper index reflects the fees and expenses of the underlying funds included in the index. ================================================================================ 12 | USAA TAX EXEMPT LONG-TERM FUND ================================================================================ o 12-MONTH DIVIDEND YIELD COMPARISON o [CHART OF 12-MONTH DIVIDEND YIELD COMPARISON]
LIPPER USAA TAX GENERAL & INSURED EXEMPT LONG-TERM FUND MUNICIPAL DEBT FUNDS ADVISER SHARES AVERAGE 09/30/11 4.31% 3.91% 09/30/12 3.71 3.37 09/30/13 3.78 3.26 09/30/14 3.89 3.22 09/30/15 3.95 3.14 09/30/16 3.79 2.87
[END CHART] The 12-month dividend yield is computed by dividing net investment income dividends paid during the previous 12 months by the latest adjusted month-end net asset value. The yields quoted do not reflect adjustments made to the enclosed financial statements in accordance with U.S. generally accepted accounting principles. The net asset value is adjusted for a portion of the capital gains, if any, distributed during the previous nine months. The graph represents data for periods ending 9/30/11 to 9/30/16. The Lipper General & Insured Municipal Debt Funds Average is an average performance level of all general municipal debt funds, reported by Lipper Inc., an independent organization that monitors the performance of mutual funds. ================================================================================ INVESTMENT OVERVIEW | 13 ================================================================================ o TOP 10 INDUSTRIES - 9/30/16 o (% of Net Assets) Hospital ................................................................ 19.3% Education ............................................................... 11.9% General Obligation ...................................................... 9.9% Special Assessment/Tax/Fee .............................................. 8.9% Escrowed Bonds .......................................................... 8.3% Toll Roads .............................................................. 6.0% Airport/Port ............................................................ 5.5% Electric Utilities ...................................................... 5.4% Nursing/CCRC ............................................................ 4.5% Electric/Gas Utilities .................................................. 3.8%
You will find a complete list of securities that the Fund owns on pages 16-33. ================================================================================ 14 | USAA TAX EXEMPT LONG-TERM FUND ================================================================================ o PORTFOLIO RATINGS MIX - 9/30/16 o [PIE CHART OF PORTFOLIO RATINGS MIX] AAA 3.5% AA 36.8% A 31.4% BBB 19.4% UNRATED 4.7% BELOW INVESTMENT-GRADE 4.2%
[END CHART] This chart reflects the highest long-term rating from a Nationally Recognized Statistical Rating Organization (NRSRO), with the four highest long-term credit ratings labeled, in descending order of credit quality, AAA, AA, A, and BBB. These categories represent investment-grade quality. NRSRO ratings are shown because they provide independent analysis of the credit quality of the Fund's investments. USAA Asset Management Company (the Manager) also performs its own fundamental credit analysis of each security. As part of its fundamental credit analysis, the Manager considers various criteria, including industry specific actions, peer comparisons, payment ranking, and structure specific characteristics. Any of the Fund's securities that are not rated by an NRSRO appear in the chart above as "Unrated," but these securities are analyzed and monitored by the Manager on an ongoing basis. Government securities that are issued or guaranteed as to principal and interest by the U.S. government and pre-refunded and escrowed-to-maturity municipal bonds that are not rated are treated as AAA for credit quality purposes. Percentages are of the total market value of the Fund's investments. You will find a complete list of securities that the Fund owns on pages 16-33. ================================================================================ INVESTMENT OVERVIEW | 15 ================================================================================ PORTFOLIO OF INVESTMENTS September 30, 2016 (unaudited) -------------------------------------------------------------------------------- o CATEGORIES AND DEFINITIONS FIXED-RATE INSTRUMENTS - Consist of municipal bonds, notes, and commercial paper. The interest rate is constant to maturity. Prior to maturity, the market price of a fixed-rate instrument generally varies inversely to the movement of interest rates. PUT BONDS - Provide the right to sell the bond at face value at specific tender dates prior to final maturity. The put feature shortens the effective maturity of the security. ADJUSTABLE-RATE NOTES - Similar to variable-rate demand notes in the fact that the interest rate is adjusted periodically to reflect current market conditions. These interest rates are adjusted at a given time, such as monthly or quarterly. However, these securities do not offer the right to sell the security at face value prior to maturity. VARIABLE-RATE DEMAND NOTES (VRDNs) - Provide the right to sell the security at face value on either that day or within the rate-reset period. The interest rate is adjusted at a stipulated daily, weekly, monthly, quarterly, or other specified time interval to reflect current market conditions. VRDNs will normally trade as if the maturity is the earlier put date, even though stated maturity is longer. o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS CCD Community College District EDA Economic Development Authority EDC Economic Development Corp. ETM Escrowed to final maturity IDA Industrial Development Authority/Agency IDB Industrial Development Board ================================================================================ 16 | USAA TAX EXEMPT LONG-TERM FUND ================================================================================ IDC Industrial Development Corp. ISD Independent School District MTA Metropolitan Transportation Authority PRE Pre-refunded to a date prior to maturity USD Unified School District CREDIT ENHANCEMENTS - Adds the financial strength of the provider of the enhancement to support the issuer's ability to repay the principal and interest payments when due. The enhancement may be provided by a high-quality bank, insurance company or other corporation, or a collateral trust. The enhancements do not guarantee the market values of the securities. (INS) Principal and interest payments are insured by one of the following: AMBAC Assurance Corp, Assured Guaranty Corp., Assured Guaranty Municipal Corp, Build America Mutual Assurance Co., CIFG Assurance, N.A., Federal Guaranty Insurance Corp., National Public Finance Guarantee Corp., Radian Asset Assurance, Inc., or XL Capital Assurance. Although bond insurance reduces the risk of loss due to default by an issuer, such bonds remain subject to the risk that value may fluctuate for other reasons, and there is no assurance that the insurance company will meet its obligations. (LIQ) Liquidity enhancement that may, under certain circumstances, provide for repayment of principal and interest upon demand from one of the following: Citigroup, Inc., Deutsche Bank A.G., or JPMorgan Chase & Co. (LOC) Principal and interest payments are guaranteed by a bank letter of credit or other bank credit agreement. (NBGA) Principal and interest payments or, under certain circumstances, underlying mortgages, are guaranteed by a nonbank guarantee agreement from the Texas Permanent School Fund. ================================================================================ PORTFOLIO OF INVESTMENTS | 17 ================================================================================ INVESTMENTS
------------------------------------------------------------------------------------------------------------------ PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------------ FIXED-RATE INSTRUMENTS (93.3%) ALABAMA (1.3%) $ 4,245 Chatom IDB (INS) 5.00% 8/01/2037 $ 4,769 11,500 Lower Alabama Gas District 5.00 9/01/2046 15,225 1,750 Montgomery Medical Clinic Board 5.00 3/01/2036 2,013 7,000 Port Auth. 6.00 10/01/2035 8,246 2,000 Selma IDB 5.80 5/01/2034 2,301 ---------- 32,554 ---------- ARIZONA (2.3%) 5,000 Apache County IDA 4.50 3/01/2030 5,604 5,000 Goodyear 5.63 7/01/2039 5,791 6,000 Health Facilities Auth. 5.00 2/01/2042 6,708 7,000 Maricopa County 5.00 6/01/2035 7,830 1,600 Maricopa County IDA 5.00 7/01/2047 1,766 1,000 Phoenix Civic Improvement Corp. (INS) 5.50 7/01/2029 1,318 1,500 Phoenix Civic Improvement Corp. (INS) 5.50 7/01/2030 1,990 1,200 Phoenix IDA 5.00 7/01/2041 1,357 6,000 Phoenix IDA(a) 5.00 7/01/2044 6,695 3,000 Pima County IDA 4.00 9/01/2029 3,308 2,685 Pima County IDA 4.50 6/01/2030 3,023 3,000 Pima County IDA 5.25 10/01/2040 3,364 2,000 Yavapai County IDA 5.63 8/01/2033 2,108 7,500 Yavapai County IDA 5.63 8/01/2037 7,892 ---------- 58,754 ---------- ARKANSAS (0.1%) 1,000 Dev. Finance Auth. (INS) 4.97(b) 7/01/2028 765 1,165 Dev. Finance Auth. (INS) 4.98(b) 7/01/2029 862 1,150 Dev. Finance Auth. (INS) 4.99(b) 7/01/2030 823 2,500 Dev. Finance Auth. (INS) 5.03(b) 7/01/2036 1,278 ---------- 3,728 ---------- CALIFORNIA (9.7%) 1,000 Cerritos CCD 5.63(b) 8/01/2031 651 2,500 Cerritos CCD 5.67(b) 8/01/2032 1,571 2,175 Cerritos CCD 5.71(b) 8/01/2033 1,321 1,000 Cerritos CCD 5.76(b) 8/01/2034 586 1,500 Cerritos CCD 5.82(b) 8/01/2035 832 2,200 Cerritos CCD 5.88(b) 8/01/2036 1,175 8,500 Coachella Valley USD (INS) 5.95(b) 8/01/2041 3,508
================================================================================ 18 | USAA TAX EXEMPT LONG-TERM FUND ================================================================================
------------------------------------------------------------------------------------------------------------------ PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------------ $ 6,700 Corona-Norco USD (INS) 5.50% 8/01/2039 $ 7,549 3,000 El Camino CCD 5.08(b) 8/01/2034 1,781 3,000 El Camino CCD 5.24(b) 8/01/2038 1,537 10,000 El Monte Union High School District (INS) 5.75(b) 6/01/2042 4,068 2,500 Escondido Union High School District (INS) 5.00 6/01/2037 2,800 2,410 Golden State Tobacco Securitization (INS) 4.55 6/01/2022 2,544 5,000 Golden State Tobacco Securitization (INS) 4.60 6/01/2023 5,283 2,000 Golden State Tobacco Securitization 5.00 6/01/2030 2,402 5,000 Indio Redevelopment Agency 5.25 8/15/2035 5,360 17,025 Inland Empire Tobacco Securitization Auth. 5.75 6/01/2026 18,181 2,000 Jurupa Public Finance Auth. (INS) 5.00 9/01/2033 2,254 1,200 Los Alamitos USD, 5.95%, 8/01/2024 5.95(c) 8/01/2034 1,096 4,500 Los Alamitos USD, 6.05%, 8/01/2024 6.05(c) 8/01/2042 4,027 3,000 Monterey Peninsula USD (INS) 5.50 8/01/2034 3,591 15,000 Palomar Pomerado Health (INS) 5.13 8/01/2037 15,463 1,860 Paramount USD 6.82(b) 8/01/2034 1,032 2,000 Paramount USD 6.86(b) 8/01/2035 1,070 2,750 Paramount USD 6.88(b) 8/01/2036 1,416 2,750 Paramount USD 6.90(b) 8/01/2037 1,366 6,000 Pollution Control Financing Auth. 5.00 11/21/2045 6,170 2,500 Public Works Board 5.00 12/01/2029 2,951 2,000 Public Works Board (PRE)(d) 5.00 10/01/2030 2,391 2,950 Public Works Board 5.00 6/01/2031 3,549 1,110 Public Works Board (PRE)(d) 5.00 10/01/2031 1,327 2,000 Public Works Board 5.00 12/01/2031 2,355 3,500 Public Works Board 5.00 10/01/2039 4,193 2,560 Sacramento City Schools Joint Powers Financing Auth. (INS) 5.00 3/01/2036 2,989 2,000 Sacramento City Schools Joint Powers Financing Auth. (INS) 5.00 3/01/2040 2,328 2,500 San Diego Public Facilities Financing Auth. 5.00 10/15/2044 3,016 3,000 San Marcos Schools Financing Auth. (INS) 5.00 8/15/2040 3,384 13,605 San Ysidro School District (INS) 5.58(b) 8/01/2036 7,087 14,285 San Ysidro School District (INS) 5.64(b) 8/01/2037 7,186 15,000 Santa Ana USD (INS) 5.45(b) 4/01/2029 10,401 5,000 Southern California Public Power Auth. 5.00 7/01/2040 5,647 24,700 State 4.50 8/01/2030 24,985 5,000 State 5.75 4/01/2031 5,583 3,695 State (PRE) 5.00 11/01/2032 3,866 2,305 State 5.00 11/01/2032 2,405 5,000 State (PRE) 5.00 12/01/2032 5,250 8,000 State 5.25 4/01/2035 9,598 6,750 State 5.00 2/01/2038 7,993
================================================================================ PORTFOLIO OF INVESTMENTS | 19 ================================================================================
------------------------------------------------------------------------------------------------------------------ PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------------ $ 8,000 State 4.00% 9/01/2046 $ 8,907 8,885 Stockton USD (INS) 7.33(b) 8/01/2034 4,800 2,500 Victor Elementary School District (INS) (PRE) 5.13 8/01/2034 2,800 5,180 Washington Township Health Care Dist. 5.25 7/01/2030 5,763 5,000 Washington Township Health Care Dist. 5.50 7/01/2038 5,558 ---------- 244,946 ---------- COLORADO (2.2%) 3,500 Denver Convention Center Hotel Auth. (INS) 4.75 12/01/2035 3,506 15,765 Denver Health and Hospital Auth. 4.75 12/01/2034 15,837 2,000 E-470 Public Highway Auth. 5.38 9/01/2026 2,254 10,000 E-470 Public Highway Auth. (INS) 5.06(b) 9/01/2035 4,488 2,500 Educational and Cultural Facilities Auth. 5.25 4/01/2043 2,909 1,310 Health Facilities Auth. 5.00 6/01/2029 1,314 865 Health Facilities Auth. 5.25 6/01/2031 867 2,000 Health Facilities Auth. 5.00 6/01/2035 2,005 720 Health Facilities Auth. 5.25 6/01/2036 722 5,000 Health Facilities Auth. 5.00 12/01/2042 5,505 6,000 Health Facilities Auth. 5.00 6/01/2045 6,780 1,000 Park Creek Metropolitan District 5.00 12/01/2045 1,154 5,000 Regional Transportation District 5.00 6/01/2044 5,743 2,000 Vista Ridge Metropolitan District (INS) 5.00 12/01/2036 2,004 ---------- 55,088 ---------- CONNECTICUT (0.3%) 2,500 Health and Educational Facilities Auth. (INS) 5.13 7/01/2030 2,505 2,000 Health and Educational Facilities Auth. 5.00 7/01/2035 2,242 51,295 Mashantucket (Western) Pequot Tribe(e),(f) 6.05 7/01/2031 2,001 ---------- 6,748 ---------- DELAWARE (0.2%) 4,000 EDA 5.40 2/01/2031 4,480 ---------- DISTRICT OF COLUMBIA (2.1%) 1,305 District of Columbia 5.00 7/01/2036 1,444 1,500 District of Columbia 5.00 7/01/2042 1,670 1,700 District of Columbia 6.00 7/01/2043 2,053 1,450 District of Columbia 6.00 7/01/2048 1,747 7,500 Metropolitan Washington Airports Auth. 5.13 10/01/2034 8,108 5,000 Metropolitan Washington Airports Auth. 5.00 10/01/2039 5,677 10,000 Metropolitan Washington Airports Auth. 5.63 10/01/2039 10,865 10,000 Metropolitan Washington Airports Auth. 5.00 10/01/2053 11,309 10,000 Washington Convention & Sports Auth. 5.00 10/01/2040 11,254 ---------- 54,127 ----------
================================================================================ 20 | USAA TAX EXEMPT LONG-TERM FUND ================================================================================
------------------------------------------------------------------------------------------------------------------ PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------------ FLORIDA (9.4%) $ 7,000 Atlantic Beach Health Care Facilities Auth. 5.63% 11/15/2043 $ 8,124 2,000 Brevard County Health Facilities Auth. (PRE) 7.00 4/01/2039 2,302 20,000 Brevard County School Board (INS) (PRE) 5.00 7/01/2032 20,636 1,500 Broward County (PRE) 5.25 10/01/2034 1,630 350 Broward County School Board (INS) (PRE) 5.25 7/01/2027 391 10,000 Broward County School Board (INS) (PRE) 5.00 7/01/2032 10,321 2,000 Clearwater 5.25 12/01/2039 2,232 5,675 Department of Children and Family Services 5.00 10/01/2025 5,695 1,500 Escambia County 6.25 11/01/2033 1,725 1,000 Escambia County Housing Finance Auth. (INS) 5.75 6/01/2031 1,110 3,950 Gainesville 5.25 10/01/2034 4,540 3,000 Halifax Hospital Medical Center 5.00 6/01/2046 3,481 1,000 Hialeah Gardens Health Care Facilities Auth. (LOC - SunTrust Bank) (PRE) 5.00 8/15/2037 1,036 600 Higher Educational Facility Auth. 5.00 4/01/2032 679 1,500 Higher Educational Facility Auth. 5.25 4/01/2042 1,701 2,270 Jacksonville 5.00 10/01/2029 2,649 500 Lakeland Educational Facility 5.00 9/01/2037 565 1,000 Lakeland Educational Facility 5.00 9/01/2042 1,128 4,000 Lee County IDA 5.75 10/01/2042 4,377 5,000 Lee County IDA 5.50 10/01/2047 5,429 1,500 Miami (INS) 5.00 10/01/2034 1,648 13,125 Miami (INS) 5.25 7/01/2035 14,604 4,000 Miami (INS) 5.25 7/01/2039 4,451 2,000 Miami Beach 5.00 9/01/2040 2,246 525 Miami-Dade County (PRE) 5.00 10/01/2029 607 6,350 Miami-Dade County 5.00 10/01/2029 7,253 3,950 Miami-Dade County 5.00 10/01/2034 4,493 23,205 Miami-Dade County 5.38 10/01/2035 26,508 5,000 Miami-Dade County 5.00 7/01/2039 5,868 5,000 Miami-Dade County 5.00 7/01/2040 5,637 1,750 Miami-Dade County 5.00 10/01/2043 1,999 5,000 Miami-Dade County School Board (INS) (PRE) 5.25 2/01/2027 5,502 5,000 Miami-Dade County School Board (INS) (PRE) 5.00 5/01/2033 5,327 2,500 Municipal Loan Council (INS) 5.25 10/01/2033 2,923 5,000 Orange County (INS) 5.00 10/01/2031 5,001 3,000 Orange County Health Facilities Auth. (PRE) 5.25 10/01/2035 3,258 1,500 Orange County Health Facilities Auth. 4.00 10/01/2045 1,603 5,000 Orange County School Board (INS) (PRE) 5.00 8/01/2032 5,174 10,000 Orange County School Board (INS) (PRE) 5.50 8/01/2034 11,283 6,000 Orlando-Orange County Expressway Auth. 5.00 7/01/2035 6,727 2,000 Orlando-Orange County Expressway Auth. 5.00 7/01/2035 2,242
================================================================================ PORTFOLIO OF INVESTMENTS | 21 ================================================================================
------------------------------------------------------------------------------------------------------------------ PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------------ $ 155 Palm Beach County Solid Waste Auth. (PRE) 5.00% 10/01/2031 $ 184 9,845 Palm Beach County Solid Waste Auth. 5.00 10/01/2031 11,521 1,000 Pinellas County Educational Facilities Auth. 5.00 10/01/2027 1,129 1,000 Pinellas County Educational Facilities Auth. 5.25 10/01/2030 1,130 3,650 Pinellas County Educational Facilities Auth.(d) 6.00 10/01/2041 4,247 1,000 Sarasota County Public Hospital District 5.63 7/01/2039 1,103 3,000 St. Petersburg Health Facilities Auth. (PRE) 6.50 11/15/2039 3,509 2,200 Tampa Housing Auth. 4.85 7/01/2036 2,204 3,050 Tampa-Hillsborough County Expressway Auth. 5.00 7/01/2042 3,502 2,350 Volusia County Educational Facilities Auth. (INS)(d) 5.00 10/15/2029 2,706 2,000 Volusia County Educational Facilities Auth. 5.00 10/15/2045 2,298 ---------- 237,638 ---------- GEORGIA (1.5%) 3,500 Atlanta Airport 5.00 1/01/2035 3,892 10,000 Burke County Dev. Auth. 7.00 1/01/2023 10,702 4,000 Dahlonega Downtown Dev. Auth. (INS) 5.00 7/01/2040 4,485 3,600 Glynn-Brunswick Memorial Hospital Auth. (PRE) 5.63 8/01/2034 3,910 400 Glynn-Brunswick Memorial Hospital Auth. 5.63 8/01/2034 430 1,600 Private Colleges & Universities Auth. 5.00 10/01/2032 1,808 10,000 Savannah EDA 6.15 3/01/2017 10,182 1,000 Thomasville Hospital Auth. 5.25 11/01/2035 1,140 1,250 Thomasville Hospital Auth. 5.38 11/01/2040 1,429 ---------- 37,978 ---------- HAWAII (0.3%) 6,000 Department of Budget and Finance 6.50 7/01/2039 6,762 ---------- IDAHO (0.1%) 1,500 Health Facilities Auth. (INS) 5.00 7/01/2035 1,673 ---------- ILLINOIS (12.6%) 520 Chicago (INS) 5.25 1/01/2029 522 4,020 Chicago 6.75 12/01/2032 4,036 3,000 Chicago 5.00 1/01/2039 3,410 4,000 Chicago 5.00 1/01/2044 4,474 3,000 Chicago 5.00 11/01/2044 3,398 6,000 Chicago-Midway Airport 5.00 1/01/2046 7,064 5,000 Chicago-O'Hare International Airport 5.75 1/01/2039 5,818 5,000 Chicago-O'Hare International Airport 5.75 1/01/2043 5,906 2,000 Finance Auth. 5.00 4/01/2026 2,001 5,000 Finance Auth. 5.50 8/15/2028 5,386 2,500 Finance Auth. (INS) (PRE) 5.75 11/01/2028 2,752 14,000 Finance Auth. 3.90 3/01/2030 15,225 5,000 Finance Auth. (PRE) 7.25 11/01/2030 5,659 4,500 Finance Auth. 5.00 4/01/2031 4,501
================================================================================ 22 | USAA TAX EXEMPT LONG-TERM FUND ================================================================================
------------------------------------------------------------------------------------------------------------------ PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------------ $ 7,065 Finance Auth. 5.50% 4/01/2032 $ 7,132 8,000 Finance Auth. (PRE) 6.00 10/01/2032 9,753 13,275 Finance Auth. 4.50 11/15/2032 13,338 6,000 Finance Auth. 4.00 2/01/2033 6,473 5,000 Finance Auth. (PRE) 5.75 10/01/2035 5,482 7,000 Finance Auth. 5.00 4/01/2036 7,000 2,000 Finance Auth. 4.00 3/01/2038 2,149 5,000 Finance Auth. 4.00 7/01/2038 5,335 20,000 Finance Auth. 5.38 8/15/2039 21,339 1,205 Finance Auth. 5.25 10/01/2039 1,283 12,395 Finance Auth. 4.00 10/01/2040 13,359 11,000 Finance Auth. 4.00 2/15/2041 10,991 5,000 Finance Auth. 6.00 7/01/2043 6,065 2,000 Finance Auth. 5.00 8/15/2044 2,280 4,500 Finance Auth. 4.00 12/01/2046 4,715 2,500 Housing Dev. Auth. 4.85 1/01/2037 2,508 935 Metropolitan Pier and Expositon Auth. (INS) (PRE) 5.50 6/15/2020 975 4,065 Metropolitan Pier and Expositon Auth. (INS) 5.50 6/15/2020 4,231 770 Metropolitan Pier and Expositon Auth. (INS) (PRE) 5.55 6/15/2021 804 1,730 Metropolitan Pier and Expositon Auth. (INS) 5.55 6/15/2021 1,801 9,000 Municipal Power Agency 4.00 12/01/2041 9,677 10,000 Railsplitter Tobacco Settlement Auth. 5.50 6/01/2023 11,713 23,980 Regional Transportation Auth. (INS) 5.75 6/01/2020 27,943 37,550 Regional Transportation Auth. (INS) 6.50 7/01/2030 52,706 3,000 Springfield (INS) 5.00 3/01/2040 3,494 2,000 Springfield Metro Sanitary District 5.75 1/01/2053 2,418 8,000 State (INS) 5.00 4/01/2029 8,968 1,000 Univ. of Illinois(d) 5.13 4/01/2036 1,122 1,467 Village of Montgomery Kane and Kendall Counties (INS) 4.70 3/01/2030 1,469 1,487 Village of Round Lake (INS) 4.70 3/01/2033 1,509 ---------- 318,184 ---------- INDIANA (1.9%) 5,540 Evansville Redevelopment Auth. (INS) 4.00 2/01/2038 6,024 3,605 Evansville Redevelopment Auth. (INS) 4.00 2/01/2039 3,910 3,440 Finance Auth. 5.00 10/01/2033 3,540 5,000 Finance Auth. 5.00 6/01/2039 5,388 1,495 Finance Auth. 5.00 2/01/2040 1,679 4,000 Finance Auth. 5.00 10/01/2044 4,549 6,000 Indianapolis (INS) 5.50 1/01/2038 6,631 7,000 Richmond Hospital Auth. 5.00 1/01/2039 8,086 7,500 Rockport (INS) 4.63 6/01/2025 7,651 ---------- 47,458 ----------
================================================================================ PORTFOLIO OF INVESTMENTS | 23 ================================================================================
------------------------------------------------------------------------------------------------------------------ PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------------ IOWA (0.4%) $ 5,000 Finance Auth. (INS) 4.75% 12/01/2031 $ 5,028 5,000 Finance Auth. (INS) 5.00 12/01/2039 5,028 ---------- 10,056 ---------- KANSAS (0.2%) 2,500 Coffeyville (INS)(a) 5.00 6/01/2042 2,742 45 Wyandotte County 6.07(b) 6/01/2021 34 2,000 Wyandotte County/Kansas City 5.00 9/01/2045 2,349 ---------- 5,125 ---------- KENTUCKY (0.6%) 1,000 Ashland Medical Center 5.00 2/01/2040 1,132 1,000 Economic Dev. Finance Auth. (INS) 6.00 12/01/2033 1,067 4,000 Economic Dev. Finance Auth. (INS) 6.00 12/01/2038 4,261 1,100 Municipal Power Agency (INS) (PRE) 5.00 9/01/2037 1,142 3,900 Municipal Power Agency (INS) (PRE) 5.00 9/01/2037 4,049 2,000 Owen County 6.25 6/01/2039 2,221 ---------- 13,872 ---------- LOUISIANA (2.7%) 2,500 Lafayette Public Trust Financing Auth. (INS) 5.50 10/01/2035 2,850 3,750 Local Government Environmental Facilities and Community Dev. Auth. 6.50 8/01/2029 4,416 8,210 Local Government Environmental Facilities and Community Dev. Auth. (INS) 4.00 10/01/2046 8,732 25,000 Parish of St. John the Baptist 5.13 6/01/2037 25,426 1,250 Public Facilities Auth. 4.00 5/15/2041 1,342 6,000 Public Facilities Auth. 5.00 11/01/2045 6,879 5,000 Public Facilities Auth. (INS) 5.25 6/01/2051 5,816 9,000 Public Facilities Auth. 4.00 1/01/2056 9,292 1,000 Shreveport 5.00 12/01/2040 1,174 1,500 Tobacco Settlement Financing Corp. 5.25 5/15/2035 1,712 ---------- 67,639 ---------- MAINE (0.4%) 9,000 Health and Higher Educational Facilities Auth. 4.00 7/01/2046 9,290 ---------- MARYLAND (0.6%) 2,500 EDC 6.20 9/01/2022 2,803 5,000 Health and Higher Educational Facilities Auth. (PRE) 5.75 1/01/2033 5,308 6,000 Health and Higher Educational Facilities Auth. (PRE) 5.75 1/01/2038 6,370 ---------- 14,481 ---------- MASSACHUSETTS (1.4%) 1,000 Dev. Finance Agency 4.00 7/01/2038 1,051 1,000 Dev. Finance Agency 5.00 4/15/2040 1,134
================================================================================ 24 | USAA TAX EXEMPT LONG-TERM FUND ================================================================================
------------------------------------------------------------------------------------------------------------------ PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------------ $ 3,000 Dev. Finance Agency 5.00% 7/01/2044 $ 3,460 4,000 Dev. Finance Agency 5.50 7/01/2044 4,532 1,000 Dev. Finance Agency 5.00 7/01/2046 1,170 3,370 Dev. Finance Agency 4.00 10/01/2046 3,508 10,000 Health and Educational Facilities Auth. 6.25 7/01/2030 11,278 3,500 Health and Educational Facilities Auth. 5.00 7/15/2032 3,589 500 Health and Educational Facilities Auth. 5.00 7/15/2037 512 5,000 School Building Auth. (INS) (PRE) 4.75 8/15/2032 5,174 ---------- 35,408 ---------- MICHIGAN (1.9%) 25,220 Building Auth. (INS) (PRE) 5.01(b) 10/15/2030 12,611 34,175 Building Auth. (INS) 5.01(b) 10/15/2030 17,088 2,000 Genesee County Water Supply System (INS) 4.00 2/01/2041 2,140 2,900 Genesee County Water Supply System (INS) 5.00 2/01/2046 3,395 4,500 Lansing Board of Water & Light 5.00 7/01/2037 5,175 4,000 Livonia Public Schools School District (INS) 5.00 5/01/2045 4,702 3,000 Strategic Fund 5.63 7/01/2020 3,452 ---------- 48,563 ---------- MINNESOTA (0.4%) 4,000 Chippewa County 5.50 3/01/2037 4,041 2,500 Higher Educational Facilities Auth. 5.00 10/01/2039 2,763 3,000 St. Louis Park (PRE) 5.75 7/01/2030 3,256 ---------- 10,060 ---------- MISSISSIPPI (0.2%) 1,000 Hospital Equipment and Facilities Auth. 5.25 12/01/2026 1,005 3,000 Warren County 5.38 12/01/2035 3,456 ---------- 4,461 ---------- MISSOURI (2.7%) 2,745 Cape Girardeau County Health Care Facilities IDA 6.00 3/01/2033 3,006 20,000 Cape Girardeau County IDA 5.00 6/01/2036 20,000 1,000 Cape Girardeau County IDA 5.75 6/01/2039 1,107 8,000 Cass County 5.63 5/01/2038 8,020 17,775 Dev. Finance Board 4.00 6/01/2046 18,572 6,000 Health and Educational Facilities Auth. (PRE) 5.50 11/15/2033 6,586 1,500 Health and Educational Facilities Auth. 5.50 11/15/2033 1,627 5,000 St. Louis County IDA 5.88 9/01/2043 5,935 2,110 Stoddard County IDA 6.00 3/01/2037 2,286 ---------- 67,139 ---------- MONTANA (0.4%) 4,000 Forsyth 3.90 3/01/2031 4,291 5,000 Forsyth 5.00 5/01/2033 5,652 ---------- 9,943 ----------
================================================================================ PORTFOLIO OF INVESTMENTS | 25 ================================================================================
------------------------------------------------------------------------------------------------------------------ PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------------ NEBRASKA (0.3%) $ 975 Douglas County Hospital Auth. (PRE) 6.13% 8/15/2031 $ 1,021 1,275 Douglas County Hospital Auth. 6.13 8/15/2031 1,329 3,400 Douglas County Hospital Auth. 5.00 11/01/2048 3,937 ---------- 6,287 ---------- NEVADA (2.1%) 4,000 Clark County (INS) 5.00 7/01/2026 4,411 11,000 Clark County 5.13 7/01/2034 12,209 5,000 Clark County (INS) 5.25 7/01/2039 5,566 12,410 Clark County EDC 5.00 5/15/2029 12,455 4,400 Las Vegas Convention and Visitors Auth. 4.00 7/01/2041 4,750 12,140 Las Vegas Convention and Visitors Auth. 4.00 7/01/2046 13,053 ---------- 52,444 ---------- NEW JERSEY (2.3%) 6,000 EDA 5.00 9/01/2024 6,650 2,000 EDA 5.00 6/15/2028 2,201 10,000 EDA 5.00 6/15/2040 11,105 3,000 EDA 5.25 6/15/2040 3,394 11,435 Health Care Facilities Financing Auth. 5.00 7/01/2029 11,624 15,000 Health Care Facilities Financing Auth. (PRE)(d) 5.63 7/01/2032 18,154 1,250 Health Care Facilities Financing Auth. (INS) 5.00 7/01/2046 1,452 2,000 Transportation Trust Fund Auth. 5.25 6/15/2041 2,266 ---------- 56,846 ---------- NEW MEXICO (0.2%) 5,000 Farmington 5.90 6/01/2040 5,706 ---------- NEW YORK (2.7%) 2,040 Buffalo and Erie County Industrial Land Dev. Corp. 5.38 10/01/2041 2,345 1,495 Dormitory Auth. (PRE) 5.25 7/01/2024 1,546 2,250 Dormitory Auth. 5.25 7/01/2029 2,450 16,130 Liberty Dev. Corp. 5.25 10/01/2035 21,610 5,000 MTA 3.55(b) 11/15/2032 3,248 60 New York City 5.88 8/01/2019 60 2,970 New York City (PRE) 5.13 12/01/2028 3,120 2,030 New York City 5.13 12/01/2028 2,130 220 New York City Municipal Water Finance Auth. (PRE) 5.00 6/15/2037 236 1,280 New York City Municipal Water Finance Auth. 5.00 6/15/2037 1,368 7,500 New York City Transitional Finance Auth. 5.00 1/15/2034 7,885 2,000 Thruway Auth. 5.00 1/01/2051 2,369 5,000 Triborough Bridge and Tunnel Auth. 3.62(b) 11/15/2031 3,288 10,000 Triborough Bridge and Tunnel Auth. 5.00 11/15/2031 10,800 3,000 Triborough Bridge and Tunnel Auth. 3.66(b) 11/15/2032 1,905
================================================================================ 26 | USAA TAX EXEMPT LONG-TERM FUND ================================================================================
------------------------------------------------------------------------------------------------------------------ PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------------ $ 2,500 Triborough Bridge and Tunnel Auth. 3.70%(b) 11/15/2032 $ 1,633 2,000 Troy Capital Resource Corp. 5.00 9/01/2030 2,265 ---------- 68,258 ---------- NORTH CAROLINA (1.0%) 10,000 Capital Facilities Finance Agency 4.63 11/01/2040 11,042 3,750 Charlotte-Mecklenburg Hospital Auth. 5.25 1/15/2034 4,077 5,000 Columbus County Industrial Facilities & Pollution Control Financing Auth. 6.25 11/01/2033 5,750 5,250 Medical Care Commission 5.00 7/01/2033 5,429 ---------- 26,298 ---------- NORTH DAKOTA (0.3%) 4,685 Fargo 6.25 11/01/2031 5,704 2,500 McLean County 4.88 7/01/2026 2,736 ---------- 8,440 ---------- OHIO (1.5%) 6,000 Air Quality Dev. Auth. 5.70 8/01/2020 5,778 10,000 Buckeye Tobacco Settlement Financing Auth. 5.88 6/01/2030 9,955 10,000 Buckeye Tobacco Settlement Financing Auth. 5.75 6/01/2034 9,785 1,000 Cleveland (INS) 5.00 1/01/2031 1,144 2,500 Hamilton County Healthcare(g) 5.00 1/01/2051 2,795 4,640 Higher Education Facility Commission (INS) 5.00 5/01/2036 4,648 1,680 Lake County (PRE) 5.63 8/15/2029 1,829 320 Lake County 5.63 8/15/2029 346 2,000 Turnpike Commission 5.25 2/15/2033 2,405 ---------- 38,685 ---------- OKLAHOMA (1.1%) 4,200 Comanche County Hospital Auth. 5.00 7/01/2032 4,496 10,000 Municipal Power Auth.(g) 4.00 1/01/2047 10,743 8,695 Norman Regional Hospital Auth. 5.38 9/01/2036 8,731 2,675 Tulsa Industrial Auth. (PRE) 5.00 10/01/2037 2,675 ---------- 26,645 ---------- OREGON (0.2%) 2,000 Deschutes County Hospital Facility(g) 4.00 1/01/2046 2,146 1,155 Keizer 5.20 6/01/2031 1,223 1,180 Yamhill County Hospital Auth. 5.00 11/15/2051 1,295 ---------- 4,664 ---------- PENNSYLVANIA (2.3%) 750 Allegheny County Higher Education Building Auth. (PRE) 5.50 3/01/2031 894 460 Allegheny County IDA 5.13 9/01/2031 460 4,000 Allegheny County Sanitary Auth. (INS) 5.00 6/01/2040 4,543
================================================================================ PORTFOLIO OF INVESTMENTS | 27 ================================================================================
------------------------------------------------------------------------------------------------------------------ PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------------ $ 7,000 Economic Dev. Financing Auth. 4.00% 10/01/2023 $ 7,730 480 Erie Parking Auth. (INS) (PRE) 5.13 9/01/2032 556 1,390 Erie Parking Auth. (INS) 5.13 9/01/2032 1,534 595 Erie Parking Auth. (INS) (PRE) 5.20 9/01/2035 691 1,700 Erie Parking Auth. (INS) 5.20 9/01/2035 1,878 1,970 Higher Educational Facilities Auth. 5.25 7/15/2033 2,272 2,750 Higher Educational Facilities Auth. 5.50 7/15/2038 3,179 4,000 Northampton County General Purpose Auth. 4.00 8/15/2040 4,229 1,250 Turnpike Commission, 5.00%, 12/01/2018 4.12(c) 12/01/2033 1,389 8,000 Turnpike Commission 5.00 6/01/2039 9,334 10,000 Turnpike Commission 5.25 12/01/2044 11,714 3,000 Turnpike Commission 5.00 12/01/2046 3,459 3,200 Washington County IDA 5.00 11/01/2036 3,566 ---------- 57,428 ---------- PUERTO RICO (0.1%) 2,000 Industrial, Tourist, Educational, Medical, Environmental Control Facilities Financing Auth. 5.38 4/01/2042 1,835 ---------- RHODE ISLAND (0.8%) 5,700 EDC (INS) 5.00 7/01/2031 5,712 12,185 EDC (INS) 5.00 7/01/2036 12,207 2,000 Health and Educational Building Corp. 6.00 9/01/2033 2,595 245 Housing and Mortgage Finance Corp. 6.85 10/01/2024 246 ---------- 20,760 ---------- SOUTH CAROLINA (0.4%) 2,250 Greenwood County 5.38 10/01/2039 2,489 7,000 Public Service Auth. 5.25 12/01/2055 8,385 ---------- 10,874 ---------- SOUTH DAKOTA (0.4%) 500 Educational Enhancement Funding Corp. 5.00 6/01/2027 579 2,500 Health and Educational Facilities Auth. 5.25 11/01/2029 2,776 3,000 Health and Educational Facilities Auth. 5.25 7/01/2038 3,170 4,000 Health and Educational Facilities Auth. 5.00 7/01/2042 4,478 ---------- 11,003 ---------- TENNESSEE (0.6%) 3,095 Jackson (PRE) 5.50 4/01/2033 3,310 1,145 Jackson 5.50 4/01/2033 1,218 2,000 Johnson City Health and Educational Facilities Board 5.00 8/15/2042 2,224 4,155 Knox County Health, Educational and Housing Facilities Board 5.02(b) 1/01/2036 1,603 4,000 Knox County Health, Educational and Housing Facilities Board 5.03(b) 1/01/2037 1,465
================================================================================ 28 | USAA TAX EXEMPT LONG-TERM FUND ================================================================================
------------------------------------------------------------------------------------------------------------------ PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------------ $ 1,500 Metropolitan Government of Nashville and Davidson County Health and Educational Facilities Board 5.00% 10/01/2045 $ 1,752 4,000 Metropolitan Government of Nashville and Davidson County Health and Educational Facilities Board 5.00 7/01/2046 4,741 ---------- 16,313 ---------- TEXAS (18.2%) 3,000 Arlington Higher Education Finance Corp. (NBGA) 5.00 2/15/2046 3,579 15,075 Bell County Health Facilities Dev. Corp. (ETM) 6.50 7/01/2019 16,460 1,520 Bexar County Health Facilities Dev. Corp. 5.00 7/01/2033 1,547 1,795 Bexar County Health Facilities Dev. Corp. 5.00 7/01/2037 1,825 7,950 Bexar County Health Facilities Dev. Corp.(g) 4.00 7/15/2045 8,094 6,000 Central Texas Regional Mobility Auth. (PRE)(d) 5.75 1/01/2031 7,168 5,000 Central Texas Regional Mobility Auth. 4.00 1/01/2041 5,293 2,500 Central Texas Regional Mobility Auth. 5.00 1/01/2042 2,768 3,500 Central Texas Regional Mobility Auth. 5.00 1/01/2045 4,056 1,000 Clifton Higher Education Finance Corp. 6.00 8/15/2033 1,214 4,250 Clifton Higher Education Finance Corp. (NBGA) 5.00 8/15/2039 5,055 2,750 Clifton Higher Education Finance Corp. 6.00 8/15/2043 3,339 6,000 Corpus Christi Utility System 4.00 7/15/2039 6,543 4,825 Cypress Fairbanks ISD (NBGA) (PRE) 5.00 2/15/2035 4,902 175 Cypress Fairbanks ISD (NBGA) 5.00 2/15/2035 178 4,000 Dallas/Fort Worth International Airport 5.00 11/01/2034 4,564 9,000 Fort Worth 6.00 3/01/2029 10,091 8,085 Fort Worth (PRE) 6.25 3/01/2033 9,111 3,710 Guadalupe-Blanco River Auth. (INS) 5.00 5/15/2039 3,804 1,275 Harris County 4.75 10/01/2031 1,279 4,000 Harris County Cultural Education Facilities Finance Corp. 5.25 10/01/2029 4,477 6,100 Harris County Cultural Education Facilities Finance Corp. 5.00 6/01/2038 6,751 1,500 Harris County Health Facilities Dev. Corp. (PRE) 7.25 12/01/2035 1,705 15,000 Harris County Hospital District(g) 4.00 2/15/2042 15,871 7,000 Harris County IDC 5.00 2/01/2023 7,742 1,000 Hopkins County Hospital District 5.75 2/15/2028 1,034 3,715 Houston 5.00 9/01/2040 4,318 12,500 Houston Airport System 5.50 7/01/2034 13,496 10,000 Houston Higher Education Finance Corp. 5.00 9/01/2042 11,279 22,000 Houston ISD (NBGA) (PRE) 5.00 2/15/2033 22,351 2,390 Irving 5.00 8/15/2043 2,527 22,000 Judson ISD (NBGA) 4.50 2/01/2035 22,268 6,000 Karnes County Hospital District 5.00 2/01/2044 6,604 1,900 Kerrville Health Facilities Dev. Corp. 5.00 8/15/2035 2,182 3,000 Laredo CCD (INS) 5.25 8/01/2035 3,426 1,000 Laredo Waterworks & Sewer System 4.00 3/01/2041 1,086
================================================================================ PORTFOLIO OF INVESTMENTS | 29 ================================================================================
------------------------------------------------------------------------------------------------------------------ PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------------ $ 5,300 Matagorda County 6.30% 11/01/2029 $ 5,980 9,615 Matagorda County 4.00 6/01/2030 10,453 6,000 Matagorda County 4.00 6/01/2030 6,523 655 Midlothian Dev. Auth. 5.13 11/15/2026 656 6,000 New Hope Cultural Education Facilities Finance Corp. 5.00 7/01/2047 6,694 1,250 New Hope Cultural Education Facilities Finance Corp. 5.00 4/01/2048 1,428 5,000 North Fort Bend Water Auth.(d) 5.00 12/15/2036 5,683 2,630 North Texas Tollway Auth. (PRE) 5.63 1/01/2028 2,785 370 North Texas Tollway Auth. 5.63 1/01/2028 388 2,280 North Texas Tollway Auth. (PRE) 5.63 1/01/2033 2,414 10,385 North Texas Tollway Auth. (PRE) 5.63 1/01/2033 10,995 2,105 North Texas Tollway Auth. (PRE) 5.63 1/01/2033 2,229 2,770 North Texas Tollway Auth. (PRE) 5.63 1/01/2033 2,933 615 North Texas Tollway Auth. 5.63 1/01/2033 648 1,845 North Texas Tollway Auth. 5.63 1/01/2033 1,945 15,000 North Texas Tollway Auth. (PRE) 5.75 1/01/2033 15,905 3,000 North Texas Tollway Auth. 7.55(b) 9/01/2037 1,375 6,245 North Texas Tollway Auth. (PRE) 5.75 1/01/2040 6,622 4,720 North Texas Tollway Auth. (PRE) 5.75 1/01/2040 5,005 1,535 North Texas Tollway Auth. 5.75 1/01/2040 1,620 5,000 North Texas Tollway Auth. 5.00 1/01/2045 5,882 2,000 Red River Education Finance Corp. 4.00 6/01/2041 2,165 4,950 San Leanna Education Facilities Corp. (PRE) 4.75 6/01/2032 5,079 1,075 San Leanna Education Facilities Corp. 4.75 6/01/2032 1,090 820 San Leanna Education Facilities Corp. (PRE) 5.13 6/01/2026 843 180 San Leanna Education Facilities Corp. 5.13 6/01/2026 184 1,490 San Leanna Education Facilities Corp. (PRE) 5.13 6/01/2027 1,533 325 San Leanna Education Facilities Corp. 5.13 6/01/2027 331 2,395 San Leanna Education Facilities Corp. (PRE) 5.13 6/01/2036 2,463 180 State (PRE) 4.50 4/01/2033 183 1,080 State (PRE) 4.50 4/01/2033 1,100 3,740 State 4.50 4/01/2033 3,811 6,315 Tarrant County Cultural Education Facilities Finance Corp. 5.63 11/15/2027 6,483 3,600 Tarrant County Cultural Education Facilities Finance Corp. 5.00 11/15/2036 4,083 14,895 Tarrant County Cultural Education Facilities Finance Corp. 5.13 5/15/2037 14,912 4,000 Tarrant County Cultural Education Facilities Finance Corp. 5.75 11/15/2037 4,085 4,500 Tarrant County Cultural Education Facilities Finance Corp. 5.00 11/15/2045 4,970 7,000 Tarrant County Cultural Education Facilities Finance Corp. 5.00 11/15/2046 8,231
================================================================================ 30 | USAA TAX EXEMPT LONG-TERM FUND ================================================================================
------------------------------------------------------------------------------------------------------------------ PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------------ $ 3,850 Transportation Commission 5.00% 8/15/2041 $ 4,434 6,500 Transportation Commission 5.00 8/15/2042 7,504 18,530 Turnpike Auth. (INS) 5.25(b) 8/15/2030 12,442 22,000 Tyler Health Facilities Dev. Corp. 5.25 11/01/2032 22,459 10,000 Tyler Health Facilities Dev. Corp. (PRE) 5.00 7/01/2033 10,197 1,230 Tyler Health Facilities Dev. Corp. 5.38 11/01/2037 1,256 1,000 Uptown Dev. Auth. 5.50 9/01/2029 1,097 6,360 West Harris County Regional Water Auth. (INS) (PRE) 4.70 12/15/2030 6,413 4,770 Wood County Central Hospital District 6.00 11/01/2041 5,285 ---------- 458,783 ---------- VIRGINIA (1.5%) 5,000 Alexandria IDA 5.00 10/01/2050 5,807 11,280 College Building Auth. 5.00 6/01/2026 11,286 5,000 College Building Auth. 5.00 6/01/2029 5,002 1,437 Farms of New Kent Community Dev. Auth.(e) 5.13 3/01/2036 359 8,665 Farms of New Kent Community Dev. Auth.(e) 5.45 3/01/2036 2,165 2,000 Farms of New Kent Community Dev. Auth.(e),(h) 5.80 3/01/2036 500 3,749 Lewistown Commerce Center Community Dev. Auth. 6.05 3/01/2044 3,636 1,808 Lewistown Commerce Center Community Dev. Auth. 6.05 3/01/2044 1,835 5,847 Lewistown Commerce Center Community Dev. Auth.(e) 6.05 3/01/2054 861 5,000 Small Business Financing Auth. 5.25 9/01/2037 5,148 1,588 Watkins Centre Community Dev. Auth. 5.40 3/01/2020 1,592 ---------- 38,191 ---------- WASHINGTON (0.1%) 2,500 Health Care Facilities Auth. (INS) (PRE) 6.00 8/15/2039 2,862 ---------- WEST VIRGINIA (0.1%) 2,000 EDA 5.38 12/01/2038 2,256 ---------- WISCONSIN (0.7%) 5,000 Health & Educational Facilities Auth. 5.75 11/15/2030 5,589 2,500 Health & Educational Facilities Auth. 5.38 8/15/2037 2,784 1,000 Health & Educational Facilities Auth. 5.00 9/15/2045 1,095 7,800 Kaukauna (INS) 5.00 12/15/2035 9,080 ---------- 18,548 ---------- WYOMING (0.5%) 2,360 Municipal Power Agency 5.50 1/01/2033 2,486 2,300 Municipal Power Agency 5.50 1/01/2038 2,423 6,000 Sweetwater County 5.25 7/15/2026 6,690 ---------- 11,599 ---------- Total Fixed-Rate Instruments (cost: $2,195,218) 2,350,880 ----------
================================================================================ PORTFOLIO OF INVESTMENTS | 31 ================================================================================
------------------------------------------------------------------------------------------------------------------ PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------------ PUT BONDS (0.7%) ARIZONA (0.2%) $ 5,000 Health Facilities Auth. 2.69%(i) 2/01/2048 $ 5,079 ---------- FLORIDA (0.2%) 4,000 Putnam County Dev. Auth. (INS) 5.35 3/15/2042 4,255 ---------- LOUISIANA (0.3%) 6,750 St. Charles Parish 4.00 12/01/2040 7,486 ---------- Total Put Bonds (cost: $15,750) 16,820 ---------- ADJUSTABLE-RATE NOTES (0.7%) NEW JERSEY (0.7%) 20,000 EDA (cost: $20,000) 2.44 3/01/2028 18,227 ---------- VARIABLE-RATE DEMAND NOTES (5.8%) CALIFORNIA (0.4%) 8,430 Antioch USD (LIQ) (LOC - Deutsche Bank A.G.)(a) 0.99 8/01/2047 8,430 ---------- COLORADO (1.2%) 2,500 Health Facilities Auth. (LIQ)(a) 1.19 2/01/2019 2,500 17,850 Health Facilities Auth. (LIQ) (LOC - Deutsche Bank A.G.)(a) 1.09 2/01/2041 17,850 10,000 Regional Transportation District (LIQ) (LOC - Deutsche Bank A.G.)(a) 1.01 6/01/2044 10,000 ---------- 30,350 ---------- ILLINOIS (1.5%) 7,500 Chicago Board of Education (INS) (LIQ)(a) 1.25 12/01/2039 7,500 5,000 Chicago Board of Education (LIQ) (LOC - Deutsche Bank A.G.)(a) 1.36 12/01/2039 5,000 10,200 Chicago Park District (INS) (LIQ)(a) 1.14 1/01/2022 10,200 13,330 State (LIQ) (LOC - Deutsche Bank A.G.)(a) 1.16 7/01/2031 13,330 1,990 State (LIQ) (LOC - Deutsche Bank A.G.)(a) 1.15 4/01/2037 1,990 ---------- 38,020 ---------- KENTUCKY (0.6%) 15,720 Economic Development Finance (LIQ) (LOC - Deutsche Bank A.G.)(a) 1.11 1/01/2045 15,720 ---------- PENNSYLVANIA (0.2%) 5,335 Bucks County Water and Sewer Auth. (INS) (LIQ)(a) 1.14 12/01/2019 5,335 ---------- TEXAS (0.4%) 3,640 Weslaco Health Facilities Dev. Corp. (LOC - Compass Bank) 1.24 6/01/2031 3,640
================================================================================ 32 | USAA TAX EXEMPT LONG-TERM FUND ================================================================================
------------------------------------------------------------------------------------------------------------------ PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------------ $ 6,915 Weslaco Health Facilities Dev. Corp. (LOC - Compass Bank) 1.24% 6/01/2038 $ 6,915 ---------- 10,555 ---------- WASHINGTON (1.5%) 7,500 Health Care Facilities Auth. (LIQ)(a) 1.19 2/01/2019 7,500 30,000 Health Care Facilities Auth. (LIQ) (LOC - Deutsche Bank A.G.)(a) 1.09 1/01/2035 30,000 ---------- 37,500 ---------- Total Variable-Rate Demand Notes (cost: $145,910) 145,910 ---------- TOTAL INVESTMENTS (COST: $2,376,878) $2,531,837 ========== ------------------------------------------------------------------------------------------------------------------ ($ IN 000s) VALUATION HIERARCHY ------------------------------------------------------------------------------------------------------------------ ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL ------------------------------------------------------------------------------------------------------------------ Fixed-Rate Instruments $- $2,347,856 $3,024 $2,350,880 Put Bonds - 16,820 - 16,820 Adjustable-Rate Notes - 18,227 - 18,227 Variable-Rate Demand Notes - 145,910 - 145,910 ------------------------------------------------------------------------------------------------------------------ Total $- $2,528,813 $3,024 $2,531,837 ------------------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or geographic region classifications.
------------------------------------------------------------------------------------------------------------------ RECONCILIATION OF LEVEL 3 INVESTMENTS ------------------------------------------------------------------------------------------------------------------ FIXED-RATE INSTRUMENTS ------------------------------------------------------------------------------------------------------------------ Balance as of March 31, 2016 $3,026 Purchases - Sales - Transfers into Level 3 - Transfers out of Level 3 - Net realized gain (loss) on investments - Change in net unrealized appreciation/(depreciation) of investments (2) ------------------------------------------------------------------------------------------------------------------ Balance as of September 30, 2016 $3,024 ------------------------------------------------------------------------------------------------------------------
For the period of April 1, 2016, through September 30, 2016, there were no transfers of securities between levels. The Fund's policy is to recognize any transfers in and transfers out as of the beginning of the reporting period in which the event or circumstance that caused the transfer occurred. ================================================================================ PORTFOLIO OF INVESTMENTS | 33 ================================================================================ NOTES TO PORTFOLIO OF INVESTMENTS September 30, 2016 (unaudited) -------------------------------------------------------------------------------- o GENERAL NOTES Market values of securities are determined by procedures and practices discussed in Note 1A to the financial statements. The Portfolio of Investments category percentages shown represent the percentages of the investments to net assets, and, in total, may not equal 100%. A category percentage of 0.0% represents less than 0.1% of net assets. o SPECIFIC NOTES (a) Restricted security that is not registered under the Securities Act of 1933. A resale of this security in the United States may occur in an exempt transaction to a qualified institutional buyer as defined by Rule 144A, and as such has been deemed liquid by USAA Asset Management Company (the Manager) under liquidity guidelines approved by USAA Mutual Funds Trust's Board of Trustees (the Board), unless otherwise noted as illiquid. (b) Zero-coupon security. Rate represents the effective yield at the date of purchase. (c) Stepped-coupon security that is initially issued in zero-coupon form and converts to coupon form at the specified date and rate shown in the security's description. The rate presented in the coupon rate column represents the effective yield at the date of purchase. ================================================================================ 34 | USAA TAX EXEMPT LONG-TERM FUND ================================================================================ (d) At September 30, 2016, the security, or a portion thereof, was segregated to cover delayed-delivery and/or when-issued purchases. (e) Security deemed illiquid by the Manager, under liquidity guidelines approved by the Board. The aggregate market value of these securities at September 30, 2016, was $5,886,000, which represented 0.2% of the Fund's net assets. (f) Pay-in-kind (PIK) - security in which the issuer will have or has the option to make all or a portion of the interest or dividend payments in additional securities. (g) At September 30, 2016, the aggregate market value of securities purchased on a delayed-delivery basis was $39,649,000, which included when-issued securities of $36,854,000. (h) At September 30, 2016, the issuer was in default with respect to interest and/or principal payments. (i) Variable-rate or floating-rate security - interest rate is adjusted periodically. The interest rate disclosed represents the rate at September 30, 2016. See accompanying notes to financial statements. ================================================================================ NOTES TO PORTFOLIO OF INVESTMENTS | 35 ================================================================================ STATEMENT OF ASSETS AND LIABILITIES (IN THOUSANDS) September 30, 2016 (unaudited) -------------------------------------------------------------------------------- ASSETS Investments in securities, at market value (cost of $2,376,878) $2,531,837 Receivables: Capital shares sold 938 USAA Asset Management Company (Note 6C) 1 Interest 30,063 ---------- Total assets 2,562,839 ---------- LIABILITIES Payables: Securities purchased 39,610 Capital shares redeemed 1,415 Dividends on capital shares 2,128 Bank overdraft 988 Accrued management fees 501 Accrued transfer agent's fees 19 Other accrued expenses and payables 179 ---------- Total liabilities 44,840 ---------- Net assets applicable to capital shares outstanding $2,517,999 ========== NET ASSETS CONSIST OF: Paid-in capital $2,423,589 Overdistribution of net investment income (142) Accumulated net realized loss on investments (60,407) Net unrealized appreciation of investments 154,959 ---------- Net assets applicable to capital shares outstanding $2,517,999 ========== Net asset value, redemption price, and offering price per share: Fund Shares (net assets of $2,505,190/181,631 capital shares outstanding, no par value) $ 13.79 ========== Adviser Shares (net assets of $12,809/930 capital shares outstanding, no par value) $ 13.78 ==========
See accompanying notes to financial statements. ================================================================================ 36 | USAA TAX EXEMPT LONG-TERM FUND ================================================================================ STATEMENT OF OPERATIONS (IN THOUSANDS) Six-month period ended September 30, 2016 (unaudited) -------------------------------------------------------------------------------- INVESTMENT INCOME Interest income $54,854 ------- EXPENSES Management fees 3,418 Administration and servicing fees: Fund Shares 1,864 Adviser Shares 10 Transfer agent's fees: Fund Shares 370 Adviser Shares 2 Distribution and service fees (Note 6E): Adviser Shares 16 Custody and accounting fees: Fund Shares 146 Adviser Shares 1 Postage: Fund Shares 15 Shareholder reporting fees: Fund Shares 16 Trustees' fees 15 Registration fees: Fund Shares 30 Adviser Shares 13 Professional fees 66 Other 18 ------- Total expenses 6,000 Expenses reimbursed: Adviser Shares (7) ------- Net expenses 5,993 ------- NET INVESTMENT INCOME 48,861 ------- NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS Net realized gain 818 Change in net unrealized appreciation/(depreciation) 11,408 ------- Net realized and unrealized gain 12,226 ------- Increase in net assets resulting from operations $61,087 =======
See accompanying notes to financial statements. ================================================================================ FINANCIAL STATEMENTS | 37 ================================================================================ STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS) Six-month period ended September 30, 2016 (unaudited), and year ended March 31, 2016
---------------------------------------------------------------------------------------------- 9/30/2016 3/31/2016 ---------------------------------------------------------------------------------------------- FROM OPERATIONS Net investment income $ 48,861 $ 99,952 Net realized gain on investments 818 246 Change in net unrealized appreciation/(depreciation) of investments 11,408 (8,895) --------------------------- Increase in net assets resulting from operations 61,087 91,303 --------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income: Fund Shares (49,538) (99,805) Adviser Shares (232) (410) --------------------------- Distributions to shareholders (49,770) (100,215) --------------------------- NET INCREASE IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS (NOTE 5) Fund Shares 72,378 43,516 Adviser Shares 1,504 396 --------------------------- Total net increase in net assets from capital share transactions 73,882 43,912 --------------------------- Net increase in net assets 85,199 35,000 NET ASSETS Beginning of period 2,432,800 2,397,800 --------------------------- End of period $2,517,999 $2,432,800 =========================== Undistributed (overdistribution of) net investment income: End of period $ (142) $ 767 ===========================
See accompanying notes to financial statements. ================================================================================ 38 | USAA TAX EXEMPT LONG-TERM FUND ================================================================================ NOTES TO FINANCIAL STATEMENTS September 30, 2016 (unaudited) -------------------------------------------------------------------------------- (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company Act of 1940, as amended (the 1940 Act), is an open-end management investment company organized as a Delaware statutory trust consisting of 54 separate funds. Additionally, the Fund qualifies as a registered investment company under Accounting Standards Codification Topic 946. The information presented in this semiannual report pertains only to the USAA Tax Exempt Long-Term Fund (the Fund), which is classified as diversified under the 1940 Act. The Fund's investment objective is to provide investors with interest income that is exempt from federal income tax. The Fund consists of two classes of shares: Tax Exempt Long-Term Fund Shares (Fund Shares) and Tax Exempt Long-Term Fund Adviser Shares (Adviser Shares). Each class of shares has equal rights to assets and earnings, except that each class bears certain class-related expenses specific to the particular class. These expenses include administration and servicing fees, transfer agent fees, postage, shareholder reporting fees, distribution and service (12b-1) fees, and certain registration and custodian fees. Expenses not attributable to a specific class, income, and realized gains or losses on investments are allocated to each class of shares based on each class' relative net assets. Each class has exclusive voting rights on matters related solely to that class and separate voting rights on matters that relate to all classes. The Adviser Shares permit investors to purchase shares through financial intermediaries, including banks, broker-dealers, insurance companies, investment advisers, plan sponsors, and financial professionals that provide various administrative and distribution services. A. SECURITY VALUATION - The Trust's Board of Trustees (the Board) has established the Valuation Committee (the Committee), and subject to ================================================================================ NOTES TO FINANCIAL STATEMENTS | 39 ================================================================================ Board oversight, the Committee administers and oversees the Fund's valuation policies and procedures, which are approved by the Board. Among other things, these policies and procedures allow the Fund to utilize independent pricing services, quotations from securities dealers, and a wide variety of sources and information to establish and adjust the fair value of securities as events occur and circumstances warrant. The Committee reports to the Board on a quarterly basis and makes recommendations to the Board as to pricing methodologies and services used by the Fund and presents additional information to the Board regarding application of the pricing and fair valuation policies and procedures during the preceding quarter. The Committee meets as often as necessary to make pricing and fair value determinations. In addition, the Committee holds regular monthly meetings to review prior actions taken by the Committee and USAA Asset Management Company (the Manager), an affiliate of the Fund. Among other things, these monthly meetings include a review and analysis of back testing reports, pricing service quotation comparisons, illiquid securities and fair value determinations, pricing movements, and daily stale price monitoring. The value of each security is determined (as of the close of trading on the New York Stock Exchange (NYSE) on each business day the NYSE is open) as set forth below: 1. Debt securities with maturities greater than 60 days are valued each business day by a pricing service (the Service) approved by the Board. The Service uses an evaluated mean between quoted bid and asked prices or the last sales price to value a security when, in the Service's judgment, these prices are readily available and are representative of the security's market value. For many securities, such prices are not readily available. The Service generally prices those securities based on methods which include consideration of yields or prices of securities of comparable quality, coupon, maturity, and type; indications as to values from dealers in securities; and general market conditions. Generally, debt securities are categorized in Level 2 of the fair value ================================================================================ 40 | USAA TAX EXEMPT LONG-TERM FUND ================================================================================ hierarchy; however, to the extent the valuations include significant unobservable inputs, the securities would be categorized in Level 3. 2. Short-term debt securities with original or remaining maturities of 60 days or less may be valued at amortized cost, provided that amortized cost represents the fair value of such securities. 3. In the event that price quotations or valuations are not readily available, are not reflective of market value, or a significant event has been recognized in relation to a security or class of securities, the securities are valued in good faith by the Committee in accordance with valuation procedures approved by the Board. The effect of fair value pricing is that securities may not be priced on the basis of quotations from the primary market in which they are traded and the actual price realized from the sale of a security may differ materially from the fair value price. Valuing these securities at fair value is intended to cause the Fund's net asset value (NAV) to be more reliable than it otherwise would be. Fair value methods used by the Manager include, but are not limited to, obtaining market quotations from secondary pricing services, broker-dealers, other pricing services, or widely used quotation systems. General factors considered in determining the fair value of securities include fundamental analytical data, the nature and duration of any restrictions on disposition of the securities, evaluation of credit quality, and an evaluation of the forces that influenced the market in which the securities are purchased and sold. B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The three-level valuation hierarchy disclosed in the Portfolio of Investments is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows: Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) in active markets for identical securities. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 41 ================================================================================ Level 2 - inputs to the valuation methodology are other significant observable inputs, including quoted prices for similar securities, inputs that are observable for the securities, either directly or indirectly, and market-corroborated inputs such as market indexes. Level 2 securities include fixed-rate instruments, put bonds, and adjustable-rate notes which are valued based on methods discussed in Note 1A1 and variable-rate demand notes which are valued at amortized cost. Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value measurement, including the Manager's own assumptions in determining the fair value. The inputs or methodologies used for valuing securities are not necessarily an indication of the risks associated with investing in those securities. The valuation of securities falling in the Level 3 category are primarily supported by the value derived based upon the use of inputs such as real property appraisals. However, these securities are included in the Level 3 category due to limited market transparency and/or a lack of corroboration to support the quoted prices. Refer to the Portfolio of Investments for a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining value. C. FEDERAL TAXES - The Fund's policy is to comply with the requirements of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies and to distribute substantially all of its taxable income and net capital gains, if any, to its shareholders. Therefore, no federal income tax provision is required. D. INVESTMENTS IN SECURITIES - Securities transactions are accounted for on the date the securities are purchased or sold (trade date). Gains or losses from sales of investment securities are computed on the identified cost basis. Interest income is recorded daily on the accrual basis. Premiums and discounts are amortized over the life of the respective securities, using the effective yield method for long-term securities and the straight-line method for short-term securities. ================================================================================ 42 | USAA TAX EXEMPT LONG-TERM FUND ================================================================================ E. SECURITIES PURCHASED ON A DELAYED-DELIVERY OR WHEN-ISSUED BASIS - Delivery and payment for securities that have been purchased by the Fund on a delayed-delivery or when-issued basis can take place a month or more after the trade date. During the period prior to settlement, these securities do not earn interest, are subject to market fluctuation, and may increase or decrease in value prior to their delivery. The Fund maintains segregated assets with a market value equal to or greater than the amount of its purchase commitments. The purchase of securities on a delayed-delivery or when-issued basis may increase the volatility of the Fund's NAV to the extent that the Fund makes such purchases while remaining substantially fully invested. As of September 30, 2016, the Fund's outstanding delayed-delivery commitments, including interest purchased, were $39,610,000; of which $36,784,000 were when-issued securities. F. EXPENSES PAID INDIRECTLY - Through arrangements with the Fund's custodian and other banks utilized by the Fund for cash management purposes, realized credits, if any, generated from cash balances in the Fund's bank accounts may be used to directly reduce the Fund's expenses. For the six-month period ended September 30, 2016, custodian and other bank credits reduced the Fund's expenses by less than $500. G. REDEMPTION FEES - All share classes held in the Fund less than 60 days are subject to a redemption fee equal to 1.00% of the proceeds of the redeemed or exchanged shares. All redemption fees paid will be accounted for by the Fund as an addition to paid in capital. For the six-month period ended September 30, 2016, the Fund Shares the Adviser Shares did not charge any redemption fees. H. INDEMNIFICATIONS - Under the Trust's organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Trust. In addition, in the normal course of business, the Trust enters into contracts that contain a variety of representations and warranties that provide general indemnifications. The Trust's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Trust that have not yet occurred. However, the Trust expects the risk of loss to be remote. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 43 ================================================================================ I. USE OF ESTIMATES - The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that may affect the reported amounts in the financial statements. (2) LINE OF CREDIT The Fund participates in a joint, short-term, revolving, committed loan agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate of the Manager. The purpose of the agreement is to meet temporary or emergency cash needs, including redemption requests that might otherwise require the untimely disposition of securities. Subject to availability, the Fund may borrow from CAPCO an amount up to 5% of the Fund's total assets at an interest rate based on the London Interbank Offered Rate (LIBOR), plus 100.0 basis points. The USAA Funds that are party to the loan agreement are assessed facility fees by CAPCO in the amount of 12.0 basis points of the amount of the committed loan agreement. Prior to September 30, 2016, the maximum annual facility fee was 9.0 basis points of the amount of the committed loan agreement. The facility fees are allocated among the USAA Funds based on their respective average net assets for the period. The USAA Funds may request an optional increase of the committed loan agreement from $500 million up to $750 million. If the USAA Funds increase the committed loan agreement, the assessed facility fee on the amount of the additional commitment will be 13.0 basis points. For the six-month period ended September 30, 2016, the Fund paid CAPCO facility fees of $8,000, which represents 3.4% of the total fees paid to CAPCO by the USAA Funds. The Fund had no borrowings under this agreement during the six-month period ended September 30, 2016. (3) DISTRIBUTIONS The tax basis of distributions and any accumulated undistributed net investment income will be determined as of the Fund's tax year-end of March 31, 2017, in accordance with applicable federal tax law. ================================================================================ 44 | USAA TAX EXEMPT LONG-TERM FUND ================================================================================ Net investment income is accrued daily as dividends and distributed to shareholders monthly. Distributions of realized gains from security transactions not offset by capital losses are made annually in the succeeding fiscal year or as otherwise required to avoid the payment of federal income taxes. At March 31, 2016, the Fund had net capital loss carryforwards of $60,725,000, for federal income tax purposes, as shown in the table below. It is unlikely that the Board will authorize a distribution of capital gains realized in the future until the capital loss carryforwards have been used.
CAPITAL LOSS CARRYFORWARDS ---------------------------------------- TAX CHARACTER ---------------------------------------- (NO EXPIRATION) BALANCE --------------- ---------- Short-Term $11,439,000 Long-Term 49,286,000 ----------- Total $60,725,000 ===========
For the six-month period ended September 30, 2016, the Fund did not incur any income tax, interest, or penalties, and has recorded no liability for net unrecognized tax benefits relating to uncertain income tax positions. On an ongoing basis, the Manager will monitor the Fund's tax basis to determine if adjustments to this conclusion are necessary. The statute of limitations on the Fund's tax return filings generally remain open for the three preceding fiscal reporting year ends and remain subject to examination by the Internal Revenue Service and state taxing authorities. (4) INVESTMENT TRANSACTIONS Cost of purchases and proceeds from sales/maturities of securities, excluding short-term securities, for the six-month period ended September 30, 2016, were $23,298,000 and $73,969,000, respectively. As of September 30, 2016, the cost of securities, including short-term securities, for federal income tax purposes, was approximately the same as the cost reported in the financial statements. Gross unrealized appreciation and depreciation of investments as of September 30, 2016, were $202,409,000 and $47,450,000, respectively, resulting in net unrealized appreciation of $154,959,000. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 45 ================================================================================ (5) CAPITAL SHARE TRANSACTIONS At September 30, 2016, there were an unlimited number of shares of capital stock at no par value authorized for the Fund. Capital share transactions for all classes were as follows, in thousands:
SIX-MONTH PERIOD ENDED YEAR ENDED SEPTEMBER 30, 2016 MARCH 31, 2016 ------------------------------------------------------------------------------------------------- SHARES AMOUNT SHARES AMOUNT --------------------------------------------------------- FUND SHARES: Shares sold 9,093 $125,978 14,061 $ 191,923 Shares issued from reinvested dividends 2,744 38,014 5,588 76,185 Shares redeemed (6,614) (91,614) (16,485) (224,592) --------------------------------------------------------- Net increase from capital share transactions 5,223 $ 72,378 3,164 $ 43,516 ========================================================= ADVISER SHARES: Shares sold 144 $ 1,977 146 $ 1,996 Shares issued from reinvested dividends 9 122 13 183 Shares redeemed* (43) (595) (131) (1,783) --------------------------------------------------------- Net increase from capital share transactions 110 $ 1,504 28 $ 396 ========================================================= *Net of redemption fees, if any.
(6) TRANSACTIONS WITH MANAGER A. MANAGEMENT FEES - The Manager provides investment management services to the Fund pursuant to an Advisory Agreement. Under this agreement, the Manager is responsible for managing the business and affairs of the Fund, and for directly managing the day-to-day investment of the Fund's assets, subject to the authority of and supervision by the Board. The investment management fee for the Fund is comprised of a base fee and a performance adjustment. The Fund's base fee is accrued daily and paid monthly at an annualized rate of 0.28% of the Fund's average net assets. ================================================================================ 46 | USAA TAX EXEMPT LONG-TERM FUND ================================================================================ The performance adjustment is calculated separately for each share class on a monthly basis by comparing each class' performance over the performance period to that of the Lipper General & Insured Municipal Debt Funds Index. The Lipper General & Insured Municipal Debt Funds Index tracks the total return performance of Funds that invest primarily in municipal debt issues in the top four credit ratings. The performance period for each class consists of the current month plus the previous 35 months. The following table is utilized to determine the extent of the performance adjustment:
OVER/UNDER PERFORMANCE RELATIVE TO INDEX ANNUAL ADJUSTMENT RATE (IN BASIS POINTS)(1) (IN BASIS POINTS)(1) ------------------------------------------------------------------ +/- 20 to 50 +/- 4 +/- 51 to 100 +/- 5 +/- 101 and greater +/- 6
(1) Based on the difference between average annual performance of the relevant share class of the Fund and its relevant index, rounded to the nearest basis point. Average net assets of the share class are calculated over a rolling 36-month period. Each class' annual performance adjustment rate is multiplied by the average net assets of each respective class over the entire performance period, which is then multiplied by a fraction, the numerator of which is the number of days in the month and the denominator of which is 365 (366 in leap years). The resulting amount is then added to (in the case of overperformance), or subtracted from (in the case of underperformance) the base fee. Under the performance fee arrangement, each class will pay a positive performance fee adjustment for a performance period whenever the class outperforms the Lipper General & Insured Municipal Debt Funds Index over that period, even if the class had overall negative returns during the performance period. For the six-month period ended September 30, 2016, the Fund incurred total management fees, paid or payable to the Manager, of $3,418,000, which included a performance adjustment for the Fund Shares and ================================================================================ NOTES TO FINANCIAL STATEMENTS | 47 ================================================================================ Adviser Shares of $(78,000) and $(2,000), respectively. For the Fund Shares and Adviser Shares, the performance adjustments were (0.01)% and (0.03)%, respectively. B. ADMINISTRATION AND SERVICING FEES - The Manager provides certain administration and servicing functions for the Fund. For such services, the Manager receives a fee accrued daily and paid monthly at an annualized rate of 0.15% of average net assets for both the Fund Shares and Adviser Shares. For the six-month period ended September 30, 2016, the Fund Shares and Adviser Shares incurred administration and servicing fees, paid or payable to the Manager, of $1,864,000 and $10,000, respectively. In addition to the services provided under its Administration and Servicing Agreement with the Fund, the Manager also provides certain compliance and legal services for the benefit of the Fund. The Board has approved the reimbursement of a portion of these expenses incurred by the Manager. For the six-month period ended September 30, 2016, the Fund reimbursed the Manager $34,000 for these compliance and legal services. These expenses are included in the professional fees on the Fund's Statement of Operations. C. EXPENSE LIMITATION - The Manager agreed, through August 1, 2017, to limit the total annual operating expenses of the Adviser Shares to 0.80% of its average net assets, excluding extraordinary expenses and before reductions of any expenses paid indirectly, and to reimburse the Adviser Shares for all expenses in excess of that amount. This expense limitation arrangement may not be changed or terminated through August 1, 2017, without approval of the Board, and may be changed or terminated by the Manager at any time after that date. For the six-month period ended September 30, 2016, the Adviser Shares incurred reimbursable expenses of $7,000, of which $1,000 was receivable from the Manager. D. TRANSFER AGENT'S FEES - USAA Transfer Agency Company, d/b/a USAA Shareholder Account Services (SAS), an affiliate of the Manager, provides transfer agent services to the Fund Shares and Adviser Shares based on an annual charge of $25.50 per shareholder account plus out-of-pocket expenses. SAS pays a portion of these fees to certain intermediaries for ================================================================================ 48 | USAA TAX EXEMPT LONG-TERM FUND ================================================================================ the administration and servicing of accounts that are held with such intermediaries. For the six-month period ended September 30, 2016, the Fund Shares and Adviser Shares incurred transfer agent's fees, paid or payable to SAS, of $370,000 and $2,000, respectively. E. DISTRIBUTION AND SERVICE (12b-1) FEES - The Fund has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Adviser Shares. Under the plan, the Adviser Shares pay fees to USAA Investment Management Company (IMCO), the distributor, for distribution and shareholder services. IMCO pays all or a portion of such fees to intermediaries that make the Adviser Shares available for investment by their customers. The fee is accrued daily and paid monthly at an annual rate of 0.25% of the Adviser Shares' average net assets. Adviser Shares are offered and sold without imposition of an initial sales charge or a contingent deferred sales charge. For the six-month period ended September 30, 2016, the Adviser Shares incurred distribution and service (12b-1) fees of $16,000. F. UNDERWRITING SERVICES - IMCO provides exclusive underwriting and distribution of the Fund's shares on a continuing best-efforts basis and receives no fee or other compensation for these services, but may receive 12b-1 fees as described above, with respect to Adviser Shares. (7) TRANSACTIONS WITH AFFILIATES The Manager is indirectly wholly owned by United Services Automobile Association (USAA), a large, diversified financial services institution. At September 30, 2016, USAA and its affiliates owned 377,000 Adviser Shares, which represents 40.6% of the Adviser Shares outstanding and 0.2% of the Fund's total outstanding shares. Certain trustees and officers of the Fund are also directors, officers, and/or employees of the Manager. None of the affiliated trustees or Fund officers received any compensation from the Fund. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 49 ================================================================================ (8) FINANCIAL HIGHLIGHTS - FUND SHARES Per share operating performance for a share outstanding throughout each period is as follows:
SIX-MONTH PERIOD ENDED SEPTEMBER 30, YEAR ENDED MARCH 31, ---------------------------------------------------------------------------------------------- 2016 2016 2015 2014 2013 2012 ---------------------------------------------------------------------------------------------- Net asset value at beginning of period $ 13.73 $ 13.78 $ 13.45 $ 13.91 $ 13.50 $ 12.16 ---------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income .27 .58 .58 .56 .54 .59 Net realized and unrealized gain (loss) .07 (.05) .32 (.46) .41 1.36 ---------------------------------------------------------------------------------------------- Total from investment operations .34 .53 .90 .10 .95 1.95 ---------------------------------------------------------------------------------------------- Less distributions from: Net investment income (.28) (.58) (.57) (.56) (.54) (.59) Realized capital gains - - - - - (.02) ---------------------------------------------------------------------------------------------- Total distributions (.28) (.58) (.57) (.56) (.54) (.61) ---------------------------------------------------------------------------------------------- Net asset value at end of period $ 13.79 $ 13.73 $ 13.78 $ 13.45 $ 13.91 $ 13.50 ============================================================================================== Total return (%)* 2.46 3.94 6.79 .83 7.11 16.30 Net assets at end of period (000) $2,505,190 $2,421,551 $2,386,904 $2,251,219 $2,837,758 $2,588,782 Ratios to average net assets:** Expenses (%)(a) .48(b) .51 .55 .54 .53 .52 Net investment income (%) 3.91(b) 4.23 4.22 4.19 3.89 4.54 Portfolio turnover (%) 4 6 7 7 14 9
* Assumes reinvestment of all net investment income and realized capital gain distributions, if any, during the period. Includes adjustments in accordance with U.S. generally accepted accounting principles and could differ from the Lipper reported return. Total returns for periods of less than one year are not annualized. ** For the six-month period ended September 30, 2016, average net assets were $2,480,006,000. (a) Reflects total annual operating expenses of the Fund Shares before reductions of any expenses paid indirectly. The Fund Shares' expenses paid indirectly decreased the expense ratios by less than 0.01%. (b) Annualized. The ratio is not necessarily indicative of 12 months of operations. ================================================================================ 50 | USAA TAX EXEMPT LONG-TERM FUND ================================================================================ (8) FINANCIAL HIGHLIGHTS (CONTINUED) - ADVISER SHARES Per share operating performance for a share outstanding throughout each period is as follows:
SIX-MONTH PERIOD ENDED SEPTEMBER 30, YEAR ENDED MARCH 31, ---------------------------------------------------------------------------------------------- 2016 2016 2015 2014 2013 2012 ---------------------------------------------------------------------------------------------- Net asset value at beginning of period $ 13.71 $ 13.76 $ 13.43 $ 13.91 $ 13.50 $ 12.16 ------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income .25 .54 .54 .51 .49 .55 Net realized and unrealized gain (loss) .07 (.05) .32 (.47) .41 1.36 ------------------------------------------------------------------------------------------- Total from investment operations .32 .49 .86 .04 .90 1.91 ------------------------------------------------------------------------------------------- Less distributions from: Net investment income (.25) (.54) (.53) (.52) (.49) (.55) Realized capital gains - - - - - (.02) ------------------------------------------------------------------------------------------- Total distributions (.25) (.54) (.53) (.52) (.49) (.57) ------------------------------------------------------------------------------------------- Net asset value at end of period $ 13.78 $ 13.71 $ 13.76 $ 13.43 $ 13.91 $ 13.50 =========================================================================================== Total return (%)* 2.37 3.65 6.52 .37 6.77 15.92 Net assets at end of period (000) $12,809 $11,249 $10,896 $ 7,145 $ 6,809 $ 5,870 Ratios to average net assets:** Expenses (%)(b) .80(c) .80 .81(a) .85 .85 .85 Expenses, excluding reimbursements (%)(b) .91(c) .90 .99 1.07 1.11 1.32 Net investment income (%) 3.58(c) 3.94 3.94 3.88 3.56 4.20 Portfolio turnover (%) 4 6 7 7 14 9
* Assumes reinvestment of all net investment income and realized capital gain distributions, if any, during the period. Includes adjustments in accordance with U.S. generally accepted accounting principles and could differ from the Lipper reported return. Total returns for periods of less than one year are not annualized. ** For the six-month period ended September 30, 2016, average net assets were $12,708,000. (a) Effective August 1, 2014, the Manager voluntarily agreed to reimburse the Adviser Shares for expenses in excess of 0.80% of their annual average net assets. Prior to August 1, 2014, the Manager voluntarily agreed to reimburse the Adviser Shares for expenses in excess of 0.85% of their annual average net assets. (b) Reflects total annual operating expenses of the Adviser Shares before reductions of any expenses paid indirectly. The Adviser Shares' expenses paid indirectly decreased the expense ratios by less than 0.01%. (c) Annualized. The ratio is not necessarily indicative of 12 months of operations. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 51 ================================================================================ EXPENSE EXAMPLE September 30, 2016 (unaudited) -------------------------------------------------------------------------------- EXAMPLE As a shareholder of the Fund, you incur two types of costs: direct costs, such as wire fees, redemption fees, and low balance fees; and indirect costs, including management fees, transfer agency fees, distribution and service (12b-1) fees, and other Fund operating expenses. This example is intended to help you understand your indirect costs, also referred to as "ongoing costs" (in dollars), of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire six-month period of April 1, 2016, through September 30, 2016. ACTUAL EXPENSES The line labeled "actual" under each share class in the table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested at the beginning of the period, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number for your share class in the "actual" line under the heading "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The line labeled "hypothetical" under each share class in the table provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratios for each class and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. ================================================================================ 52 | USAA TAX EXEMPT LONG-TERM FUND ================================================================================ The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any direct costs, such as wire fees, redemption fees, or low balance fees. Therefore, the line labeled "hypothetical" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these direct costs were included, your costs would have been higher.
EXPENSES PAID BEGINNING ENDING DURING PERIOD* ACCOUNT VALUE ACCOUNT VALUE APRIL 1, 2016 - APRIL 1, 2016 SEPTEMBER 30, 2016 SEPTEMBER 30, 2016 ------------------------------------------------------------------- FUND SHARES Actual $1,000.00 $1,024.60 $2.44 Hypothetical (5% return before expenses) 1,000.00 1,022.66 2.43 ADVISER SHARES Actual 1,000.00 1,023.70 4.06 Hypothetical (5% return before expenses) 1,000.00 1,021.06 4.05
*Expenses are equal to the annualized expense ratio of 0.48% for Fund Shares and 0.80% for Adviser Shares, which are net of any reimbursements and expenses paid indirectly, multiplied by the average account value over the period, multiplied by 183 days/365 days (to reflect the one-half-year period). The Fund's actual ending account values are based on its actual total returns of 2.46% for Fund Shares and 2.37% for Adviser Shares for the six-month period of April 1, 2016, through September 30, 2016. ================================================================================ EXPENSE EXAMPLE | 53 ================================================================================ ADVISORY AGREEMENT(S) September 30, 2016 (unaudited) -------------------------------------------------------------------------------- At an in-person meeting of the Board of Trustees (the Board) held on April 22, 2016, the Board, including the Trustees who are not "interested persons" (as that term is defined in the Investment Company Act of 1940, as amended) of the Trust (the Independent Trustees), approved for an annual period the continuance of the Advisory Agreement between the Trust and the Manager with respect to the Fund. In advance of the meeting, the Trustees received and considered a variety of information relating to the Advisory Agreement and the Manager and were given the opportunity to ask questions and request additional information from management. The information provided to the Board included, among other things: (i) a separate report prepared by an independent third party, which provided a statistical analysis comparing the Fund's investment performance, expenses, and fees to comparable investment companies; (ii) information concerning the services rendered to the Fund, as well as information regarding the Manager's revenues and costs of providing services to the Fund and compensation paid to affiliates of the Manager; and (iii) information about the Manager's operations and personnel. Prior to voting, the Independent Trustees reviewed the proposed continuation of the Advisory Agreement with management and with experienced counsel retained by the Independent Trustees (Independent Counsel) and received materials from such Independent Counsel discussing the legal standards for their consideration of the proposed continuation of the Advisory Agreement with respect to the Fund. The Independent Trustees also reviewed the proposed continuation of the Advisory Agreement with respect to the Fund in private sessions with their Independent Counsel at which no representatives of management were present. At each regularly scheduled meeting of the Board and its committees, the Board receives and reviews, among other things, information concerning the Fund's performance and related services provided by the Manager. At the ================================================================================ 54 | USAA TAX EXEMPT LONG-TERM FUND ================================================================================ meeting at which the renewal of the Advisory Agreement is considered, particular focus is given to information concerning Fund performance, fees and total expenses as compared to comparable investment companies, and the Manager's profitability with respect to the Fund. However, the Board noted that the evaluation process with respect to the Manager is an ongoing one. In this regard, the Board's and its committees' consideration of the Advisory Agreement included information previously received at such meetings. ADVISORY AGREEMENT After full consideration of a variety of factors, the Board, including the Independent Trustees, voted to approve the Advisory Agreement. In approving the Advisory Agreement, the Trustees did not identify any single factor as controlling, and each Trustee may have attributed different weights to various factors. Throughout their deliberations, the Independent Trustees were represented and assisted by Independent Counsel. NATURE, EXTENT, AND QUALITY OF SERVICES - In considering the nature, extent, and quality of the services provided by the Manager under the Advisory Agreement, the Board reviewed information provided by the Manager relating to its operations and personnel. The Board also took into account its knowledge of the Manager's management and the quality of the performance of the Manager's duties through Board meetings, discussions, and reports during the preceding year. The Board considered the fees paid to the Manager and the services provided to the Fund by the Manager under the Advisory Agreement, as well as other services provided by the Manager and its affiliates under other agreements, and the personnel who provide these services. In addition to the investment advisory services provided to the Fund, the Manager and its affiliates provide administrative services, stockholder services, oversight of Fund accounting, marketing services, assistance in meeting legal and regulatory requirements, and other services necessary for the operation of the Fund and the Trust. The Board considered the Manager's management style and the performance of its duties under the Advisory Agreement. The Board considered the level and depth of knowledge of the Manager, including the professional experience and qualifications of its senior and investment personnel, as well as current ================================================================================ ADVISORY AGREEMENT(S) | 55 ================================================================================ staffing levels. The allocation of the Fund's brokerage, including the Manager's process for monitoring "best execution," also was considered. The Manager's role in coordinating the activities of the Fund's other service providers also was considered. The Board also considered the Manager's risk management processes. The Board considered the Manager's financial condition and that it had the financial wherewithal to continue to provide the same scope and high quality of services under the Advisory Agreement. In reviewing the Advisory Agreement, the Board focused on the experience, resources, and strengths of the Manager and its affiliates in managing the Fund, as well as the other funds in the Trust. The Board also reviewed the compliance and administrative services provided to the Fund by the Manager, including the Manager's oversight of the Fund's day-to-day operations and oversight of Fund accounting. The Trustees, guided also by information obtained from their experiences as trustees of the Trust, also focused on the quality of the Manager's compliance and administrative staff. EXPENSES AND PERFORMANCE - In connection with its consideration of the Advisory Agreement, the Board evaluated the Fund's advisory fees and total expense ratio as compared to other open-end investment companies deemed to be comparable to the Fund as determined by the independent third party in its report. The Fund's expenses were compared to (i) a group of investment companies chosen by the independent third party to be comparable to the Fund based upon certain factors, including fund type, comparability of investment objective and classification, sales load type (in this case, investment companies with no sales loads), asset size, and expense components (the "expense group") and (ii) a larger group of investment companies that includes all no-load retail open-end investment companies with the same investment classification/objective as the Fund regardless of asset size, excluding outliers (the "expense universe"). Among other data, the Board noted that the Fund's management fee rate - which includes advisory and administrative services and the effects of any performance adjustment - was below the median of its expense group and its expense universe. The data indicated that the Fund's total expense ratio was below the median of its expense group and its expense universe. The Board took into account the various services provided to the Fund by the Manager and its affiliates, ================================================================================ 56 | USAA TAX EXEMPT LONG-TERM FUND ================================================================================ including the high quality of services provided by the Manager. The Board also noted the level and method of computing the management fee, including any performance adjustment to such fee. In considering the Fund's performance, the Board noted that it reviews at its regularly scheduled meetings information about the Fund's performance results. The Trustees also reviewed various comparative data provided to them in connection with their consideration of the renewal of the Advisory Agreement, including, among other information, a comparison of the Fund's average annual total return with its Lipper index and with that of other mutual funds deemed to be in its peer group by the independent third party in its report (the "performance universe"). The Fund's performance universe consisted of the Fund and all retail and institutional open-end investment companies with the same classification/objective as the Fund regardless of asset size or primary channel of distribution. This comparison indicated that, among other data, the Fund's performance was above the average of its performance universe and lower than its Lipper index for the one-year period ended December 31, 2015 and was above the average of its performance universe and its Lipper index for the three-, five-, and ten-year periods ended December 31, 2015. The Board also noted that the Fund's percentile performance ranking was in the top 35% of its performance universe for the one-year period ended December 31, 2015, was in the top 20% of its performance universe for the three- and five-year periods ended December 31, 2015, and was in the top 30% of its performance universe for the ten-year period ended December 31, 2015. COMPENSATION AND PROFITABILITY - The Board took into consideration the level and method of computing the management fee. The information considered by the Board included operating profit margin information for the Manager's business as a whole. The Board also received and considered profitability information related to the management revenues from the Fund. This information included a review of the methodology used in the allocation of certain costs to the Fund. The Trustees reviewed the profitability of the Manager's relationship with the Fund before tax expenses. In reviewing the overall profitability of the management fee to the Manager, the Board also considered the fact that affiliates provide shareholder servicing and administrative services to the Fund for which they receive compensation. The ================================================================================ ADVISORY AGREEMENT(S) | 57 ================================================================================ Board also considered the possible direct and indirect benefits to the Manager from its relationship with the Trust, including that the Manager may derive reputational and other benefits from its association with the Fund. The Board also took into account the high quality of services received by the Fund from the Manager. The Trustees recognized that the Manager should be entitled to earn a reasonable level of profits in exchange for the level of services it provides to the Fund and the entrepreneurial risk that it assumes as Manager. ECONOMIES OF SCALE - The Board considered whether there should be changes in the management fee rate or structure in order to enable the Fund to participate in any economies of scale. The Board took into account management's discussion of the current advisory fee structure. The Board also considered the effect of the Fund's growth and size on its performance and fees, noting that if the Fund's assets increase over time, the Fund may realize other economies of scale if assets increase proportionally more than some expenses. The Board determined that the current investment management fee structure was reasonable. CONCLUSIONS - The Board reached the following conclusions regarding the Fund's Advisory Agreement with the Manager, among others: (i) the Manager has demonstrated that it possesses the capability and resources to perform the duties required of it under the Advisory Agreement; (ii) the Manager maintains an appropriate compliance program; (iii) the performance of the Fund is reasonable in relation to the performance of funds with similar investment objectives and to relevant indices; (iv) the Fund's advisory expenses are reasonable in relation to those of similar funds and to the services to be provided by the Manager; and (v) the Manager's and its affiliates' level of profitability from its relationship with the Fund is reasonable in light of the nature and high quality of the services provided by the Manager and the type of fund. Based on its conclusions, the Board determined that continuation of the Advisory Agreement would be in the best interests of the Fund and its shareholders. ================================================================================ 58 | USAA TAX EXEMPT LONG-TERM FUND ================================================================================ TRUSTEES Daniel S. McNamara Robert L. Mason, Ph.D. Jefferson C. Boyce Dawn M. Hawley Paul L. McNamara Barbara B. Ostdiek, Ph.D. Michael F. Reimherr -------------------------------------------------------------------------------- ADMINISTRATOR AND USAA Asset Management Company INVESTMENT ADVISER P.O. Box 659453 San Antonio, Texas 78265-9825 -------------------------------------------------------------------------------- UNDERWRITER AND USAA Investment Management Company DISTRIBUTOR P.O. Box 659453 San Antonio, Texas 78265-9825 -------------------------------------------------------------------------------- TRANSFER AGENT USAA Shareholder Account Services 9800 Fredericksburg Road San Antonio, Texas 78288 -------------------------------------------------------------------------------- CUSTODIAN AND State Street Bank and Trust Company ACCOUNTING AGENT P.O. Box 1713 Boston, Massachusetts 02105 -------------------------------------------------------------------------------- INDEPENDENT Ernst & Young LLP REGISTERED PUBLIC 100 West Houston St., Suite 1700 ACCOUNTING FIRM San Antonio, Texas 78205 -------------------------------------------------------------------------------- MUTUAL FUND Under "My Accounts" on SELF-SERVICE 24/7 usaa.com select your mutual fund AT USAA.COM account and either click the link or select 'I want to...' and select OR CALL the desired action. (800) 531-USAA (8722) (210) 531-8722 -------------------------------------------------------------------------------- Copies of the Manager's proxy voting policies and procedures, approved by the Trust's Board of Trustees for use in voting proxies on behalf of the Fund, are available without charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722; (ii) at USAA.COM; and (iii) in summary within the Statement of Additional Information on the SEC's website at HTTP://WWW.SEC.GOV. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge (i) at USAA.COM; and (ii) on the SEC's website at HTTP://WWW.SEC.GOV. The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. These Forms N-Q are available at no charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722; (ii) at USAA.COM; and (iii) on the SEC's website at HTTP://WWW.SEC.GOV. These Forms N-Q also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling (800) 732-0330. ================================================================================ -------------- USAA PRSRT STD 9800 Fredericksburg Road U.S. Postage San Antonio, TX 78288 PAID USAA -------------- >> SAVE PAPER AND FUND COSTS Under MY PROFILE on USAA.COM select MANAGE PREFERENCES Set your DOCUMENT PREFERENCES to USAA DOCUMENTS ONLINE. [LOGO OF USAA] USAA We know what it means to serve.(R) ============================================================================= 39596-1116 (C)2016, USAA. All rights reserved. [LOGO OF USAA] USAA(R) [GRAPHIC OF USAA TAX EXEMPT MONEY MARKET FUND] ======================================================= SEMIANNUAL REPORT USAA TAX EXEMPT MONEY MARKET FUND SEPTEMBER 30, 2016 ======================================================= ================================================================================ ================================================================================ PRESIDENT'S MESSAGE "THE CLOSING WEEKS OF A YEAR CAN BE A GOOD TIME TO TAKE A LOOK AT YOUR FINANCIAL SITUATION [PHOTO OF BROOKS ENGLEHARDT] WITH A GOAL OF GETTING YOUR FINANCES IN ORDER." -------------------------------------------------------------------------------- NOVEMBER 2016 Investors were generally rewarded during the reporting period ended September 30, 2016. Most asset classes posted gains as global growth concerns eased and many of the world's central banks, including the Federal Reserve (the Fed), maintained accommodative monetary policies. Stock prices generally climbed, despite two brief setbacks. In June 2016, a brief retreat followed the United Kingdom's unexpected vote to withdraw from the European Union (commonly known as Brexit). In September 2016, stocks fell--before quickly recovering--on concerns about a potential Fed interest rate increase. Meanwhile, bond prices recorded positive returns during the reporting period. As bond prices rose, longer-term interest rates, which move in the opposite direction, fell. As you know, the Fed only has direct control over short-term interest rates. Bond prices and longer-term interest rates are determined by buyers and sellers, sometimes based on their views of Fed policy. During the reporting period, market expectations about potential Fed interest rate increases shifted into the future. The Fed, which in December 2015 had raised short-term interest rates for the first time since 2008, also initially signaled that four interest rate increases were on tap for 2016. However, policymakers backed off that forecast in March 2016, just before the reporting period began, indicating that only two interest rate increases were on the table. They pointed to the global market turmoil during the first six weeks of 2016 as a contributing factor. Policymakers subsequently hinted there would be a single interest rate increase, but ultimately left interest rates unchanged. In our view, December 2016 is the Fed's only remaining window of opportunity to increase short-term interest rates. It is unlikely to act at its November 2016 meeting, which is just days before the presidential election. We believe that as of this writing, the futures market, which generally is a proxy for investor sentiment, indicates approximately a two-thirds chance that the Fed would raise rates in December 2016. ================================================================================ ================================================================================ This begs the question: Is it good or bad if low interest rates persist? We think it depends on your perspective. On one hand, consumers and businesses are able to continue borrowing at affordable interest rates. On the other hand, savers may continue to see returns lower than the rate of inflation. At USAA Investments, we believe the Fed is likely to raise interest rates at a gradual pace. We've long held the belief that interest rates will stay lower for longer than many market participants expect. Currently, there is no urgency for the Fed to act. Interest rate increases are typically a response to an overheating economy, and the U.S. remains in slow-growth mode with low inflation. Americans are still carrying large amounts of household debt, so higher interest rates are likely to hinder their spending and slow what little growth there is. Tax-exempt bonds, like most other fixed-income investments, generated positive returns during the reporting period. Municipal bonds performed well, as investors continued to favor them for their tax-advantaged status. At the same time, municipal issuance remained low, though it has increased since January 2016. Still, the supply is far from enough to satisfy demand and we expect municipal bonds to continue to benefit from this situation for some time to come. Although state and local finances are in better shape than they were a few years ago, municipal governments have been reluctant to take on additional debt. We believe eventually this will change, but likely not for the foreseeable future. Looking ahead, the end of 2016 is just weeks away. The closing weeks of a year can be a good time to take a look at your financial situation with a goal of getting your finances in order. One way to help ensure you're doing the most with what you have is to consider investing a set amount each month, also known as dollar-cost averaging. Please call USAA Investments to speak with a financial advisor. We are committed to helping you meet your financial objectives. On behalf of everyone at USAA Investments, thank you for relying on us to help you with your investment needs. We appreciate the opportunity to serve you. Sincerely, /S/ BROOKS ENGLEHARDT Brooks Englehardt President USAA Investments Investments provided by USAA Investment Management Company and USAA Financial Advisors, Inc., both registered broker-dealers, and affiliates. Financial planning services and financial advice provided by USAA Financial Planning Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in California, License # 0E36312), a registered investment adviser and insurance agency and its wholly owned subsidiary, USAA Financial Advisors, Inc., a registered broker dealer. ================================================================================ ================================================================================ TABLE OF CONTENTS -------------------------------------------------------------------------------- FUND OBJECTIVE 1 MANAGER'S COMMENTARY ON THE FUND 2 INVESTMENT OVERVIEW 4 FINANCIAL INFORMATION Portfolio of Investments 8 Notes to Portfolio of Investments 21 Financial Statements 22 Notes to Financial Statements 25 EXPENSE EXAMPLE 33 ADVISORY AGREEMENT(S) 35
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS ABOUT THE FUND. (C)2016, USAA. All rights reserved. 211738-1116 ================================================================================ ================================================================================ FUND OBJECTIVE THE USAA TAX EXEMPT MONEY MARKET FUND (THE FUND) PROVIDES INVESTORS WITH INTEREST INCOME THAT IS EXEMPT FROM FEDERAL INCOME TAX AND HAS A FURTHER OBJECTIVE OF PRESERVING CAPITAL AND MAINTAINING LIQUIDITY. -------------------------------------------------------------------------------- TYPES OF INVESTMENTS The Fund invests primarily in high-quality securities, the interest of which is exempt from federal income tax with remaining maturities of 397 days or less. During normal market conditions, at least 80% of the Fund's net assets will consist of tax-exempt securities. IRA DISTRIBUTION WITHHOLDING DISCLOSURE We generally must withhold federal income tax at a rate of 10% of the taxable portion of your distribution and, if you live in a state that requires state income tax withholding, at your state's tax rate. However, you may elect not to have withholding apply or to have income tax withheld at a higher rate. Any withholding election that you make will apply to any subsequent distribution unless and until you change or revoke the election. If you wish to make a withholding election or change or revoke a prior withholding election, call (800) 531-USAA (8722) or (210) 531-8722. If you do not have a withholding election in place by the date of a distribution, federal income tax will be withheld from the taxable portion of your distribution at a rate of 10%. If you must pay estimated taxes, you may be subject to estimated tax penalties if your estimated tax payments are not sufficient and sufficient tax is not withheld from your distribution. For more specific information, please consult your tax adviser. ================================================================================ FUND OBJECTIVE | 1 ================================================================================ MANAGER'S COMMENTARY ON THE FUND DALE R. HOFFMANN [PHOTO OF DALE R. HOFFMANN] USAA Asset Management Company -------------------------------------------------------------------------------- o WHAT WERE THE MARKET CONDITIONS DURING THE REPORTING PERIOD? When the reporting period began in April 2016, investors were still digesting the change in the Federal Reserve's (the Fed) guidance on short-term interest-rate increases. At its March policy meeting, the Fed had called for two interest rate increases in 2016, down from the four it had forecasted in December 2015. Ultimately, however, the Fed remained steady, leaving the federal funds target rate in a range between 0.25% and 0.50% throughout the reporting period. Although the Fed did not change its monetary policy, interest rates on money market securities rose, largely due to shifting market dynamics. At the beginning of the reporting period, the SIFMA Municipal Swap Index*, the index of seven-day variable rate demand notes (VRDNs), stood at 0.40%. It stayed near that level through July 2016 and then climbed 44 basis points to close the reporting period at 0.84%. (A basis point is 1/100(th) of a percent.) During August and September 2016, shortly before the Securities and Exchange Commission's money market fund reform became effective, a large number of money market funds sold VRDNs as they liquidated, consolidated, or shifted assets into treasury money market funds. This caused inventories of VRDNs to increase, leading many dealers to raise interest rates in order to attract buyers. *The SIFMA Municipal Swap Index is a 7-day high-grade market index comprised of tax-exempt variable-rate demand obligations (VRDOs) with certain characteristics. The index is calculated and published by Bloomberg. The index is overseen by SIFMA's Municipal Swap Index Committee. ================================================================================ 2 | USAA TAX EXEMPT MONEY MARKET FUND ================================================================================ o HOW DID THE USAA TAX EXEMPT MONEY MARKET FUND (THE FUND) PERFORM DURING THE REPORTING PERIOD? For the reporting period ended September 30, 2016, the Fund had a return of 0.02%, compared to an average return of 0.08% for the tax-exempt money market funds category, according to iMoneyNet, Inc. USAA Asset Management Company (the Manager) is the Fund's investment adviser. The investment adviser provides day-to-day discretionary management for the Fund's assets. o WHAT WERE YOUR STRATEGIES IN THIS ENVIRONMENT? We continued to focus our purchases on VRDNs, which added to the Fund's yield during the reporting period. Because the VRDNs owned by the Fund can be sold at par value (100% of face value) upon seven days or less notice, the Fund had the flexibility to take advantage of higher interest rates. Many of the Fund's VRDNs also are guaranteed by a bank letter-of-credit for the payment of both principal and interest, providing the Fund with a certain degree of stability. In addition, the Fund benefited from investments with longer maturities. We continued to work with our in-house team of analysts to help us identify attractive opportunities for the Fund. They also continue to analyze and monitor the Fund's portfolio. We appreciate the opportunity to help you with your investment needs. Refer to page 5 for benchmark definition. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. o As interest rates rise, bond prices generally fall; given the historically low interest rate environment, risks associated with rising interest rates may be heightened. o Investing in securities products involves risk, including possible loss of principal. o Some income may be subject to state or local taxes but not the federal alternative minimum tax. o VRDNs are securities for which the interest rate is reset periodically; typically weekly, although reset intervals may vary. ================================================================================ MANAGER'S COMMENTARY ON THE FUND | 3 ================================================================================ INVESTMENT OVERVIEW USAA TAX EXEMPT MONEY MARKET FUND (THE FUND) (Ticker Symbol: USEXX)
------------------------------------------------------------------------------- 9/30/16 3/31/16 ------------------------------------------------------------------------------- Net Assets $2.3 Billion $2.6 Billion Net Asset Value Per Share $1.00 $1.00 Dollar-Weighted Average Portfolio Maturity(+) 32 Days 25 Days (+)Obtained by multiplying the dollar value of each investment by the number of days left to its maturity, adding those figures together, and dividing them by the total dollar value of the Fund's portfolio. ------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 9/30/16 ------------------------------------------------------------------------------- 3/31/16-9/30/16* 1 YEAR 5 YEARS 10 YEARS 0.02% 0.04% 0.02% 0.73% ------------------------------------------------------------------------------- 7-DAY YIELD AS OF 9/30/16 EXPENSE RATIO AS OF 3/31/16** ------------------------------------------------------------------------------- 0.29% 0.56%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT USAA.COM. *Total returns for periods of less than one year are not annualized. This return is cumulative. **The expense ratio represents the total annual operating expenses, before reductions of any expenses paid indirectly and including any acquired fund fees and expenses, as reported in the Fund's prospectus dated August 1, 2016, and is calculated as a percentage of average net assets. This expense ratio may differ from the expense ratio disclosed in the Financial Highlights, which excludes acquired fund fees and expenses. YOU COULD LOSE MONEY BY INVESTING IN THE FUND. ALTHOUGH THE FUND SEEKS TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1 PER SHARE, IT CANNOT GUARANTEE IT WILL DO SO. THE FUND MAY IMPOSE A FEE UPON THE SALE OF YOUR SHARES OR MAY TEMPORARILY SUSPEND YOUR ABILITY TO SELL SHARES IF THE FUND'S LIQUIDITY FALLS BELOW REQUIRED MINIMUMS BECAUSE OF MARKET CONDITIONS OR OTHER FACTORS. AN INVESTMENT IN THE FUND IS NOT A DEPOSIT IN USAA FEDERAL SAVINGS BANK, OR ANY OTHER BANK, AND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. THE FUND'S SPONSOR HAS NO LEGAL OBLIGATION TO PROVIDE FINANCIAL SUPPORT TO THE FUND, AND YOU SHOULD NOT EXPECT THAT THE SPONSOR WILL PROVIDE FINANCIAL SUPPORT TO THE FUND AT ANY TIME. Total return measures the price change in a share assuming the reinvestment of all net investment income and realized capital gain distributions, if any. The total returns quoted do not reflect adjustments made to the enclosed financial statements in accordance with U.S. generally accepted accounting principles or the deduction of taxes that a shareholder would pay on net investment income and realized capital gain distributions, including reinvested distributions, or redemptions of shares. Yields and returns fluctuate. The seven-day yield quotation more closely reflects current earnings of the Fund than the total return quotation. ================================================================================ 4 | USAA TAX EXEMPT MONEY MARKET FUND ================================================================================ o 7-DAY YIELD COMPARISON o [CHART OF 7-DAY YIELD COMPARISON]
iMoneyNet USAA TAX EXEMPT AVERAGE MONEY MARKET FUND 9/28/2015 0.01% 0.01% 10/26/2015 0.01 0.01 11/30/2015 0.01 0.01 12/28/2015 0.01 0.01 1/25/2016 0.01 0.01 2/29/2016 0.01 0.01 3/28/2016 0.01 0.01 4/25/2016 0.05 0.05 5/23/2016 0.05 0.05 6/27/2016 0.07 0.07 7/25/2016 0.07 0.07 8/29/2016 0.13 0.13 9/26/2016 0.26 0.26
[END CHART] Data represents the last Monday of each month. Ending date 9/26/16. The graph tracks the USAA Tax Exempt Money Market Fund's seven-day yield against an average of money market fund yields of all tax-free national retail money funds average of money market fund yields calculated by iMoneyNet, Inc. iMoneyNet, Inc. is an organization that tracks the performance of money market funds. Past performance is no guarantee of future results. ================================================================================ INVESTMENT OVERVIEW | 5 ================================================================================ o TOP 10 INDUSTRIES - 9/30/16 o (% of Net Assets)
General Obligation ...................................................... 12.8% Hospital ................................................................ 12.8% Education ............................................................... 10.5% Electric Utilities ...................................................... 10.0% Electric/Gas Utilities .................................................. 6.9% Community Service ....................................................... 6.8% Sales Tax ............................................................... 4.2% Nursing/CCRC ............................................................ 4.2% Agricultural Products ................................................... 3.9% Buildings ............................................................... 3.4%
o PORTFOLIO MIX - 9/30/16 o [PIE CHART OF PORTFOLIO MIX]
VARIABLE-RATE DEMAND NOTES 74.6% FIXED-RATE INSTRUMENTS 24.5% PUT BONDS 1.2% ADJUSTABLE-RATE NOTES 1.0%
[END CHART] Percentages are of the net assets of the Fund and may not equal 100%. You will find a complete list of securities that the Fund owns on pages 8-20. ================================================================================ 6 | USAA TAX EXEMPT MONEY MARKET FUND ================================================================================ o CUMULATIVE PERFORMANCE OF $10,000 o [CHART OF CUMULATIVE PERFORMANCE]
USAA TAX EXEMPT MONEY MARKET FUND 09/30/06 $10,000.00 10/31/06 10,025.00 11/30/06 10,051.00 12/31/06 10,081.00 01/31/07 10,106.00 02/28/07 10,131.00 03/31/07 10,159.00 04/30/07 10,186.00 05/31/07 10,216.00 06/30/07 10,245.00 07/31/07 10,272.00 08/31/07 10,303.00 09/30/07 10,329.00 10/31/07 10,357.00 11/30/07 10,385.00 12/31/07 10,411.00 01/31/08 10,435.00 02/29/08 10,456.00 03/31/08 10,480.00 04/30/08 10,500.00 05/31/08 10,522.00 06/30/08 10,538.00 07/31/08 10,554.00 08/31/08 10,572.00 09/30/08 10,602.00 10/31/08 10,636.00 11/30/08 10,649.00 12/31/08 10,661.00 01/31/09 10,669.00 02/28/09 10,676.00 03/31/09 10,683.00 04/30/09 10,692.00 05/31/09 10,701.00 06/30/09 10,710.00 07/31/09 10,718.00 08/31/09 10,724.00 09/30/09 10,729.00 10/31/09 10,731.00 11/30/09 10,733.00 12/31/09 10,735.00 01/31/10 10,735.00 02/28/10 10,735.00 03/31/10 10,735.00 04/30/10 10,735.00 05/31/10 10,736.00 06/30/10 10,736.00 07/31/10 10,736.00 08/31/10 10,736.00 09/30/10 10,736.00 10/31/10 10,736.00 11/30/10 10,736.00 12/31/10 10,737.00 01/31/11 10,737.00 02/28/11 10,737.00 03/31/11 10,737.00 04/30/11 10,737.00 05/31/11 10,737.00 06/30/11 10,737.00 07/31/11 10,737.00 08/31/11 10,737.00 09/30/11 10,737.00 10/31/11 10,737.00 11/30/11 10,738.00 12/31/11 10,738.00 01/31/12 10,740.00 02/29/12 10,741.00 03/31/12 10,741.00 04/30/12 10,741.00 05/31/12 10,741.00 06/30/12 10,741.00 07/31/12 10,741.00 08/31/12 10,741.00 09/30/12 10,741.00 10/31/12 10,741.00 11/30/12 10,741.00 12/31/12 10,742.00 01/31/13 10,742.00 02/28/13 10,742.00 03/31/13 10,742.00 04/30/13 10,742.00 05/31/13 10,742.00 06/30/13 10,742.00 07/31/13 10,743.00 08/31/13 10,743.00 09/30/13 10,743.00 10/31/13 10,743.00 11/30/13 10,743.00 12/31/13 10,744.00 01/31/14 10,744.00 02/28/14 10,744.00 03/31/14 10,744.00 04/30/14 10,744.00 05/31/14 10,744.00 06/30/14 10,744.00 07/31/14 10,745.00 08/31/14 10,745.00 09/30/14 10,745.00 10/31/14 10,745.00 11/30/14 10,745.00 12/31/14 10,745.00 01/31/15 10,745.00 02/28/15 10,745.00 03/31/15 10,745.00 04/30/15 10,745.00 05/31/15 10,746.00 06/30/15 10,746.00 07/31/15 10,746.00 08/31/15 10,746.00 09/30/15 10,746.00 10/31/15 10,746.00 11/30/15 10,746.00 12/31/15 10,748.00 01/31/16 10,748.00 02/29/16 10,748.00 03/31/16 10,748.00 04/30/16 10,748.00 05/31/16 10,748.00 06/30/16 10,748.00 07/31/16 10,748.00 08/31/16 10,748.00 09/30/16 10,750.00
[END CHART] Data from 9/30/06 through 9/30/16. The graph illustrates the performance of a hypothetical $10,000 investment in the USAA Tax Exempt Money Market Fund. Past performance is no guarantee of future results. The cumulative performance quoted does not reflect the deduction of taxes that a shareholder would pay on reinvested net investment income and realized capital gain distributions or on the redemption of shares. Some income may be subject to federal, state, or local taxes. For seven-day yield information, please refer to the Fund's Investment Overview. ================================================================================ INVESTMENT OVERVIEW | 7 ================================================================================ PORTFOLIO OF INVESTMENTS September 30, 2016 (unaudited) -------------------------------------------------------------------------------- o CATEGORIES AND DEFINITIONS VARIABLE-RATE DEMAND NOTES (VRDNs) - Provide the right to sell the security at face value on either that day or within the rate-reset period. The interest rate is adjusted at a stipulated daily, weekly, monthly, quarterly, or other specified time interval to reflect current market conditions. The effective maturity of these instruments is deemed to be less than 397 days in accordance with detailed regulatory requirements. PUT BONDS - Provide the right to sell the bond at face value at specific tender dates prior to final maturity. The put feature shortens the effective maturity of the security. ADJUSTABLE-RATE NOTES - Similar to variable-rate demand notes in the fact that the interest rate is adjusted periodically to reflect current market conditions. These interest rates are adjusted at a given time, such as monthly or quarterly. However, these securities do not offer the right to sell the security at face value prior to maturity. FIXED-RATE INSTRUMENTS - Consist of municipal bonds, notes, and commercial paper. The interest rate is constant to maturity. Prior to maturity, the market price of a fixed-rate instrument generally varies inversely to the movement of interest rates. o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS CSD Central School District EDA Economic Development Authority EDC Economic Development Corp. IDA Industrial Development Authority/Agency IDB Industrial Development Board ================================================================================ 8 | USAA TAX EXEMPT MONEY MARKET FUND ================================================================================ IDC Industrial Development Corp. MTA Metropolitan Transportation Authority SPEAR Short Puttable Exempt Adjustable Receipts CREDIT ENHANCEMENTS - Adds the financial strength of the provider of the enhancement to support the issuer's ability to repay the principal and interest payments when due. The enhancement may be provided by a high- quality bank, insurance company or other corporation, or a collateral trust. The enhancements do not guarantee the values of the securities. The Fund's purchases consist of securities meeting the requirements to qualify as "eligible securities" under the Securities and Exchange Commission (SEC) regulations applicable to money market funds. In order to qualify as an eligible security, the USAA Mutual Funds Trust's Board of Trustees (the Board), must determine that the particular investment presents minimal credit risk in accordance with these SEC regulations. With respect to quality, eligible securities generally are rated or subject to a guarantee that is rated in one of the two highest categories for short-term securities by at least two Nationally Recognized Statistical Rating Organizations (NRSROs), or by one NRSRO if the security is rated by only one NRSRO, or if unrated, determined by USAA Asset Management Company (the Manager) to be of comparable quality. (LIQ) Liquidity enhancement that may, under certain circumstances, provide for repayment of principal and interest upon demand from one of the following: Citigroup Inc., Deutsche Bank A.G., Royal Bank of Canada, or JPMorgan Chase & Co. (LOC) Principal and interest payments are guaranteed by a bank letter of credit or other bank credit agreement. (NBGA) Principal and interest payments or, under certain circumstances, underlying mortgages, are guaranteed by a nonbank guarantee agreement from: Montana Board of Investments Intercap Program or National Rural Utility Corp. ================================================================================ PORTFOLIO OF INVESTMENTS | 9 ================================================================================ INVESTMENTS
------------------------------------------------------------------------------------------------------------------ PRINCIPAL AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------------ VARIABLE-RATE DEMAND NOTES (74.6%) ALABAMA (6.5%) $20,000 Chatom IDB (NBGA)(a) 1.06% 8/01/2041 $ 20,000 10,000 Columbia IDB 0.86 12/01/2037 10,000 1,175 Huntsville Educational Building Auth. (LOC - BB&T Corp.) 0.92 12/01/2022 1,175 25,000 Mobile Count IDA (LOC - Swedbank AB) 0.92 7/01/2040 25,000 12,000 Mobile IDB 0.92 8/01/2017 12,000 30,000 Mobile IDB 0.86 6/01/2034 30,000 15,000 Tuscaloosa Count IDA (LOC - Bank of Nova Scotia) 0.84 4/01/2028 15,000 32,500 Tuscaloosa Count Port Auth. (LOC - PNC Financial Services Group) 0.94 12/01/2031 32,500 5,190 West Jefferson IDB 0.92 6/01/2028 5,190 ---------- 150,865 ---------- ARKANSAS (0.2%) 5,175 Texarkana (LOC - PNC Financial Services Group) 0.99 3/01/2021 5,175 ---------- CALIFORNIA (3.3%) 9,010 ABAG Finance Auth. for Nonprofit Corps. (LOC - KBC Bank N.V.) 1.12 5/15/2035 9,010 4,750 Bay Area Toll Auth. (LOC - Mitsubishi UFJ Financial Group Inc.) 0.84 4/01/2045 4,750 10,275 Irvine (LOC - Sumitomo Mitsui Banking Corp.)(a) 0.82 9/02/2050 10,275 11,500 Pasadena (LOC - Bank of America Corp.) 0.89 2/01/2035 11,500 25,670 Sacramento City Financing Auth. (LIQ) (LOC - Deutsche Bank A.G.)(b) 1.04 12/01/2033 25,670 4,000 SPEAR (LIQ) (LOC - Deutsche Bank A.G.)(b) 1.19 8/01/2031 4,000 4,500 Statewide Communities Dev. Auth. (LOC - Comerica Bank, N.A.) 0.91 12/01/2024 4,500 6,600 Statewide Communities Dev. Auth. 0.82 11/01/2030 6,600 ---------- 76,305 ---------- COLORADO (0.4%) 9,425 Sheridan County (LOC - JP Morgan Chase & Co.) 0.96 12/01/2029 9,425 ---------- CONNECTICUT (0.2%) 5,000 Health and Educational Facilities Auth. (LOC - Bank of America Corp.) 0.90 7/01/2030 5,000 ---------- DISTRICT OF COLUMBIA (0.9%) 1,800 District of Columbia (LOC - Bank of America Corp.) 0.95 7/01/2022 1,800 6,300 District of Columbia (LOC - SunTrust Bank) 0.90 10/01/2037 6,300
================================================================================ 10 | USAA TAX EXEMPT MONEY MARKET FUND ================================================================================
------------------------------------------------------------------------------------------------------------------ PRINCIPAL AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------------ $ 1,245 Metropolitan Washington Airports Auth. (LOC - Toronto-Dominion Bank) 0.88% 10/01/2039 $ 1,245 12,000 Metropolitan Washington Airports Auth. (LOC - Sumitomo Mitsui Banking Corp.) 0.90 10/01/2039 12,000 ---------- 21,345 ---------- FLORIDA (2.6%) 6,150 Dade County IDA 0.88 6/01/2021 6,150 6,000 Escambia County 0.92 4/01/2039 6,000 11,500 Jacksonville 0.89 5/01/2029 11,500 2,560 Lee County IDA (LOC - Fifth Third Bank) 0.98 6/01/2025 2,560 16,500 Martin County 0.88 7/15/2022 16,500 9,310 St. Lucie County 0.89 9/01/2028 9,310 8,560 UCF Health Facilities Corp. (LOC - Fifth Third Bank) 0.96 7/01/2037 8,560 ---------- 60,580 ---------- GEORGIA (0.6%) 2,100 Cobb County Dev. Auth. (LOC - Federal Home Loan Bank of Atlanta) 0.94 2/01/2030 2,100 12,600 Roswell Housing Auth. (LOC - Northern Trust Corp.) 0.85 9/01/2027 12,600 ---------- 14,700 ---------- ILLINOIS (7.4%) 2,980 Dev. Finance Auth. (LOC - Bank of America Corp.) 0.93 9/01/2032 2,980 16,000 Dev. Finance Auth. (LOC - Fifth Third Bank) 0.96 2/01/2033 16,000 1,770 Educational Facilities Auth. (LOC - Fifth Third Bank) 0.96 7/01/2024 1,770 3,490 Educational Facilities Auth. (LOC - Huntington National Bank) 1.15 10/01/2032 3,490 2,490 Finance Auth. (LOC - Fifth Third Bank) 1.04 3/01/2031 2,490 5,980 Finance Auth. (LOC - Northern Trust Corp.) 0.90 4/01/2033 5,980 12,410 Finance Auth. (LOC - Huntington National Bank) 1.15 10/01/2033 12,410 11,760 Finance Auth. (LOC - JP Morgan Chase & Co.) 0.86 5/01/2038 11,760 13,875 Finance Auth. (LOC - Fifth Third Bank) 1.10 6/01/2038 13,875 9,000 Finance Auth. (LOC - Key Bank, N.A.)(c) 0.90 11/01/2039 9,000 30,145 Finance Auth. (LOC - Bank of Montreal) 0.87 8/01/2040 30,145 15,400 Galesburg Revenue (LOC - PNC Financial Services Group) 0.88 3/01/2031 15,400 13,200 Kane County (LOC - Fifth Third Bank) 0.96 2/01/2028 13,200 10,040 Metropolitan Pier & Exposition Auth. (LIQ) (LOC - Royal Bank of Canada)(b),(c) 0.92 6/15/2020 10,040 4,249 Springfield Airport Auth. 1.26 10/15/2016 4,249 18,890 Village of Morton Grove (LOC - Bank of America Corp.) 0.88 12/01/2041 18,890 ---------- 171,679 ----------
================================================================================ PORTFOLIO OF INVESTMENTS | 11 ================================================================================
------------------------------------------------------------------------------------------------------------------ PRINCIPAL AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------------ INDIANA (1.8%) $ 5,655 Berne (LOC - Federal Home Loan Bank of Indianapolis) 0.99% 10/01/2033 $ 5,655 11,025 Dearborn County EDA (LOC - Fifth Third Bank) 0.96 4/01/2036 11,025 3,865 Evansville (LOC - Fifth Third Bank) 0.96 1/01/2025 3,865 9,115 Finance Auth. (LOC - Federal Home Loan Bank of Indianapolis) 0.99 7/01/2029 9,115 1,010 Finance Auth. (LOC - Fifth Third Bank) 0.98 9/01/2031 1,010 2,245 Finance Auth. (LOC - PNC Financial Services Group) 0.99 6/01/2037 2,245 4,000 Hospital Revenue Finance Auth. (LOC - Bank of Montreal) 0.82 12/01/2031 4,000 4,550 Hospital Revenue Finance Auth. (LOC - Bank of Montreal) 0.82 12/01/2031 4,550 ---------- 41,465 ---------- IOWA (5.5%) 6,850 Chillicothe 0.90 1/01/2023 6,850 12,750 Council Bluffs 0.89 1/01/2025 12,750 9,600 Finance Auth 0.99 6/01/2039 9,600 31,160 Finance Auth. 0.99 6/01/2036 31,160 41,763 Finance Auth. 0.99 9/01/2036 41,763 19,900 Louisa County 0.88 10/01/2024 19,900 5,500 Urbandale (LOC - Wells Fargo & Co.) 0.97 11/01/2020 5,500 ---------- 127,523 ---------- KENTUCKY (1.1%) 9,340 Georgetown (LOC - Fifth Third Bank) 0.96 11/15/2029 9,340 2,585 Lexington-Fayette Urban County (LOC - Federal Home Loan Bank of Cincinnati) 1.09 12/01/2027 2,585 4,016 Lexington-Fayette Urban County (LOC - Fifth Third Bank) 0.96 12/01/2031 4,016 8,430 Lexington-Fayette Urban County (LOC - Fifth Third Bank) 0.96 1/01/2033 8,430 ---------- 24,371 ---------- LOUISIANA (1.7%) 175 Environmental Facilities and Community Dev. Auth. (LOC - Federal Home Loan Bank of Dallas) 0.92 4/01/2018 175 7,500 Environmental Facilities and Community Dev. Auth. 0.98 12/01/2030 7,500 1,550 Hammond Area Economic and Industrial Dev. District (LOC - Federal Home Loan Bank of Dallas) 0.94 3/01/2033 1,550 5,905 New Orleans (LOC - Capital One, N.A.) 1.07 8/01/2024 5,905 7,915 Public Facilities Auth. 0.90 8/01/2017 7,915 270 Public Facilities Auth. (LOC - Capital One, N.A.) 1.11 7/01/2023 270 11,000 St. James Parish 1.02 11/01/2040 11,000
================================================================================ 12 | USAA TAX EXEMPT MONEY MARKET FUND ================================================================================
------------------------------------------------------------------------------------------------------------------ PRINCIPAL AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------------ $ 6,340 St. Tammany Parish Dev. District (LOC - Federal Home Loan Bank of Dallas) 0.94% 3/01/2033 $ 6,340 ---------- 40,655 ---------- MARYLAND (0.4%) 9,705 Williamsport (LOC - Manufacturers & Traders Trust Co.) 0.89 11/01/2037 9,705 ---------- MICHIGAN (2.4%) 1,750 Finance Auth. (LOC - Fifth Third Bank) 0.86 12/01/2032 1,750 5,000 Finance Auth. (LOC - Fifth Third Bank) 0.86 12/01/2032 5,000 7,500 Finance Auth. (LOC - Fifth Third Bank) 0.86 12/01/2032 7,500 26,340 Higher Educational Facilities Auth. (LOC - Comerica Bank, N.A.) 0.92 11/01/2036 26,340 10,000 Oakland County EDC (LOC - Fifth Third Bank) 0.96 3/01/2029 10,000 3,115 Strategic Fund (LOC - Fifth Third Bank) 0.96 8/01/2023 3,115 940 Strategic Fund (LOC - Fifth Third Bank) 0.96 10/01/2027 940 2,265 Strategic Fund (LOC - Fifth Third Bank) 0.98 4/01/2035 2,265 ---------- 56,910 ---------- MINNESOTA (0.3%) 2,120 Canby Community Hospital District No.1 1.22 11/01/2026 2,120 4,590 New Ulm (LOC - Federal Home Loan Bank of Chicago) 0.97 10/01/2040 4,590 ---------- 6,710 ---------- MISSISSIPPI (0.5%) 4,470 Business Finance Corp. (LOC - Federal Home Loan Bank of Dallas) 0.94 3/01/2033 4,470 8,170 Business Finance Corp. (LOC - PNC Financial Services Group) 0.92 12/01/2036 8,170 ---------- 12,640 ---------- MISSOURI (1.3%) 1,050 Health and Educational Facilities Auth. (LOC - Fifth Third Bank) 0.96 11/01/2020 1,050 20,000 Jackson County IDA (LOC - Commerce Bank, N.A.) 0.90 7/01/2025 20,000 3,300 St. Louis County IDA (LOC - U.S. Bancorp) 0.96 6/15/2024 3,300 6,800 St. Louis County IDA (LOC - Fifth Third Bank) 0.96 9/01/2038 6,800 ---------- 31,150 ---------- NEBRASKA (0.4%) 10,000 Washington County 0.99 12/01/2040 10,000 ---------- NEW HAMPSHIRE (2.1%) 34,990 Business Finance (LOC - Landesbank Hessen-Thuringen) 0.99 9/01/2030 34,990
================================================================================ PORTFOLIO OF INVESTMENTS | 13 ================================================================================
------------------------------------------------------------------------------------------------------------------ PRINCIPAL AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------------ $ 6,185 Health and Education Facilities Auth. (LOC - Citizens Financial Group) 0.95% 7/01/2038 $ 6,185 8,670 Health and Educational Facilities Auth. (LOC - Citizens Financial Group) 1.02 10/01/2030 8,670 ---------- 49,845 ---------- NEW JERSEY (1.0%) 3,465 EDA (LOC - Bank of America Corp.) 0.88 11/01/2027 3,465 18,840 Educational Facilities Auth. (LOC - Citizens Financial Group) 0.97 7/01/2036 18,840 ---------- 22,305 ---------- NEW MEXICO (0.2%) 5,000 Hospital Equipment Loan Council (LOC - Fifth Third Bank) 0.98 7/01/2025 5,000 ---------- NEW YORK (10.2%) 4,000 Albany IDA (LOC - Citizens Financial Group) 1.05 5/01/2035 4,000 9,420 Albany IDA (LOC - Key Bank, N.A.) 0.91 7/01/2035 9,420 15,745 Amherst IDA (LOC - Manufacturers & Traders Trust Co.)(a) 0.89 10/01/2031 15,745 1,430 Clinton County IDA (LOC - Key Bank, N.A.) 0.91 7/01/2017 1,430 10,500 Clinton County IDA (LOC - Key Bank, N.A.) 0.91 7/01/2042 10,500 1,325 Erie County IDA (LOC - Key Bank, N.A.) 0.96 6/01/2022 1,325 4,140 Erie County IDA (LOC - Key Bank, N.A.) 0.96 3/01/2024 4,140 3,590 Guilderland IDA (LOC - Key Bank, N.A.) 0.96 7/01/2032 3,590 6,600 Housing Finance Agency (LOC - Landesbank Hessen-Thuringen) 0.84 11/01/2037 6,600 4,400 Housing Finance Agency (LOC - Landesbank Hessen-Thuringen) 0.87 5/01/2042 4,400 1,800 Housing Finance Agency (LOC - Landesbank Hessen-Thuringen) 0.87 5/01/2042 1,800 10,000 Housing Finance Agency (LOC - Manufacturers & Traders Trust Co.) 0.85 5/01/2046 10,000 16,170 Housing Finance Agency (LOC - Wells Fargo & Co.) 0.88 11/01/2046 16,170 12,500 Liberty Development Corp. (LIQ) (LOC - Royal Bank of Canada)(b),(c) 0.92 11/15/2019 12,500 12,300 MTA (LOC - BNP Paribas) 0.89 11/15/2045 12,300 18,825 Hudson Yards Infrastructure Corp. (LIQ) (LOC - Royal Bank of Canada)(b) 0.92 2/15/2019 18,825 5,800 New York City (LIQ)(b) 0.88 8/01/2020 5,800 7,300 New York City (LOC - Sumitomo Mitsui Banking Corp.) 0.85 9/01/2035 7,300 5,900 New York City (LOC - Manufacturers & Traders Trust Co.) 1.08 12/01/2040 5,900
================================================================================ 14 | USAA TAX EXEMPT MONEY MARKET FUND ================================================================================
------------------------------------------------------------------------------------------------------------------ PRINCIPAL AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------------ $15,125 New York City Health and Hospitals Corp. (LOC - JP Morgan Chase & Co.) 0.81% 2/15/2026 $ 15,125 25,255 New York City IDA (LOC - Key Bank, N.A.) 0.92 7/01/2038 25,255 905 Niagara County IDA (LOC - Key Bank, N.A.) 0.96 9/01/2021 905 7,810 Oneida County IDA (LOC - Manufacturers & Traders Trust Co.) 0.89 6/01/2030 7,810 4,175 Oneida County IDA (LOC - Citizens Financial Group) 0.99 7/01/2037 4,175 4,160 Onondaga County IDA (LOC - Manufacturers & Traders Trust Co.) 0.89 12/01/2031 4,160 7,595 Ontario County IDA (LOC - Key Bank, N.A.) 0.88 7/01/2030 7,595 7,955 Ramapo Housing Auth. (LOC - Manufacturers & Traders Trust Co.) 0.94 12/01/2029 7,955 2,290 Seneca County IDA (LOC - Key Bank, N.A.) 0.96 4/01/2020 2,290 2,110 St. Lawrence County (LOC - Citizens Financial Group) 0.96 7/01/2037 2,110 3,525 Syracuse IDA (LOC - Key Bank, N.A.) 0.96 1/01/2033 3,525 6,200 Tompkins County IDA (LOC - Bank of America Corp.) 0.96 2/01/2037 6,200 ---------- 238,850 ---------- OHIO (2.2%) 2,880 Akron Metropolitan Housing Auth. (LOC - Huntington National Bank) 1.06 4/01/2018 2,880 2,800 Cincinnati and Hamilton County (LOC - Fifth Third Bank) 0.96 9/01/2025 2,800 7,355 Delaware County (LOC - Fifth Third Bank) 0.96 10/01/2033 7,355 4,400 Hamilton County (LOC - Fifth Third Bank) 0.96 12/01/2024 4,400 11,200 Hamilton County (LOC - Fifth Third Bank) 0.96 12/01/2026 11,200 1,450 Highland County (LOC - Fifth Third Bank) 0.98 8/01/2024 1,450 2,920 Loraine Port Auth. (LOC - Key Bank, N.A.) 1.00 7/01/2028 2,920 11,355 Pike County Health Care Facilities (LOC - Bank of America Corp.) 0.97 11/01/2033 11,355 2,095 Pike County Health Care Facilities (LOC - Bank of America Corp.) 0.97 11/01/2033 2,095 3,790 Toledo-Lucas County Port Auth. (LOC - Fifth Third Bank) 0.91 9/01/2019 3,790 1,640 Wayne County (LOC - Fifth Third Bank) 1.02 9/01/2021 1,640 ---------- 51,885 ---------- OKLAHOMA (3.9%) 6,520 Edmond EDA (LOC - Bank of Oklahoma, N.A.) 0.99 6/01/2031 6,520 8,700 Garfield County Industrial Auth. 0.84 1/01/2025 8,700 30,400 Muskogee Industrial Trust 0.80 1/01/2025 30,400 36,000 Muskogee Industrial Trust 0.82 6/01/2027 36,000
================================================================================ PORTFOLIO OF INVESTMENTS | 15 ================================================================================
------------------------------------------------------------------------------------------------------------------ PRINCIPAL AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------------ $ 8,615 Tulsa Industrial Auth. (LOC - Bank of Oklahoma, N.A.) 0.99% 11/01/2026 $ 8,615 ---------- 90,235 ---------- PENNSYLVANIA (2.5%) 8,355 Allegheny County Hospital Dev. Auth. (LOC - PNC Financial Services Group) 0.88 6/01/2035 8,355 5,250 Chartiers Valley Industrial and Commercial Dev. Auth. 1.38 11/15/2017 5,250 27,350 Delaware Valley Regional Finance Auth. (LOC - Bayerische Landesbank) 0.95 6/01/2042 27,350 17,185 Derry Township Industrial and Commercial Dev. Auth. (LOC - PNC Financial Services Group) 0.88 11/01/2030 17,185 ---------- 58,140 ---------- RHODE ISLAND (0.5%) 4,285 EDC (LOC - Citizens Financial Group) 0.97 3/01/2038 4,285 7,465 Health and Educational Building Corp. (LOC - Citizens Financial Group) 0.85 6/01/2035 7,465 ---------- 11,750 ---------- SOUTH CAROLINA (1.0%) 3,800 EDA (LOC - Fifth Third Bank) 0.96 2/01/2028 3,800 13,510 Jobs EDA (LIQ) (LOC - Deutsche Bank A.G.)(b) 1.03 11/01/2029 13,510 6,060 Public Service Auth. (LIQ)(b) 0.96 6/01/2037 6,060 ---------- 23,370 ---------- SOUTH DAKOTA (1.2%) 5,975 Health and Educational Facilities Auth. 1.22 11/01/2020 5,975 2,690 Health and Educational Facilities Auth. 1.22 11/01/2025 2,690 5,575 Health and Educational Facilities Auth. 1.22 11/01/2027 5,575 13,210 Health and Educational Facilities Auth. (LIQ) (LOC - Deutsche Bank A.G.)(b) 1.03 11/01/2040 13,210 ---------- 27,450 ---------- TENNESSEE (0.8%) 11,340 Chattanooga Health, Educational and Housing Facilities Board 0.98 5/01/2039 11,340 5,560 Metropolitan Government of Nashville and Davidson County (LOC - Fifth Third Bank) 0.96 12/01/2024 5,560 2,070 Williamson County IDB (LOC - Fifth Third Bank) 0.98 12/01/2027 2,070 ---------- 18,970 ---------- TEXAS (4.2%) 26,300 Atascosa County IDC (NBGA) 0.96 6/30/2020 26,300 14,230 Austin (LOC - JP Morgan Chase & Co.) 0.88 11/15/2029 14,230 7,200 Brazos Harbor IDC 0.98 7/01/2022 7,200
================================================================================ 16 | USAA TAX EXEMPT MONEY MARKET FUND ================================================================================
------------------------------------------------------------------------------------------------------------------ PRINCIPAL AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------------ $15,000 Port Arthur 0.98% 12/01/2040 $ 15,000 25,000 Port Arthur 0.98 6/01/2041 25,000 11,000 Port of Port Arthur Navigation District 0.94 12/01/2039 11,000 ---------- 98,730 ---------- VIRGINIA (3.2%) 3,000 Fairfax County IDA 0.87 5/15/2042 3,000 3,095 Greene County EDA (LOC - BB&T Corp.) 0.97 6/01/2026 3,095 3,000 Hampton Roads Sanitation District 0.85 8/01/2046 3,000 6,230 Hanover County EDA (LOC - Bank of New York Mellon Corp.) 0.83 11/01/2025 6,230 11,015 Hanover County EDA (LOC - U.S. Bancorp) 0.83 11/01/2025 11,015 5,050 Lexington IDA 0.75 1/01/2035 5,050 5,500 Loudoun County IDA (LOC - Northern Trust Corp.) 0.85 6/01/2034 5,500 13,000 Loudoun County IDA 0.83 2/15/2038 13,000 5,700 Loudoun County IDA 0.84 2/15/2038 5,700 1,900 Lynchburg IDA (LOC - Federal Home Loan Bank of Atlanta) 0.86 1/01/2028 1,900 1,200 Madison County IDA (LOC - SunTrust Bank) 0.91 10/01/2037 1,200 8,605 Montgomery County IDA (LOC - Bank of New York Mellon Corp.) 0.90 6/01/2035 8,605 3,415 Norfolk EDA 0.86 11/01/2034 3,415 950 Small Business Financing Auth. (LOC - Bank of America Corp.) 0.88 7/01/2030 950 2,215 Univ. of Virginia (LIQ)(b) 0.87 12/01/2017 2,215 ---------- 73,875 ---------- WASHINGTON (1.3%) 19,400 Health Care Facilities Auth. (LOC - Barclays Bank PLC) 0.83 8/15/2041 19,400 10,310 Higher Education Facilities Auth. 0.90 10/01/2031 10,310 130 Seattle Housing Auth. (LOC - Key Bank, N.A.) 0.96 9/01/2036 130 ---------- 29,840 ---------- WEST VIRGINIA (2.0%) 36,065 Hospital Finance Auth. (LOC - Fifth Third Bank) 0.94 10/01/2033 36,065 9,630 Marshall County 0.88 3/01/2026 9,630 ---------- 45,695 ---------- WISCONSIN (0.3%) 545 Health and Educational Facilities Auth. (LOC - JP Morgan Chase & Co.) 0.96 5/01/2026 545 5,645 Wind Point (LOC - U.S. Bancorp) 1.00 9/01/2035 5,645 ---------- 6,190 ----------
================================================================================ PORTFOLIO OF INVESTMENTS | 17 ================================================================================
------------------------------------------------------------------------------------------------------------------ PRINCIPAL AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------------ WYOMING (0.5%) $12,000 Gillette 0.93% 1/01/2018 $ 12,000 ---------- Total Variable-Rate Demand Notes (cost: $1,740,333) 1,740,333 ---------- PUT BONDS (1.2%) MONTANA (1.2%) 7,335 Board of Investments (NBGA) 0.52(d) 3/01/2025 7,335 1,850 Board of Investments (NBGA) 0.52(d) 3/01/2028 1,850 18,080 Board of Investments (NBGA) 0.52(d) 3/01/2029 18,080 ---------- 27,265 ---------- Total Put Bonds (cost: $27,265) 27,265 ---------- ADJUSTABLE-RATE NOTES (1.0%) CALIFORNIA (1.0%) 24,775 Golden Empire Schools Financing Auth. (cost: $24,775) 1.34(d) 5/01/2017 24,775 ---------- FIXED-RATE INSTRUMENTS (24.5%) CALIFORNIA (2.7%) 26,900 San Diego County Water Auth. 0.48 10/06/2016 26,900 5,000 San Diego County Water Auth. 0.50 10/17/2016 5,000 5,000 San Diego County Water Auth. 0.72 11/08/2016 5,000 26,000 Statewide Communities Dev. Auth. 0.77 11/04/2016 26,000 ---------- 62,900 ---------- MARYLAND (1.5%) 20,000 Johns Hopkins Univ. 0.45 10/04/2016 20,000 15,000 Johns Hopkins Univ. 0.45 10/05/2016 15,000 ---------- 35,000 ---------- NEW YORK (8.7%) 13,000 Addison CSD 2.00 6/27/2017 13,103 3,490 Adirondack CSD 1.50 7/20/2017 3,507 10,000 Auburn 1.50 5/27/2017 10,031 3,025 Batavia CSD 1.50 2/16/2017 3,034 2,715 Berlin CSD 2.00 6/28/2017 2,734 16,540 Chenango Forks CSD 2.00 6/22/2017 16,657 6,500 Chenango Valley CSD 1.50 7/14/2017 6,530 8,351 Cuba Rushford CSD 2.00 6/23/2017 8,411 7,900 East Bloomfield CSD 2.00 7/07/2017 7,965 2,994 Fredonia CSD 2.00 6/27/2017 3,014 8,670 Gates Chili CSD 2.00 6/23/2017 8,737 6,000 Genesee County 1.50 12/16/2016 6,008
================================================================================ 18 | USAA TAX EXEMPT MONEY MARKET FUND ================================================================================
------------------------------------------------------------------------------------------------------------------ PRINCIPAL AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) ------------------------------------------------------------------------------------------------------------------ $ 6,500 Johnstown School District 1.50% 7/20/2017 $ 6,533 17,388 Kendall CSD 1.25 6/30/2017 17,401 4,100 Lansing CSD 2.00 6/28/2017 4,131 7,500 Maine Endwell CSD 2.00 6/30/2017 7,565 7,000 Municipal Water Finance Auth. 0.70 10/06/2016 7,000 16,145 Oakfield CSD 2.00 7/06/2017 16,267 5,095 Pavilion CSD 2.00 6/23/2017 5,130 9,965 Salmon River CSD 2.00 7/21/2017 10,040 8,785 Silver Creek CSD 2.00 6/15/2017 8,848 4,035 Spencer Van Etten CSD 2.25 6/29/2017 4,071 7,300 Wallkill CSD 2.00 6/30/2017 7,358 3,100 Waverly CSD 2.00 7/28/2017 3,124 15,147 Yorkshire-Pioneer CSD 2.00 6/27/2017 15,268 ---------- 202,467 ---------- SOUTH CAROLINA (1.2%) 3,768 Public Service Auth. 0.51 10/04/2016 3,768 22,548 Public Service Auth. 0.48 10/06/2016 22,548 2,207 Public Service Auth. 0.70 10/06/2016 2,207 ---------- 28,523 ---------- TEXAS (9.8%) 10,000 Dallas Area Rapid Transit 0.50 10/06/2016 10,000 22,500 Dallas Area Rapid Transit 0.50 11/03/2016 22,500 10,000 Dallas Area Rapid Transit 0.54 11/10/2016 10,000 10,000 Dallas Area Rapid Transit 0.52 11/15/2016 10,000 30,000 Dallas Area Rapid Transit 0.78 12/01/2016 30,000 5,100 Houston 0.50 10/18/2016 5,100 10,000 Houston 0.50 10/18/2016 10,000 5,000 Houston 0.75 11/03/2016 5,000 15,000 Houston 0.75 11/10/2016 15,000 10,000 Houston (LOC - Citigroup, Inc.) 0.75 11/15/2016 10,000 15,000 Houston 0.60 11/22/2016 15,000 21,460 San Antonio 0.50 10/04/2016 21,460 33,000 San Antonio 0.50 10/05/2016 33,000 12,000 San Antonio 0.73 10/13/2016 12,000 15,000 San Antonio 0.75 11/03/2016 15,000 5,000 Univ. of Texas 0.45 10/06/2016 5,000 ---------- 229,060 ---------- VIRGINIA (0.6%) 13,065 Stafford County & Staunton IDA (LOC - Bank of America Corp.) 0.80 10/18/2016 13,065 Total Fixed-Rate Instruments (cost: $571,015) 571,015 ---------- TOTAL INVESTMENTS (COST: $2,363,388) $2,363,388 ==========
================================================================================ PORTFOLIO OF INVESTMENTS | 19 ================================================================================
--------------------------------------------------------------------------------------------- ($ IN 000s) VALUATION HIERARCHY --------------------------------------------------------------------------------------------- ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL --------------------------------------------------------------------------------------------- Variable-Rate Demand Notes $- $1,740,333 $- $1,740,333 Put Bonds - 27,265 - 27,265 Adjustable-Rate Notes - 24,775 - 24,775 Fixed-Rate Instruments - 571,015 - 571,015 --------------------------------------------------------------------------------------------- Total $- $2,363,388 $- $2,363,388 ---------------------------------------------------------------------------------------------
================================================================================ 20 | USAA TAX EXEMPT MONEY MARKET FUND ================================================================================ NOTES TO PORTFOLIO OF INVESTMENTS September 30, 2016 (unaudited) -------------------------------------------------------------------------------- o GENERAL NOTES Values of securities are determined by procedures and practices discussed in Note 1A to the financial statements. The cost of securities at September 30, 2016, for federal income tax purposes, was approximately the same as that reported in the financial statements. The Portfolio of Investments category percentages shown represent the percentages of the investments to net assets, and, in total, may not equal 100%. A category percentage of 0.0% represents less than 0.1% of net assets. o SPECIFIC NOTES (a) At September 30, 2016, the security, or a portion thereof, was segregated to cover delayed-delivery and/or when-issued purchases. (b) Restricted security that is not registered under the Securities Act of 1933. A resale of this security in the United States may occur in an exempt transaction to a qualified institutional buyer as defined by Rule 144A, and as such has been deemed liquid by USAA Asset Management Company (the Manager) under liquidity guidelines approved by USAA Mutual Funds Trust's Board of Trustees (the Board), unless otherwise noted as illiquid. (c) At September 30, 2016, the aggregate market value of securities purchased on a delayed-delivery basis was $31,540,000. (d) Variable-rate or floating-rate security - interest rate is adjusted periodically. The interest rate disclosed represents the rate at September 30, 2016. See accompanying notes to financial statements. ================================================================================ NOTES TO PORTFOLIO OF INVESTMENTS | 21 ================================================================================ STATEMENT OF ASSETS AND LIABILITIES (IN THOUSANDS) September 30, 2016 (unaudited) -------------------------------------------------------------------------------- ASSETS Investments in securities (amortized cost approximates market value) $2,363,388 Cash 392 Receivables: Capital shares sold 3,657 Interest 2,525 ---------- Total assets 2,369,962 ---------- LIABILITIES Payables: Securities purchased 27,589 Capital shares redeemed 8,039 Dividends on capital shares 42 Accrued management fees 551 Other accrued expenses and Payables 399 ---------- Total liabilities 36,620 ---------- Net assets applicable to capital shares outstanding $2,333,342 ========== NET ASSETS CONSIST OF: Paid-in capital $2,330,778 Undistributed net investment income (1) ---------- Accumulated net realized gain on investments 2,565 ---------- Net assets applicable to capital shares outstanding $2,333,342 ========== Capital shares outstanding, no par value 2,330,770 ========== Net asset value, redemption price, and offering price per share $ 1.00 ==========
See accompanying notes to financial statements. ================================================================================ 22 | USAA TAX EXEMPT MONEY MARKET FUND ================================================================================ STATEMENT OF OPERATIONS (IN THOUSANDS) Six-month period ended September 30, 2016 (unaudited) -------------------------------------------------------------------------------- INVESTMENT INCOME Interest income $ 6,956 ------- EXPENSES Management fees 3,568 Administration and servicing fees 1,274 Transfer agent's fees 2,303 Custody and accounting fees 146 Postage 83 Shareholder reporting fees 28 Trustees' fees 15 Registration fees 23 Professional fees 78 Other 18 ------- Total expenses 7,536 Expenses reimbursed (1,085) ------- Net expenses 6,451 ------- NET INVESTMENT INCOME 505 ------- NET REALIZED GAIN ON INVESTMENTS Net realized gain 2,546 ------- Increase in net assets resulting from operations $ 3,051 =======
See accompanying notes to financial statements. ================================================================================ FINANCIAL STATEMENTS | 23 ================================================================================ STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS) Six-month period ended September 30, 2016 (unaudited), and year ended March 31, 2016
--------------------------------------------------------------------------------------------------- 9/30/2016 3/31/2016 --------------------------------------------------------------------------------------------------- FROM OPERATIONS Net investment income $ 505 $ 262 Net realized gain on investments 2,546 334 --------------------------------- Increase in net assets resulting from operations 3,051 596 --------------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income (506) (262) Net realized gains - (364) --------------------------------- Distributions to shareholders (506) (626) --------------------------------- FROM CAPITAL SHARE TRANSACTIONS Proceeds from shares sold 1,687,732 1,306,564 Reinvested dividends 482 622 Cost of shares redeemed (1,991,871) (1,349,410) --------------------------------- Decrease in net assets from capital share transactions (303,657) (42,224) --------------------------------- Net decrease in net assets (301,112) (42,254) NET ASSETS Beginning of period 2,634,454 2,676,708 --------------------------------- End of period $ 2,333,342 $ 2,634,454 ================================= Undistributed net investment income: End of period $ (1) $ - ================================= CHANGE IN SHARES OUTSTANDING Shares sold 1,687,732 1,306,564 Shares issued for dividends reinvested 482 622 Shares redeemed (1,991,871) (1,349,410) --------------------------------- Decrease in shares outstanding (303,657) (42,224) =================================
See accompanying notes to financial statements. ================================================================================ 24 | USAA TAX EXEMPT MONEY MARKET FUND ================================================================================ NOTES TO FINANCIAL STATEMENTS September 30, 2016 (unaudited) -------------------------------------------------------------------------------- (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company Act of 1940, as amended (the 1940 Act), is an open-end management investment Company organized as a Delaware statutory trust consisting of 54 separate funds. Additionally, the Fund qualifies as a registered investment Company under Accounting Standards Codification Topic 946. The information presented in this semiannual report pertains only to the USAA Tax Exempt Money Market Fund (the Fund), which is classified as diversified under the 1940 Act. The Fund's investment objective is to provide investors with interest income that is exempt from federal income tax, with a further objective of preserving capital and maintaining liquidity. A. SECURITY VALUATION - The Trust's Board of Trustees (the Board) has established the Valuation Committee (the Committee), and subject to Board oversight, the Committee administers and oversees the Fund's valuation policies and procedures, which are approved by the Board. Among other things, these policies and procedures allow the Fund to utilize independent pricing services, quotations from securities dealers, and a wide variety of sources and information to establish and adjust the fair value of securities as events occur and circumstances warrant. The Committee reports to the Board on a quarterly basis and makes recommendations to the Board as to pricing methodologies and services used by the Fund and presents additional information to the Board regarding application of the pricing and fair valuation policies and procedures during the preceding quarter. The Committee meets as often as necessary to make pricing and fair value determinations. In addition, the Committee holds regular monthly meetings to review prior actions taken by the Committee and USAA ================================================================================ NOTES TO FINANCIAL STATEMENTS | 25 ================================================================================ Asset Management Company (the Manager), an affiliate of the Fund. Among other things, these monthly meetings include a review and analysis of back testing reports, pricing service quotation comparisons, illiquid securities and fair value determinations, pricing movements, and daily stale price monitoring. The value of each security is determined (as of the close of trading on the New York Stock Exchange (NYSE) on each business day the NYSE is open) as set forth below: 1. All securities held in the Fund are short-term debt securities which are valued pursuant to Rule 2a-7 under the 1940 Act. This method values a security at its purchase price, and thereafter, assumes a constant amortization to maturity of any premiums or discounts. 2. Securities for which amortized cost valuations are considered unreliable or whose values have been materially affected by a significant event are valued in good faith at fair value, using methods determined by the Committee, under procedures to stabilize net assets and valuation procedures approved by the Board. B FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The three-level valuation hierarchy disclosed in the Portfolio of Investments is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows: Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) in active markets for identical securities. Level 2 - inputs to the valuation methodology are other significant observable inputs, including quoted prices for similar securities, inputs that are observable for the securities, either directly or indirectly, and market-corroborated inputs such as market indexes. ================================================================================ 26 | USAA TAX EXEMPT MONEY MARKET FUND ================================================================================ Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value measurement, including the Manager's own assumptions in determining the fair value. The inputs or methodologies used for valuing securities are not necessarily an indication of the risks associated with investing in those securities. For example, money market securities are valued using amortized cost, in accordance with rules under the 1940 Act. Generally, amortized cost approximates the current fair value of a security, but since the value is not obtained from a quoted price in an active market, such securities are reflected as Level 2. C. FEDERAL TAXES - The Fund's policy is to comply with the requirements of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies and to distribute substantially all of its taxable income and net capital gains, if any, to its shareholders. Therefore, no federal income tax provision is required. D. INVESTMENTS IN SECURITIES - Securities transactions are accounted for on the date the securities are purchased or sold (trade date). Gains or losses from sales of investment securities are computed on the identified cost basis. Interest income is recorded daily on the accrual basis. Premiums and discounts are amortized over the life of the respective securities using the straight-line method. E. SECURITIES PURCHASED ON A DELAYED-DELIVERY OR WHEN-ISSUED BASIS - Delivery and payment for securities that have been purchased by the Fund on a delayed-delivery or when-issued basis can take place a month or more after the trade date. During the period prior to settlement, these securities do not earn interest, are subject to market fluctuation, and may increase or decrease in value prior to their delivery. The Fund maintains segregated assets with a market value equal to or greater than the amount of its purchase commitments. As of September 30, 2016, the Fund's outstanding delayed-delivery commitments, including interest purchased, were $27,589,000. F. EXPENSES PAID INDIRECTLY - Through arrangements with the Fund's custodian and other banks utilized by the Fund for cash management ================================================================================ NOTES TO FINANCIAL STATEMENTS | 27 ================================================================================ purposes, realized credits, if any, generated from cash balances in the Fund's bank accounts may be used to directly reduce the Fund's expenses. For the six-month period ended September 30, 2016, custodian and other bank credits reduced the Fund's expenses by less than $500. G. INDEMNIFICATIONS - Under the Trust's organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Trust. In addition, in the normal course of business, the Trust enters into contracts that contain a variety of representations and warranties that provide general indemnifications. The Trust's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Trust that have not yet occurred. However, the Trust expects the risk of loss to be remote. H. USE OF ESTIMATES - The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that may affect the reported amounts in the financial statements. (2) LINE OF CREDIT The Fund participates in a joint, short-term, revolving, committed loan agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate of the Manager. The purpose of the agreement is to meet temporary or emergency cash needs, including redemption requests that might otherwise require the untimely disposition of securities. Subject to availability, the Fund may borrow from CAPCO an amount up to 5% of the Fund's total assets at an interest rate based on the London Interbank Offered Rate (LIBOR), plus 100.0 basis points. The USAA Funds that are party to the loan agreement are assessed facility fees by CAPCO in the amount of 12.0 basis points of the amount of the committed loan agreement. Prior to September 30, 2016, the maximum annual facility fee was 9.0 basis points of the amount of the committed loan agreement. The facility fees are allocated among the USAA Funds based on their respective average net assets for the period. ================================================================================ 28 | USAA TAX EXEMPT MONEY MARKET FUND ================================================================================ The USAA Funds may request an optional increase of the committed loan agreement from $500 million up to $750 million. If the USAA Funds increase the committed loan agreement, the assessed facility fee on the amount of the additional commitment will be 13.0 basis points. For the six-month period ended September 30, 2016, the Fund paid CAPCO facility fees of $8,000, which represents 3.4% of the total fees paid to CAPCO by the USAA Funds. The Fund had no borrowings under this agreement during the six-month period ended September 30, 2016. (3) DISTRIBUTIONS The tax basis of distributions and any accumulated undistributed net investment income will be determined as of the Fund's tax year-end of March 31, 2017, in accordance with applicable federal tax law. Net investment income is accrued daily as dividends and distributed to shareholders monthly. Distributions of realized gains from security transactions not offset by capital losses are made annually in the succeeding fiscal year or as otherwise required to avoid the payment of federal income taxes. At March 31, 2016, the Fund had no capital loss carryforwards, for federal income tax purposes. For the six-month period ended September 30, 2016, the Fund did not incur any income tax, interest, or penalties, and has recorded no liability for net unrecognized tax benefits relating to uncertain income tax positions. On an ongoing basis, the Manager will monitor the Fund's tax basis to determine if adjustments to this conclusion are necessary. The statute of limitations on the Fund's tax return filings generally remain open for the three preceding fiscal reporting year ends and remain subject to examination by the Internal Revenue Service and state taxing authorities. (4) TRANSACTIONS WITH MANAGER A. MANAGEMENT FEES - The Manager provides investment management services to the Fund pursuant to an Advisory Agreement. Under this agreement, the Manager is responsible for managing the business and affairs of the Fund and for directly managing the day-to-day investment of the Fund's assets, subject to the authority of and supervision by the Board. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 29 ================================================================================ The Fund's investment management fee is accrued daily and paid monthly at an annualized rate of 0.28% of the Fund's average net assets. For the six-month period ended September 30, 2016, the Fund incurred total management fees, paid or payable to the Manager, of $3,568,000. B. ADMINISTRATION AND SERVICING FEES - The Manager provides certain administration and servicing functions for the Fund. For such services, the Manager receives a fee accrued daily and paid monthly at an annualized rate of 0.10% of the Fund's average net assets. For the six-month period ended September 30, 2016, the Fund incurred administration and servicing fees, paid or payable to the Manager, of $1,274,000. In addition to the services provided under its Administration and Servicing Agreement with the Fund, the Manager also provides certain compliance and legal services for the benefit of the Fund. The Board has approved the reimbursement of a portion of these expenses incurred by the Manager. For the six-month period ended September 30, 2016, the Fund reimbursed the Manager $35,000 for these compliance and legal services. These expenses are included in the professional fees on the Fund's Statement of Operations. C. TRANSFER AGENT'S FEES - USAA Transfer Agency Company, d/b/a USAA Shareholder Account Services (SAS), an affiliate of the Manager, provides transfer agent services to the Fund. The Fund's transfer agent's fees are accrued daily and paid monthly at an annualized rate of 0.15% of the Fund's average net assets, plus out-of-pocket expenses. SAS pays a portion of these fees to certain intermediaries for the administration and servicing of accounts that are held with such intermediaries. Prior to June 1, 2016, the Fund paid transfer agent service fees based on an annual charge of $25.50 per shareholder account plus out-of-pocket expenses. For the six-month period ended September 30, 2016, the Fund incurred transfer agent's fees, paid or payable to SAS, of $2,303,000. D. EXPENSE LIMITATION - The Manager has voluntarily agreed, on a temporary basis, to reimburse management, administrative, or other fees to limit the Fund's expenses and attempt to prevent a negative yield. The Manager can modify or terminate this arrangement at any time without prior notice to ================================================================================ 30 | USAA TAX EXEMPT MONEY MARKET FUND ================================================================================ shareholders. For the six-month period ended September 30, 2016, the Fund incurred reimbursable expenses of $1,085,000. E. UNDERWRITING SERVICES - USAA Investment Management Company provides exclusive underwriting and distribution of the Fund's shares on a continuing best-efforts basis and receives no fee or other compensation for these services. (5) TRANSACTIONS WITH AFFILIATES The Manager is indirectly wholly owned by United Services Automobile Association (USAA), a large, diversified financial services institution. Certain trustees and officers of the Fund are also directors, officers, and/or employees of the Manager. None of the affiliated trustees or Fund officers received any compensation from the Fund. (6) REGULATORY MATTERS In July 2014, the Securities and Exchange Commission (SEC) adopted amendments to the rules that govern money market funds that will affect the manner in which money market funds are structured and operated. The amendments also will allow money market funds to impose liquidity fees and suspend redemptions temporarily (redemption gates), and will impose new requirements related to diversification, stress testing, and disclosure. Money market funds that qualify as "retail" (Retail MMFs) or "government" will be permitted to continue to utilize amortized cost to value their portfolio securities and to transact at a stable $1 net asset value per share as they do today. Effective October 14, 2016, the Fund operates as a Retail MMF and, in doing so, will have the ability to impose liquidity fees and redemption gates. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 31 ================================================================================ (7) FINANCIAL HIGHLIGHTS Per share operating performance for a share outstanding throughout each period is as follows:
SIX-MONTH PERIOD ENDED SEPTEMBER 30, YEAR ENDED MARCH 31, ------------------------------------------------------------------------------------- 2016 2016 2015 2014 2013 2012 ------------------------------------------------------------------------------------- Net asset value at beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ------------------------------------------------------------------------------------- Income from investment operations: Net investment income(a) .00 .00 .00 .00 .00 .00 Net realized and unrealized gain(a) .00 .00 .00 .00 .00 .00 ------------------------------------------------------------------------------------- Total from investment operations .00 .00 .00 .00 .00 .00 ------------------------------------------------------------------------------------- Less distributions from: Net investment income(a) (.00) (.00) (.00) (.00) (.00) (.00) Realized capital gains - (.00)(a) (.00)(a) (.00)(a) (.00)(a) (.00)(a) ------------------------------------------------------------------------------------- Total distributions(a) (.00) (.00) (.00) (.00) (.00) (.00) ------------------------------------------------------------------------------------- Net asset value at end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ===================================================================================== Total return (%)*,(b) .02 .02 .01 .02 .01 .04(c) Net assets at end of period (000) $2,333,342 $2,634,454 $2,676,708 $2,747,771 $2,683,358 $2,640,375 Ratios to average net assets:** Expenses (%)(b),(d) .51(e) .17 .15 .21 .34 .42(c) Expenses, excluding reimbursements (%)(d) .59(e) .58 .58 .56 .56 .57(c) Net investment income (%) .04(e) .01 .01 .01 .01 .03
* Assumes reinvestment of all net investment income and realized capital gain distributions, if any, during the period. Includes adjustments in accordance with U.S. generally accepted accounting principles and could differ from the iMoneyNet reported return. Total returns for periods of less than one year are not annualized. ** For the six-month period ended September 30, 2016, average net assets were $2,538,580,000. (a) Represents less than $0.01 per share. (b) The Manager voluntarily agreed, on a temporary basis, to reimburse management, administrative, or other fees to limit the Fund's expenses and attempt to prevent a negative yield. (c) During the year ended March 31, 2012, SAS reimbursed the Fund $654,000 for corrections in fees paid for the administration and servicing of certain accounts. The effect of this reimbursement on the Fund's total return was less than 0.01%. The reimbursement decreased the Fund's expense ratio by 0.02%. This decrease is excluded from the expense ratio in the Financial Highlights table. (d) Reflects total annual operating expenses of the Fund before reductions of any expenses paid indirectly. The Fund's expenses paid indirectly decreased the expense ratios by less than 0.01%. (e) Annualized. The ratio is not necessarily indicative of 12 months of operations. ================================================================================ 32 | USAA TAX EXEMPT MONEY MARKET FUND ================================================================================ EXPENSE EXAMPLE September 30, 2016 (unaudited) -------------------------------------------------------------------------------- EXAMPLE As a shareholder of the Fund, you incur two types of costs: direct costs, such as wire fees, redemption fees, and low balance fees; and indirect costs, including management fees, transfer agency fees, and other Fund operating expenses. This example is intended to help you understand your indirect costs, also referred to as "ongoing costs" (in dollars), of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire six-month period of April 1, 2016, through September 30, 2016. ACTUAL EXPENSES The line labeled "actual" in the table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested at the beginning of the period, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "actual" line under the heading "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The line labeled "hypothetical" in the table provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account ================================================================================ EXPENSE EXAMPLE | 33 ================================================================================ balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any direct costs, such as wire fees, redemption fees, or low balance fees. Therefore, the line labeled "hypothetical" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these direct costs were included, your costs would have been higher.
EXPENSES PAID BEGINNING ENDING DURING PERIOD* ACCOUNT VALUE ACCOUNT VALUE APRIL 1, 2016 - APRIL 1, 2016 SEPTEMBER 30, 2016 SEPTEMBER 30, 2016 ---------------------------------------------------------------- Actual $1,000.00 $1,000.20** $2.56** Hypothetical (5% return before expenses) 1,000.00 1,022.51** 2.59**
*Expenses are equal to the Fund's annualized expense ratio of 0.51%, which is net of any reimbursements and expenses paid indirectly, multiplied by the average account value over the period, multiplied by 183 days/365 days (to reflect the one-half-year period). The Fund's actual ending account value is based on its actual total return of 0.02% for the six-month period of April 1, 2016, through September 30, 2016. **The Funds' annualized expense ratio of 0.51% above reflects a change in the transfer agency fee structure from a per-account fee to an asset-based fee effective June 1, 2016. Had this change been in effect for the entire six-month period of April 1, 2016, through September 30, 2016, the Funds' expense ratio would have been 0.55%, net of expenses paid indirectly, and the values in the table above would be as shown below.
EXPENSES PAID BEGINNING ENDING DURING PERIOD* ACCOUNT VALUE ACCOUNT VALUE APRIL 1, 2016 - APRIL 1, 2016 SEPTEMBER 30, 2016 SEPTEMBER 30, 2016 ---------------------------------------------------------------- Actual $1,000.00 $1,000.20 $2.76 Hypothetical (5% return before expenses) 1,000.00 1,022.31 2.79
================================================================================ 34 | USAA TAX EXEMPT MONEY MARKET FUND ================================================================================ ADVISORY AGREEMENT(S) September 30, 2016 (unaudited) -------------------------------------------------------------------------------- At an in-person meeting of the Board of Trustees (the Board) held on April 22, 2016, the Board, including the Trustees who are not "interested persons" (as that term is defined in the Investment Company Act of 1940, as amended) of the Trust (the Independent Trustees), approved for an annual period the continuance of the Advisory Agreement between the Trust and the Manager with respect to the Fund. In advance of the meeting, the Trustees received and considered a variety of information relating to the Advisory Agreement and the Manager and were given the opportunity to ask questions and request additional information from management. The information provided to the Board included, among other things: (i) a separate report prepared by an independent third party, which provided a statistical analysis comparing the Fund's investment performance, expenses, and fees to comparable investment companies; (ii) information concerning the services rendered to the Fund, as well as information regarding the Manager's revenues and costs of providing services to the Fund and compensation paid to affiliates of the Manager; and (iii) information about the Manager's operations and personnel. Prior to voting, the Independent Trustees reviewed the proposed continuation of the Advisory Agreement with management and with experienced counsel retained by the Independent Trustees (Independent Counsel) and received materials from such Independent Counsel discussing the legal standards for their consideration of the proposed continuation of the Advisory Agreement with respect to the Fund. The Independent Trustees also reviewed the proposed continuation of the Advisory Agreement with respect to the Fund in private sessions with Independent Counsel at which no representatives of management were present. At each regularly scheduled meeting of the Board and its committees, the Board receives and reviews, among other things, information concerning the Fund's performance and related services provided by the Manager. At the ================================================================================ ADVISORY AGREEMENT(S) | 35 ================================================================================ meeting at which the renewal of the Advisory Agreement is considered, particular focus is given to information concerning Fund performance, fees and total expenses as compared to comparable investment companies, and the Manager's profitability with respect to the Fund. However, the Board noted that the evaluation process with respect to the Manager is an ongoing one. In this regard, the Board's and its committees' consideration of the Advisory Agreement included information previously received at such meetings. ADVISORY AGREEMENT After full consideration of a variety of factors, the Board, including the Independent Trustees, voted to approve the Advisory Agreement. In approving the Advisory Agreement, the Trustees did not identify any single factor as controlling, and each Trustee may have attributed different weights to various factors. Throughout their deliberations, the Independent Trustees were represented and assisted by Independent Counsel. NATURE, EXTENT, AND QUALITY OF SERVICES - In considering the nature, extent, and quality of the services provided by the Manager under the Advisory Agreement, the Board reviewed information provided by the Manager relating to its operations and personnel. The Board also took into account its knowledge of the Manager's management and the quality of the performance of the Manager's duties through Board meetings, discussions, and reports during the preceding year. The Board considered the fees paid to the Manager and the services provided to the Fund by the Manager under the Advisory Agreement, as well as other services provided by the Manager and its affiliates under other agreements, and the personnel who provide these services. In addition to the investment advisory services provided to the Fund, the Manager and its affiliates provide administrative services, stockholder services, oversight of Fund accounting, marketing services, assistance in meeting legal and regulatory requirements, and other services necessary for the operation of the Fund and the Trust. The Board considered the Manager's management style and the performance of the Manager's duties under the Advisory Agreement. The Board considered the level and depth of knowledge of the Manager, including the professional experience and qualifications of its senior and investment personnel, as well as current staffing levels. The allocation of ================================================================================ 36 | USAA TAX EXEMPT MONEY MARKET FUND ================================================================================ the Fund's brokerage, including the Manager's process for monitoring "best execution," also was considered. The Manager's role in coordinating the activities of the Fund's other service providers also was considered. The Board also considered the Manager's risk management processes. The Board considered the Manager's financial condition and that it had the financial wherewithal to continue to provide the same scope and high quality of services under the Advisory Agreement. In reviewing the Advisory Agreement, the Board focused on the experience, resources, and strengths of the Manager and its affiliates in managing the Fund, as well as the other funds in the Trust. The Board also reviewed the compliance and administrative services provided to the Fund by the Manager, including the Manager's oversight of the Fund's day-to-day operations and oversight of Fund accounting. The Trustees, guided also by information obtained from their experiences as trustees of the Trust, also focused on the quality of the Manager's compliance and administrative staff. EXPENSES AND PERFORMANCE - In connection with its consideration of the Advisory Agreement, the Board evaluated the Fund's advisory fees and total expense ratio as compared to other open-end investment companies deemed to be comparable to the Fund as determined by the independent third party in its report. The Fund's expenses were compared to (i) a group of investment companies chosen by the independent third party to be comparable to the Fund based upon certain factors, including fund type, comparability of investment objective and classification, sales load type (in this case, investment companies with no sales loads), asset size, and expense components (the "expense group") and (ii) a larger group of investment companies that includes the Fund and all other no-load retail open-end investment companies with the same investment classification/objective as the Fund regardless of asset size, excluding outliers (the "expense universe"). Among other data, the Board noted that the Fund's management fee rate - which includes advisory and administrative services as well as any fee waivers or reimbursements - was below the median of its expense group and equal to the median of its expense universe. The data indicated that the Fund's total expense ratio, after reimbursements, was above the median of its expense group and its expense universe. The Board took into account the various services provided to the Fund by the Manager and its affiliates, including the nature and high quality ================================================================================ ADVISORY AGREEMENT(S) | 37 ================================================================================ of the services provided by the Manager. The Board also noted the level and method of computing the management fee. The Board took into account management's discussion of the Fund's expenses, noting that the Manager had reimbursed a significant portion of Fund expenses during the previous year. In considering the Fund's performance, the Board noted that it reviews at its regularly scheduled meetings information about the Fund's performance results. The Trustees also reviewed various comparative data provided to them in connection with their consideration of the renewal of the Advisory Agreement, including, among other information, a comparison of the Fund's average annual total return with its Lipper index and with that of other mutual funds deemed to be in its peer group by the independent third party in its report (the "performance universe"). The Fund's performance universe consisted of the Fund and all retail open-end investment companies with the same classification/ objective as the Fund regardless of asset size or primary channel of distribution. This comparison indicated that, among other data, the Fund's performance was above the average of its performance universe and its Lipper index for the one-, three-, five-, and ten-year periods ended December 31, 2015. The Board also noted that the Fund's percentile performance ranking was in the top 20% of its performance universe for the one-year period ended December 31, 2015, was in the top 40% of its performance universe for the three-year period ended December 31, 2015, was in the top 30% of its performance universe for the five-year period ended December 31, 2015, and was in the top 5% of its performance universe for the ten-year period ended December 31, 2015. COMPENSATION AND PROFITABILITY - The Board took into consideration the level and method of computing the management fee. The information considered by the Board included operating profit margin information for the Manager's business as a whole. The Board also received and considered profitability information related to the management revenues from the Fund. This information included a review of the methodology used in the allocation of certain costs to the Fund. In considering the profitability data with respect to the Fund, the Trustees noted that the Manager reimbursed a portion of its management fees to the Fund. The Trustees reviewed the profitability of the Manager's relationship with the Fund before tax expenses. In reviewing the ================================================================================ 38 | USAA TAX EXEMPT MONEY MARKET FUND ================================================================================ overall profitability of the management fee to the Manager, the Board also considered the fact that affiliates provide shareholder servicing and administrative services to the Fund for which they receive compensation. The Board also considered the possible direct and indirect benefits to the Manager from its relationship with the Trust, including that the Manager may derive reputational and other benefits from its association with the Fund. The Board also took into account the high quality of the services received by the Fund from the Manager as well as the type of fund. The Trustees recognized that the Manager should be entitled to earn a reasonable level of profits in exchange for the level of services it provides to the Fund and the entrepreneurial risk that it assumes as Manager. ECONOMIES OF SCALE - The Board considered whether there should be changes in the management fee rate or structure in order to enable the Fund to participate in any economies of scale. The Board took into account management's discussion of the current advisory fee structure. The Board also considered the effect of the Fund's growth and size on its performance and fees, noting that if the Fund's assets increase over time, the Fund may realize other economies of scale if assets increase proportionally more than some expenses. The Board also considered the fee waiver and expense reimbursement arrangements by the Manager. The Board determined that the current investment management fee structure was reasonable. CONCLUSIONS - The Board reached the following conclusions regarding the Fund's Advisory Agreement with the Manager, among others: (i) the Manager has demonstrated that it possesses the capability and resources to perform the duties required of it under the Advisory Agreement; (ii) the Manager maintains an appropriate compliance program; (iii) the performance of the Fund is reasonable in relation to the performance of funds with similar investment objectives and to relevant indices; (iv) the Fund's advisory expenses are reasonable in relation to those of similar funds and to the services to be provided by the Manager; and (v) the Manager's and its affiliates' level of profitability from its relationship with the Fund is reasonable in light of the nature and high quality of services provided by the Manager and the type of fund. Based on its conclusions, the Board determined that continuation of the Advisory Agreement would be in the best interests of the Fund and its shareholders. ================================================================================ ADVISORY AGREEMENT(S) | 39 ================================================================================ TRUSTEES Daniel S. McNamara Robert L. Mason, Ph.D. Jefferson C. Boyce Dawn M. Hawley Paul L. McNamara Barbara B. Ostdiek, Ph.D. Michael F. Reimherr -------------------------------------------------------------------------------- ADMINISTRATOR AND USAA Asset Management Company INVESTMENT ADVISER P.O. Box 659453 San Antonio, Texas 78265-9825 -------------------------------------------------------------------------------- UNDERWRITER AND USAA Investment Management Company DISTRIBUTOR P.O. Box 659453 San Antonio, Texas 78265-9825 -------------------------------------------------------------------------------- TRANSFER AGENT USAA Shareholder Account Services 9800 Fredericksburg Road San Antonio, Texas 78288 -------------------------------------------------------------------------------- CUSTODIAN AND State Street Bank and Trust Company ACCOUNTING AGENT P.O. Box 1713 Boston, Massachusetts 02105 -------------------------------------------------------------------------------- INDEPENDENT Ernst & young LLP REGISTERED PUBLIC 100 West Houston St., Suite 1700 ACCOUNTING FIRM San Antonio, Texas 78205 -------------------------------------------------------------------------------- MUTUAL FUND Under "My Accounts" on SELF-SERVICE 24/7 usaa.com select your mutual fund AT USAA.COM account and either click the link or select 'I want to...' and select OR CALL the desired action. (800) 531-USAA (8722) (210) 531-8722 -------------------------------------------------------------------------------- Copies of the Manager's proxy voting policies and procedures, approved by the Trust's Board of Trustees for use in voting proxies on behalf of the Fund, are available without charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722; (ii) at USAA.COM; and (iii) in summary within the Statement of Additional Information on the SEC's website at HTTP://WWW.SEC.GOV. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge (i) at USAA.COM; and (ii) on the SEC's website at HTTP://WWW.SEC.GOV. The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. These Forms N-Q are available at no charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722; (ii) at USAA.COM; and (iii) on the SEC's website at HTTP://WWW.SEC.GOV. These Forms N-Q also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling (800) 732-0330. ================================================================================ -------------- USAA PRSRT STD 9800 Fredericksburg Road U.S. Postage San Antonio, TX 78288 PAID USAA -------------- >> SAVE PAPER AND FUND COSTS Under MY PROFILE on USAA.COM select MANAGE PREFERENCES Set your DOCUMENT PREFERENCES to USAA DOCUMENTS ONLINE. [LOGO OF USAA] USAA We know what it means to serve.(R) ============================================================================= 39598-1116 (C)2016, USAA. All rights reserved. [LOGO OF USAA] USAA(R) [GRAPHIC OF USAA TAX EXEMPT SHORT-TERM FUND] ============================================================== SEMIANNUAL REPORT USAA TAX EXEMPT SHORT-TERM FUND FUND SHARES o ADVISER SHARES SEPTEMBER 30, 2016 ============================================================== ================================================================================ ================================================================================ PRESIDENT'S MESSAGE "THE CLOSING WEEKS OF A YEAR CAN BE A GOOD TIME TO TAKE A LOOK AT YOUR FINANCIAL SITUATION [PHOTO OF BROOKS ENGLEHARDT] WITH A GOAL OF GETTING YOUR FINANCES IN ORDER." -------------------------------------------------------------------------------- NOVEMBER 2016 Investors were generally rewarded during the reporting period ended September 30, 2016. Most asset classes posted gains as global growth concerns eased and many of the world's central banks, including the Federal Reserve (the Fed), maintained accommodative monetary policies. Stock prices generally climbed, despite two brief setbacks. In June 2016, a brief retreat followed the United Kingdom's unexpected vote to withdraw from the European Union (commonly known as Brexit). In September 2016, stocks fell--before quickly recovering--on concerns about a potential Fed interest rate increase. Meanwhile, bond prices recorded positive returns during the reporting period. As bond prices rose, longer-term interest rates, which move in the opposite direction, fell. As you know, the Fed only has direct control over short-term interest rates. Bond prices and longer-term interest rates are determined by buyers and sellers, sometimes based on their views of Fed policy. During the reporting period, market expectations about potential Fed interest rate increases shifted into the future. The Fed, which in December 2015 had raised short-term interest rates for the first time since 2008, also initially signaled that four interest rate increases were on tap for 2016. However, policymakers backed off that forecast in March 2016, just before the reporting period began, indicating that only two interest rate increases were on the table. They pointed to the global market turmoil during the first six weeks of 2016 as a contributing factor. Policymakers subsequently hinted there would be a single interest rate increase, but ultimately left interest rates unchanged. In our view, December 2016 is the Fed's only remaining window of opportunity to increase short-term interest rates. It is unlikely to act at its November 2016 meeting, which is just days before the presidential election. We believe that as of this writing, the futures market, which generally is a proxy for investor sentiment, indicates approximately a two-thirds chance that the Fed would raise rates in December 2016. ================================================================================ ================================================================================ This begs the question: Is it good or bad if low interest rates persist? We think it depends on your perspective. On one hand, consumers and businesses are able to continue borrowing at affordable interest rates. On the other hand, savers may continue to see returns lower than the rate of inflation. At USAA Investments, we believe the Fed is likely to raise interest rates at a gradual pace. We've long held the belief that interest rates will stay lower for longer than many market participants expect. Currently, there is no urgency for the Fed to act. Interest rate increases are typically a response to an overheating economy, and the U.S. remains in slow-growth mode with low inflation. Americans are still carrying large amounts of household debt, so higher interest rates are likely to hinder their spending and slow what little growth there is. Tax-exempt bonds, like most other fixed-income investments, generated positive returns during the reporting period. Municipal bonds performed well, as investors continued to favor them for their tax-advantaged status. At the same time, municipal issuance remained low, though it has increased since January 2016. Still, the supply is far from enough to satisfy demand and we expect municipal bonds to continue to benefit from this situation for some time to come. Although state and local finances are in better shape than they were a few years ago, municipal governments have been reluctant to take on additional debt. We believe eventually this will change, but likely not for the foreseeable future. Looking ahead, the end of 2016 is just weeks away. The closing weeks of a year can be a good time to take a look at your financial situation with a goal of getting your finances in order. One way to help ensure you're doing the most with what you have is to consider investing a set amount each month, also known as dollar-cost averaging. Please call USAA Investments to speak with a financial advisor. We are committed to helping you meet your financial objectives. On behalf of everyone at USAA Investments, thank you for relying on us to help you with your investment needs. We appreciate the opportunity to serve you. Sincerely, /S/ BROOKS ENGLEHARDT Brooks Englehardt President USAA Investments Investments provided by USAA Investment Management Company and USAA Financial Advisors, Inc., both registered broker-dealers, and affiliates. Financial planning services and financial advice provided by USAA Financial Planning Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in California, License # 0E36312), a registered investment adviser and insurance agency and its wholly owned subsidiary, USAA Financial Advisors, Inc., a registered broker dealer. ================================================================================ ================================================================================ TABLE OF CONTENTS -------------------------------------------------------------------------------- FUND OBJECTIVE 1 MANAGERS' COMMENTARY ON THE FUND 2 INVESTMENT OVERVIEW 5 FINANCIAL INFORMATION Portfolio of Investments 16 Notes to Portfolio of Investments 30 Financial Statements 32 Notes to Financial Statements 35 EXPENSE EXAMPLE 48 ADVISORY AGREEMENT(S) 50
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS ABOUT THE FUND. (C)2016, USAA. All rights reserved. 211749-1116 ================================================================================ ================================================================================ FUND OBJECTIVE THE USAA TAX EXEMPT SHORT-TERM FUND (THE FUND) PROVIDES INVESTORS WITH INTEREST INCOME THAT IS EXEMPT FROM FEDERAL INCOME TAX. -------------------------------------------------------------------------------- TYPES OF INVESTMENTS The Fund invests primarily in investment-grade securities, the interest from which is exempt from federal income tax. During normal market conditions, at least 80% of the Fund's net assets will consist of tax-exempt securities. The Fund's dollar-weighted average portfolio maturity is three years or less. IRA DISTRIBUTION WITHHOLDING DISCLOSURE We generally must withhold federal income tax at a rate of 10% of the taxable portion of your distribution and, if you live in a state that requires state income tax withholding, at your state's tax rate. However, you may elect not to have withholding apply or to have income tax withheld at a higher rate. Any withholding election that you make will apply to any subsequent distribution unless and until you change or revoke the election. If you wish to make a withholding election or change or revoke a prior withholding election, call (800) 531-USAA (8722) or (210) 531-8722. If you do not have a withholding election in place by the date of a distribution, federal income tax will be withheld from the taxable portion of your distribution at a rate of 10%. If you must pay estimated taxes, you may be subject to estimated tax penalties if your estimated tax payments are not sufficient and sufficient tax is not withheld from your distribution. For more specific information, please consult your tax adviser. ================================================================================ FUND OBJECTIVE | 1 ================================================================================ MANAGERS' COMMENTARY ON THE FUND -------------------------------------------------------------------------------- [PHOTO OF REGINA G. SHAFER] [PHOTO OF DALE R. HOFFMANN] REGINA G. SHAFER, CPA, CFA DALE R. HOFFMANN USAA Asset USAA Asset Management Company Management Company -------------------------------------------------------------------------------- o WHAT WERE THE MARKET CONDITIONS DURING THE REPORTING PERIOD? The tax-exempt bond market advanced during the reporting period ended September 30, 2016, as demand for municipal securities outweighed the amount of available supply. Although new issuance picked up, it remained low by historical standards. Furthermore, it was dominated by refunding bonds rather than new issues. In a bond refunding, issuers call existing high-interest bonds and replace them with new bonds that have lower coupon rates. Meanwhile, as demand for municipal bonds increased, municipal bond mutual funds also received positive investment inflows every week of the reporting period. Investors continued to prefer municipal securities for their tax-advantaged status as well as their relative stability. Municipal bonds also benefited from the performance of the U.S. Treasury market, which the tax-exempt bond market generally follows over time. Longer-term U.S. Treasury securities rallied on strong demand, especially from foreign investors who favored U.S. Treasuries because of their relatively higher yields compared to the government bonds of other developed countries. As U.S. Treasury prices rose, their yields (which move in the opposite direction) fell. During the reporting period, the yield on a 30-year U.S. Treasury security dropped from 2.61% at 3/31/16 to 2.32% at 9/30/16. The yield curve (or, spectrum of maturities) flattened slightly as yields on Treasury Securities with maturities of three years and less edged up in anticipation of a Federal Reserve interest rate increase sometime later in 2016. ================================================================================ 2 | USAA TAX EXEMPT SHORT-TERM FUND ================================================================================ Municipal credit quality remained strong as state and local governments continued to practice sound fiscal management and generally maintained healthy reserves. State and local revenues rose, though at a more moderate pace than in the recent past. Numerous issuers also took steps to address their pension risks, in some cases proposing tax increases to deal with potential pension-funding shortfalls. Unlike corporate issuers, many state and municipal governments have broad taxing powers and are required by law to balance their budgets. o HOW DID THE USAA TAX EXEMPT SHORT-TERM FUND (THE FUND) PERFORM DURING THE REPORTING PERIOD? The Fund has two share classes: Fund Shares and Adviser Shares. For the reporting period ended September 30, 2016, the Fund Shares and Adviser Shares had a total return of 0.63% and 0.50%, respectively, versus an average return of 0.40% amongst the funds in the Lipper Short Municipal Debt Funds category. This compares to returns of 0.46% for the Lipper Short Municipal Debt Funds Index and 2.30% for the Bloomberg Barclays Municipal Bond Index*. The Fund Shares' and Adviser Shares' tax-exempt distributions over the prior 12 months produced a dividend yield of 1.41% and 1.15%, respectively, compared to the Lipper category average of 0.78%. USAA Asset Management Company (the Manager) is the Fund's investment adviser. The investment adviser provides day-to-day discretionary management for the Fund's assets. o WHAT STRATEGIES DID YOU EMPLOY DURING THE REPORTING PERIOD? We maintained our focus on income generation. Over the long-term, the Fund's income distribution, not its price appreciation, accounts for most of its total return. Refer to page 8 for benchmark definitions. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. *Effective August 24, 2016, Bloomberg acquired Barclays Risk Analytics and Index Solutions, Ltd., which includes the Barclays indices. Thus, the Fund's benchmark is now called the Bloomberg Barclays Municipal Bond Index. ================================================================================ MANAGERS' COMMENTARY ON THE FUND | 3 ================================================================================ During the reporting period, we continued to invest a portion of the Fund's assets in variable rate demand notes (VRDNs). The VRDNs owned by the Fund possess a "demand" feature that allows the holder to sell the bond at par with notice of seven days or less. This helps us increase share price stability and also gives us the flexibility to act when attractive opportunities arise. During the reporting period, these VRDNs also generated more income for the Fund. In August and September 2016, shortly before the Securities Exchange Commission's money market fund reform rules became effective, a large number of money market funds sold VRDNs to come into compliance with the new regulations. This caused inventories of VRDNs to increase, leading many dealers to raise interest rates. The increase in interest rates generally benefited the Fund. The Fund continued to benefit from our independent research during the reporting period. In our efforts to find attractive opportunities, we continued to work with our in-house team of analysts to select investments for the Fund on a bond-by-bond basis. Each security is researched, using fundamental analysis that emphasizes an issuer's ability and willingness to repay its debt. Through our research, we seek both to recognize value and avoid potential risks. The Fund continued to maintain a diversified portfolio of more than 300 municipal bonds, primarily of investment grade. Our analysts continuously monitored the Fund's holdings. The Fund is diversified by sector, issuer, and geography, limiting its exposure to an unexpected event. We also avoid bonds subject to the federal alternative minimum tax for individuals. Thank you for allowing us to help you with your investment needs. As interest rates rise, bond prices generally fall; given the historically low interest rate environment, risks associated with rising interest rates may be heightened. o VRDNs are securities for which the interest rate is reset periodically; typically weekly, although reset intervals may vary. o Diversification is a technique intended to help reduce risk and does not guarantee a profit or prevent a loss. o Some income may be subject to state or local taxes but not the federal alternative minimum tax. ================================================================================ 4 | USAA TAX EXEMPT SHORT-TERM FUND ================================================================================ INVESTMENT OVERVIEW USAA TAX EXEMPT SHORT-TERM FUND SHARES (FUND SHARES) (Ticker Symbol: USSTX)
-------------------------------------------------------------------------------- 9/30/16 3/31/16 -------------------------------------------------------------------------------- Net Assets $1.7 Billion $1.8 Billion Net Asset Value Per Share $10.58 $10.59 LAST 12 MONTHS Tax-Exempt Dividends Per Share $0.149 $0.156 Capital Gain Distributions Per Share - - Dollar-Weighted Average Portfolio Maturity(+) 2.0 Years 2.0 Years (+)Obtained by multiplying the dollar value of each investment by the number of days left to its maturity, adding those figures together, and dividing them by the total dollar value of the Fund's portfolio. -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 9/30/16 -------------------------------------------------------------------------------- 3/31/16-9/30/16* 1 YEAR 5 YEARS 10 YEARS 0.63% 1.23% 1.39% 2.58% -------------------------------------------------------------------------------- 30-DAY SEC YIELD** AS OF 9/30/16 EXPENSE RATIO AS OF 3/31/16*** -------------------------------------------------------------------------------- 0.93% 0.55%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT USAA.COM. *Total returns for periods of less than one year are not annualized. This return is cumulative. **Calculated as prescribed by the Securities and Exchange Commission. ***The expense ratio represents the total annual operating expenses, before reductions of any expenses paid indirectly and including any acquired fund fees and expenses, as reported in the Fund's prospectus dated August 1, 2016, and is calculated as a percentage of average net assets. This expense ratio may differ from the expense ratio disclosed in the Financial Highlights, which excludes acquired fund fees and expenses. No adjustment has been made for taxes payable by shareholders on their reinvested net investment income and realized capital gain distributions. ================================================================================ INVESTMENT OVERVIEW | 5 ================================================================================ AVERAGE ANNUAL COMPOUNDED RETURNS WITH REINVESTMENT OF DIVIDENDS - PERIODS ENDED SEPTEMBER 30, 2016
----------------------------------------------------------------------------------------------------------- TOTAL RETURN = DIVIDEND RETURN + PRICE CHANGE ----------------------------------------------------------------------------------------------------------- 10 YEARS 2.58% = 2.62% + -0.04% 5 YEARS 1.39% = 1.76% + -0.37% 1 YEAR 1.23% = 1.42% + -0.19%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT USAA.COM. ANNUAL TOTAL RETURNS AND COMPOUNDED DIVIDEND RETURNS FOR THE ONE-YEAR PERIODS ENDED SEPTEMBER 30, 2007-SEPTEMBER 30, 2016 [CHART OF ANNUAL TOTAL RETURNS AND COMPOUNDED DIVIDEND RETURNS]
TOTAL DIVIDEND CHANGE IN RETURN RETURN SHARE PRICE 9/30/07 3.26% 3.73% -0.47% 9/30/08 2.83% 4.15% -1.32% 9/30/09 5.53% 4.09% 1.44% 9/30/10 4.29% 2.68% 1.61% 9/30/11 3.00% 2.72% 0.28% 9/30/12 2.92% 2.27% 0.65% 9/30/13 0.64% 1.93% -1.29% 9/30/14 1.71% 1.71% 0.00% 9/30/15 0.48% 1.51% -1.03% 9/30/16 1.23% 1.42% -0.19%
[END CHART] NOTE THE ROLE THAT DIVIDEND RETURNS PLAY IN THE FUND SHARES' TOTAL RETURN OVER TIME. SHARE PRICES AND DIVIDEND RATES WILL VARY FROM PERIOD TO PERIOD. HOWEVER, DIVIDEND RETURNS GENERALLY ARE MORE CONSISTENT AND LESS VOLATILE THAN SHARE PRICES. Total return measures the price change in a share assuming the reinvestment of all net investment income and realized capital gain distributions, if any. Dividend return is the net investment income dividends received over the period, assuming reinvestment of all dividends. Share price change is the change in net asset value over the period adjusted for realized capital gain distributions. The returns quoted do not reflect adjustments made to the enclosed financial statements in accordance with U.S. generally accepted accounting principles or the deduction of taxes that a shareholder would pay on distributions (including capital gain distributions), redemptions of shares, or reinvested net investment income. ================================================================================ 6 | USAA TAX EXEMPT SHORT-TERM FUND ================================================================================ TAXABLE EQUIVALENT ILLUSTRATION To match the Fund Shares' Dividend Return for the period ended 9/30/16, and assuming marginal federal tax rates of: 28.00% 36.80%* 38.80%* 43.40%* A FULLY TAXABLE INVESTMENT MUST PAY THE FOLLOWING:
PERIOD DIVIDEND RETURN ------------------------------------------------------------------------------------- 10 Years 2.62% 3.64% 4.15% 4.28% 4.63% 5 Years 1.76% 2.44% 2.78% 2.88% 3.11% 1 Year 1.42% 1.97% 2.25% 2.32% 2.51%
To match the Fund Shares' closing 30-day SEC Yield of 0.93% on 09/30/16 A FULLY TAXABLE INVESTMENT MUST PAY: 1.29% 1.47% 1.52% 1.64% This table is based on a hypothetical investment calculated for illustrative purposes only. It is not an indication of performance for any of the USAA family of funds. Taxable equivalent returns or yields will vary depending on applicable tax rates. -------------------------------------------------------------------------------- Some income may be subject to federal, state, or local taxes, but not the alternative minimum tax. Based on 2015 tax rates or rates in effect as of the issuance of this report. The above marginal rates assume married, filing jointly. *The above marginal rates assume income exceeds $250,000 and investment income is subject to the 3.80% medicare tax which is applied for income over a specific level, depending on the federal income tax filing status. ================================================================================ INVESTMENT OVERVIEW | 7 ================================================================================ o CUMULATIVE PERFORMANCE COMPARISON o [CHART OF CUMULATIVE PERFORMANCE COMPARISON]
BLOOMBERG BARCLAYS USAA TAX EXEMPT LIPPER SHORT MUNICIPAL MUNICIPAL BOND SHORT-TERM FUND DEBT FUNDS INDEX SHARES INDEX 09/30/06 $10,000.00 $10,000.00 $10,000.00 10/31/06 10,062.71 10,029.00 10,025.48 11/30/06 10,146.59 10,069.00 10,057.25 12/31/06 10,110.74 10,082.00 10,070.47 01/31/07 10,084.85 10,082.00 10,078.81 02/28/07 10,217.74 10,140.00 10,124.27 03/31/07 10,192.55 10,163.00 10,146.49 04/30/07 10,222.72 10,193.00 10,172.47 05/31/07 10,177.46 10,186.00 10,187.46 06/30/07 10,124.72 10,190.00 10,185.66 07/31/07 10,203.21 10,230.00 10,221.92 08/31/07 10,159.19 10,246.00 10,235.49 09/30/07 10,309.52 10,325.00 10,285.71 10/31/07 10,355.47 10,348.00 10,312.51 11/30/07 10,421.50 10,403.00 10,344.91 12/31/07 10,450.43 10,417.00 10,376.53 01/31/08 10,582.21 10,559.00 10,484.96 02/29/08 10,097.73 10,447.00 10,361.34 03/31/08 10,386.34 10,552.00 10,399.99 04/30/08 10,507.88 10,568.00 10,420.41 05/31/08 10,571.41 10,606.00 10,462.92 06/30/08 10,452.09 10,592.00 10,445.15 07/31/08 10,491.82 10,650.00 10,502.87 08/31/08 10,614.60 10,729.00 10,552.92 09/30/08 10,116.83 10,617.00 10,464.06 10/31/08 10,013.57 10,549.00 10,430.08 11/30/08 10,045.40 10,585.00 10,470.69 12/31/08 10,191.86 10,555.00 10,476.05 01/31/09 10,564.91 10,780.00 10,612.69 02/28/09 10,620.41 10,786.00 10,609.90 03/31/09 10,622.35 10,803.00 10,638.66 04/30/09 10,834.56 10,871.00 10,686.82 05/31/09 10,949.17 10,936.00 10,730.34 06/30/09 10,846.60 10,958.00 10,751.17 07/31/09 11,028.07 11,034.00 10,808.64 08/31/09 11,216.61 11,094.00 10,836.16 09/30/09 11,619.14 11,204.00 10,908.21 10/31/09 11,375.24 11,187.00 10,896.20 11/30/09 11,469.23 11,264.00 10,942.23 12/31/09 11,507.99 11,281.00 10,955.33 01/31/10 11,567.92 11,346.00 10,984.17 02/28/10 11,680.05 11,412.00 11,007.99 03/31/10 11,652.09 11,392.00 10,997.80 04/30/10 11,793.69 11,451.00 11,017.58 05/31/10 11,882.15 11,485.00 11,038.41 06/30/10 11,889.21 11,511.00 11,049.55 07/31/10 12,037.46 11,592.00 11,092.99 08/31/10 12,313.06 11,681.00 11,130.01 09/30/10 12,293.82 11,684.00 11,123.47 10/31/10 12,259.77 11,699.00 11,130.47 11/30/10 12,014.62 11,659.00 11,112.62 12/31/10 11,781.79 11,611.00 11,094.90 01/31/11 11,695.00 11,604.00 11,098.80 02/28/11 11,881.18 11,664.00 11,121.47 03/31/11 11,841.59 11,691.00 11,140.63 04/30/11 12,053.65 11,762.00 11,178.36 05/31/11 12,259.63 11,843.00 11,228.35 06/30/11 12,302.40 11,892.00 11,252.69 07/31/11 12,427.95 11,962.00 11,291.45 08/31/11 12,640.57 12,020.00 11,326.96 09/30/11 12,771.24 12,036.00 11,331.50 10/31/11 12,723.76 12,015.00 11,315.98 11/30/11 12,798.93 12,052.00 11,335.52 12/31/11 13,042.41 12,124.00 11,372.03 01/31/12 13,344.04 12,192.00 11,414.90 02/29/12 13,357.19 12,227.00 11,441.25 03/31/12 13,270.40 12,206.00 11,427.74 04/30/12 13,423.49 12,251.00 11,455.69 05/31/12 13,534.92 12,295.00 11,472.96 06/30/12 13,520.39 12,304.00 11,477.57 07/31/12 13,734.67 12,347.00 11,504.34 08/31/12 13,750.31 12,368.00 11,514.06 09/30/12 13,833.37 12,386.00 11,530.43 10/31/12 13,872.40 12,407.00 11,536.03 11/30/12 14,100.94 12,443.00 11,558.23 12/31/12 13,926.66 12,429.00 11,540.42 01/31/13 13,984.66 12,436.00 11,559.46 02/28/13 14,027.02 12,480.00 11,577.34 03/31/13 13,966.53 12,500.00 11,583.26 04/30/13 14,119.63 12,520.00 11,597.30 05/31/13 13,947.15 12,507.00 11,588.47 06/30/13 13,552.23 12,443.00 11,533.98 07/31/13 13,433.74 12,451.00 11,543.41 08/31/13 13,242.02 12,436.00 11,528.89 09/30/13 13,527.03 12,465.00 11,551.58 10/31/13 13,633.90 12,496.00 11,581.13 11/30/13 13,605.80 12,503.00 11,585.92 12/31/13 13,571.05 12,510.00 11,586.61 01/31/14 13,835.44 12,552.00 11,621.18 02/28/14 13,997.67 12,593.00 11,650.87 03/31/14 14,021.21 12,575.00 11,626.95 04/30/14 14,189.67 12,605.00 11,651.05 05/31/14 14,372.39 12,636.00 11,677.12 06/30/14 14,384.85 12,641.00 11,675.44 07/31/14 14,410.18 12,646.00 11,679.17 08/31/14 14,584.73 12,675.00 11,697.21 09/30/14 14,599.54 12,678.00 11,706.52 10/31/14 14,699.62 12,695.00 11,716.43 11/30/14 14,725.09 12,698.00 11,716.57 12/31/14 14,799.29 12,702.00 11,707.66 01/31/15 15,061.60 12,741.00 11,752.25 02/28/15 14,906.29 12,733.00 11,733.36 03/31/15 14,949.34 12,736.00 11,730.88 04/30/15 14,870.85 12,717.00 11,724.67 05/31/15 14,829.74 12,698.00 11,704.95 06/30/15 14,816.31 12,691.00 11,709.93 07/31/15 14,923.59 12,720.00 11,727.17 08/31/15 14,952.94 12,711.00 11,731.64 09/30/15 15,061.18 12,739.00 11,751.65 10/31/15 15,121.12 12,768.00 11,771.36 11/30/15 15,181.20 12,770.00 11,759.97 12/31/15 15,287.92 12,775.00 11,763.93 01/31/16 15,470.36 12,811.00 11,803.84 02/29/16 15,494.59 12,813.00 11,820.28 03/31/16 15,543.73 12,816.00 11,805.27 04/30/16 15,658.07 12,832.00 11,826.27 05/31/16 15,700.42 12,835.00 11,822.49 06/30/16 15,950.14 12,887.00 11,860.95 07/31/16 15,959.83 12,902.00 11,879.15 08/31/16 15,981.42 12,905.00 11,878.75 09/30/16 15,901.69 12,897.00 11,859.44
[END CHART] Data from 9/30/06 through 9/30/16. The graph illustrates the comparison of a $10,000 hypothetical investment in the USAA Tax Exempt Short-Term Fund Shares to the following benchmarks: o The unmanaged, broad-based Bloomberg Barclays Municipal Bond Index (Index) tracks total return performance for the long-term, investment-grade, tax-exempt bond market. All tax-exempt bond funds will find it difficult to outperform the Index because the Index does not reflect any deduction for fees, expenses, or taxes. o The unmanaged Lipper Short Municipal Debt Funds Index, which measures the Fund's performance to that of the Lipper Short Municipal Debt Funds category. Past performance is no guarantee of future results, and the cumulative performance quoted does not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of shares. Indexes are unmanaged and you cannot invest directly in an index. The return information for the indexes does not reflect the deduction of any fees, expenses, or taxes, except that the Lipper index reflects the fees and expenses of the underlying funds included in the index. ================================================================================ 8 | USAA TAX EXEMPT SHORT-TERM FUND ================================================================================ o 12-MONTH DIVIDEND YIELD COMPARISON o [CHART OF 12-MONTH DIVIDEND YIELD COMPARISON]
USAA TAX EXEMPT LIPPER SHORT MUNICIPAL SHORT-TERM FUND DEBT FUNDS SHARES AVERAGE 09/30/07 3.69% 3.18% 09/30/08 4.18% 3.23% 09/30/09 3.89% 3.04% 09/30/10 2.58% 1.42% 09/30/11 2.65% 1.45% 09/30/12 2.22% 1.21% 09/30/13 1.96% 0.86% 09/30/14 1.69% 0.77% 09/30/15 1.52% 0.72% 09/30/16 1.41% 0.78%
[END CHART] The 12-month dividend yield is computed by dividing net investment income dividends paid during the previous 12 months by the latest adjusted month-end net asset value. The yields quoted do not reflect adjustments made to the enclosed financial statements in accordance with U.S. generally accepted accounting principles. The net asset value is adjusted for a portion of the capital gains, if any, distributed during the previous nine months. The graph represents data for periods ending 9/30/07 to 9/30/16. The Lipper Short Municipal Debt Funds Average is an average performance level of all short-term municipal debt funds, reported by Lipper Inc., an independent organization that monitors the performance of mutual funds. ================================================================================ INVESTMENT OVERVIEW | 9 ================================================================================ USAA TAX EXEMPT SHORT-TERM FUND ADVISER SHARES (ADVISER SHARES) (Ticker Symbol: UTESX)
-------------------------------------------------------------------------------- 9/30/16 3/31/16 -------------------------------------------------------------------------------- Net Assets $23.6 Million $31.0 Million Net Asset Value Per Share $10.58 $10.59 LAST 12 MONTHS Tax-Exempt Dividends Per Share $0.122 $0.129 Capital Gain Distributions Per Share - - -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 9/30/16 -------------------------------------------------------------------------------- 3/31/16-9/30/16* 1 YEAR 5 YEARS SINCE INCEPTION 8/01/10 0.50% 0.87% 1.14% 1.49% -------------------------------------------------------------------------------- 30-DAY SEC YIELD** AS OF 9/30/16 -------------------------------------------------------------------------------- UNSUBSIDIZED 0.50% SUBSIDIZED 0.68% -------------------------------------------------------------------------------- EXPENSE RATIOS AS OF 3/31/16*** -------------------------------------------------------------------------------- BEFORE REIMBURSEMENT 0.83% AFTER REIMBURSEMENT 0.80%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT USAA.COM. *Total returns for periods of less than one year are not annualized. This return is cumulative. **Calculated as prescribed by the Securities and Exchange Commission. ***The expense ratios represent the total annual operating expenses, before reductions of any expenses paid indirectly and including any acquired fund fees and expenses, as reported in the Fund's prospectus dated August 1, 2016, and is calculated as a percentage of average net assets. USAA Asset Management Company (the Manager) has agreed, through August 1, 2017, to make payments or waive management, administration, and other fees so that the total annual operating expenses of the Adviser Shares (exclusive of commission recapture, expense offset arrangements, acquired fund fees and expenses, and extraordinary expenses) do not exceed an annual rate of 0.80% of the Adviser Shares' average net assets. This reimbursement arrangement may not be changed or terminated during this time period without approval of the Fund's Board of Trustees and may be changed or terminated by the Manager at any time after August 1, 2017. If the total annual operating expense ratio of the Adviser Shares is lower than 0.80%, the Adviser Shares will operate at the lower expense ratio. These expense ratios may differ from the expense ratios disclosed in the Financial Highlights, which excludes acquired fund fees and expenses. No adjustment has been made for taxes payable by shareholders on their reinvested net investment income and realized capital gain distributions. ================================================================================ 10 | USAA TAX EXEMPT SHORT-TERM FUND ================================================================================ TAXABLE EQUIVALENT ILLUSTRATION To match the Adviser Shares' closing 30-day SEC Yield of 0.68% on 09/30/16 and assuming marginal federal tax rates of: 28.00% 36.80%* 38.80%* 43.40%* A FULLY TAXABLE INVESTMENT MUST PAY: 0.94% 1.08% 1.11% 1.20% This table is based on a hypothetical investment calculated for illustrative purposes only. It is not an indication of performance for any of the USAA family of funds. Taxable equivalent returns or yields will vary depending on applicable tax rates. -------------------------------------------------------------------------------- Some income may be subject to federal, state, or local taxes, but not the alternative minimum tax. Based on 2015 tax rates or rates in effect as of the issuance of this report. The above marginal rates assume married, filing jointly. *The above marginal rates assume income exceeds $250,000 and investment income is subject to the 3.80% medicare tax which is applied for income over a specific level, depending on the federal income tax filing status. ================================================================================ INVESTMENT OVERVIEW | 11 ================================================================================ o CUMULATIVE PERFORMANCE COMPARISON o [CHART OF CUMULATIVE PERFORMANCE COMPARISON]
BLOOMBERG BARCLAYS USAA TAX EXEMPT SHORT-TERM LIPPER SHORT MUNICIPAL MUNICIPAL BOND FUND ADVISER DEBT FUNDS INDEX SHARES INDEX 07/31/10 $10,000.00 $10,000.00 $10,000.00 08/31/10 10,228.95 10,074.87 10,033.38 09/30/10 10,212.97 10,085.31 10,027.48 10/31/10 10,184.68 10,086.35 10,033.79 11/30/10 9,981.03 10,049.96 10,017.70 12/31/10 9,787.61 10,006.37 10,001.73 01/31/11 9,715.50 9,997.77 10,005.25 02/28/11 9,870.17 10,048.12 10,025.68 03/31/11 9,837.28 10,068.74 10,042.95 04/30/11 10,013.45 10,128.54 10,076.96 05/31/11 10,184.57 10,196.15 10,122.02 06/30/11 10,220.10 10,235.65 10,143.97 07/31/11 10,324.40 10,293.76 10,178.91 08/31/11 10,501.03 10,341.92 10,210.92 09/30/11 10,609.58 10,353.30 10,215.01 10/31/11 10,570.14 10,333.20 10,201.02 11/30/11 10,632.58 10,362.76 10,218.64 12/31/11 10,834.86 10,422.38 10,251.55 01/31/12 11,085.43 10,478.59 10,290.19 02/29/12 11,096.35 10,506.75 10,313.95 03/31/12 11,024.25 10,486.24 10,301.77 04/30/12 11,151.44 10,522.87 10,326.96 05/31/12 11,244.01 10,558.72 10,342.54 06/30/12 11,231.93 10,564.12 10,346.69 07/31/12 11,409.94 10,598.09 10,370.82 08/31/12 11,422.94 10,614.24 10,379.58 09/30/12 11,491.93 10,627.28 10,394.34 10/31/12 11,524.36 10,643.48 10,399.39 11/30/12 11,714.22 10,671.47 10,419.40 12/31/12 11,569.44 10,657.30 10,403.34 01/31/13 11,617.62 10,661.62 10,420.51 02/28/13 11,652.81 10,697.12 10,436.63 03/31/13 11,602.56 10,711.77 10,441.96 04/30/13 11,729.74 10,726.76 10,454.63 05/31/13 11,586.46 10,711.89 10,446.67 06/30/13 11,258.38 10,656.80 10,397.54 07/31/13 11,159.95 10,660.80 10,406.04 08/31/13 11,000.68 10,645.13 10,392.95 09/30/13 11,237.45 10,668.85 10,413.41 10/31/13 11,326.23 10,692.49 10,440.05 11/30/13 11,302.88 10,696.72 10,444.37 12/31/13 11,274.02 10,689.91 10,444.99 01/31/14 11,493.66 10,732.65 10,476.15 02/28/14 11,628.43 10,756.27 10,502.91 03/31/14 11,647.98 10,749.21 10,481.35 04/30/14 11,787.93 10,773.15 10,503.08 05/31/14 11,939.72 10,796.81 10,526.58 06/30/14 11,950.07 10,799.71 10,525.07 07/31/14 11,971.12 10,801.48 10,528.43 08/31/14 12,116.12 10,822.91 10,544.69 09/30/14 12,128.43 10,824.00 10,553.09 10/31/14 12,211.57 10,835.30 10,562.01 11/30/14 12,232.73 10,836.28 10,562.15 12/31/14 12,294.37 10,837.09 10,554.11 01/31/15 12,512.28 10,868.36 10,594.31 02/28/15 12,383.26 10,859.73 10,577.28 03/31/15 12,419.02 10,850.33 10,575.04 04/30/15 12,353.82 10,852.11 10,569.45 05/31/15 12,319.66 10,823.46 10,551.67 06/30/15 12,308.51 10,815.02 10,556.16 07/31/15 12,397.63 10,836.38 10,571.70 08/31/15 12,422.01 10,827.52 10,575.73 09/30/15 12,511.93 10,859.78 10,593.77 10/31/15 12,561.73 10,870.75 10,611.53 11/30/15 12,611.63 10,871.34 10,601.27 12/31/15 12,700.29 10,871.47 10,604.84 01/31/16 12,851.86 10,911.45 10,640.81 02/29/16 12,871.98 10,911.03 10,655.63 03/31/16 12,912.80 10,900.13 10,642.10 04/30/16 13,007.79 10,922.00 10,661.04 05/31/16 13,042.97 10,922.00 10,657.63 06/30/16 13,250.42 10,954.00 10,692.30 07/31/16 13,258.47 10,964.00 10,708.70 08/31/16 13,276.41 10,964.00 10,708.34 09/30/16 13,210.17 10,955.00 10,690.94
[END CHART] Data from 7/31/10 through 9/30/16.* The graph illustrates the comparison of a $10,000 hypothetical investment in the USAA Tax Exempt Short-Term Fund Adviser Shares to the benchmarks listed above (see page 8 for benchmark definitions). *The performance of the Bloomberg Barclays Municipal Bond Index and the Lipper Short Municipal Debt Funds Index is calculated from the end of the month, July 31, 2010, while the inception date of the Adviser Shares is August 1, 2010. There may be a slight variation of performance numbers because of this difference. Past performance is no guarantee of future results, and the cumulative performance quoted does not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of shares. Indexes are unmanaged and you cannot invest directly in an index. The return information for the indexes does not reflect the deduction of any fees, expenses, or taxes, except that the Lipper index reflects the fees and expenses of the underlying funds included in the index. ================================================================================ 12 | USAA TAX EXEMPT SHORT-TERM FUND ================================================================================ o 12-MONTH DIVIDEND YIELD COMPARISON o [CHART OF 12-MONTH DIVIDEND YIELD COMPARISON]
USAA TAX EXEMPT LIPPER SHORT MUNICIPAL SHORT-TERM FUND DEBT FUNDS ADVISER SHARES AVERAGE 09/30/11 2.41% 1.45% 09/30/12 1.97% 1.21% 09/30/13 1.70% 0.86% 09/30/14 1.45% 0.77% 09/30/15 1.27% 0.72% 09/30/16 1.15% 0.78%
[END CHART] The 12-month dividend yield is computed by dividing net investment income dividends paid during the previous 12 months by the latest adjusted month-end net asset value. The yields quoted do not reflect adjustments made to the enclosed financial statements in accordance with U.S. generally accepted accounting principles. The net asset value is adjusted for a portion of the capital gains, if any, distributed during the previous nine months. The graph represents data for periods ending 9/30/11 to 9/30/16. The Lipper Short Municipal Debt Funds Average is an average performance level of all short-term municipal debt funds, reported by Lipper Inc., an independent organization that monitors the performance of mutual funds. ================================================================================ INVESTMENT OVERVIEW | 13 ================================================================================ o TOP 10 INDUSTRIES - 9/30/16 o (% of Net Assets) General Obligation ....................................................... 28.9% Hospital ................................................................. 17.2% Electric Utilities ....................................................... 10.3% Appropriated Debt ........................................................ 6.8% Special Assessment/Tax/Fee ............................................... 6.0% Education ................................................................ 5.9% Toll Roads ............................................................... 5.5% Environmental & Facilities Services ...................................... 3.1% Nursing/CCRC ............................................................. 2.1% Oil & Gas Refining & Marketing ........................................... 1.7%
You will find a complete list of securities that the Fund owns on pages 16-29. ================================================================================ 14 | USAA TAX EXEMPT SHORT-TERM FUND ================================================================================ o PORTFOLIO RATINGS MIX - 9/30/16 o [PIE CHART OF PORTFOLIO RATINGS MIX] AAA 2.2% AA 29.2% A 41.0% BBB 18.9% UNRATED 5.0% BELOW INVESTMENT-GRADE 3.7%
[END CHART] This chart reflects the highest long-term rating from a Nationally Recognized Statistical Rating Organization (NRSRO), with the four highest long-term credit ratings labeled, in descending order of credit quality, AAA, AA, A, and BBB. These categories represent investment-grade quality. NRSRO ratings are shown because they provide independent analysis of the credit quality of the Fund's investments. USAA Asset Management Company (the Manager) also performs its own fundamental credit analysis of each security. As part of its fundamental credit analysis, the Manager considers various criteria, including industry specific actions, peer comparisons, payment ranking, and structure specific characteristics. Any of the Fund's securities that are not rated by an NRSRO appear in the chart above as "Unrated," but these securities are analyzed and monitored by the Manager on an ongoing basis. Government securities that are issued or guaranteed as to principal and interest by the U.S. government and pre-refunded and escrowed-to-maturity municipal bonds that are not rated are treated as AAA for credit quality purposes. Percentages are of the total market value of the Fund's investments. You will find a complete list of securities that the Fund owns on pages 16-29. ================================================================================ INVESTMENT OVERVIEW | 15 ================================================================================ PORTFOLIO OF INVESTMENTS September 30, 2016 (unaudited) -------------------------------------------------------------------------------- o CATEGORIES AND DEFINITIONS FIXED-RATE INSTRUMENTS - Consist of municipal bonds, notes, and commercial paper. The interest rate is constant to maturity. Prior to maturity, the market price of a fixed-rate instrument generally varies inversely to the movement of interest rates. PUT BONDS - Provide the right to sell the bond at face value at specific tender dates prior to final maturity. The put feature shortens the effective maturity of the security. ADJUSTABLE-RATE NOTES - Similar to variable-rate demand notes in the fact that the interest rate is adjusted periodically to reflect current market conditions. These interest rates are adjusted at a given time, such as monthly or quarterly. However, these securities do not offer the right to sell the security at face value prior to maturity. VARIABLE-RATE DEMAND NOTES (VRDNs) - Provide the right to sell the security at face value on either that day or within the rate-reset period. The interest rate is adjusted at a stipulated daily, weekly, monthly, quarterly, or other specified time interval to reflect current market conditions. VRDNs will normally trade as if the maturity is the earlier put date, even though stated maturity is longer. o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS EDA Economic Development Authority EDC Economic Development Corp. ETM Escrowed to final maturity IDA Industrial Development Authority/Agency ISD Independent School District ================================================================================ 16 | USAA TAX EXEMPT SHORT-TERM FUND ================================================================================ MTA Metropolitan Transportation Authority PRE Pre-refunded to a date prior to maturity USD Unified School District CREDIT ENHANCEMENTS - Adds the financial strength of the provider of the enhancement to support the issuer's ability to repay the principal and interest payments when due. The enhancement may be provided by a high-quality bank, insurance company or other corporation, or a collateral trust. The enhancements do not guarantee the market values of the securities. (INS) Principal and interest payments are insured by one of the following: Assured Guaranty Corp., Assured Guaranty Municipal Corp., Build America Mutual Assurance Co., National Public Finance Guarantee Corp., or Radian Asset Assurance, Inc. Although bond insurance reduces the risk of loss due to default by an issuer, such bonds remain subject to the risk that value may fluctuate for other reasons, and there is no assurance that the insurance company will meet its obligations. (LIQ) Liquidity enhancement that may, under certain circumstances, provide for repayment of principal and interest upon demand from one of the following: Bank of America Corp., Citigroup, Inc., Deutsche Bank A.G., Dexia Credit Local, JPMorgan Chase & Co., or Wells Fargo Bank, N.A. (LOC) Principal and interest payments are guaranteed by a bank letter of credit or other bank credit agreement. (NBGA) Principal and interest payments or, under certain circumstances, underlying mortgages, are guaranteed by a nonbank guarantee agreement from one of the following: Georgia-Pacific LLC, Pennsylvania Public School Intercept Program, or Texas Permanent School Fund. ================================================================================ PORTFOLIO OF INVESTMENTS | 17 ================================================================================ INVESTMENTS
-------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) -------------------------------------------------------------------------------------------------------- FIXED-RATE INSTRUMENTS (48.8%) ARIZONA (0.1%) $ 1,000 Yavapai County IDA 5.00% 8/01/2019 $ 1,077 1,105 Yavapai County IDA 5.00 8/01/2020 1,219 ---------- 2,296 ---------- CALIFORNIA (1.8%) 500 Anaheim Public Financing Auth. 5.00 5/01/2022 599 250 Anaheim Public Financing Auth. 5.00 5/01/2024 312 3,000 Golden State Tobacco Securitization Corp. 5.00 6/01/2017 3,092 1,125 Irvine 5.00 9/02/2021 1,321 500 Los Angeles County 5.00 3/01/2021 584 1,000 Los Angeles County 5.00 9/01/2021 1,184 2,000 Public Works Board 5.00 4/01/2019 2,203 2,700 Public Works Board 5.00 11/01/2019 3,035 1,000 Public Works Board 5.00 4/01/2020 1,139 1,500 Public Works Board 5.00 4/01/2021 1,760 15,000 State 5.00 10/01/2017 15,631 ---------- 30,860 ---------- COLORADO (0.4%) 1,475 Denver Health and Hospital Auth. 5.00 12/01/2016 1,484 160 Health Facilities Auth. (ETM) 5.00 11/15/2016 161 2,840 Health Facilities Auth. (ETM) 5.00 11/15/2016 2,855 1,100 Health Facilities Auth. 2.00 12/01/2016 1,102 1,250 Health Facilities Auth. 4.00 12/01/2019 1,339 ---------- 6,941 ---------- CONNECTICUT (0.1%) 2,235 West Haven (INS) 5.00 8/01/2020 2,518 ---------- FLORIDA (3.4%) 4,500 Gulf Breeze 3.10 12/01/2020 4,818 1,385 Higher Educational Facilities Financing Auth. 5.00 4/01/2021 1,589 3,500 Highlands County Health Facilities 5.00 11/15/2016 3,519 1,235 Highlands County Health Facilities 5.00 11/15/2016 1,242 1,000 Jacksonville 5.00 10/01/2019 1,118 4,580 Jacksonville 5.00 10/01/2020 5,271 1,165 Lee County IDA 3.75 10/01/2017 1,187 3,165 Lee County IDA 4.75 10/01/2022 3,468 1,775 Miami Beach Health Facilities Auth. 5.00 11/15/2019 1,974 1,250 Miami Beach Health Facilities Auth. 5.00 11/15/2020 1,430 7,500 Miami-Dade County IDA 3.75 12/01/2018 7,920
================================================================================ 18 | USAA TAX EXEMPT SHORT-TERM FUND ================================================================================
-------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) -------------------------------------------------------------------------------------------------------- $ 1,200 Orange County Health Facilities Auth. 5.00% 10/01/2016 $ 1,200 2,820 Pinellas County Educational Facilities Auth. 4.00 10/01/2020 3,078 1,325 Southeast Overtown / Park West Community Redevelopment Agency(a) 5.00 3/01/2020 1,454 1,000 Southeast Overtown / Park West Community Redevelopment Agency(a) 5.00 3/01/2023 1,154 10,000 Sunshine State Governmental Financing Commission 5.00 9/01/2017 10,367 8,975 Sunshine State Governmental Financing Commission 5.00 9/01/2018 9,648 ---------- 60,437 ---------- GEORGIA (0.8%) 3,000 Fulton County Dev. Auth. (ETM) 4.00 11/15/2016 3,012 3,415 Private Colleges and Univ. Auth. 5.00 10/01/2018 3,663 1,265 Private Colleges and Univ. Auth. 5.00 10/01/2019 1,400 1,255 Private Colleges and Univ. Auth. 5.00 10/01/2019 1,389 3,770 Private Colleges and Univ. Auth. 5.00 10/01/2020 4,279 ---------- 13,743 ---------- GUAM (0.5%) 1,500 Government 5.00 12/01/2023 1,795 2,000 Government 5.00 12/01/2024 2,425 860 Government Waterworks Auth. 5.00 7/01/2020 964 1,000 Power Auth. (INS) 5.00 10/01/2019 1,101 1,500 Power Auth. (INS) 5.00 10/01/2020 1,692 ---------- 7,977 ---------- IDAHO (0.3%) 5,000 Nez Perce County 2.75 10/01/2024 5,001 ---------- ILLINOIS (4.6%) 20,000 Chicago (INS) 3.18(b) 1/01/2018 19,247 4,000 Chicago Water 5.00 11/01/2025 4,827 2,000 Chicago Water 5.00 11/01/2025 2,421 2,500 Chicago Water 4.00 11/01/2026 2,815 1,000 Chicago Water 5.00 11/01/2026 1,220 5,940 Finance Auth. 4.50 2/15/2017 5,997 1,000 Finance Auth. 5.00 7/01/2018 1,064 2,410 Finance Auth. 5.00 8/15/2018 2,584 14,360 Finance Auth. 5.00 2/15/2019 14,969 1,000 Finance Auth. 5.00 7/01/2019 1,096 1,420 Finance Auth. 5.00 7/01/2020 1,601 10,000 Finance Auth. 4.00 2/15/2025 10,955 6,500 Railsplitter Tobacco Settlement Auth. 5.00 6/01/2018 6,901 4,160 Railsplitter Tobacco Settlement Auth. 5.25 6/01/2020 4,735 1,090 Railsplitter Tobacco Settlement Auth. 5.25 6/01/2021 1,274 ---------- 81,706 ----------
================================================================================ PORTFOLIO OF INVESTMENTS | 19 ================================================================================
-------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) -------------------------------------------------------------------------------------------------------- INDIANA (2.0%) $ 5,000 Finance Auth. 2.95% 10/01/2022 $ 5,342 20,000 Jasper County (INS) 5.60 11/01/2016 20,079 10,000 Whiting Environmental Facilities 5.00 7/01/2017 10,275 ---------- 35,696 ---------- LOUISIANA (0.3%) 5,000 Tobacco Settlement Financing Corp. 5.00 5/15/2022 5,826 ---------- MASSACHUSETTS (0.2%) 835 Dev. Finance Agency 5.00 1/01/2017 843 1,065 Dev. Finance Agency 5.00 1/01/2018 1,117 1,395 Dev. Finance Agency 5.00 1/01/2019 1,514 ---------- 3,474 ---------- MICHIGAN (0.3%) 2,165 Grand Traverse County Hospital Finance Auth.(c) 5.00 7/01/2018 2,311 2,625 Grand Traverse County Hospital Finance Auth.(c) 5.00 7/01/2019 2,893 ---------- 5,204 ---------- MINNESOTA (0.2%) 325 St. Paul Housing and Redevelopment Auth. (PRE) 5.25 5/15/2017 327 1,250 St. Paul Housing and Redevelopment Auth. 5.00 11/15/2020 1,420 1,575 St. Paul Housing and Redevelopment Auth. 5.00 11/15/2021 1,830 ---------- 3,577 ---------- MISSISSIPPI (0.7%) 10,000 Hospital Equipment and Facilities Auth. 5.00 9/01/2024 12,080 ---------- MISSOURI (0.4%) 1,000 Cape Girardeau County IDA 5.00 6/01/2017 1,003 5,000 Sikeston Electric System Revenue (INS) 5.00 6/01/2020 5,621 ---------- 6,624 ---------- MONTANA (0.3%) 6,000 Forsyth 2.00 8/01/2023 6,020 ---------- NEW JERSEY (10.3%) 10,378 Belleville Township 2.00 5/26/2017 10,432 1,000 Building Auth. 3.00 6/15/2023 1,022 4,000 Building Auth. 5.00 6/15/2024 4,646 1,000 Casino Reinvestment Dev. Auth. (INS) 5.00 11/01/2024 1,174 7,300 EDA (ETM) 5.25 9/01/2019 8,199 2,700 EDA 5.25 9/01/2019 2,964 5,000 EDA 5.00 6/15/2020 5,492 7,000 EDA 5.00 6/15/2021 7,830 20,000 EDA 5.00 6/15/2022 22,752 3,250 Fairview 1.50 2/03/2017 3,255
================================================================================ 20 | USAA TAX EXEMPT SHORT-TERM FUND ================================================================================
-------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) -------------------------------------------------------------------------------------------------------- $ 5,055 Health Care Facilities Financing Auth. 4.00% 11/15/2016 $ 5,075 2,000 Health Care Facilities Financing Auth. 5.00 7/01/2018 2,136 2,000 Health Care Facilities Financing Auth. 5.00 7/01/2019 2,207 2,000 Health Care Facilities Financing Auth. 5.00 7/01/2020 2,276 10,000 Kearny 2.00 2/15/2017 10,004 15,000 Kearny Board of Education 2.00 10/07/2016 15,002 15,000 Kearny Board of Education(d) 2.00 10/06/2017 15,102 3,842 Lambertville 2.00 3/23/2017 3,857 6,933 Matawan 2.00 1/18/2017 6,947 6,500 Newark 2.50 2/15/2017 6,516 5,740 Ocean Township 2.00 2/24/2017 5,756 3,014 Southampton Board of Education 2.00 7/05/2017 3,014 5,000 Transportation Trust Fund Auth. (INS) 5.25 12/15/2020 5,649 3,160 Transportation Trust Fund Auth. (INS) 5.50 12/15/2020 3,602 1,500 Transportation Trust Fund Auth. 5.00 6/15/2022 1,713 3,835 Transportation Trust Fund Auth. 5.00 6/15/2023 4,437 13,956 Wall Township 2.00 6/30/2017 14,036 7,600 Willingboro Township School District 2.00 12/22/2016 7,600 ---------- 182,695 ---------- NEW YORK (14.3%) 11,574 Auburn 1.50 5/27/2017 11,602 6,130 Auburn 2.00 7/06/2017 6,160 4,250 Bath 2.00 8/25/2017 4,275 2,395 Belleville Henderson Central School District 2.00 7/26/2017 2,406 10,000 Broome County 2.00 5/05/2017 10,059 8,468 Colonie 2.00 3/17/2017 8,496 5,000 Copiague Union Free School District 2.00 3/31/2017 5,020 3,183 Corning 1.50 8/16/2017 3,183 15,000 Enlarged Ogdensburg City School District 2.00 6/21/2017 15,064 2,000 Environmental Facilities Corp. 2.75 7/01/2017 2,024 2,005 Fishkill 2.00 7/14/2017 2,012 17,309 Geneva 1.50 5/10/2017 17,342 4,600 Glen Cove 2.00 12/15/2016 4,602 1,835 Glen Cove 2.00 4/06/2017 1,837 8,101 Glen Cove 2.50 4/06/2017 8,137 15,000 Hempstead 2.00 12/16/2016 15,027 1,500 Island Park 2.00 12/22/2016 1,503 3,990 Johnson City 2.00 10/07/2016 3,991 2,585 Mechanicville 2.00 12/30/2016 2,588 5,170 Monroe County 5.00 6/01/2020 5,866 6,000 Nassau Health Care Corp. 2.00 1/17/2017 6,011 2,467 Newburgh 2.00 7/21/2017 2,478 7,283 Norwich 1.50 3/24/2017 7,289 15,000 Oyster Bay 2.75 2/03/2017 15,034
================================================================================ PORTFOLIO OF INVESTMENTS | 21 ================================================================================
-------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) -------------------------------------------------------------------------------------------------------- $ 3,000 Oyster Bay 3.88% 6/28/2017 $ 3,018 12,000 Oyster Bay 4.00 6/01/2018 12,102 3,693 Peekskill 2.00 9/22/2017 3,722 1,345 Rockland County 3.50 10/01/2016 1,345 550 Rockland County 5.00 12/15/2016 554 1,410 Rockland County 3.50 10/01/2017 1,431 550 Rockland County 5.00 12/15/2017 569 1,475 Rockland County 3.50 10/01/2018 1,520 550 Rockland County 5.00 12/15/2018 586 1,520 Rockland County 3.50 10/01/2019 1,590 1,575 Rockland County 3.50 10/01/2020 1,655 2,500 Rockland County (INS) 5.00 3/01/2023 2,998 1,600 Rockland County (INS) 5.00 3/01/2024 1,946 1,000 Suffern 2.50 11/18/2016 1,001 2,500 Suffolk County EDC 5.00 7/01/2019 2,758 2,640 Suffolk County EDC 5.00 7/01/2020 2,998 2,378 Troy 2.00 8/04/2017 2,388 3,950 Utica 1.50 2/23/2017 3,954 7,523 Utica 1.50 5/05/2017 7,531 2,000 Utica School District 2.00 12/09/2016 2,001 13,756 Utica School District 2.00 7/21/2017 13,798 2,160 Van Buren 2.00 1/20/2017 2,164 1,873 Wawarsing 2.00 12/16/2016 1,876 4,700 West Seneca Fire District No. 2 2.00 7/12/2017 4,700 3,930 Yonkers(c) 5.00 10/01/2017 4,082 7,310 Yonkers(c) 5.00 10/01/2018 7,863 ---------- 252,156 ---------- NORTH CAROLINA (0.4%) 2,100 Medical Care Commission 4.38 7/01/2017 2,134 3,855 Medical Care Commission 5.00 7/01/2018 4,115 ---------- 6,249 ---------- OHIO (0.9%) 4,515 American Municipal Power, Inc. 5.00 2/15/2017 4,585 1,530 Hancock County 4.00 12/01/2016 1,537 1,875 Hancock County 4.25 12/01/2017 1,933 1,000 Higher Educational Facility 5.00 5/01/2021 1,152 500 Higher Educational Facility 5.00 5/01/2022 585 550 Higher Educational Facility 5.00 5/01/2023 656 1,000 Higher Educational Facility 5.00 5/01/2024 1,212 1,800 Ohio Water Dev. Auth. 1.55 7/01/2021 1,796 1,150 Southeastern Ohio Port Auth. 5.00 12/01/2021 1,283 1,000 Southeastern Ohio Port Auth. 5.00 12/01/2025 1,125 ---------- 15,864 ----------
================================================================================ 22 | USAA TAX EXEMPT SHORT-TERM FUND ================================================================================
-------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) -------------------------------------------------------------------------------------------------------- PENNSYLVANIA (2.9%) $ 1,000 Bethlehem Auth. (INS) 5.00% 11/15/2020 $ 1,139 1,000 Chester County IDA 3.75 10/01/2024 1,061 7,975 Coatesville School District 3.46(b) 8/15/2018 7,638 1,165 Coatesville School District 3.86(b) 8/15/2019 1,088 5,305 Coatesville School District 4.13(b) 8/15/2020 4,814 1,980 Cumberland County Municipal Auth. 3.25 12/01/2022 2,041 1,110 Delaware County Auth. 4.00 10/01/2016 1,110 1,155 Delaware County Auth. 5.00 10/01/2017 1,196 1,195 Delaware County Auth. 5.00 10/01/2018 1,271 600 Higher Educational Facilities Auth. 5.00 7/15/2020 675 1,090 Higher Educational Facilities Auth. 5.00 7/15/2021 1,253 1,500 Montgomery County IDA (ETM) 5.00 11/15/2016 1,508 2,000 Montgomery County IDA (PRE) 5.00 11/15/2017 2,011 5,000 School District of Philadelphia (NBGA) 5.00 9/01/2021 5,603 5,500 School District of Philadelphia (NBGA) 5.00 9/01/2022 6,179 5,175 St. Mary Hospital Auth. 4.00 11/15/2016 5,196 5,170 St. Mary Hospital Auth. 4.00 11/15/2016 5,191 1,570 West Mifflin Area School District (INS) 5.00 10/01/2021 1,798 ---------- 50,772 ---------- PUERTO RICO (0.2%) 2,000 Industrial, Tourist, Educational, Medical and Environmental Control Facilities Financing Auth. 5.00 4/01/2017 2,001 1,000 Industrial, Tourist, Educational, Medical and Environmental Control Facilities Financing Auth. 5.00 4/01/2019 1,000 700 Industrial, Tourist, Educational, Medical and Environmental Control Facilities Financing Auth. 4.00 4/01/2020 675 ---------- 3,676 ---------- SOUTH CAROLINA (0.1%) 1,485 SCAGO Educational Facilities Corp. for Union School District (INS) (ETM) 4.00 12/01/2016 1,493 ---------- TEXAS (2.0%) 3,000 Dallas Fort Worth International Airport 5.00 11/01/2016 3,011 700 Decatur Hospital Auth. 5.00 9/01/2021 788 780 Decatur Hospital Auth. 5.00 9/01/2024 885 2,105 Gregg County Health Facilities Dev. Corp. 5.00 10/01/2016 2,105 480 Harris County Municipal Utility District (INS) 3.00 3/01/2020 510 565 Harris County Municipal Utility District (INS) 3.00 3/01/2021 607 650 Harris County Municipal Utility District (INS) 3.00 3/01/2022 705 520 Harris County Municipal Utility District (INS) 3.00 3/01/2023 568 3,000 Karnes County Hospital District 5.00 2/01/2024 3,471 1,250 New Hope Cultural Facilities Finance Corp. 5.00 7/01/2023 1,449
================================================================================ PORTFOLIO OF INVESTMENTS | 23 ================================================================================
-------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) -------------------------------------------------------------------------------------------------------- $ 2,300 New Hope Cultural Facilities Finance Corp. 5.00% 7/01/2024 $ 2,690 2,135 New Hope Cultural Facilities Finance Corp. 5.00 7/01/2025 2,514 7,175 Red River Auth. (INS) 4.45 6/01/2020 7,818 1,585 San Leanna Education Facilities Corp. 5.00 6/01/2017 1,624 440 Tarrant County Cultural Education Facilities Finance Corp. (ETM) 5.00 11/15/2017 461 560 Tarrant County Cultural Education Facilities Finance Corp. 5.00 11/15/2017 577 6,155 Tyler Health Facilities Dev. Corp. 5.25 11/01/2016 6,174 ---------- 35,957 ---------- VIRGINIA (0.6%) 3,200 Housing Dev. Auth. 3.05 3/01/2018 3,290 3,200 Housing Dev. Auth. 3.05 9/01/2018 3,320 3,506 Marquis Community Dev. Auth.(e),(f) 5.10 9/01/2036 2,791 5,111 Marquis Community Dev. Auth.(e),(f) 5.63(b) 9/01/2041 725 1,074 Marquis Community Dev. Auth., 7.50%, 9/01/2021(a) 7.50(g) 9/01/2045 712 ---------- 10,838 ---------- WEST VIRGINIA (0.6%) 10,000 EDA 3.25 5/01/2019 10,366 ---------- WISCONSIN (0.1%) 1,200 Health and Educational Facilities Auth. (ETM) 5.00 8/15/2021 1,424 ---------- Total Fixed-Rate Instruments (cost: $842,728) 861,470 ---------- PUT BONDS (25.7%) ARIZONA (2.4%) 16,000 Health Facilities Auth. 2.69(h) 2/01/2048 16,287 25,000 Health Facilities Auth. 2.69(h) 2/01/2048 25,394 ---------- 41,681 ---------- ARKANSAS (1.2%) 22,000 Dev. Finance Auth. 1.94(h) 9/01/2044 21,884 ---------- CALIFORNIA (4.1%) 5,000 Bay Area Toll Auth. 1.23(h) 4/01/2045 5,008 15,000 Bay Area Toll Auth. 1.54(h) 4/01/2047 15,003 15,000 Foothill-Eastern Transportation Corridor Agency 5.00 1/15/2053 16,309 8,285 Hemet USD 1.49(h) 10/01/2036 8,285 8,000 Infrastructure and Economic Dev. Bank 2.04(h) 8/01/2037 8,046 8,000 Municipal Finance Auth. 1.34(h) 10/01/2045 7,967 4,100 Pollution Control Financing Auth.(a) 0.60 8/01/2024 4,100 4,000 Twin Rivers USD (INS) 3.20 6/01/2027 4,007 4,000 Twin Rivers USD (INS) 3.20 6/01/2035 4,007 ---------- 72,732 ----------
================================================================================ 24 | USAA TAX EXEMPT SHORT-TERM FUND ================================================================================
-------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) -------------------------------------------------------------------------------------------------------- COLORADO (0.8%) $10,500 E-470 Public Highway Auth. 2.02%(h) 9/01/2039 $ 10,482 3,000 E-470 Public Highway Auth. (INS) 2.59(h) 9/01/2039 3,005 ---------- 13,487 ---------- GEORGIA (0.9%) 10,000 Appling County Dev. Auth 2.40 1/01/2038 10,303 5,000 Monroe County Dev. Auth. 2.00 9/01/2037 5,068 ---------- 15,371 ---------- ILLINOIS (0.1%) 2,500 Educational Facilities Auth. 3.40 11/01/2036 2,544 ---------- KENTUCKY (0.5%) 9,000 Economic Dev. Finance Auth. 0.70 4/01/2031 9,000 ---------- LOUISIANA (0.2%) 4,000 St. Charles Parish 4.00 12/01/2040 4,436 ---------- MASSACHUSETTS (1.1%) 8,000 Dev. Finance Agency 1.42(h) 10/01/2040 7,995 12,000 Dev. Finance Agency 1.32(h) 7/01/2050 11,769 ---------- 19,764 ---------- MISSISSIPPI (0.4%) 7,000 Hospital Equipment and Facilities Auth. 2.14(h) 8/15/2036 6,943 ---------- NEVADA (0.3%) 4,400 Washoe County Gas and Water Facilities 3.00 3/01/2036 4,746 ---------- NEW JERSEY (1.6%) 20,000 Transportation Trust Fund Auth. 2.04(h) 6/15/2034 19,221 10,000 Turnpike Auth. 1.52(h) 1/01/2024 10,029 ---------- 29,250 ---------- NEW MEXICO (1.3%) 5,000 Farmington 1.88 4/01/2029 5,097 5,000 Farmington 1.88 4/01/2029 5,097 7,000 Farmington 1.88 4/01/2029 7,136 6,000 Farmington 1.88 4/01/2033 6,012 ---------- 23,342 ---------- NEW YORK (2.3%) 6,000 Energy Research and Development Auth. 2.00 2/01/2029 6,124 9,785 MTA 1.19(h) 11/01/2030 9,787 12,000 MTA 1.42(h) 11/01/2031 12,002 12,000 New York City 1.42(h) 8/01/2027 11,994 ---------- 39,907 ----------
================================================================================ PORTFOLIO OF INVESTMENTS | 25 ================================================================================
-------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) -------------------------------------------------------------------------------------------------------- NORTH CAROLINA (0.5%) $ 8,500 Capital Facilities Finance Agency 0.70% 7/01/2034 $ 8,500 ---------- OHIO (0.5%) 10,000 Water Dev. Auth. 4.00 6/01/2033 9,304 ---------- PENNSYLVANIA (4.3%) 10,000 Beaver County IDA 4.75 8/01/2020 10,496 5,100 Beaver County IDA 2.70 4/01/2035 4,862 7,575 Berks County Municipal Auth. 2.34(h) 11/01/2039 7,633 7,000 Geisinger Auth. 1.42(h) 6/01/2028 6,987 3,500 Lehigh County IDA 0.90 2/15/2027 3,497 2,250 Lehigh County IDA 0.90 9/01/2029 2,248 5,000 Montgomery County IDA 2.60 3/01/2034 5,141 7,000 Northampton County General Purpose Auth. 2.24(h) 8/15/2043 7,007 15,005 Scranton School District 1.36(h) 4/01/2031 14,961 12,500 Turnpike Commission 1.64(h) 12/01/2045 12,499 ---------- 75,331 ---------- TEXAS (2.7%) 2,310 Gregg County Health Facilities Dev. Corp.(a) 4.27(h) 10/01/2029 2,315 23,000 Mission EDC 0.60 1/01/2020 23,000 4,000 North Texas Tollway Auth. 1.51(h) 1/01/2038 4,011 4,000 North Texas Tollway Auth. 1.64(h) 1/01/2050 4,000 9,580 Northside ISD (NBGA) 2.13 8/01/2040 9,614 5,000 San Antonio 1.52(h) 5/01/2043 5,000 ---------- 47,940 ---------- WEST VIRGINIA (0.5%) 5,500 EDA 1.90 3/01/2040 5,532 3,000 Mason County 1.63 10/01/2022 3,017 ---------- 8,594 ---------- Total Put Bonds (cost: $453,099) 454,711 ---------- ADJUSTABLE-RATE NOTES (2.0%) NEW JERSEY (0.6%) 11,000 EDA 1.57 2/01/2017 10,993 ---------- NEW YORK (0.1%) 2,000 New York City 1.39 8/01/2025 2,000 ---------- PENNSYLVANIA (1.1%) 6,000 Turnpike Commission 1.99 12/01/2019 6,043 6,000 Turnpike Commission 2.11 12/01/2020 6,061 6,500 Turnpike Commission 1.82 12/01/2021 6,477 ---------- 18,581 ----------
================================================================================ 26 | USAA TAX EXEMPT SHORT-TERM FUND ================================================================================
-------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) -------------------------------------------------------------------------------------------------------- TEXAS (0.2%) $ 1,750 Harris County Cultural Education Facilities Finance Corp. 1.44% 6/01/2018 $ 1,750 2,250 Harris County Cultural Education Facilities Finance Corp. 1.54 6/01/2019 2,253 ---------- 4,003 ---------- Total Adjustable-Rate Notes (cost: $35,500) 35,577 ---------- VARIABLE-RATE DEMAND NOTES (24.0%) ARIZONA (0.5%) 9,200 Verrado Western Overlay Community Facilities District (LOC - Compass Bank) 1.00 7/01/2029 9,200 ---------- CALIFORNIA (3.1%) 20,000 Sacramento City Financing Auth. (LIQ) (LOC - Deutsche Bank A.G.)(a) 1.04 12/01/2033 20,000 7,990 State (LIQ) (LOC - Dexia Credit Local)(a) 1.02 8/01/2027 7,990 7,975 State (LIQ) (LOC - Dexia Credit Local)(a) 1.02 8/01/2027 7,975 7,300 Statewide Communities Dev. Auth. 0.72 4/01/2046 7,300 11,445 Victorville Joint Powers Financing Auth. (LOC - BNP Paribas) 1.49 5/01/2040 11,445 ---------- 54,710 ---------- COLORADO (1.6%) 8,490 Arista Metropolitan District (LOC - Compass Bank) 1.00 12/01/2030 8,490 2,500 Health Facilities Auth. (LIQ)(a) 1.19 2/01/2019 2,500 17,500 Health Facilities Auth. (LIQ)(a) 1.09 10/01/2041 17,500 ---------- 28,490 ---------- CONNECTICUT (0.3%) 5,000 State(i) 1.03 1/01/2018 5,000 ---------- DISTRICT OF COLUMBIA (1.1%) 20,000 District (LIQ) (LOC - Deutsche Bank A.G.)(a) 1.11 10/01/2041 20,000 ---------- FLORIDA (2.1%) 18,700 Escambia County 0.92 4/01/2039 18,700 7,000 Martin County 0.88 7/15/2022 7,000 10,000 Miami-Dade County School Board (INS) (LIQ)(a) 1.04 12/01/2017 10,000 1,500 St. Lucie County 0.89 9/01/2028 1,500 ---------- 37,200 ---------- IDAHO (1.7%) 19,885 American Falls Reservoir District 0.91 2/01/2025 19,885 10,810 Housing and Finance Association(i) 1.03 1/01/2038 10,810 ---------- 30,695 ----------
================================================================================ PORTFOLIO OF INVESTMENTS | 27 ================================================================================
-------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) -------------------------------------------------------------------------------------------------------- ILLINOIS (3.1%) $16,480 Chicago Board of Education (INS) (LIQ)(a) 1.34% 12/01/2016 $ 16,480 10,000 Chicago Board of Education (LIQ) (LOC - Deutsche Bank A.G.)(a) 1.36 12/01/2039 10,000 11,160 Cook County (LIQ)(a) 1.24 11/15/2020 11,160 17,390 Sports Facilities Auth. (LIQ) (LOC - Deutsche Bank A.G.)(a) 1.10 6/15/2032 17,390 ---------- 55,030 ---------- KENTUCKY (0.6%) 10,000 Economic Dev. Finance Auth. (INS) (LIQ)(a) 1.04 1/04/2018 10,000 ---------- LOUISIANA (2.3%) 21,000 Public Facilities Auth. 0.83 12/01/2043 21,000 6,400 St. James Parish 1.02 11/01/2040 6,400 14,000 St. James Parish 1.02 11/01/2040 14,000 ---------- 41,400 ---------- MARYLAND (0.6%) 10,760 Health and Higher Educational Facilities Auth. (LIQ) (LOC - Deutsche Bank A.G.)(a) 1.05 8/15/2042 10,760 ---------- MISSISSIPPI (0.9%) 15,100 Perry County Pollution Control (NBGA)(a) 0.94 2/01/2022 15,100 ---------- NEW JERSEY (1.3%) 2,050 EDA (LOC - Valley National Bank) 1.06 3/01/2031 2,050 8,920 EDA (LOC - Valley National Bank) 1.13 11/01/2040 8,920 11,715 EDA (LOC - Valley National Bank) 1.13 11/01/2040 11,715 ---------- 22,685 ---------- NEW YORK (0.2%) 3,500 Housing Finance Agency (LOC - Wells Fargo & Co.) 0.88 11/01/2046 3,500 ---------- OHIO (0.3%) 5,500 State(i) 1.06 1/15/2045 5,500 ---------- OKLAHOMA (0.6%) 10,000 Garfield County Industrial Auth. 0.84 1/01/2025 10,000 ---------- PENNSYLVANIA (1.3%) 23,500 Emmaus General Auth. (INS) (LIQ) 0.88 12/01/2028 23,500 ---------- TENNESSEE (0.2%) 3,500 Chattanooga Health, Educational and Housing Facilities Board 0.98 5/01/2039 3,500 ---------- TEXAS (1.8%) 5,600 Port of Port Arthur Navigation District 0.94 12/01/2039 5,600 11,575 Port of Port Arthur Navigation District 0.94 12/01/2039 11,575
================================================================================ 28 | USAA TAX EXEMPT SHORT-TERM FUND ================================================================================
-------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) -------------------------------------------------------------------------------------------------------- $ 9,800 Port of Port Arthur Navigation District 0.93% 11/01/2040 $ 9,800 3,590 Weslaco Health Facilities Dev. Corp. (LOC - Compass Bank) 1.24 6/01/2031 3,590 1,145 Weslaco Health Facilities Dev. Corp. (LOC - Compass Bank) 1.24 6/01/2038 1,145 ---------- 31,710 ---------- WASHINGTON (0.4%) 7,000 Health Care Facilities Auth. (LOC - Barclays Bank PLC) 0.83 8/15/2041 7,000 ---------- Total Variable-Rate Demand Notes (cost: $424,980) 424,980 ---------- TOTAL INVESTMENTS (COST: $1,756,307) $1,776,738 ========== -------------------------------------------------------------------------------------------------------- ($ IN 000s) VALUATION HIERARCHY -------------------------------------------------------------------------------------------------------- ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL -------------------------------------------------------------------------------------------------------- Fixed-Rate Instruments $- $ 861,470 $- $ 861,470 Put Bonds - 454,711 - 454,711 Adjustable-Rate Notes - 35,577 - 35,577 Variable-Rate Demand Notes - 424,980 - 424,980 -------------------------------------------------------------------------------------------------------- Total $- $1,776,738 $- $1,776,738 --------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or geographic region classifications. For the period of April 1, 2016, through September 30, 2016, there were no transfers of securities between levels. The Fund's policy is to recognize any transfers in and transfers out as of the beginning of the reporting period in which the event or circumstance that caused the transfer occurred. ================================================================================ PORTFOLIO OF INVESTMENTS | 29 ================================================================================ NOTES TO PORTFOLIO OF INVESTMENTS September 30, 2016 (unaudited) -------------------------------------------------------------------------------- o GENERAL NOTES Market values of securities are determined by procedures and practices discussed in Note 1A to the financial statements. The Portfolio of Investments category percentages shown represent the percentages of the investments to net assets, and, in total, may not equal 100%. A category percentage of 0.0% represents less than 0.1% of net assets. o SPECIFIC NOTES (a) Restricted security that is not registered under the Securities Act of 1933. A resale of this security in the United States may occur in an exempt transaction to a qualified institutional buyer as defined by Rule 144A, and as such has been deemed liquid by USAA Asset Management Company (the Manager) under liquidity guidelines approved by USAA Mutual Funds Trust's Board of Trustees (the Board), unless otherwise noted as illiquid. (b) Zero-coupon security. Rate represents the effective yield at the date of purchase. (c) At September 30, 2016, the security, or a portion thereof, was segregated to cover delayed-delivery and/or when-issued purchases. (d) At September 30, 2016, the aggregate market value of securities purchased on a delayed-delivery basis was $15,102,000, of which all were when-issued securities. ================================================================================ 30 | USAA TAX EXEMPT SHORT-TERM FUND ================================================================================ (e) Security deemed illiquid by the Manager, under liquidity guidelines approved by the Board. The aggregate market value of these securities at September 30, 2016, was $3,516,000, which represented 0.2% of the Fund's net assets. (f) Restricted security that is not registered under the Securities Act of 1933. (g) Stepped-coupon security that is initially issued in zero-coupon form and converts to coupon form at the specified date and rate shown in the security's description. The rate presented in the coupon rate column represents the effective yield at the date of purchase. (h) Variable-rate or floating-rate security - interest rate is adjusted periodically. The interest rate disclosed represents the rate at September 30, 2016. (i) Variable-rate remarketed obligation - Structured similarly to variable-rate demand notes and has a tender option that is supported by a best efforts remarketing agent. See accompanying notes to financial statements. ================================================================================ NOTES TO PORTFOLIO OF INVESTMENTS | 31 ================================================================================ STATEMENT OF ASSETS AND LIABILITIES (IN THOUSANDS) September 30, 2016 (unaudited) -------------------------------------------------------------------------------- ASSETS Investments in securities, at market value (cost of $1,756,307) $1,776,738 Receivables: Capital shares sold 5,473 USAA Asset Management Company (Note 6C) 3 Interest 11,776 Other 1,086 ---------- Total assets 1,795,076 ---------- LIABILITIES Payables: Securities purchased 25,104 Capital shares redeemed 1,332 Dividends on capital shares 362 Bank overdraft 255 Accrued management fees 469 Accrued transfer agent's fees 34 Other accrued expenses and payables 98 ---------- Total liabilities 27,654 ---------- Net assets applicable to capital shares outstanding $1,767,422 ========== NET ASSETS CONSIST OF: Paid-in capital $1,766,324 Undistributed net investment income 3 Accumulated net realized loss on investments (19,336) Net unrealized appreciation of investments 20,431 ---------- Net assets applicable to capital shares outstanding $1,767,422 ========== Net asset value, redemption price, and offering price per share: Fund Shares (net assets of $1,743,807/164,897 capital shares outstanding, no par value) $ 10.58 ========== Adviser Shares (net assets of $23,615/2,233 capital shares outstanding, no par value) $ 10.58 ==========
See accompanying notes to financial statements. ================================================================================ 32 | USAA TAX EXEMPT SHORT-TERM FUND ================================================================================ STATEMENT OF OPERATIONS (IN THOUSANDS) Six-month period ended September 30, 2016 (unaudited) -------------------------------------------------------------------------------- INVESTMENT INCOME Interest income $17,646 ------- EXPENSES Management fees 2,815 Administration and servicing fees: Fund Shares 1,314 Adviser Shares 20 Transfer agent's fees: Fund Shares 393 Adviser Shares 3 Distribution and service fees (Note 6E): Adviser Shares 33 Custody and accounting fees: Fund Shares 111 Adviser Shares 2 Postage: Fund Shares 22 Shareholder reporting fees: Fund Shares 17 Trustees' fees 15 Registration fees: Fund Shares 50 Adviser Shares 15 Professional fees 57 Other 15 ------- Total expenses 4,882 Expenses reimbursed: Adviser Shares (7) ------- Net expenses 4,875 ------- NET INVESTMENT INCOME 12,771 ------- NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS Net realized loss (761) Change in net unrealized appreciation/(depreciation) (1,304) ------- Net realized and unrealized loss (2,065) ------- Increase in net assets resulting from operations $10,706 =======
See accompanying notes to financial statements. ================================================================================ FINANCIAL STATEMENTS | 33 ================================================================================ STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS) Six-month period ended September 30, 2016 (unaudited), and year ended March 31, 2016
---------------------------------------------------------------------------------------------- 9/30/2016 3/31/2016 ---------------------------------------------------------------------------------------------- FROM OPERATIONS Net investment income $ 12,771 $ 27,289 Net realized loss on investments (761) (1,822) Change in net unrealized appreciation/(depreciation) of investments (1,304) (14,029) ------------------------------ Increase in net assets resulting from operations 10,706 11,438 ------------------------------ DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income: Fund Shares (12,572) (27,016) Adviser Shares (155) (220) ------------------------------ Distributions to shareholders (12,727) (27,236) ------------------------------ NET DECREASE IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS (NOTE 5) Fund Shares (14,268) (153,951) Adviser Shares (7,380) 14,387 ------------------------------ Total net decrease in net assets from capital share transactions (21,648) (139,564) ------------------------------ Net decrease in net assets (23,669) (155,362) NET ASSETS Beginning of period 1,791,091 1,946,453 ------------------------------ End of period $1,767,422 $1,791,091 ============================== Undistributed (overdistribution of ) net investment income: End of period $ 3 $ (41) ==============================
See accompanying notes to financial statements. ================================================================================ 34 | USAA TAX EXEMPT SHORT-TERM FUND ================================================================================ NOTES TO FINANCIAL STATEMENTS September 30, 2016 (unaudited) -------------------------------------------------------------------------------- (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company Act of 1940, as amended (the 1940 Act), is an open-end management investment company organized as a Delaware statutory trust consisting of 54 separate funds. Additionally, the Fund qualifies as a registered investment company under Accounting Standards Codification Topic 946. The information presented in this semiannual report pertains only to the USAA Tax Exempt Short-Term Fund (the Fund), which is classified as diversified under the 1940 Act. The Fund's investment objective is to provide investors with interest income that is exempt from federal income tax. The Fund consists of two classes of shares: Tax Exempt Short-Term Fund Shares (Fund Shares) and Tax Exempt Short-Term Fund Adviser Shares (Adviser Shares). Each class of shares has equal rights to assets and earnings, except that each class bears certain class-related expenses specific to the particular class. These expenses include administration and servicing fees, transfer agent fees, postage, shareholder reporting fees, distribution and service (12b-1) fees, and certain registration and custodian fees. Expenses not attributable to a specific class, income, and realized gains or losses on investments are allocated to each class of shares based on each class' relative net assets. Each class has exclusive voting rights on matters related solely to that class and separate voting rights on matters that relate to all classes. The Adviser Shares permit investors to purchase shares through financial intermediaries, including banks, broker-dealers, insurance companies, investment advisers, plan sponsors, and financial professionals that provide various administrative and distribution services. A. SECURITY VALUATION - The Trust's Board of Trustees (the Board) has established the Valuation Committee (the Committee), and subject to ================================================================================ NOTES TO FINANCIAL STATEMENTS | 35 ================================================================================ Board oversight, the Committee administers and oversees the Fund's valuation policies and procedures, which are approved by the Board. Among other things, these policies and procedures allow the Fund to utilize independent pricing services, quotations from securities dealers, and a wide variety of sources and information to establish and adjust the fair value of securities as events occur and circumstances warrant. The Committee reports to the Board on a quarterly basis and makes recommendations to the Board as to pricing methodologies and services used by the Fund and presents additional information to the Board regarding application of the pricing and fair valuation policies and procedures during the preceding quarter. The Committee meets as often as necessary to make pricing and fair value determinations. In addition, the Committee holds regular monthly meetings to review prior actions taken by the Committee and USAA Asset Management Company (the Manager), an affiliate of the Fund. Among other things, these monthly meetings include a review and analysis of back testing reports, pricing service quotation comparisons, illiquid securities and fair value determinations, pricing movements, and daily stale price monitoring. The value of each security is determined (as of the close of trading on the New York Stock Exchange (NYSE) on each business day the NYSE is open) as set forth below: 1. Debt securities with maturities greater than 60 days are valued each business day by a pricing service (the Service) approved by the Board. The Service uses an evaluated mean between quoted bid and asked prices or the last sales price to value a security when, in the Service's judgment, these prices are readily available and are representative of the security's market value. For many securities, such prices are not readily available. The Service generally prices those securities based on methods which include consideration of yields or prices of securities of comparable quality, coupon, maturity, and type; indications as to values from dealers in securities; and general market conditions. Generally, debt securities are categorized in Level 2 of the fair value hierarchy; however, to the extent the ================================================================================ 36 | USAA TAX EXEMPT SHORT-TERM FUND ================================================================================ valuations include significant unobservable inputs, the securities would be categorized in Level 3. 2. Short-term debt securities with original or remaining maturities of 60 days or less may be valued at amortized cost, provided that amortized cost represents the fair value of such securities. 3. In the event that price quotations or valuations are not readily available, are not reflective of market value, or a significant event has been recognized in relation to a security or class of securities, the securities are valued in good faith by the Committee in accordance with valuation procedures approved by the Board. The effect of fair value pricing is that securities may not be priced on the basis of quotations from the primary market in which they are traded and the actual price realized from the sale of a security may differ materially from the fair value price. Valuing these securities at fair value is intended to cause the Fund's net asset value (NAV) to be more reliable than it otherwise would be. Fair value methods used by the Manager include, but are not limited to, obtaining market quotations from secondary pricing services, broker-dealers, other pricing services, or widely used quotation systems. General factors considered in determining the fair value of securities include fundamental analytical data, the nature and duration of any restrictions on disposition of the securities, evaluation of credit quality, and an evaluation of the forces that influenced the market in which the securities are purchased and sold. B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The three-level valuation hierarchy disclosed in the Portfolio of Investments is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows: Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) in active markets for identical securities. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 37 ================================================================================ Level 2 - inputs to the valuation methodology are other significant observable inputs, including quoted prices for similar securities, inputs that are observable for the securities, either directly or indirectly, and market-corroborated inputs such as market indexes. Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value measurement, including the Manager's own assumptions in determining the fair value. The inputs or methodologies used for valuing securities are not necessarily an indication of the risks associated with investing in those securities. C. FEDERAL TAXES - The Fund's policy is to comply with the requirements of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies and to distribute substantially all of its taxable income and net capital gains, if any, to its shareholders. Therefore, no federal income tax provision is required. D. INVESTMENTS IN SECURITIES - Securities transactions are accounted for on the date the securities are purchased or sold (trade date). Gains or losses from sales of investment securities are computed on the identified cost basis. Interest income is recorded daily on the accrual basis. Premiums and discounts are amortized over the life of the respective securities, using the effective yield method for long-term securities and the straight-line method for short-term securities. E. SECURITIES PURCHASED ON A DELAYED-DELIVERY OR WHEN-ISSUED BASIS - Delivery and payment for securities that have been purchased by the Fund on a delayed-delivery or when-issued basis can take place a month or more after the trade date. During the period prior to settlement, these securities do not earn interest, are subject to market fluctuation, and may increase or decrease in value prior to their delivery. The Fund maintains segregated assets with a market value equal to or greater than the amount of its purchase commitments. The purchase of securities on a delayed-delivery or when-issued basis may increase the volatility of the Fund's NAV to the extent that the Fund makes such purchases while remaining substantially ================================================================================ 38 | USAA TAX EXEMPT SHORT-TERM FUND ================================================================================ fully invested. As of September 30, 2016, the Fund's outstanding delayed-delivery commitments, including interest purchased, were $15,104,000; all of which were when-issued securities. F. EXPENSES PAID INDIRECTLY - Through arrangements with the Fund's custodian and other banks utilized by the Fund for cash management purposes, realized credits, if any, generated from cash balances in the Fund's bank accounts may be used to directly reduce the Fund's expenses. For the six-month period ended September 30, 2016, custodian and other bank credits reduced the Fund's expenses by less than $500. G. REDEMPTION FEES - All share classes held in the Fund less than 60 days are subject to a redemption fee equal to 1.00% of the proceeds of the redeemed or exchanged shares. All redemption fees paid will be accounted for by the Fund as an addition to paid in capital. For the six-month period ended September 30, 2016, the Fund Shares and the Adviser Shares did not charge any redemption fees. H. INDEMNIFICATIONS - Under the Trust's organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Trust. In addition, in the normal course of business, the Trust enters into contracts that contain a variety of representations and warranties that provide general indemnifications. The Trust's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Trust that have not yet occurred. However, the Trust expects the risk of loss to be remote. I. USE OF ESTIMATES - The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that may affect the reported amounts in the financial statements. (2) LINE OF CREDIT The Fund participates in a joint, short-term, revolving, committed loan agreement of $500 million with USAA Capital Corporation (CAPCO), an ================================================================================ NOTES TO FINANCIAL STATEMENTS | 39 ================================================================================ affiliate of the Manager. The purpose of the agreement is to meet temporary or emergency cash needs, including redemption requests that might otherwise require the untimely disposition of securities. Subject to availability, the Fund may borrow from CAPCO an amount up to 5% of the Fund's total assets at an interest rate based on the London Interbank Offered Rate (LIBOR), plus 100.0 basis points. The USAA Funds that are party to the loan agreement are assessed facility fees by CAPCO in the amount of 12.0 basis points of the amount of the committed loan agreement. Prior to September 30, 2016, the maximum annual facility fee was 9.0 basis points of the amount of the committed loan agreement. The facility fees are allocated among the USAA Funds based on their respective average net assets for the period. The USAA Funds may request an optional increase of the committed loan agreement from $500 million up to $750 million. If the USAA Funds increase the committed loan agreement, the assessed facility fee on the amount of the additional commitment will be 13.0 basis points. For the six-month period ended September 30, 2016, the Fund paid CAPCO facility fees of $6,000, which represents 2.4% of the total fees paid to CAPCO by the USAA Funds. The Fund had no borrowings under this agreement during the six-month period ended September 30, 2016. (3) DISTRIBUTIONS The tax basis of distributions and any accumulated undistributed net investment income will be determined as of the Fund's tax year-end of March 31, 2017, in accordance with applicable federal tax law. Net investment income is accrued daily as dividends and distributed to shareholders monthly. Distributions of realized gains from security transactions not offset by capital losses are made annually in the succeeding fiscal year or as otherwise required to avoid the payment of federal income taxes. ================================================================================ 40 | USAA TAX EXEMPT SHORT-TERM FUND ================================================================================ At March 31, 2016, the Fund had net capital loss carryforwards of $18,575,000, for federal income tax purposes, as shown in the table below. It is unlikely that the Board will authorize a distribution of capital gains realized in the future until the capital loss carryforwards have been used.
CAPITAL LOSS CARRYFORWARDS -------------------------------------- TAX CHARACTER -------------------------------------- (NO EXPIRATION) BALANCE -------------- ----------- Short-Term $ 689,000 Long-Term 17,886,000 ----------- Total $18,575,000 ===========
For the six-month period ended September 30, 2016, the Fund did not incur any income tax, interest, or penalties, and has recorded no liability for net unrecognized tax benefits relating to uncertain income tax positions. On an ongoing basis, the Manager will monitor the Fund's tax basis to determine if adjustments to this conclusion are necessary. The statute of limitations on the Fund's tax return filings generally remain open for the three preceding fiscal reporting year ends and remain subject to examination by the Internal Revenue Service and state taxing authorities. (4) INVESTMENT TRANSACTIONS Cost of purchases and proceeds from sales/maturities of securities, excluding short-term securities, for the six-month period ended September 30, 2016, were $226,326,000 and $209,283,000, respectively. As of September 30, 2016, the cost of securities, including short-term securities, for federal income tax purposes, was approximately the same as the cost reported in the financial statements. Gross unrealized appreciation and depreciation of investments as of September 30, 2016, were $23,401,000 and $2,970,000, respectively, resulting in net unrealized appreciation of $20,431,000. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 41 ================================================================================ (5) CAPITAL SHARE TRANSACTIONS At September 30, 2016, there were an unlimited number of shares of capital stock at no par value authorized for the Fund. Capital share transactions for all classes were as follows, in thousands:
SIX-MONTH PERIOD ENDED YEAR ENDED SEPTEMBER 30, 2016 MARCH 31, 2016 ---------------------------------------------------------------------------------------------- SHARES AMOUNT SHARES AMOUNT ------------------------------------------------------------- FUND SHARES: Shares sold 16,978 $ 179,890 30,716 $ 325,942 Shares issued from reinvested dividends 1,020 10,809 2,203 23,363 Shares redeemed (19,345) (204,967) (47,431) (503,256) ------------------------------------------------------------- Net decrease from capital share transactions (1,347) $ (14,268) (14,512) $(153,951) ============================================================= ADVISER SHARES: Shares sold 425 $ 4,510 3,380 $ 35,883 Shares issued from reinvested dividends 10 103 8 82 Shares redeemed* (1,131) (11,993) (2,034) (21,578) ------------------------------------------------------------- Net increase (decrease) from capital share transactions (696) $ (7,380) 1,354 $ 14,387 =============================================================
*Net of redemption fees, if any. (6) TRANSACTIONS WITH MANAGER A. MANAGEMENT FEES - The Manager provides investment management services to the Fund pursuant to an Advisory Agreement. Under this agreement, the Manager is responsible for managing the business and affairs of the Fund, and for directly managing the day-to-day investment of the Fund's assets, subject to the authority of and supervision by the Board. The investment management fee for the Fund is comprised of a base fee and a performance adjustment. The Fund's base fee is accrued daily and paid monthly at an annualized rate of 0.28% of the Fund's average net assets. ================================================================================ 42 | USAA TAX EXEMPT SHORT-TERM FUND ================================================================================ The performance adjustment is calculated separately for each share class on a monthly basis by comparing each class' performance over the performance period to that of the Lipper Short Municipal Debt Funds Index. The Lipper Short Municipal Debt Funds Index tracks the total return performance of Funds that invest in municipal debt issues with dollar-weighted average maturities of less than three years. The performance period for each class consists of the current month plus the previous 35 months. The following table is utilized to determine the extent of the performance adjustment:
OVER/UNDER PERFORMANCE RELATIVE TO INDEX ANNUAL ADJUSTMENT RATE (IN BASIS POINTS)(1) (IN BASIS POINTS)(1) ------------------------------------------------------------------ +/- 20 to 50 +/- 4 +/- 51 to 100 +/- 5 +/- 101 and greater +/- 6
(1)Based on the difference between average annual performance of the relevant share class of the Fund and its relevant index, rounded to the nearest basis point. Average net assets of the share class are calculated over a rolling 36-month period. Each class' annual performance adjustment rate is multiplied by the average net assets of each respective class over the entire performance period, which is then multiplied by a fraction, the numerator of which is the number of days in the month and the denominator of which is 365 (366 in leap years). The resulting amount is then added to (in the case of overperformance), or subtracted from (in the case of underperformance) the base fee. Under the performance fee arrangement, each class will pay a positive performance fee adjustment for a performance period whenever the class outperforms the Lipper Short Municipal Debt Funds Index over that period, even if the class had overall negative returns during the performance period. For the six-month period ended September 30, 2016, the Fund incurred total management fees, paid or payable to the Manager, of $2,815,000, which included a 0.04% performance adjustment for the Fund Shares of ================================================================================ NOTES TO FINANCIAL STATEMENTS | 43 ================================================================================ $326,000. For the six-month period ended September 30, 2016, the Adviser Shares did not incur any performance adjustment. B. ADMINISTRATION AND SERVICING FEES - The Manager provides certain administration and servicing functions for the Fund. For such services, the Manager receives a fee accrued daily and paid monthly at an annualized rate of 0.15% of average net assets for both the Fund Shares and Adviser Shares. For the six-month period ended September 30, 2016, the Fund Shares and Adviser Shares incurred administration and servicing fees, paid or payable to the Manager, of $1,314,000 and $20,000, respectively. In addition to the services provided under its Administration and Servicing Agreement with the Fund, the Manager also provides certain compliance and legal services for the benefit of the Fund. The Board has approved the reimbursement of a portion of these expenses incurred by the Manager. For the six-month period ended September 30, 2016, the Fund reimbursed the Manager $25,000 for these compliance and legal services. These expenses are included in the professional fees on the Fund's Statement of Operations. C. EXPENSE LIMITATION - The Manager agreed, through August 1, 2017, to limit the total annual operating expenses of the Adviser Shares to 0.80% of its average net assets, excluding extraordinary expenses and before reductions of any expenses paid indirectly, and to reimburse the Adviser Shares for all expenses in excess of that amount. This expense limitation arrangement may not be changed or terminated through August 1, 2017, without approval of the Board, and may be changed or terminated by the Manager at any time after that date. For the six-month period ended September 30, 2016, the Adviser Shares incurred reimbursable expenses of $7,000, of which $3,000 was receivable from the Manager. D. TRANSFER AGENT'S FEES - USAA Transfer Agency Company, d/b/a USAA Shareholder Account Services (SAS), an affiliate of the Manager, provides transfer agent services to the Fund Shares and Adviser Shares based on an annual charge of $25.50 per shareholder account plus out-of-pocket expenses. SAS pays a portion of these fees to certain intermediaries for the administration and servicing of accounts that are held with such ================================================================================ 44 | USAA TAX EXEMPT SHORT-TERM FUND ================================================================================ intermediaries. For the six-month period ended September 30, 2016, the Fund Shares and Adviser Shares incurred transfer agent's fees, paid or payable to SAS, of $393,000 and $3,000, respectively. E. DISTRIBUTION AND SERVICE (12b-1) FEES - The Fund has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Adviser Shares. Under the plan, the Adviser Shares pay fees to USAA Investment Management Company (IMCO), the distributor, for distribution and shareholder services. IMCO pays all or a portion of such fees to intermediaries that make the Adviser Shares available for investment by their customers. The fee is accrued daily and paid monthly at an annual rate of 0.25% of the Adviser Shares' average net assets. Adviser Shares are offered and sold without imposition of an initial sales charge or a contingent deferred sales charge. For the six-month period ended September 30, 2016, the Adviser Shares incurred distribution and service (12b-1) fees of $33,000. F. UNDERWRITING SERVICES - IMCO provides exclusive underwriting and distribution of the Fund's shares on a continuing best-efforts basis and receives no fee or other compensation for these services, but may receive 12b-1 fees as described above, with respect to Adviser Shares. (7) TRANSACTIONS WITH AFFILIATES The Manager is indirectly wholly owned by United Services Automobile Association (USAA), a large, diversified financial services institution. At September 30, 2016, USAA and its affiliates owned 465,000 Adviser Shares, which represents 20.8% of the Adviser Shares outstanding and 0.3% of the Fund's total outstanding shares. Certain trustees and officers of the Fund are also directors, officers, and/or employees of the Manager. None of the affiliated trustees or Fund officers received any compensation from the Fund. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 45 ================================================================================ (8) FINANCIAL HIGHLIGHTS - FUND SHARES Per share operating performance for a share outstanding throughout each period is as follows:
SIX-MONTH PERIOD ENDED SEPTEMBER 30, YEAR ENDED MARCH 31, ------------------------------------------------------------------------------------------ 2016 2016 2015 2014 2013 2012 ------------------------------------------------------------------------------------------ Net asset value at beginning of period $ 10.59 $ 10.68 $ 10.71 $ 10.84 $ 10.80 $ 10.61 ------------------------------------------------------------------------------------------ Income (loss) from investment operations: Net investment income .08 .16 .17 .19 .22 .27 Net realized and unrealized gain (loss) (.01) (.09) (.03) (.13) .04 .19 ------------------------------------------------------------------------------------------ Total from investment operations .07 .07 .14 .06 .26 .46 ------------------------------------------------------------------------------------------ Less distributions from: Net investment income (.08) (.16) (.17) (.19) (.22) (.27) ------------------------------------------------------------------------------------------ Net asset value at end of period $ 10.58 $ 10.59 $ 10.68 $ 10.71 $ 10.84 $ 10.80 ========================================================================================== Total return (%)* .63 .62 1.29 .60 2.41 4.40 Net assets at end of period (000) $1,743,807 $1,760,074 $1,929,648 $2,031,383 $2,185,741 $2,124,120 Ratios to average net assets:** Expenses (%)(a) .54(b) .55 .55 .55 .55 .55 Net investment income (%) 1.44(b) 1.47 1.56 1.81 2.02 2.54 Portfolio turnover (%) 18 25 30 14 3 16
* Assumes reinvestment of all net investment income and realized capital gain distributions, if any, during the period. Includes adjustments in accordance with U.S. generally accepted accounting principles and could differ from the Lipper reported return. Total returns for periods of less than one year are not annualized. ** For the six-month period ended September 30, 2016, average net assets were $1,746,605,000. (a) Reflects total annual operating expenses of the Fund Shares before reductions of any expenses paid indirectly. The Fund Shares' expenses paid indirectly decreased the expense ratios by less than 0.01%. (b) Annualized. The ratio is not necessarily indicative of 12 months of operations. ================================================================================ 46 | USAA TAX EXEMPT SHORT-TERM FUND ================================================================================ (8) FINANCIAL HIGHLIGHTS (CONTINUED) - ADVISER SHARES Per share operating performance for a share outstanding throughout each period is as follows:
SIX-MONTH PERIOD ENDED SEPTEMBER 30, YEAR ENDED MARCH 31, -------------------------------------------------------------------------------- 2016 2016 2015 2014 2013 2012 -------------------------------------------------------------------------------- Net asset value at beginning of period $ 10.59 $ 10.67 $ 10.71 $ 10.84 $10.80 $10.61 ----------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income .06 .13 .14 .17 .19 .25 Net realized and unrealized gain (loss) (.01) (.08) (.04) (.13) .04 .19 ----------------------------------------------------------------------------- Total from investment operations .05 .05 .10 .04 .23 .44 ----------------------------------------------------------------------------- Less distributions from: Net investment income (.06) (.13) (.14) (.17) (.19) (.25) ----------------------------------------------------------------------------- Redemption fees added to beneficial interests - .00(a) - - - - ----------------------------------------------------------------------------- Net asset value at end of period $ 10.58 $ 10.59 $ 10.67 $ 10.71 $10.84 $10.80 ============================================================================= Total return (%)* .50 .46 .94 .35 2.16 4.14 Net assets at end of period (000) $23,615 $31,017 $16,805 $11,186 $6,604 $6,011 Ratios to average net assets:** Expenses (%)(b) .80(c) .80 .80 .80 .80 .80 Expenses, excluding reimbursements (%)(b) .86(c) .83 .98 .94 1.17 1.30 Net investment income (%) 1.19(c) 1.17 1.32 1.55 1.77 2.28 Portfolio turnover (%) 18 25 30 14 3 16
* Assumes reinvestment of all net investment income and realized capital gain distributions, if any, during the period. Includes adjustments in accordance with U.S. generally accepted accounting principles and could differ from the Lipper reported return. Total returns for periods of less than one year are not annualized. ** For the six-month period ended September 30, 2016, average net assets were $26,290,000. (a) Represents less than $0.01 per share. (b) Reflects total annual operating expenses of the Adviser Shares before reductions of any expenses paid indirectly. The Adviser Shares' expenses paid indirectly decreased the expense ratios by less than 0.01%. (c) Annualized. The ratio is not necessarily indicative of 12 months of operations. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 47 ================================================================================ EXPENSE EXAMPLE September 30, 2016 (unaudited) -------------------------------------------------------------------------------- EXAMPLE As a shareholder of the Fund, you incur two types of costs: direct costs, such as wire fees, redemption fees, and low balance fees; and indirect costs, including management fees, transfer agency fees, distribution and service (12b-1) fees, and other Fund operating expenses. This example is intended to help you understand your indirect costs, also referred to as "ongoing costs" (in dollars), of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire six-month period of April 1, 2016, through September 30, 2016. ACTUAL EXPENSES The line labeled "actual" under each share class in the table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested at the beginning of the period, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number for your share class in the "actual" line under the heading "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The line labeled "hypothetical" under each share class in the table provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratios for each class and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual ================================================================================ 48 | USAA TAX EXEMPT SHORT-TERM FUND ================================================================================ return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any direct costs, such as wire fees, redemption fees, or low balance fees. Therefore, the line labeled "hypothetical" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these direct costs were included, your costs would have been higher.
EXPENSES PAID BEGINNING ENDING DURING PERIOD* ACCOUNT VALUE ACCOUNT VALUE APRIL 1, 2016 - APRIL 1, 2016 SEPTEMBER 30, 2016 SEPTEMBER 30, 2016 ---------------------------------------------------------------- FUND SHARES Actual $1,000.00 $1,006.30 $2.72 Hypothetical (5% return before expenses) 1,000.00 1,022.36 2.74 ADVISER SHARES Actual 1,000.00 1,005.00 4.02 Hypothetical (5% return before expenses) 1,000.00 1,021.06 4.05
*Expenses are equal to the annualized expense ratio of 0.54% for Fund Shares and 0.80% for Adviser Shares, which are net of any reimbursements and expenses paid indirectly, multiplied by the average account value over the period, multiplied by 183 days/365 days (to reflect the one-half-year period). The Fund's actual ending account values are based on its actual total returns of 0.63% for Fund Shares and 0.50% for Adviser Shares for the six-month period of April 1, 2016, through September 30, 2016. ================================================================================ EXPENSE EXAMPLE | 49 ================================================================================ ADVISORY AGREEMENT(S) September 30, 2016 (unaudited) -------------------------------------------------------------------------------- At an in-person meeting of the Board of Trustees (the Board) held on April 22, 2016, the Board, including the Trustees who are not "interested persons" (as that term is defined in the Investment Company Act of 1940, as amended) of the Trust (the Independent Trustees), approved for an annual period the continuance of the Advisory Agreement between the Trust and the Manager with respect to the Fund. In advance of the meeting, the Trustees received and considered a variety of information relating to the Advisory Agreement and the Manager and were given the opportunity to ask questions and request additional information from management. The information provided to the Board included, among other things: (i) a separate report prepared by an independent third party, which provided a statistical analysis comparing the Fund's investment performance, expenses, and fees to comparable investment companies; (ii) information concerning the services rendered to the Fund, as well as information regarding the Manager's revenues and costs of providing services to the Fund and compensation paid to affiliates of the Manager; and (iii) information about the Manager's operations and personnel. Prior to voting, the Independent Trustees reviewed the proposed continuation of the Advisory Agreement with management and with experienced counsel retained by the Independent Trustees (Independent Counsel) and received materials from such Independent Counsel discussing the legal standards for their consideration of the proposed continuation of the Advisory Agreement with respect to the Fund. The Independent Trustees also reviewed the proposed continuation of the Advisory Agreement with respect to the Fund in private sessions with Independent Counsel at which no representatives of management were present. At each regularly scheduled meeting of the Board and its committees, the Board receives and reviews, among other things, information concerning the Fund's performance and related services provided by the Manager. At the meeting at which the renewal of the Advisory Agreement is considered, particular focus is given to information concerning ================================================================================ 50 | USAA TAX EXEMPT SHORT-TERM FUND ================================================================================ Fund performance, fees and total expenses as compared to comparable investment companies, and the Manager's profitability with respect to the Fund. However, the Board noted that the evaluation process with respect to the Manager is an ongoing one. In this regard, the Board's and its committees' consideration of the Advisory Agreement included information previously received at such meetings. ADVISORY AGREEMENT After full consideration of a variety of factors, the Board, including the Independent Trustees, voted to approve the Advisory Agreement. In approving the Advisory Agreement, the Trustees did not identify any single factor as controlling, and each Trustee may have attributed different weights to various factors. Throughout their deliberations, the Independent Trustees were represented and assisted by Independent Counsel. NATURE, EXTENT, AND QUALITY OF SERVICES - In considering the nature, extent, and quality of the services provided by the Manager under the Advisory Agreement, the Board reviewed information provided by the Manager relating to its operations and personnel. The Board also took into account its knowledge of the Manager's management and the quality of the performance of its duties through Board meetings, discussions, and reports during the preceding year. The Board considered the fees paid to the Manager and the services provided to the Fund by the Manager under the Advisory Agreement, as well as other services provided by the Manager and its affiliates under other agreements, and the personnel who provide these services. In addition to the investment advisory services provided to the Fund, the Manager and its affiliates provide administrative services, stockholder services, oversight of Fund accounting, marketing services, assistance in meeting legal and regulatory requirements, and other services necessary for the operation of the Fund and the Trust. The Board considered the Manager's management style and the performance of the Manager's duties under the Advisory Agreement. The Board considered the level and depth of knowledge of the Manager, including the professional experience and qualifications of its senior and investment personnel, as well ================================================================================ ADVISORY AGREEMENT(S) | 51 ================================================================================ as current staffing levels. The allocation of the Fund's brokerage, including the Manager's process for monitoring "best execution," also was considered. The Manager's role in coordinating the activities of the Fund's other service providers also was considered. The Board also considered the Manager's risk management processes. The Board considered the Manager's financial condition and that it had the financial wherewithal to continue to provide the same scope and high quality of services under the Advisory Agreement. In reviewing the Advisory Agreement, the Board focused on the experience, resources, and strengths of the Manager and its affiliates in managing the Fund, as well as the other funds in the Trust. The Board also reviewed the compliance and administrative services provided to the Fund by the Manager, including the Manager's oversight of the Fund's day-to-day operations and oversight of Fund accounting. The Trustees, guided also by information obtained from their experiences as trustees of the Trust also focused on the quality of the Manager's compliance and administrative staff. EXPENSES AND PERFORMANCE - In connection with its consideration of the Advisory Agreement, the Board evaluated the Fund's advisory fees and total expense ratio as compared to other open-end investment companies deemed to be comparable to the Fund as determined by the independent third party in its report. The Fund's expenses were compared to (i) a group of investment companies chosen by the independent third party to be comparable to the Fund based upon certain factors, including fund type, comparability of investment objectives and classifications, sales load type (in this case, investment companies with front-end loads and no sales loads), asset size, and expense components (the "expense group") and (ii) a larger group of investment companies that includes all no-load and front-end load retail open-end investment companies with same investment classifications/objectives as the Fund regardless of asset size, excluding outliers (the "expense universe"). Among other data, the Board noted that the Fund's management fee rate - which includes advisory and administrative services and the effects of any performance adjustment - was equal to the median of its expense group and above the median of its expense universe. The data indicated that the Fund's total expense ratio was below the median of its expense group and its ================================================================================ 52 | USAA TAX EXEMPT SHORT-TERM FUND ================================================================================ expense universe. The Board took into account the various services provided to the Fund by the Manager and its affiliates, including the high quality of services provided by the Manager. The Board also took into account management's discussion of the Fund's expenses. The Board also noted the level and method of computing the management fee, including any performance adjustment to such fee. In considering the Fund's performance, the Board noted that it reviews at its regularly scheduled meetings information about the Fund's performance results. The Trustees also reviewed various comparative data provided to them in connection with their consideration of the renewal of the Advisory Agreement, including, among other information, a comparison of the Fund's average annual total return with its Lipper index and with that of other mutual funds deemed to be in its peer group by the independent third party in its report (the "performance universe"). The Fund's performance universe consisted of the Fund and all retail and institutional open-end investment companies with the same classification/objective as the Fund regardless of asset size or primary channel of distribution. This comparison indicated that, among other data, the Fund's performance was above the average of its performance universe and its Lipper index for the one-, three-, five-, and ten- year periods ended December 31, 2015. The Board also noted that the Fund's percentile performance ranking was in the top 35% of its performance universe for the one-year period ended December 31, 2015, was in the top 15% of its performance universe for the three- and five-year periods ended December 31, 2015, and was in the top 5% of its performance universe for the ten-year period ended December 31, 2015. COMPENSATION AND PROFITABILITY - The Board took into consideration the level and method of computing the management fee. The information considered by the Board included operating profit margin information for the Manager's business as a whole. The Board also received and considered profitability information related to the management revenues from the Fund. This information included a review of the methodology used in the allocation of certain costs to the Fund. The Trustees reviewed the profitability of the Manager's relationship with the Fund before tax expenses. In reviewing the overall profitability of the management fee to the Manager, the Board also ================================================================================ ADVISORY AGREEMENT(S) | 53 ================================================================================ considered the fact that affiliates provide shareholder servicing and administrative services to the Fund for which they receive compensation. The Board also considered the possible direct and indirect benefits to the Manager from its relationship with the Trust, including that the Manager may derive reputational and other benefits from its association with the Fund. The Board also took into account the high quality of services received by the Fund from the Manager. The Trustees recognized that the Manager should be entitled to earn a reasonable level of profits in exchange for the level of services it provides to the Fund and the entrepreneurial risk that it assumes as Manager. ECONOMIES OF SCALE - The Board considered whether there should be changes in the management fee rate or structure in order to enable the Fund to participate in any economies of scale. The Board took into account management's discussion of the current advisory fee structure. The Board also considered the effect of the Fund's growth and size on its performance and fees, noting that if the Fund's assets increase over time, the Fund may realize other economies of scale if assets increase proportionally more than some expenses. The Board determined that the current investment management fee structure was reasonable. CONCLUSIONS - The Board reached the following conclusions regarding the Fund's Advisory Agreement with the Manager, among others: (i) the Manager has demonstrated that it possesses the capability and resources to perform the duties required of it under the Advisory Agreement; (ii) the Manager maintains an appropriate compliance program; (iii) the performance of the Fund is reasonable in relation to the performance of funds with similar investment objectives and to relevant indices; (iv) the Fund's advisory expenses are reasonable in relation to those of similar funds and to the services to be provided by the Manager; and (v) the Manager's and its affiliates' level of profitability from its relationship with the Fund is reasonable in light of the nature and high quality of the services provided by the Manager and the type of fund. Based on its conclusions, the Board determined that continuation of the Advisory Agreement would be in the best interests of the Fund and its shareholders. ================================================================================ 54 | USAA TAX EXEMPT SHORT-TERM FUND ================================================================================ TRUSTEES Daniel S. McNamara Robert L. Mason, Ph.D. Jefferson C. Boyce Dawn M. Hawley Paul L. McNamara Barbara B. Ostdiek, Ph.D. Michael F. Reimherr -------------------------------------------------------------------------------- ADMINISTRATOR AND USAA Asset Management Company INVESTMENT ADVISER P.O. Box 659453 San Antonio, Texas 78265-9825 -------------------------------------------------------------------------------- UNDERWRITER AND USAA Investment Management Company DISTRIBUTOR P.O. Box 659453 San Antonio, Texas 78265-9825 -------------------------------------------------------------------------------- TRANSFER AGENT USAA Shareholder Account Services 9800 Fredericksburg Road San Antonio, Texas 78288 -------------------------------------------------------------------------------- CUSTODIAN AND State Street Bank and Trust Company ACCOUNTING AGENT P.O. Box 1713 Boston, Massachusetts 02105 -------------------------------------------------------------------------------- INDEPENDENT Ernst & Young LLP REGISTERED PUBLIC 100 West Houston St., Suite 1700 ACCOUNTING FIRM San Antonio, Texas 78205 -------------------------------------------------------------------------------- MUTUAL FUND Under "My Accounts" on SELF-SERVICE 24/7 usaa.com select your mutual fund AT USAA.COM account and either click the link or select 'I want to...' and select OR CALL the desired action. (800) 531-USAA (8722) (210) 531-8722 -------------------------------------------------------------------------------- Copies of the Manager's proxy voting policies and procedures, approved by the Trust's Board of Trustees for use in voting proxies on behalf of the Fund, are available without charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722; (ii) at USAA.COM; and (iii) in summary within the Statement of Additional Information on the SEC's website at HTTP://WWW.SEC.GOV. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge (i) at USAA.COM; and (ii) on the SEC's website at HTTP://WWW.SEC.GOV. The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. These Forms N-Q are available at no charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722; (ii) at USAA.COM; and (iii) on the SEC's website at HTTP://WWW.SEC.GOV. These Forms N-Q also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling (800) 732-0330. ================================================================================ -------------- USAA PRSRT STD 9800 Fredericksburg Road U.S. Postage San Antonio, TX 78288 PAID USAA -------------- >> SAVE PAPER AND FUND COSTS Under MY PROFILE on USAA.COM select MANAGE PREFERENCES Set your DOCUMENT PREFERENCES to USAA DOCUMENTS ONLINE. [LOGO OF USAA] USAA We know what it means to serve.(R) ============================================================================= 39592-1116 (C)2016, USAA. All rights reserved. [LOGO OF USAA] USAA(R) [GRAPHIC OF USAA TARGET MANAGED ALLOCATION FUND] =============================================================== SEMIANNUAL REPORT USAA TARGET MANAGED ALLOCATION FUND SEPTEMBER 30, 2016 =============================================================== ================================================================================ ================================================================================ PRESIDENT'S MESSAGE "THE CLOSING WEEKS OF A YEAR CAN BE A GOOD TIME TO TAKE A LOOK AT YOUR FINANCIAL SITUATION [PHOTO OF BROOKS ENGLEHARDT] WITH A GOAL OF GETTING YOUR FINANCES IN ORDER." -------------------------------------------------------------------------------- NOVEMBER 2016 Investors were generally rewarded during the reporting period ended September 30, 2016. Most asset classes posted gains as global growth concerns eased and many of the world's central banks, including the Federal Reserve (the Fed), maintained accommodative monetary policies. Stock prices generally climbed, despite two brief setbacks. In June 2016, a brief retreat followed the United Kingdom's unexpected vote to withdraw from the European Union (commonly known as Brexit). In September 2016, stocks fell--before quickly recovering--on concerns about a potential Fed interest rate increase. Meanwhile, bond prices recorded positive returns during the reporting period. As bond prices rose, longer-term interest rates, which move in the opposite direction, fell. As you know, the Fed only has direct control over short-term interest rates. Bond prices and longer-term interest rates are determined by buyers and sellers, sometimes based on their views of Fed policy. During the reporting period, market expectations about potential Fed interest rate increases shifted into the future. The Fed, which in December 2015 had raised short-term interest rates for the first time since 2008, also initially signaled that four interest rate increases were on tap for 2016. However, policymakers backed off that forecast in March 2016, just before the reporting period began, indicating that only two interest rate increases were on the table. They pointed to the global market turmoil during the first six weeks of 2016 as a contributing factor. Policymakers subsequently hinted there would be a single interest rate increase, but ultimately left interest rates unchanged. In our view, December 2016 is the Fed's only remaining window of opportunity to increase short-term interest rates. It is unlikely to act at its November 2016 meeting, which is just days before the presidential election. We believe that as of this writing, the futures market, which generally is a proxy for investor sentiment, indicates approximately a two-thirds chance that the Fed would raise rates in December 2016. ================================================================================ ================================================================================ This begs the question: Is it good or bad if low interest rates persist? We think it depends on your perspective. On one hand, consumers and businesses are able to continue borrowing at affordable interest rates. On the other hand, savers may continue to see returns lower than the rate of inflation. At USAA Investments, we believe the Fed is likely to raise interest rates at a gradual pace. We've long held the belief that interest rates will stay lower for longer than many market participants expect. Currently, there is no urgency for the Fed to act. Interest rate increases are typically a response to an overheating economy, and the U.S. remains in slow-growth mode with low inflation. Americans are still carrying large amounts of household debt, so higher interest rates are likely to hinder their spending and slow what little growth there is. Tax-exempt bonds, like most other fixed-income investments, generated positive returns during the reporting period. Municipal bonds performed well, as investors continued to favor them for their tax-advantaged status. At the same time, municipal issuance remained low, though it has increased since January 2016. Still, the supply is far from enough to satisfy demand and we expect municipal bonds to continue to benefit from this situation for some time to come. Although state and local finances are in better shape than they were a few years ago, municipal governments have been reluctant to take on additional debt. We believe eventually this will change, but likely not for the foreseeable future. Looking ahead, the end of 2016 is just weeks away. The closing weeks of a year can be a good time to take a look at your financial situation with a goal of getting your finances in order. One way to help ensure you're doing the most with what you have is to consider investing a set amount each month, also known as dollar-cost averaging. Please call USAA Investments to speak with a financial advisor. We are committed to helping you meet your financial objectives. On behalf of everyone at USAA Investments, thank you for relying on us to help you with your investment needs. We appreciate the opportunity to serve you. Sincerely, /S/ BROOKS ENGLEHARDT Brooks Englehardt President USAA Investments Investments provided by USAA Investment Management Company and USAA Financial Advisors, Inc., both registered broker-dealers, and affiliates. Financial planning services and financial advice provided by USAA Financial Planning Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in California, License # 0E36312), a registered investment adviser and insurance agency and its wholly owned subsidiary, USAA Financial Advisors, Inc., a registered broker dealer. ================================================================================ ================================================================================ TABLE OF CONTENTS -------------------------------------------------------------------------------- FUND OBJECTIVE 1 MANAGERS' COMMENTARY ON THE FUND 2 INVESTMENT OVERVIEW 6 FINANCIAL INFORMATION Portfolio of Investments 9 Notes to Portfolio of Investments 11 Financial Statements 12 Notes to Financial Statements 15 EXPENSE EXAMPLE 25 ADVISORY AGREEMENT(S) 27
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS ABOUT THE FUND. (C)2016, USAA. All rights reserved. 225186-1116 ================================================================================ ================================================================================ FUND OBJECTIVE THE USAA TARGET MANAGED ALLOCATION FUND (THE FUND) SEEKS TO MAXIMIZE TOTAL RETURN PRIMARILY THROUGH CAPITAL APPRECIATION. -------------------------------------------------------------------------------- TYPES OF INVESTMENTS The Fund invests primarily in U.S. and/or foreign (to include emerging markets) equity securities and fixed-income securities through investments in shares of other investment companies, including exchange-traded funds (ETFs) and real estate securities, including real estate investment trusts (REITs). Consistent with its investment strategy, the Fund may at times invest directly in U.S. and/or foreign equity securities and fixed-income securities as well as derivatives, including futures and options contracts.* *This Fund is not offered for sale directly to the general public and currently is available for investment only to other USAA funds participating in a fund-of-funds investment strategy and other accounts managed by USAA Asset Management Company (AMCO) or an affiliate. The Fund may be offered to other persons and legal entities that AMCO may approve from time to time. There are no minimum initial or subsequent purchase amounts for investments in the Fund. IRA DISTRIBUTION WITHHOLDING DISCLOSURE We generally must withhold federal income tax at a rate of 10% of the taxable portion of your distribution and, if you live in a state that requires state income tax withholding, at your state's tax rate. However, you may elect not to have withholding apply or to have income tax withheld at a higher rate. Any withholding election that you make will apply to any subsequent distribution unless and until you change or revoke the election. If you wish to make a withholding election or change or revoke a prior withholding election, call (800) 531-USAA (8722) or (210) 531-8722. If you do not have a withholding election in place by the date of a distribution, federal income tax will be withheld from the taxable portion of your distribution at a rate of 10%. If you must pay estimated taxes, you may be subject to estimated tax penalties if your estimated tax payments are not sufficient and sufficient tax is not withheld from your distribution. For more specific information, please consult your tax adviser. ================================================================================ FUND OBJECTIVE | 1 ================================================================================ MANAGERS' COMMENTARY ON THE FUND -------------------------------------------------------------------------------- [PHOTO OF JOHN P. TOOHEY] [PHOTO OF WASIF A. LATIF] JOHN P. TOOHEY, CFA WASIF A. LATIF USAA Asset USAA Asset Management Company Management Company -------------------------------------------------------------------------------- o WHAT WERE THE MARKET CONDITIONS DURING THE REPORTING PERIOD? After a challenging environment through late 2015 and the initial weeks of 2016, the global financial markets produced favorable returns for the reporting period ended September 30, 2016. In the months leading up to the reporting period, higher-risk market segments were under pressure from a variety of factors, including concerns about slowing global growth, falling commodity prices, and the possibility that the Federal Reserve (the Fed) would begin to raise interest rates more aggressively. These fears were largely alleviated in mid-February 2016, when the aggressive stimulus programs initiated by the world's central banks, together with comments by Fed officials that interest rates would rise only gradually, sparked a recovery in commodities and a revival of investor risk appetites. This improved backdrop was reflected in the performance of the major asset classes during the reporting period. U.S. equities gained ground across the market capitalization spectrum, with energy- and commodity-related stocks performing particularly well thanks to the rebound in oil prices. Emerging-market equities also generated gains, reflecting both the surge in commodity prices and the signs of improving economic conditions for a number of the key countries in the asset class. The developed international markets lagged, however, as European and British ================================================================================ 2 | USAA TARGET MANAGED ALLOCATION FUND ================================================================================ stocks were disproportionately hindered by the United Kingdom's vote to leave the European Union (commonly known as Brexit) in late June 2016. Concerns about the impact of Brexit prevented European and United Kingdom stocks from regaining lost ground as other regions recovered. Investment-grade bonds finished in positive territory, although with lower gains than many other segments of the financial markets. The combination of paltry yields overseas and the Fed's lower-for-longer interest rate policy kept U.S. Treasuries on a positive footing, leading to falling yields (and rising prices) for issues with maturities of five years and longer. In addition, both investment-grade corporate and high-yield bonds performed particularly well amid the strong global demand for income-producing investments. o HOW DID THE USAA TARGET MANAGED ALLOCATION FUND (THE FUND) PERFORM DURING THE REPORTING PERIOD? For the reporting period ended September 30, 2016, the Fund had a total return of 7.90%. This compares to total returns of 6.34% for the MSCI All-Country World Index and 3.51% for the Bloomberg Barclays U.S. Universal Bond Index*. USAA Asset Management Company (the Manager) is the Fund's investment adviser. The investment adviser provides day-to-day discretionary management for the Fund's assets. Consistent with the trends in the broader market, the Fund's allocations to commodities and commodity-related equities delivered strong returns. The Fund's position in the emerging markets also performed very well, highlighted by an investment in the PowerShares FTSE RAFI Emerging Markets Portfolio--a fund that uses four fundamental metrics (firm size, Refer to page 7 for benchmark definitions. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. *Effective August 24, 2016, Bloomberg acquired Barclays Risk Analytics and Index Solutions, Ltd., which includes the Barclays indices. Thus, the Fund's benchmark is now called the Bloomberg Barclays U.S. Universal Bond Index. ================================================================================ MANAGERS' COMMENTARY ON THE FUND | 3 ================================================================================ book value, cash flow, sales and dividends) to select its holdings. On the domestic side, the Fund benefited from the favorable relative performance of mid-cap stocks through its position in Vanguard Mid-Cap ETF. Additionally, the Fund's allocation to real estate investment trusts produced hearty performances at a time of falling bond yields and continued strength in property prices. While the Fund's developed-market allocation did not produce returns as high as those of its holdings, it nonetheless provided a positive total return. The Fund's allocation to investment-grade bonds--which it achieves through investments in three exchange-traded funds (ETFs)--generated a steady, low single-digit gain. While it did not make a substantial contribution to the Fund's overall return, it helped stabilize some of the volatility that surrounded the Brexit vote. The Fund also had a position in high-yield bonds through the iShares iBoxx $ High Yield Corporate Bond ETF, allowing it to capture the strong outperformance of the asset class relative to the rest of the fixed-income market. o WHAT STRATEGIES DID YOU EMPLOY DURING THE REPORTING PERIOD? USAA offers six funds in the Target Retirement Series, each of which employs a different strategic asset allocation based on investor risk tolerance and time horizon. Depending on our changing views on market opportunities and risks, we apply tactical asset allocation decisions, overweighting or underweighting the various asset classes within each fund compared to its strategic allocation. We utilize the Target Managed Allocation Fund to allow for more flexibility in implementing allocation changes more quickly and with less disruption to the other underlying funds within the Fund's portfolio. The Fund primarily uses ETFs to implement its asset allocation because ETFs tend to be highly liquid vehicles that allow us to apply our tactical asset allocation decisions quickly and efficiently. With this as background, ================================================================================ 4 | USAA TARGET MANAGED ALLOCATION FUND ================================================================================ the Fund's asset allocations--as well as the changes within its portfolio that occurred during the course of the reporting period--generally reflect the need to round out the portfolios of the other funds in the Target Retirement series, rather than an active strategy. Thank you for allowing us to help you with your investment needs. As interest rates rise, bond prices generally fall; given the historically low interest rate environment, risks associated with rising interest rates may be heightened. o ETFs are subject to risks similar to those of stocks. o Non-investment-grade securities are considered speculative and are subject to significant credit risk. They are sometimes referred to as "junk" bonds since they represent a greater risk of default than more creditworthy investment-grade securities. o Investments in foreign securities are subject to additional and more diverse risks, including but not limited to currency fluctuations, market illiquidity, and political and economic instability. Foreign investing may result in more rapid and extreme changes in value than investments made exclusively in the securities of U.S. companies. There may be less publicly available information relating to foreign companies than those in the U.S. Foreign securities may also be subject to foreign taxes. Investments made in emerging market countries may be particularly volatile. Economies of emerging market countries are generally less diverse and mature than more developed countries and may have less stable political systems. o Investing in REITs has some of the same risks associated with the direct ownership of real estate. o Asset allocation does not protect against a loss or guarantee that an investor's goal will be met. ================================================================================ MANAGERS' COMMENTARY ON THE FUND | 5 ================================================================================ INVESTMENT OVERVIEW USAA TARGET MANAGED ALLOCATION FUND (THE FUND) (Ticker Symbol: UTMAX)
-------------------------------------------------------------------------------- 9/30/16 3/31/16 -------------------------------------------------------------------------------- Net Assets $433.6 Million $415.9 Million Net Asset Value Per Share $10.24 $9.49 -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURN AS OF 9/30/16 -------------------------------------------------------------------------------- 3/31/16-9/30/16* 1 YEAR SINCE INCEPTION 8/7/15 7.90% 9.02% 3.19% -------------------------------------------------------------------------------- EXPENSE RATIO AS OF 8/1/16** -------------------------------------------------------------------------------- 0.92%
(Includes acquired fund fees and expenses of 0.27%) THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT USAA.COM. *Total returns for periods of less than one year are not annualized. This return is cumulative. **The expense ratio represents the total annual operating expenses, before reductions of any expenses paid indirectly and including any acquired fund fees and expenses, as reported in the Fund's prospectus dated August 1, 2016, and is calculated as a percentage of average net assets. This expense ratio may differ from the expense ratio disclosed in the Financial Highlights, which excludes acquired fund fees and expenses. Total return measures the price change in a share assuming the reinvestment of all net investment income and realized capital gain distributions, if any. The total returns quoted do not reflect adjustments made to the enclosed financial statements in accordance with U.S. generally accepted accounting principles or the deduction of taxes that a shareholder would pay on net investment income and realized capital gain distributions, including reinvested distributions, or redemptions of shares. ================================================================================ 6 | USAA TARGET MANAGED ALLOCATION FUND ================================================================================ o CUMULATIVE PERFORMANCE COMPARISON o [CHART OF CUMULATIVE PERFORMANCE COMPARISON]
BLOOMBERG BARCLAYS USAA TARGET MANAGED MSCI ALL-COUNTRY U.S. UNIVERSAL INDEX ALLOCATION FUND WORLD INDEX 07/31/15 $10,000.00 $10,000.00 $10,000.00 08/31/15 9,970.55 9,680.00 9,314.49 09/30/15 10,009.49 9,510.00 8,977.04 10/31/15 10,041.51 9,820.00 9,681.60 11/30/15 10,004.94 9,750.00 9,601.65 12/31/15 9,954.93 9,578.19 9,428.49 01/31/16 10,064.84 9,304.82 8,859.65 02/29/16 10,136.40 9,365.57 8,798.91 03/31/16 10,260.54 9,608.57 9,450.98 04/30/16 10,330.51 9,730.00 9,590.49 05/31/16 10,338.62 9,740.00 9,602.57 06/30/16 10,520.48 10,014.00 9,544.44 07/31/16 10,607.26 10,287.00 9,955.75 08/31/16 10,618.72 10,297.00 9,989.24 09/30/16 10,621.29 10,368.00 10,050.45
[END CHART] Data from 7/31/15 through 9/30/16.* The graph illustrates the comparison of a $10,000 hypothetical investment in the USAA Target Managed Allocation Fund to the following benchmarks: o The unmanaged Bloomberg Barclays U.S. Universal Bond Index comprising of U.S. dollar-denominated, taxable bonds that are related investment grade or below investment grade. o The unmanaged MSCI All-Country World Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets. Past performance is no guarantee of future results, and the cumulative performance quoted does not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of shares. Indexes are unmanaged and you cannot invest directly in an index. The return information for the indexes does not reflect the deduction of any fees, expenses, or taxes. *The performance of the MSCI All-Country World Index and Bloomberg Barclays U.S. Universal Bond Index is calculated from the end of the month, July 31, 2015, while the inception date of the Fund is August 7, 2015. There may be a slight variation of performance numbers because of this difference. ================================================================================ INVESTMENT OVERVIEW | 7 ================================================================================ o ASSET ALLOCATION - 9/30/16 o [PIE CHART OF ASSET ALLOCATION] FIXED-INCOME EXCHANGE-TRADED FUNDS* 45.7% INTERNATIONAL EXCHANGE-TRADED FUNDS* 22.9% DOMESTIC EXCHANGE-TRADED FUNDS* 22.4% COMMODITY-RELATED EXCHANGE-TRADED FUNDS* 8.6% MONEY MARKET INSTRUMENTS 0.4%
[END CHART] *The Fund may rely on certain Securities and Exchange Commission (SEC) exemptive orders or rules that permit funds meeting various conditions to invest in an exchange-traded fund (ETF) in amounts exceeding limits set forth in the Investment Company Act of 1940, as amended, that would otherwise be applicable. Percentages are of the net assets of the Fund and may not equal 100%. You will find a complete list of securities that the Fund owns on pages 9-10. ================================================================================ 8 | USAA TARGET MANAGED ALLOCATION FUND ================================================================================ PORTFOLIO OF INVESTMENTS September 30, 2016 (unaudited)
------------------------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) ------------------------------------------------------------------------------------------------------------- EQUITY SECURITIES (99.6%) EXCHANGE-TRADED FUNDS (99.6%) COMMODITY-RELATED EXCHANGE-TRADED FUNDS (8.6%) 208,020 First Trust Global Tactical Commodity Strategy Fund* $ 4,281 1,257,000 PowerShares DB Commodity Index Tracking Fund* 18,868 345,540 United States Commodity Index Fund* 14,326 -------- Total Commodity-Related Exchange-Traded Funds 37,475 -------- DOMESTIC EXCHANGE-TRADED FUNDS (22.4%) 77,700 SPDR S&P Oil & Gas Exploration & Production ETF 2,988 16,100 VanEck Vectors Oil Services ETF 471 494,117 Vanguard Mid-Cap ETF 63,959 273,710 Vanguard REIT ETF 23,742 24,500 Vanguard Small-Cap ETF 2,993 27,000 Vanguard Small-Cap Value ETF 2,988 -------- Total Domestic Exchange-Traded Funds 97,141 -------- FIXED-INCOME EXCHANGE-TRADED FUNDS (45.7%) 570,908 iShares 7-10 Year Treasury Bond ETF 63,873 354,720 iShares iBoxx $ High Yield Corporate Bond ETF 30,953 261,250 iShares TIPS Bond ETF 30,433 868,820 Vanguard Total Bond Market ETF 73,102 -------- Total Fixed-Income Exchange-Traded Funds 198,361 -------- INTERNATIONAL EXCHANGE-TRADED FUNDS (22.9%) 426,120 iShares Edge MSCI Minimum Volatility Emerging Markets ETF 23,036 334,520 PowerShares FTSE RAFI Developed Markets ex-U.S. Portfolio 12,294 2,086,238 PowerShares FTSE RAFI Emerging Markets Portfolio 37,385 615,009 WisdomTree Japan Hedged Equity Fund 26,390 -------- Total International Exchange-Traded Funds 99,105 -------- Total Exchange-Traded Funds 432,082 -------- Total Equity Securities (cost: $413,090) 432,082 --------
================================================================================ PORTFOLIO OF INVESTMENTS | 9 ================================================================================
------------------------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) ------------------------------------------------------------------------------------------------------------- MONEY MARKET INSTRUMENTS (0.4%) MONEY MARKET FUNDS (0.4%) 1,775,302 State Street Institutional Liquid Reserves Fund Premier Class, 0.40%(a) (cost: $1,775) $ 1,775 -------- TOTAL INVESTMENTS (COST: $414,865) $433,857 ======== ------------------------------------------------------------------------------------------------------------- ($ IN 000s) VALUATION HIERARCHY ------------------------------------------------------------------------------------------------------------- ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL ------------------------------------------------------------------------------------------------------------- Equity Securities: Exchange-Traded Funds: Commodity-Related Exchange- Traded Funds $ 37,475 $- $- $ 37,475 Domestic Exchange- Traded Funds 97,141 - - 97,141 Fixed-Income Exchange- Traded Funds 198,361 - - 198,361 International Exchange- Traded Funds 99,105 - - 99,105 Money Market Instruments: Money Market Funds 1,775 - - 1,775 ------------------------------------------------------------------------------------------------------------- Total $433,857 $- $- $433,857 -------------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or geographic region classifications. For the period of April 1, 2016, through September 30, 2016, there were no transfers of securities between levels. The Fund's policy is to recognize any transfers in and transfers out as of the beginning of the reporting period in which the event or circumstance that caused the transfer occurred. ================================================================================ 10 | USAA TARGET MANAGED ALLOCATION FUND ================================================================================ NOTES TO PORTFOLIO OF INVESTMENTS September 30, 2016 (unaudited) -------------------------------------------------------------------------------- o GENERAL NOTES Market values of securities are determined by procedures and practices discussed in Note 1A to the financial statements. The Portfolio of Investments category percentages shown represent the percentages of the investments to net assets, and, in total, may not equal 100%. A category percentage of 0.0% represents less than 0.1% of net assets. Investments in foreign securities were 26.6% of net assets at September 30, 2016. The Fund may rely on certain Securities and Exchange Commission (SEC) exemptive orders or rules that permit funds meeting various conditions to invest in an exchange-traded fund (ETF) in amounts exceeding limits set forth in the Investment Company Act of 1940, as amended, that would otherwise be applicable. o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS REIT Real estate investment trust TIPS Treasury Inflation Protected Securities o SPECIFIC NOTES (a) Rate represents the money market fund annualized seven-day yield at September 30, 2016. * Non-income-producing security. See accompanying notes to financial statements. ================================================================================ NOTES TO PORTFOLIO OF INVESTMENTS | 11 ================================================================================ STATEMENT OF ASSETS AND LIABILITIES (IN THOUSANDS) September 30, 2016 (unaudited) -------------------------------------------------------------------------------- ASSETS Investments in securities, at market value (cost of $414,865) $433,857 Cash 18 -------- Total assets 433,875 -------- LIABILITIES Accrued management fees 177 Other accrued expenses and payables 55 -------- Total liabilities 232 -------- Net assets applicable to capital shares outstanding $433,643 ======== NET ASSETS CONSIST OF: Paid-in capital $415,916 Accumulated undistributed net investment income 3,486 Accumulated net realized loss on investments (4,751) Net unrealized appreciation of investments 18,992 -------- Net assets applicable to capital shares outstanding $433,643 ======== Capital shares outstanding, unlimited number of shares authorized, no par value 42,358 ======== Net asset value, redemption price, and offering price per share $ 10.24 ========
See accompanying notes to financial statements. ================================================================================ 12 | USAA TARGET MANAGED ALLOCATION FUND ================================================================================ STATEMENT OF OPERATIONS (IN THOUSANDS) Six-month period ended September 30, 2016 (unaudited) -------------------------------------------------------------------------------- INVESTMENT INCOME Dividends $ 4,847 Interest 3 ------- Total income 4,850 ------- EXPENSES Management fees 1,062 Administration and servicing fees 106 Transfer agent's fees 106 Custody and accounting fees 28 Shareholder reporting fees 1 Trustees' fees 15 Professional fees 35 Other 11 ------- Total expenses 1,364 ------- NET INVESTMENT INCOME 3,486 ------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain (loss) on: Unaffiliated transactions 11,352 Affiliated transactions (Note 7) (222) Change in net unrealized appreciation/(depreciation) 17,560 ------- Net realized and unrealized gain 28,690 ------- Increase in net assets resulting from operations $32,176 =======
See accompanying notes to financial statements. ================================================================================ FINANCIAL STATEMENTS | 13 ================================================================================ STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS) Six-month period ended September 30, 2016 (unaudited), and period ended March 31, 2016
-------------------------------------------------------------------------------------------------------------- 9/30/2016 3/31/2016* -------------------------------------------------------------------------------------------------------------- FROM OPERATIONS Net investment income $ 3,486 $ 4,603 Net realized gain(loss) on investments 11,130 (15,920) Change in net unrealized appreciation/(depreciation) of investments 17,560 1,432 --------------------- Increase (decrease) in net assets resulting from operations 32,176 (9,885) --------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income - (4,930) --------------------- FROM CAPITAL SHARE TRANSACTIONS Proceeds from shares sold 4,047 448,524 Reinvested dividends - 4,930 Cost of shares redeemed (18,476) (22,743) --------------------- Increase (decrease) in net assets from capital share transactions (14,429) 430,711 --------------------- Net increase in net assets 17,747 415,896 NET ASSETS Beginning of period 415,896 - --------------------- End of period $433,643 $415,896 ===================== Accumulated undistributed net investment income: End of period $ 3,486 $ - ===================== CHANGE IN SHARES OUTSTANDING Shares sold 423 45,726 Shares issued for dividends reinvested - 527 Shares redeemed (1,905) (2,413) --------------------- Increase (decrease) in shares outstanding (1,482) 43,840 =====================
*Fund commenced operations on August 7, 2015. See accompanying notes to financial statements. ================================================================================ 14 | USAA TARGET MANAGED ALLOCATION FUND ================================================================================ NOTES TO FINANCIAL STATEMENTS September 30, 2016 (unaudited) -------------------------------------------------------------------------------- (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company Act of 1940, as amended (the 1940 Act), is an open-end management investment company organized as a Delaware statutory trust consisting of 54 separate funds. Additionally, the Fund qualifies as a registered investment company under Accounting Standards Codification Topic 946. The information presented in this semiannual report pertains only to the USAA Target Managed Allocation Fund (the Fund), which is classified as diversified under the 1940 Act. The Fund's investment objective is to seek maximum total return primarily through capital appreciation. The Fund is not offered for sale directly to the general public and is available currently for investment only to other USAA funds participating in a fund-of-funds investment strategy or other persons or legal entities that the Fund may approve from time to time. A. SECURITY VALUATION - The Trust's Board of Trustees (the Board) has established the Valuation Committee (the Committee), and subject to Board oversight, the Committee administers and oversees the Fund's valuation policies and procedures, which are approved by the Board. Among other things, these policies and procedures allow the Fund to utilize independent pricing services, quotations from securities dealers, and a wide variety of sources and information to establish and adjust the fair value of securities as events occur and circumstances warrant. The Committee reports to the Board on a quarterly basis and makes recommendations to the Board as to pricing methodologies and services used by the Fund and presents additional information to the Board regarding application of the pricing and fair valuation policies and procedures during the preceding quarter. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 15 ================================================================================ The Committee meets as often as necessary to make pricing and fair value determinations. In addition, the Committee holds regular monthly meetings to review prior actions taken by the Committee and USAA Asset Management Company (the Manager), an affiliate of the Fund. Among other things, these monthly meetings include a review and analysis of back testing reports, pricing service quotation comparisons, illiquid securities and fair value determinations, pricing movements, and daily stale price monitoring. The value of each security is determined (as of the close of trading on the New York Stock Exchange (NYSE) on each business day the NYSE is open) as set forth below: 1. Equity securities, including exchange-traded funds (ETFs), except as otherwise noted, traded primarily on a domestic securities exchange or the over-the-counter markets, are valued at the last sales price or official closing price on the exchange or primary market on which they trade. Securities traded primarily on foreign securities exchanges or markets are valued at the last quoted sales price, or the most recently determined official closing price calculated according to local market convention, available at the time the Fund is valued. If no last sale or official closing price is reported or available, the average of the bid and asked prices generally is used. Actively traded equity securities listed on a domestic exchange generally are categorized in Level 1 of the fair value hierarchy. Certain preferred and equity securities traded in inactive markets generally are categorized in Level 2 of the fair value hierarchy. 2. Equity securities trading in various foreign markets may take place on days when the NYSE is closed. Further, when the NYSE is open, the foreign markets may be closed. Therefore, the calculation of the Fund's net asset value (NAV) may not take place at the same time the prices of certain foreign securities held by the Fund are determined. In many cases, events affecting the values of foreign securities that occur between the time of their last quoted sales or official closing prices and the close of normal trading on the NYSE on a day the Fund's NAV is calculated will not need to be reflected in the value of the Fund's foreign securities. However, the Manager will monitor for ================================================================================ 16 | USAA TARGET MANAGED ALLOCATION FUND ================================================================================ events that would materially affect the value of the Fund's foreign securities and the Committee will consider such available information that it deems relevant and will determine a fair value for the affected foreign securities in accordance with valuation procedures. In addition, information from an external vendor or other sources may be used to adjust the foreign market closing prices of foreign equity securities to reflect what the Committee believes to be the fair value of the securities as of the close of the NYSE. Fair valuation of affected foreign equity securities may occur frequently based on an assessment that events which occur on a fairly regular basis (such as U.S. market movements) are significant. Such securities are categorized in Level 2 of the fair value hierarchy. 3. Investments in open-end investment companies, commingled, or other funds, other than ETFs, are valued at their NAV at the end of each business day and are categorized in Level 1 of the fair value hierarchy. 4. Short-term debt securities with original or remaining maturities of 60 days or less may be valued at amortized cost, provided that amortized cost represents the fair value of such securities. 5. Repurchase agreements are valued at cost. 6. In the event that price quotations or valuations are not readily available, are not reflective of market value, or a significant event has been recognized in relation to a security or class of securities, the securities are valued in good faith by the Committee in accordance with valuation procedures approved by the Board. The effect of fair value pricing is that securities may not be priced on the basis of quotations from the primary market in which they are traded and the actual price realized from the sale of a security may differ materially from the fair value price. Valuing these securities at fair value is intended to cause the Fund's NAV to be more reliable than it otherwise would be. Fair value methods used by the Manager include, but are not limited to, obtaining market quotations from secondary pricing services, broker-dealers, other pricing services, or widely used quotation ================================================================================ NOTES TO FINANCIAL STATEMENTS | 17 ================================================================================ systems. General factors considered in determining the fair value of securities include fundamental analytical data, the nature and duration of any restrictions on disposition of the securities, evaluation of credit quality, and an evaluation of the forces that influenced the market in which the securities are purchased and sold. B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The three-level valuation hierarchy disclosed in the Portfolio of Investments is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows: Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) in active markets for identical securities. Level 2 - inputs to the valuation methodology are other significant observable inputs, including quoted prices for similar securities, inputs that are observable for the securities, either directly or indirectly, and market-corroborated inputs such as market indexes. Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value measurement, including the Manager's own assumptions in determining the fair value. The inputs or methodologies used for valuing securities are not necessarily an indication of the risks associated with investing in those securities. C. FEDERAL TAXES - The Fund's policy is to comply with the requirements of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies and to distribute substantially all of its taxable income and net capital gains, if any, to its shareholders. Therefore, no federal income tax provision is required. D. INVESTMENTS IN SECURITIES - Securities transactions are accounted for on the date the securities are purchased or sold (trade date). Gains or losses from sales of investment securities are computed on the identified cost basis. Dividend income, less foreign taxes, if any, is recorded on the ================================================================================ 18 | USAA TARGET MANAGED ALLOCATION FUND ================================================================================ ex-dividend date. If the ex-dividend date has passed, certain dividends from foreign securities are recorded upon notification. Interest income is recorded daily on the accrual basis. Premiums and discounts are amortized over the life of the respective securities, using the effective yield method for long-term securities and the straight-line method for short-term securities. E. EXPENSES PAID INDIRECTLY - Through arrangements with the Fund's custodian and other banks utilized by the Fund for cash management purposes, realized credits, if any, generated from cash balances in the Fund's bank accounts may be used to directly reduce the Fund's expenses. For the six-month period ended September 30, 2016, there were no custodian and other bank credits. F. INDEMNIFICATIONS - Under the Trust's organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Trust. In addition, in the normal course of business, the Trust enters into contracts that contain a variety of representations and warranties that provide general indemnifications. The Trust's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Trust that have not yet occurred. However, the Trust expects the risk of loss to be remote. G. USE OF ESTIMATES - The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that may affect the reported amounts in the financial statements. (2) LINE OF CREDIT The Fund participates in a joint, short-term, revolving, committed loan agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate of the Manager. The purpose of the agreement is to meet temporary or emergency cash needs, including redemption requests that might otherwise require the untimely disposition of securities. Subject to availability, the Fund may borrow from CAPCO an amount up to 5% of the Fund's total assets at an interest rate based on the London Interbank Offered Rate (LIBOR), plus 100.0 basis points. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 19 ================================================================================ The USAA Funds that are party to the loan agreement are assessed facility fees by CAPCO in the amount of 12.0 basis points of the amount of the committed loan agreement. Prior to September 30, 2016, the maximum annual facility fee was 9.0 basis points of the amount of the committed loan agreement. The facility fees are allocated among the USAA Funds based on their respective average net assets for the period. The USAA Funds may request an optional increase of the committed loan agreement from $500 million up to $750 million. If the USAA Funds increase the committed loan agreement, the assessed facility fee on the amount of the additional commitment will be 13.0 basis points. For the six-month period ended September 30, 2016, the Fund paid CAPCO facility fees of $1,000, which represents 0.6% of the total fees paid to CAPCO by the USAA Funds. The Fund had no borrowings under this agreement during the six-month period ended September 30, 2016. (3) DISTRIBUTIONS The tax basis of distributions and any accumulated undistributed net investment income will be determined as of the Fund's tax year-end of March 31, 2017, in accordance with applicable federal tax law. Distributions of net investment income and realized gains from security transactions not offset by capital losses are made annually in the succeeding fiscal year or as otherwise required to avoid the payment of federal income taxes. At March 31, 2016, the Fund had net capital loss carryforwards of $14,659,000, for federal income tax purposes, as shown in the table below. It is unlikely that the Board will authorize a distribution of capital gains realized in the future until the capital loss carryforwards have been used.
CAPITAL LOSS CARRYFORWARDS -------------------------------------- TAX CHARACTER -------------------------------------- (NO EXPIRATION) BALANCE -------------- ----------- Short-Term $13,134,000 Long-Term 1,525,000 -------------- ----------- Total $14,659,000 ===========
================================================================================ 20 | USAA TARGET MANAGED ALLOCATION FUND ================================================================================ For the six-month period ended September 30, 2016, the Fund did not incur any income tax, interest, or penalties, and has recorded no liability for net unrecognized tax benefits relating to uncertain income tax positions. On an ongoing basis, the Manager will monitor the Fund's tax basis to determine if adjustments to this conclusion are necessary. The statute of limitations on the Fund's tax return filings generally remain open for the three preceding fiscal reporting year ends and remain subject to examination by the Internal Revenue Service and state taxing authorities. (4) INVESTMENT TRANSACTIONS Cost of purchases and proceeds from sales/maturities of securities, excluding short-term securities, for the six-month period ended September 30, 2016, were $289,795,000 and $300,468,000, respectively. As of September 30, 2016, the cost of securities, including short-term securities, for federal income tax purposes, was approximately the same as the cost reported in the financial statements. Gross unrealized appreciation and depreciation of investments as of September 30, 2016, were $19,623,000 and $631,000, respectively, resulting in net unrealized appreciation of $18,992,000. (5) TRANSACTIONS WITH MANAGER A. MANAGEMENT FEES - The Manager provides investment management services to the Fund pursuant to an Advisory Agreement. Under this agreement, the Manager is responsible for managing the business and affairs of the Fund, and for directly managing the day-to-day investment the Fund's assets, subject to the authority of and supervision by the Board. The Manager is authorized to select (with approval of the Board and without shareholder approval) one or more subadvisers to manage the day-to-day investment of a portion of the Fund's assets. For the six-month period ended September 30, 2016, the Fund had no subadviser(s). The Fund's management fee is accrued daily and paid monthly at an annualized rate of 0.50% of the Fund's average net assets. For the six- month period ended September 30, 2016, the Fund incurred total management fees, paid or payable to the Manager, of $1,062,000. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 21 ================================================================================ B. ADMINISTRATION AND SERVICING FEES - The Manager provides certain administration and servicing functions for the Fund. For such services, the Manager receives a fee accrued daily and paid monthly at an annualized rate of 0.05% of the Fund's average net assets for the fiscal year. For the six-month period ended September 30, 2016, the Fund incurred administration and servicing fees, paid or payable to the Manager, of $106,000. In addition to the services provided under its Administration and Servicing Agreement with the Fund, the Manager also provides certain compliance and legal services for the benefit of the Fund. The Board has approved the reimbursement of a portion of these expenses incurred by the Manager. For the six-month period ended September 30, 2016, the Fund reimbursed the Manager $6,000 for these compliance and legal services. These expenses are included in the professional fees on the Fund's Statement of Operations. C. EXPENSE LIMITATION - The Manager agreed, through August 7, 2016, to limit the total annual operating expenses of the Fund to 0.70% of its average net assets, excluding extraordinary expenses and before reductions of any expenses paid indirectly, and to reimburse the Fund for all expenses in excess of those amounts. Effective August 1, 2016, the Manager terminated this agreement. For the six-month period ended September 30, 2016, the Fund incurred no reimburseable expenses. D. TRANSFER AGENT'S FEES - USAA Transfer Agency Company, d/b/a USAA Shareholder Account Services (SAS), an affiliate of the Manager, provides transfer agent services to the Fund. The Fund's transfer agent's fees are accrued daily and paid monthly at an annualized rate of 0.05% of the Fund's average net assets for the fiscal year. For the six-month period ended September 30, 2016, the Fund incurred transfer agent's fees, paid or payable to SAS, of $106,000. E. UNDERWRITING SERVICES - USAA Investment Management Company provides exclusive underwriting and distribution of the Fund's shares on a continuing best-efforts basis and receives no fee or other compensation for these services. ================================================================================ 22 | USAA TARGET MANAGED ALLOCATION FUND ================================================================================ (6) TRANSACTIONS WITH AFFILIATES The Fund offers its shares for investment by other USAA funds and is one of 20 USAA mutual funds in which the affiliated USAA fund-of-funds invest. The USAA fund-of-funds do not invest in the Fund for the purpose of exercising management or control. As of September 30, 2016, the USAA fund-of-funds owned the following percentages of the total outstanding shares of the Fund:
AFFILIATED USAA FUND OWNERSHIP % -------------------------------------------------------------------------------- Target Retirement Income 2.1 Target Retirement 2020 8.0 Target Retirement 2030 27.2 Target Retirement 2040 38.0 Target Retirement 2050 22.8 Target Retirement 2060 1.9
The Manager is indirectly wholly owned by United Services Automobile Association (USAA), a large, diversified financial services institution. Certain trustees and officers of the Fund are also directors, officers, and/or employees of the Manager. None of the affiliated trustees or Fund officers received any compensation from the Fund. (7) SECURITY TRANSACTIONS WITH AFFILIATED FUNDS During the six-month period ended September 30, 2016, in accordance with affiliated transaction procedures approved by the Board, purchases and sales of security transactions were executed between the Fund and the following affiliated USAA Funds at the then-current market price with no brokerage commissions incurred.
NET REALIZED COST TO GAIN (LOSS) SELLER PURCHASER PURCHASER TO SELLER ------------------------------------------------------------------------------------------------------ Target Managed Allocation Cornerstone Moderate $1,213,000 $ 8,000 Target Managed Allocation Cornerstone Moderately Aggressive 6,834,000 (26,000) Target Managed Allocation First Start Growth 3,496,000 (204,000) Cornerstone Moderately Conservative Target Managed Allocation 3,181,000 195,000 Cornerstone Moderately Aggressive Target Managed Allocation 3,820,000 238,000
================================================================================ NOTES TO FINANCIAL STATEMENTS | 23 ================================================================================ (8) FINANCIAL HIGHLIGHTS Per share operating performance for a share outstanding throughout each period is as follows:
SIX-MONTH PERIOD ENDED PERIOD ENDED SEPTEMBER 30, MARCH 31, ------------------------------------ 2016 2016*** ------------------------------------ Net asset value at beginning of period $ 9.49 $ 10.00 ---------------------------------- Income (loss) from investment operations: Net investment income .08 .12(b) Net realized and unrealized gain(loss) .67 (.51)(b) ---------------------------------- Total from investment operations .75 (.39) ---------------------------------- Less distributions from: Net investment income - (.12) ---------------------------------- Net asset value at end of period $ 10.24 $ 9.49 ================================== Total return (%)* 7.90 (3.91) Net assets at end of period (000) $433,643 $415,896 Ratios to average net assets:** Expenses (%)(a) .64 .65 Expenses, excluding reimbursements (%)(a) .64(c) .65 Net investment income (%)(a) 1.64 1.88 Portfolio turnover (%) 69 84
* Assumes reinvestment of all net investment income and realized capital gain distributions, if any, during the period. Includes adjustments in accordance with U.S. generally accepted accounting principles and could differ from the Lipper reported return. Total returns for periods of less than one year are not annualized. ** For the six-month period ended September 30, 2016, average net assets were $423,542,000. *** Fund commenced operations on August 7, 2015. (a) Annualized. The ratio is not necessarily indicative of 12 months of operations. (b) Calculated using average shares. (c) Prior to August 1, 2016, the Manager voluntarily agreed to limit the annual expenses of the Fund to 0.70% of the Fund's average net assets. ================================================================================ 24 | USAA TARGET MANAGED ALLOCATION FUND ================================================================================ EXPENSE EXAMPLE September 30, 2016 (unaudited) -------------------------------------------------------------------------------- EXAMPLE As a shareholder of the Fund, you incur two types of costs: direct costs, such as wire fees, redemption fees, and low balance fees; and indirect costs, including management fees, transfer agency fees, and other Fund operating expenses. This example is intended to help you understand your indirect costs, also referred to as "ongoing costs" (in dollars), of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire six-month period of April 1, 2016, through September 30, 2016. ACTUAL EXPENSES The line labeled "actual" in the table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested at the beginning of the period, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "actual" line under the heading "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The line labeled "hypothetical" in the table provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account ================================================================================ EXPENSE EXAMPLE | 25 ================================================================================ balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any direct costs, such as wire fees, redemption fees, or low balance fees. Therefore, the line labeled "hypothetical" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these direct costs were included, your costs would have been higher.
EXPENSES PAID BEGINNING ENDING DURING PERIOD* ACCOUNT VALUE ACCOUNT VALUE APRIL 1, 2016 - APRIL 1, 2016 SEPTEMBER 30, 2016 SEPTEMBER 30, 2016 ---------------------------------------------------------------- Actual $1,000.00 $1,079.00 $3.34 Hypothetical (5% return before expenses) 1,000.00 1,021.86 3.24
*Expenses are equal to the Fund's annualized expense ratio of 0.64%, which is net of any reimbursements and expenses paid indirectly, multiplied by the average account value over the period, multiplied by 183 days/365 days (to reflect the one-half-year period). The Fund's actual ending account value is based on its actual total return of 7.90% for the six-month period of April 1, 2016, through September 30, 2016. ================================================================================ 26 | USAA TARGET MANAGED ALLOCATION FUND ================================================================================ ADVISORY AGREEMENT(S) September 30, 2016 (unaudited) -------------------------------------------------------------------------------- At an in-person meeting of the Board of Trustees (the Board) held on April 22, 2016, the Board, including the Trustees who are not "interested persons" (as that term is defined in the Investment Company Act of 1940, as amended) of the Trust (the Independent Trustees), approved for an annual period the continuance of the Advisory Agreement between the Trust and the Manager with respect to the Fund. In advance of the meeting, the Trustees received and considered a variety of information relating to the Advisory Agreement and the Manager and were given the opportunity to ask questions and request additional information from management. The information provided to the Board included, among other things: (i) a separate report prepared by an independent third party, which provided a statistical analysis comparing the Fund's investment performance, expenses, and fees to comparable investment companies; (ii) information concerning the services rendered to the Fund, as well as information regarding the Manager's revenues and costs of providing services to the Fund and compensation paid to affiliates of the Manager; and (iii) information about the Manager's operations and personnel. Prior to voting, the Independent Trustees reviewed the proposed continuation of the Advisory Agreement with management and with experienced counsel retained by the Independent Trustees (Independent Counsel) and received materials from such Independent Counsel discussing the legal standards for their consideration of the proposed continuation of the Advisory Agreement with respect to the Fund. The Independent Trustees also reviewed the proposed continuation of the Advisory Agreement with respect to the Fund in private sessions with Independent Counsel at which no representatives of management were present. At each regularly scheduled meeting of the Board and its committees, the Board receives and reviews, among other things, information concerning the Fund's performance and related services provided by the Manager. At the ================================================================================ ADVISORY AGREEMENT(S) | 27 ================================================================================ meeting at which the renewal of the Advisory Agreement is considered, particular focus is given to information concerning Fund performance, fees and total expenses as compared to comparable investment companies, and the Manager's profitability with respect to the Fund. However, the Board noted that the evaluation process with respect to the Manager is an ongoing one. In this regard, the Board's and its committees' consideration of the Advisory Agreement included information previously received at such meetings. ADVISORY AGREEMENT After full consideration of a variety of factors, the Board, including the Independent Trustees, voted to approve the Advisory Agreement. In approving the Advisory Agreement, the Trustees did not identify any single factor as controlling, and each Trustee may have attributed different weights to various factors. Throughout their deliberations, the Independent Trustees were represented and assisted by Independent Counsel. NATURE, EXTENT, AND QUALITY OF SERVICES - In considering the nature, extent, and quality of the services to be provided by the Manager under the Advisory Agreement, the Board reviewed information provided by the Manager relating to its operations and personnel. The Board also took into account its knowledge of the Manager's management and the quality of the performance of the Manager's duties through Board meetings, discussions, and reports during the preceding year in connection with the other funds in the Trust. The Board considered the fees paid to the Manager and the services to be provided to the Fund by the Manager under the Advisory Agreement, as well as other services to be provided by the Manager and its affiliates under other agreements, and the personnel who would be responsible for providing these services. The Board also took into consideration that, in addition to the investment advisory services to be provided to the Fund, the Manager and its affiliates will provide administrative services, compliance oversight, stockholder services, oversight of Fund accounting, assistance in meeting legal and regulatory requirements, and other services necessary for the operation of the Fund and the Trust. The Board considered the Manager's management style and the performance of the Manager's duties under the Advisory Agreement with respect to the other funds in the Trust. The Board considered the level and depth of ================================================================================ 28 | USAA TARGET MANAGED ALLOCATION FUND ================================================================================ knowledge of the Manager, including the professional experience and qualifications of its senior and investment personnel, as well as current staffing levels. The expected allocation of the Fund's brokerage, including the Manager's process for monitoring "best execution," was also considered. The Manager's role in coordinating the activities of the Fund's other service providers also was considered. The Board also considered the Manager's risk management processes. The Board considered the Manager's financial condition and that it had the financial wherewithal to provide a high quality of services under the Advisory Agreement. In reviewing the Advisory Agreement, the Board focused on the experience, resources, and strengths of the Manager and its affiliates in managing the other funds in the Trust. The Board also reviewed the compliance and administrative services to be provided to the Fund by the Manager, including oversight of the Fund's day- to-day operations and oversight of Fund accounting. The Trustees, guided also by information obtained from their experiences as trustees of other funds managed by the Manager, also focused on the quality of the Manager's compliance and administrative staff. EXPENSES AND PERFORMANCE - In connection with its consideration of the Advisory Agreement, the Board evaluated the Fund's advisory fees and total expense ratio as compared to other open-end investment companies deemed to be comparable to the Fund as determined by the independent third party in its report. The Fund's expenses were compared to (i) a group of investment companies chosen by the independent third party to be comparable to the Fund based upon certain factors, including fund type, comparability of investment objective and classification, sales load type (in this case, unaffiliated actively managed institutional ETF investment companies), asset size, and expense components (the "expense group") and (ii) a larger group of investment companies that includes the Fund and all other unaffiliated actively managed institutional ETF investment companies with a similar investment classifications/objectives as the Fund regardless of asset size, excluding outliers (the "expense universe"). Among other data, the Board noted that the Fund's management fee rate - which includes advisory and administrative services - was above the median of its expense group and its expense universe. The data indicated that the Fund's total expense ratio, including underlying fund expenses, was below the median of its expense ================================================================================ ADVISORY AGREEMENT(S) | 29 ================================================================================ group and its expense universe. The Board took into account the various services provided to the Fund by the Manager and its affiliates, including the nature and high quality of services provided by the Manager. The Board also noted the level and method of computing the management fee. In considering the Fund's performance, the Board noted that it reviews at its regularly scheduled meetings information about the Fund's performance results. The Trustees also reviewed various comparative data provided to them in connection with their consideration of the renewal of the Advisory Agreement, including, among other information, a comparison of the Fund's average annual total return with its Lipper index and with that of other mutual funds deemed to be in its peer group by the independent third party in its report (the "performance universe"). The Fund's performance universe consisted of the Fund and all retail and institutional open-end investment companies with the same classification/objective as the Fund regardless of asset size or primary channel of distribution. This comparison indicated that, among other data, the Fund's performance was lower than the average of its performance universe and its Lipper index for the period August 31, 2015 to December 31, 2015. The Board also noted that the Fund's percentile performance ranking was in the bottom 50% of its performance universe for the period August 31, 2015 to December 31, 2015. The Board also noted that the Funds recently commenced operations and therefore has a limited performance history. COMPENSATION AND PROFITABILITY - The Board took into consideration the level and method of computing the management fee. The information considered by the Board included operating profit margin information for the Manager's business as a whole. The Board also received and considered profitability information related to the management revenues from the Fund. This information included a review of the methodology used in the allocation of certain costs to the Fund. The Trustees reviewed the profitability of the Manager's relationship with the Fund before tax expenses. In reviewing the overall profitability of the management fee to the Manager, the Board also considered the fact that affiliates provide shareholder servicing and administrative services to the Fund for which they receive compensation. The Board also considered the possible direct and indirect benefits to the Manager from its relationship with the Trust, including that the Manager may derive ================================================================================ 30 | USAA TARGET MANAGED ALLOCATION FUND ================================================================================ reputational and other benefits from its association with the Fund. The Board also took into account the high quality of services received by the Fund from the Manager as well as the type of fund. The Trustees recognized that the Manager should be entitled to earn a reasonable level of profits in exchange for the level of services it provides to the Fund and the entrepreneurial risk that it assumes as Manager. ECONOMIES OF SCALE - The Board took into account management's discussions of the Fund's advisory fee structure. The Board also considered the effect of the Fund's growth and size on its performance and fees, noting that if the Fund's assets increase over time, the Fund may realize other economies of scale if assets increase proportionally more than some expenses. The Board also considered the fee waivers and expense reimbursement arrangements by the Manager. The Board determined that the investment management fee structure was reasonable. CONCLUSIONS - The Board reached the following conclusions regarding the Fund's Advisory Agreement with the Manager, among others: (i) the Manager has demonstrated that it possesses the capability and resources to perform the duties required of it under the Advisory Agreement; (ii) the Manager maintains an appropriate compliance program; (iii) the performance of the Fund is reasonable in relation to the performance of funds with similar investment objectives and to relevant indices in view of its limited performance history; (iv) the Fund's advisory expenses are reasonable in relation to those of similar funds and to the services to be provided by the Manager; and (v) the Manager's and its affiliates' level of profitability from its relationship with the Fund is reasonable in light of the nature and high quality of services provided by the Manager and the type of fund. Based on its conclusions, the Board determined that continuation of the Advisory Agreement would be in the best interests of the Fund and its shareholders. ================================================================================ ADVISORY AGREEMENT(S) | 31 ================================================================================ TRUSTEES Daniel S. McNamara Robert L. Mason, Ph.D. Jefferson C. Boyce Dawn M. Hawley Paul L. McNamara Barbara B. Ostdiek, Ph.D. Michael F. Reimherr -------------------------------------------------------------------------------- ADMINISTRATOR AND USAA Asset Management Company INVESTMENT ADVISER P.O. Box 659453 San Antonio, Texas 78265-9825 -------------------------------------------------------------------------------- UNDERWRITER AND USAA Investment Management Company DISTRIBUTOR P.O. Box 659453 San Antonio, Texas 78265-9825 -------------------------------------------------------------------------------- TRANSFER AGENT USAA Shareholder Account Services 9800 Fredericksburg Road San Antonio, Texas 78288 -------------------------------------------------------------------------------- CUSTODIAN AND State Street Bank and Trust Company ACCOUNTING AGENT P.O. Box 1713 Boston, Massachusetts 02105 -------------------------------------------------------------------------------- INDEPENDENT Ernst & Young LLP REGISTERED PUBLIC 100 West Houston St., Suite 1700 ACCOUNTING FIRM San Antonio, Texas 78205 -------------------------------------------------------------------------------- MUTUAL FUND Under "My Accounts" on SELF-SERVICE 24/7 usaa.com select your mutual fund AT USAA.COM account and either click the link or select 'I want to...' and select OR CALL the desired action. (800) 531-USAA (8722) (210) 531-8722 -------------------------------------------------------------------------------- Copies of the Manager's proxy voting policies and procedures, approved by the Trust's Board of Trustees for use in voting proxies on behalf of the Fund, are available without charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722; (ii) at USAA.COM; and (iii) in summary within the Statement of Additional Information on the SEC's website at HTTP://WWW.SEC.GOV. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge (i) at USAA.COM; and (ii) on the SEC's website at HTTP://WWW.SEC.GOV. The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. These Forms N-Q are available at no charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722; (ii) at USAA.COM; and (iii) on the SEC's website at HTTP://WWW.SEC.GOV. These Forms N-Q also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling (800) 732-0330. ================================================================================ -------------- USAA PRSRT STD 9800 Fredericksburg Road U.S. Postage San Antonio, TX 78288 PAID USAA -------------- >> SAVE PAPER AND FUND COSTS Under MY PROFILE on USAA.COM select MANAGE PREFERENCES Set your DOCUMENT PREFERENCES to USAA DOCUMENTS ONLINE. [LOGO OF USAA] USAA We know what it means to serve.(R) ============================================================================= 98356-1116 (C)2016, USAA. All rights reserved. [LOGO OF USAA] USAA(R) [GRAPHIC OF USAA VIRGINIA BOND FUND] =============================================== SEMIANNUAL REPORT USAA VIRGINIA BOND FUND FUND SHARES o ADVISER SHARES SEPTEMBER 30, 2016 =============================================== ================================================================================ ================================================================================ PRESIDENT'S MESSAGE "THE CLOSING WEEKS OF A YEAR CAN BE A GOOD TIME TO TAKE A LOOK AT YOUR FINANCIAL SITUATION [PHOTO OF BROOKS ENGLEHARDT] WITH A GOAL OF GETTING YOUR FINANCES IN ORDER." -------------------------------------------------------------------------------- NOVEMBER 2016 Investors were generally rewarded during the reporting period ended September 30, 2016. Most asset classes posted gains as global growth concerns eased and many of the world's central banks, including the Federal Reserve (the Fed), maintained accommodative monetary policies. Stock prices generally climbed, despite two brief setbacks. In June 2016, a brief retreat followed the United Kingdom's unexpected vote to withdraw from the European Union (commonly known as Brexit). In September 2016, stocks fell--before quickly recovering--on concerns about a potential Fed interest rate increase. Meanwhile, bond prices recorded positive returns during the reporting period. As bond prices rose, longer-term interest rates, which move in the opposite direction, fell. As you know, the Fed only has direct control over short-term interest rates. Bond prices and longer-term interest rates are determined by buyers and sellers, sometimes based on their views of Fed policy. During the reporting period, market expectations about potential Fed interest rate increases shifted into the future. The Fed, which in December 2015 had raised short-term interest rates for the first time since 2008, also initially signaled that four interest rate increases were on tap for 2016. However, policymakers backed off that forecast in March 2016, just before the reporting period began, indicating that only two interest rate increases were on the table. They pointed to the global market turmoil during the first six weeks of 2016 as a contributing factor. Policymakers subsequently hinted there would be a single interest rate increase, but ultimately left interest rates unchanged. In our view, December 2016 is the Fed's only remaining window of opportunity to increase short-term interest rates. It is unlikely to act at its November 2016 meeting, which is just days before the presidential election. We believe that as of this writing, the futures market, which generally is a proxy for investor sentiment, indicates approximately a two-thirds chance that the Fed would raise rates in December 2016. ================================================================================ ================================================================================ This begs the question: Is it good or bad if low interest rates persist? We think it depends on your perspective. On one hand, consumers and businesses are able to continue borrowing at affordable interest rates. On the other hand, savers may continue to see returns lower than the rate of inflation. At USAA Investments, we believe the Fed is likely to raise interest rates at a gradual pace. We've long held the belief that interest rates will stay lower for longer than many market participants expect. Currently, there is no urgency for the Fed to act. Interest rate increases are typically a response to an overheating economy, and the U.S. remains in slow-growth mode with low inflation. Americans are still carrying large amounts of household debt, so higher interest rates are likely to hinder their spending and slow what little growth there is. Tax-exempt bonds, like most other fixed-income investments, generated positive returns during the reporting period. Municipal bonds performed well, as investors continued to favor them for their tax-advantaged status. At the same time, municipal issuance remained low, though it has increased since January 2016. Still, the supply is far from enough to satisfy demand and we expect municipal bonds to continue to benefit from this situation for some time to come. Although state and local finances are in better shape than they were a few years ago, municipal governments have been reluctant to take on additional debt. We believe eventually this will change, but likely not for the foreseeable future. Looking ahead, the end of 2016 is just weeks away. The closing weeks of a year can be a good time to take a look at your financial situation with a goal of getting your finances in order. One way to help ensure you're doing the most with what you have is to consider investing a set amount each month, also known as dollar-cost averaging. Please call USAA Investments to speak with a financial advisor. We are committed to helping you meet your financial objectives. On behalf of everyone at USAA Investments, thank you for relying on us to help you with your investment needs. We appreciate the opportunity to serve you. Sincerely, /S/ BROOKS ENGLEHARDT Brooks Englehardt President USAA Investments Investments provided by USAA Investment Management Company and USAA Financial Advisors, Inc., both registered broker-dealers, and affiliates. Financial planning services and financial advice provided by USAA Financial Planning Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in California, License # 0E36312), a registered investment adviser and insurance agency and its wholly owned subsidiary, USAA Financial Advisors, Inc., a registered broker dealer. ================================================================================ ================================================================================ TABLE OF CONTENTS -------------------------------------------------------------------------------- FUND OBJECTIVE 1 MANAGERS' COMMENTARY ON THE FUND 2 INVESTMENT OVERVIEW 5 FINANCIAL INFORMATION Portfolio of Investments 16 Notes to Portfolio of Investments 24 Financial Statements 26 Notes to Financial Statements 29 EXPENSE EXAMPLE 42 ADVISORY AGREEMENT(S) 44
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS ABOUT THE FUND. (C)2016, USAA. All rights reserved. 211759-1116 ================================================================================ ================================================================================ FUND OBJECTIVE THE USAA VIRGINIA BOND FUND (THE FUND) PROVIDES VIRGINIA INVESTORS WITH A HIGH LEVEL OF CURRENT INTEREST INCOME THAT IS EXEMPT FROM FEDERAL AND VIRGINIA STATE INCOME TAXES. -------------------------------------------------------------------------------- TYPES OF INVESTMENTS The Fund invests primarily in long-term investment-grade securities issued by the Commonwealth of Virginia, its political subdivisions, instrumentalities, and by other government entities, the interest on which is exempt from federal income tax and Virginia state income tax. During normal market conditions, at least 80% of the Fund's net assets will consist of Virginia tax-exempt securities. The Fund's dollar-weighted average portfolio maturity is not restricted, but is expected to be greater than 10 years. IRA DISTRIBUTION WITHHOLDING DISCLOSURE We generally must withhold federal income tax at a rate of 10% of the taxable portion of your distribution and, if you live in a state that requires state income tax withholding, at your state's tax rate. However, you may elect not to have withholding apply or to have income tax withheld at a higher rate. Any withholding election that you make will apply to any subsequent distribution unless and until you change or revoke the election. If you wish to make a withholding election or change or revoke a prior withholding election, call (800) 531-USAA (8722) or (210) 531-8722. If you do not have a withholding election in place by the date of a distribution, federal income tax will be withheld from the taxable portion of your distribution at a rate of 10%. If you must pay estimated taxes, you may be subject to estimated tax penalties if your estimated tax payments are not sufficient and sufficient tax is not withheld from your distribution. For more specific information, please consult your tax adviser. ================================================================================ FUND OBJECTIVE | 1 ================================================================================ MANAGERS' COMMENTARY ON THE FUND -------------------------------------------------------------------------------- [PHOTO OF JOHN C. BONNELL] [PHOTO OF DALE R. HOFFMANN] JOHN C. BONNELL, CFA DALE R. HOFFMANN USAA Asset USAA Asset Management Company Management Company -------------------------------------------------------------------------------- o WHAT WERE THE MARKET CONDITIONS DURING THE REPORTING PERIOD? The tax-exempt bond market advanced during the reporting period ended September 30, 2016, as demand for municipal securities outweighed the amount of available supply. Although new issuance picked up, it remained low by historical standards. Furthermore, it was dominated by refunding bonds rather than new issues. In a bond refunding, issuers call existing high-interest bonds and replace them with new bonds that have lower coupon rates. Meanwhile, as demand for municipal bonds increased, municipal bond mutual funds also received positive investment inflows every week of the reporting period. Investors continued to prefer municipal securities for their tax-advantaged status as well as their relative stability. Municipal bonds also benefited from the performance of the U.S. Treasury market, which the tax-exempt bond market generally follows over time. Longer-term U.S. Treasury securities rallied on strong demand, especially from foreign investors who favored U.S. Treasuries because of their relatively higher yields compared to the government bonds of other developed countries. As U.S. Treasury prices rose, their yields (which move in the opposite direction) fell. During the reporting period, the yield on a 30-year U.S. Treasury security dropped from 2.61% at 3/31/16 to 2.32% at 9/30/16. Municipal credit quality remained strong as state and local governments continued to practice sound fiscal management and generally maintained healthy reserves. State and local revenues rose, though at a more moderate ================================================================================ 2 | USAA VIRGINIA BOND FUND ================================================================================ pace than in the recent past. Numerous issuers also took steps to address their pension risks, in some cases proposing tax increases to deal with potential pension-funding shortfalls. Unlike corporate issuers, many state and municipal governments have broad taxing powers and are required by law to balance their budgets. o HOW DID THE USAA VIRGINIA BOND FUND (THE FUND) PERFORM DURING THE REPORTING PERIOD? The Fund has two share classes: Fund Shares and Adviser Shares. For the reporting period ended September 30, 2016, the Fund Shares and Adviser Shares had a total return of 2.30% and 2.18%, respectively, versus an average return of 2.94% amongst the funds in the Lipper Virginia Municipal Debt Funds category. This compares to returns of 2.97% for the Lipper Virginia Municipal Debt Funds Index and 2.30% for the Bloomberg Barclays Municipal Bond Index*. The Fund Shares' and Adviser Shares' tax-exempt distributions over the prior 12 months produced a dividend yield of 3.34% and 3.10%, respectively, compared to the Lipper category average of 3.27%. USAA Asset Management Company (the Manager) is the Fund's investment adviser. The investment adviser provides day-to-day discretionary management for the Fund's assets. o WHAT ARE THE CONDITIONS IN THE COMMONWEALTH OF VIRGINIA? Given its proximity to Washington, D.C. and its dependency on government and government-related jobs, Virginia's economy appears to be feeling the effects of federal spending cuts. However, at the end of the reporting period, its economy continued to be stronger than that of most states. Virginia has been proactive in cutting expenditures to maintain Refer to page 8 for benchmark definitions. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. *Effective August 24, 2016, Bloomberg acquired Barclays Risk Analytics and Index Solutions, Ltd., which includes the Barclays indices. Thus, the Fund's benchmark is now called the Bloomberg Barclays Municipal Bond Index. ================================================================================ MANAGERS' COMMENTARY ON THE FUND | 3 ================================================================================ overall balance and has been able to post budget surpluses to restore financial reserves. Virginia's conservative fiscal practices seem to be serving it well, as it remains one of the minority of states rated AAA by all three credit-rating agencies at the end of the reporting period. Virginia is characterized by a broad-based economy, with a well-educated work force and high wealth levels, as well as a history of conservative fiscal management. o WHAT STRATEGIES DID YOU EMPLOY DURING THE REPORTING PERIOD? We maintained our focus on income generation. Over the long-term, the Fund's income distribution, not its price appreciation, accounts for most of its total return. During the reporting period, the Fund continued to benefit from our independent research. In our efforts to find attractive opportunities, we continued to work with our in-house team of analysts to select investments for the Fund on a bond-by-bond basis. Each security is researched, using fundamental analysis that emphasizes an issuer's ability and willingness to repay its debt. Through our research, we seek both to recognize value and avoid potential risks. The Fund continues to be diversified by sector and issuer, limiting its exposure to an unexpected event. We also avoid bonds subject to the federal alternative minimum tax for individuals. Thank you for allowing us to help you with your investment needs. As interest rates rise, bond prices generally fall; given the historically low interest rate environment, risks associated with rising interest rates may be heightened. o Diversification is a technique intended to help reduce risk and does not guarantee a profit or prevent a loss. o Some income may be subject to state or local taxes but not the federal alternative minimum tax. ================================================================================ 4 | USAA VIRGINIA BOND FUND ================================================================================ INVESTMENT OVERVIEW USAA VIRGINIA BOND FUND SHARES (FUND SHARES) (Ticker Symbol: USVAX)
-------------------------------------------------------------------------------- 9/30/16 3/31/16 -------------------------------------------------------------------------------- Net Assets $690.0 Million $648.9 Million Net Asset Value Per Share $11.60 $11.52 LAST 12 MONTHS Tax-Exempt Dividends Per Share $0.387 $0.412 Capital Gain Distributions Per Share - - Dollar-Weighted Average Portfolio Maturity(+) 13.0 Years 14.8 Years (+)Obtained by multiplying the dollar value of each investment by the number of days left to its maturity, adding those figures together, and dividing them by the total dollar value of the Fund's portfolio. -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 9/30/16 -------------------------------------------------------------------------------- 3/31/16-9/30/16* 1 YEAR 5 YEARS 10 YEARS 2.30% 5.22% 4.64% 4.26% ------------------------------------------------------------------------------- 30-DAY SEC YIELD** AS OF 9/30/16 EXPENSE RATIO AS OF 3/31/16*** ------------------------------------------------------------------------------- 1.41% 0.60%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT USAA.COM. *Total returns for periods of less than one year are not annualized. This return is cumulative. **Calculated as prescribed by the Securities and Exchange Commission. ***The expense ratio represents the total annual operating expenses, before reductions of any expenses paid indirectly and including any acquired fund fees and expenses, as reported in the Fund's prospectus dated August 1, 2016, and is calculated as a percentage of average net assets. This expense ratio may differ from the expense ratio disclosed in the Financial Highlights, which excludes acquired fund fees and expenses. No adjustment has been made for taxes payable by shareholders on their reinvested net investment income and realized capital gain distributions. ================================================================================ INVESTMENT OVERVIEW | 5 ================================================================================ AVERAGE ANNUAL COMPOUNDED RETURNS WITH REINVESTMENT OF DIVIDENDS - PERIODS ENDED SEPTEMBER 30, 2016
-------------------------------------------------------------------------------- TOTAL RETURN = DIVIDEND RETURN + PRICE CHANGE -------------------------------------------------------------------------------- 10 YEARS 4.26% = 4.19% + 0.07% 5 YEARS 4.64% = 3.83% + 0.81% 1 YEAR 5.22% = 3.47% + 1.75%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT USAA.COM. ANNUAL TOTAL RETURNS AND COMPOUNDED DIVIDEND RETURNS FOR THE ONE-YEAR PERIODS ENDED SEPTEMBER 30, 2007-SEPTEMBER 30, 2016 [CHART OF TOTAL RETURN, DIVIDEND RETURN AND CHANGE IN SHARE PRICE]
TOTAL RETURN DIVIDEND RETURN CHANGE IN SHARE PRICE 9/30/2007 1.58% 4.21% -2.63% 9/30/2008 -3.49% 4.31% -7.80% 9/30/2009 12.03% 5.37% 6.66% 9/30/2010 5.88% 4.52% 1.36% 9/30/2011 4.02% 4.33% -0.31% 9/30/2012 8.91% 4.15% 4.76% 9/30/2013 -3.12% 3.65% -6.77% 9/30/2014 9.91% 4.21% 5.70% 9/30/2015 2.80% 3.67% -0.87% 9/30/2016 5.22% 3.47% 1.75%
[END CHART] NOTE THE ROLE THAT DIVIDEND RETURNS PLAY IN THE FUND SHARES' TOTAL RETURN OVER TIME. SHARE PRICES AND DIVIDEND RATES WILL VARY FROM PERIOD TO PERIOD. HOWEVER, DIVIDEND RETURNS GENERALLY ARE MORE CONSISTENT AND LESS VOLATILE THAN SHARE PRICES. Total return measures the price change in a share assuming the reinvestment of all net investment income and realized capital gain distributions, if any. Dividend return is the net investment income dividends received over the period, assuming reinvestment of all dividends. Share price change is the change in net asset value over the period adjusted for realized capital gain distributions. The returns quoted do not reflect adjustments made to the enclosed financial statements in accordance with U.S. generally accepted accounting principles or the deduction of taxes that a shareholder would pay on distributions (including capital gain distributions), redemptions of shares, or reinvested net investment income. ================================================================================ 6 | USAA VIRGINIA BOND FUND ================================================================================ TAXABLE EQUIVALENT ILLUSTRATION To match the Fund Shares' Dividend Return for the period ended 9/30/16, and assuming Virginia state tax rates of: 5.75% 5.75% 5.75% 5.75% and assuming marginal federal tax rates of: 28.00% 36.80%* 38.80%* 43.40%* A FULLY TAXABLE INVESTMENT MUST PAY THE FOLLOWING:
PERIOD DIVIDEND RETURN -------------------------------------------------------------------------------- 10 Years 4.19% 6.17% 7.03% 7.26% 7.85% 5 Years 3.83% 5.64% 6.43% 6.64% 7.18% 1 Year 3.47% 5.11% 5.83% 6.02% 6.50%
To match the Fund Shares' closing 30-day SEC Yield of 1.41% on 09/30/16 A FULLY TAXABLE INVESTMENT MUST PAY: 2.08% 2.37% 2.44% 2.64% This table is based on a hypothetical investment calculated for illustrative purposes only. It is not an indication of performance for any of the USAA family of funds. Taxable equivalent returns or yields will vary depending on applicable tax rates. -------------------------------------------------------------------------------- Some income may be subject to federal, state, or local taxes, but not the alternative minimum tax. Based on 2015 tax rates or rates in effect as of the issuance of this report. The above marginal rates assume married, filing jointly. *The above marginal rates assume income exceeds $250,000 and investment income is subject to the 3.80% medicare tax which is applied for income over a specific level, depending on the federal income tax filing status. ================================================================================ INVESTMENT OVERVIEW | 7 ================================================================================ o CUMULATIVE PERFORMANCE COMPARISON o [CHART OF CUMULATIVE PERFORMANCE COMPARISON]
BLOOMBERG BARCLAYS USAA VIRGINIA LIPPER VIRGINIA MUNICIPAL BOND BOND FUND MUNICIPAL DEBT INDEX SHARES FUNDS INDEX 09/30/06 $10,000.00 $10,000.00 $10,000.00 10/31/06 10,062.71 10,068.00 10,060.90 11/30/06 10,146.59 10,164.00 10,141.76 12/31/06 10,110.74 10,109.00 10,099.91 01/31/07 10,084.85 10,090.00 10,082.07 02/28/07 10,217.74 10,222.00 10,202.69 03/31/07 10,192.55 10,179.00 10,170.21 04/30/07 10,222.72 10,222.00 10,206.86 05/31/07 10,177.46 10,160.00 10,161.15 06/30/07 10,124.72 10,091.00 10,100.99 07/31/07 10,203.21 10,135.00 10,160.51 08/31/07 10,159.19 9,979.00 10,048.65 09/30/07 10,309.52 10,157.00 10,200.49 10/31/07 10,355.47 10,204.00 10,239.19 11/30/07 10,421.50 10,244.00 10,269.14 12/31/07 10,450.43 10,218.00 10,256.65 01/31/08 10,582.21 10,347.00 10,368.02 02/29/08 10,097.73 9,801.00 9,872.84 03/31/08 10,386.34 10,058.00 10,130.52 04/30/08 10,507.88 10,218.00 10,272.34 05/31/08 10,571.41 10,332.00 10,359.87 06/30/08 10,452.09 10,240.00 10,238.80 07/31/08 10,491.82 10,215.00 10,235.75 08/31/08 10,614.60 10,301.00 10,319.38 09/30/08 10,116.83 9,803.00 9,885.36 10/31/08 10,013.57 9,543.00 9,647.77 11/30/08 10,045.40 9,504.00 9,574.84 12/31/08 10,191.86 9,460.00 9,598.76 01/31/09 10,564.91 9,799.00 10,026.95 02/28/09 10,620.41 9,917.00 10,122.86 03/31/09 10,622.35 9,928.00 10,124.96 04/30/09 10,834.56 10,134.00 10,370.14 05/31/09 10,949.17 10,283.00 10,533.04 06/30/09 10,846.60 10,236.00 10,466.15 07/31/09 11,028.07 10,359.00 10,601.28 08/31/09 11,216.61 10,575.00 10,800.80 09/30/09 11,619.14 10,982.00 11,190.48 10/31/09 11,375.24 10,836.00 11,031.99 11/30/09 11,469.23 10,886.00 11,044.21 12/31/09 11,507.99 10,971.00 11,124.51 01/31/10 11,567.92 11,039.00 11,165.14 02/28/10 11,680.05 11,131.00 11,262.82 03/31/10 11,652.09 11,142.00 11,258.76 04/30/10 11,793.69 11,237.00 11,374.53 05/31/10 11,882.15 11,285.00 11,423.78 06/30/10 11,889.21 11,273.00 11,395.50 07/31/10 12,037.46 11,367.00 11,513.64 08/31/10 12,313.06 11,589.00 11,751.02 09/30/10 12,293.82 11,628.00 11,773.55 10/31/10 12,259.77 11,602.00 11,742.47 11/30/10 12,014.62 11,328.00 11,458.74 12/31/10 11,781.79 11,092.00 11,221.26 01/31/11 11,695.00 10,971.00 11,085.39 02/28/11 11,881.18 11,182.00 11,265.00 03/31/11 11,841.59 11,138.00 11,225.74 04/30/11 12,053.65 11,341.00 11,426.79 05/31/11 12,259.63 11,584.00 11,650.17 06/30/11 12,302.40 11,658.00 11,709.86 07/31/11 12,427.95 11,774.00 11,814.08 08/31/11 12,640.57 11,935.00 11,960.59 09/30/11 12,771.24 12,098.00 12,132.76 10/31/11 12,723.76 12,050.00 12,093.46 11/30/11 12,798.93 12,091.00 12,133.15 12/31/11 13,042.41 12,310.00 12,362.26 01/31/12 13,344.04 12,645.00 12,737.63 02/29/12 13,357.19 12,653.00 12,737.31 03/31/12 13,270.40 12,629.00 12,655.65 04/30/12 13,423.49 12,757.00 12,801.84 05/31/12 13,534.92 12,876.00 12,922.94 06/30/12 13,520.39 12,895.00 12,911.01 07/31/12 13,734.67 13,058.00 13,138.82 08/31/12 13,750.31 13,103.00 13,159.54 09/30/12 13,833.37 13,174.00 13,231.15 10/31/12 13,872.40 13,238.00 13,279.10 11/30/12 14,100.94 13,430.00 13,535.43 12/31/12 13,926.66 13,266.00 13,304.05 01/31/13 13,984.66 13,339.00 13,399.24 02/28/13 14,027.02 13,380.00 13,431.92 03/31/13 13,966.53 13,340.00 13,337.86 04/30/13 14,119.63 13,474.00 13,490.79 05/31/13 13,947.15 13,334.00 13,350.12 06/30/13 13,552.23 12,899.00 12,845.50 07/31/13 13,433.74 12,710.00 12,660.92 08/31/13 13,242.02 12,477.00 12,355.90 09/30/13 13,527.03 12,763.00 12,602.59 10/31/13 13,633.90 12,864.00 12,693.01 11/30/13 13,605.80 12,886.00 12,660.52 12/31/13 13,571.05 12,848.00 12,592.83 01/31/14 13,835.44 13,166.00 12,865.28 02/28/14 13,997.67 13,330.00 13,060.33 03/31/14 14,021.21 13,371.00 13,094.91 04/30/14 14,189.67 13,546.00 13,248.57 05/31/14 14,372.39 13,758.00 13,463.43 06/30/14 14,384.85 13,776.00 13,426.52 07/31/14 14,410.18 13,759.00 13,422.43 08/31/14 14,584.73 13,985.00 13,629.03 09/30/14 14,599.54 14,027.00 13,679.74 10/31/14 14,699.62 14,122.00 13,746.43 11/30/14 14,725.09 14,139.00 13,763.96 12/31/14 14,799.29 14,232.00 13,840.73 01/31/15 15,061.60 14,447.00 14,049.59 02/28/15 14,906.29 14,279.00 13,911.02 03/31/15 14,949.34 14,320.00 13,949.76 04/30/15 14,870.85 14,238.00 13,867.38 05/31/15 14,829.74 14,218.00 13,861.63 06/30/15 14,816.31 14,210.00 13,771.93 07/31/15 14,923.59 14,295.00 13,832.36 08/31/15 14,952.94 14,350.00 13,863.10 09/30/15 15,061.18 14,420.00 13,974.25 10/31/15 15,121.12 14,465.00 14,032.90 11/30/15 15,181.20 14,533.00 14,081.67 12/31/15 15,287.92 14,631.00 14,170.58 01/31/16 15,470.36 14,746.00 14,283.59 02/29/16 15,494.59 14,751.00 14,326.31 03/31/16 15,543.73 14,832.00 14,388.57 04/30/16 15,658.07 14,940.00 14,470.15 05/31/16 15,700.42 15,019.00 14,543.35 06/30/16 15,950.14 15,228.00 14,846.91 07/31/16 15,959.83 15,202.00 14,839.86 08/31/16 15,981.42 15,226.00 14,863.93 09/30/16 15,901.69 15,176.00 14,815.22
[END CHART] Data from 9/30/06 through 9/30/16. The graph illustrates the comparison of a $10,000 hypothetical investment in the USAA Virginia Bond Fund Shares to the following benchmarks: o The unmanaged, broad-based Bloomberg Barclays Municipal Bond Index tracks total return performance for the long-term, investment-grade, tax-exempt bond market. All tax-exempt bond funds will find it difficult to outperform the index because the index does not reflect any deduction for fees, expenses, or taxes. o The unmanaged Lipper Virginia Municipal Debt Funds Index, which measures the Fund's performance to that of the Lipper Virginia Municipal Debt Funds category. Past performance is no guarantee of future results, and the cumulative performance quoted does not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of shares. Indexes are unmanaged and you cannot invest directly in an index. The return information for the indexes does not reflect the deduction of any fees, expenses, or taxes, except that the Lipper index reflects the fees and expenses of the underlying funds included in the index. ================================================================================ 8 | USAA VIRGINIA BOND FUND ================================================================================ o 12-MONTH DIVIDEND YIELD COMPARISON o [CHART OF 12-MONTH DIVIDEND YIELD COMPARISON]
USAA VIRGINIA LIPPER VIRGINIA BOND FUND MUNICIPAL DEBT SHARES FUNDS AVERAGE 09/30/07 4.20% 3.79% 09/30/08 4.79% 4.14% 09/30/09 4.29% 3.91% 09/30/10 4.08% 3.80% 09/30/11 4.07% 3.85% 09/30/12 3.66% 3.46% 09/30/13 3.80% 3.60% 09/30/14 3.67% 3.50% 09/30/15 3.55% 3.39% 09/30/16 3.43% 3.12%
[END CHART] The 12-month dividend yield is computed by dividing net investment income dividends paid during the previous 12 months by the latest adjusted month-end net asset value. The yields quoted do not reflect adjustments made to the enclosed financial statements in accordance with U.S. generally accepted accounting principles. The net asset value is adjusted for a portion of the capital gains, if any, distributed during the previous nine months. The graph represents data for periods ending 9/30/07 to 9/30/16. The Lipper Virginia Municipal Debt Funds Average is an average performance level of all Virginia municipal debt funds, reported by Lipper Inc., an independent organization that monitors the performance of mutual funds. ================================================================================ INVESTMENT OVERVIEW | 9 ================================================================================ USAA VIRGINIA BOND FUND ADVISER SHARES (ADVISER SHARES) (Ticker Symbol: UVABX)
-------------------------------------------------------------------------------- 9/30/16 3/31/16 -------------------------------------------------------------------------------- Net Assets $27.1 Million $23.0 Million Net Asset Value Per Share $11.59 $11.51 LAST 12 MONTHS Tax-Exempt Dividends Per Share $0.360 $0.385 Capital Gain Distributions Per Share - - -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 9/30/16 -------------------------------------------------------------------------------- 3/31/16-9/30/16* 1 YEAR 5 YEARS SINCE INCEPTION 8/01/10 2.18% 4.88% 4.39% 4.54% -------------------------------------------------------------------------------- 30-DAY SEC YIELD** AS OF 9/30/16 EXPENSE RATIO AS OF 3/31/16*** -------------------------------------------------------------------------------- 1.17% 0.84%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT USAA.COM. *Total returns for periods of less than one year are not annualized. This return is cumulative. **Calculated as prescribed by the Securities and Exchange Commission. ***The expense ratio represents the total annual operating expenses, before reductions of any expenses paid indirectly and including any acquired fund fees and expenses, as reported in the Fund's prospectus dated August 1, 2016, and is calculated as a percentage of average net assets. This expense ratio may differ from the expense ratio disclosed in the Financial Highlights, which excludes acquired fund fees and expenses. No adjustment has been made for taxes payable by shareholders on their reinvested net investment income and realized capital gain distributions. ================================================================================ 10 | USAA VIRGINIA BOND FUND ================================================================================ TAXABLE EQUIVALENT ILLUSTRATION To match the Adviser Shares' closing 30-day SEC Yield of 1.17% on 09/30/16 and assuming Virginia state tax rates of: 5.75% 5.75% 5.75% 5.75% and assuming marginal federal tax rates of: 28.00% 36.80%* 38.80%* 43.40%* A FULLY TAXABLE INVESTMENT MUST PAY: 1.72% 1.96% 2.03% 2.19% This table is based on a hypothetical investment calculated for illustrative purposes only. It is not an indication of performance for any of the USAA family of funds. Taxable equivalent returns or yields will vary depending on applicable tax rates. -------------------------------------------------------------------------------- Some income may be subject to federal, state, or local taxes, but not the alternative minimum tax. Based on 2015 tax rates or rates in effect as of the issuance of this report. The above marginal rates assume married, filing jointly. *The above marginal rates assume income exceeds $250,000 and investment income is subject to the 3.80% medicare tax which is applied for income over a specific level, depending on the federal income tax filing status. ================================================================================ INVESTMENT OVERVIEW | 11 ================================================================================ o CUMULATIVE PERFORMANCE COMPARISON o [CHART OF CUMULATIVE PERFORMANCE COMPARISON]
BLOOMBERG BARCLAYS USAA VIRGINIA LIPPER VIRGINIA MUNICIPAL BOND BOND FUND MUNICIPAL DEBT INDEX ADVISER SHARES FUNDS INDEX 07/31/10 $10,000.00 $10,000.00 $10,000.00 08/31/10 10,228.95 10,192.19 10,206.18 09/30/10 10,212.97 10,222.70 10,225.75 10/31/10 10,184.68 10,196.69 10,198.75 11/30/10 9,981.03 9,952.02 9,952.32 12/31/10 9,787.61 9,741.82 9,746.05 01/31/11 9,715.50 9,633.52 9,628.05 02/28/11 9,870.17 9,816.40 9,784.05 03/31/11 9,837.28 9,766.84 9,749.95 04/30/11 10,013.45 9,952.12 9,924.57 05/31/11 10,184.57 10,163.27 10,118.58 06/30/11 10,220.10 10,226.11 10,170.42 07/31/11 10,324.40 10,317.16 10,260.95 08/31/11 10,501.03 10,465.37 10,388.20 09/30/11 10,609.58 10,606.52 10,537.72 10/31/11 10,570.14 10,562.58 10,503.59 11/30/11 10,632.58 10,597.09 10,538.07 12/31/11 10,834.86 10,777.74 10,737.06 01/31/12 11,085.43 11,079.06 11,063.08 02/29/12 11,096.35 11,084.08 11,062.80 03/31/12 11,024.25 11,059.90 10,991.87 04/30/12 11,151.44 11,160.75 11,118.85 05/31/12 11,244.01 11,272.50 11,224.02 06/30/12 11,231.93 11,287.75 11,213.67 07/31/12 11,409.94 11,428.16 11,411.52 08/31/12 11,422.94 11,455.60 11,429.52 09/30/12 11,491.93 11,526.22 11,491.72 10/31/12 11,524.36 11,570.41 11,533.37 11/30/12 11,714.22 11,736.71 11,755.99 12/31/12 11,569.44 11,589.94 11,555.03 01/31/13 11,617.62 11,664.31 11,637.71 02/28/13 11,652.81 11,688.99 11,666.09 03/31/13 11,602.56 11,662.23 11,584.40 04/30/13 11,729.74 11,776.88 11,717.22 05/31/13 11,586.46 11,650.37 11,595.05 06/30/13 11,258.38 11,270.46 11,156.77 07/31/13 11,159.95 11,103.25 10,996.45 08/31/13 11,000.68 10,895.31 10,731.53 09/30/13 11,237.45 11,135.56 10,945.79 10/31/13 11,326.23 11,232.88 11,024.33 11/30/13 11,302.88 11,249.95 10,996.10 12/31/13 11,274.02 11,214.46 10,937.31 01/31/14 11,493.66 11,477.65 11,173.95 02/28/14 11,628.43 11,618.75 11,343.36 03/31/14 11,647.98 11,665.55 11,373.39 04/30/14 11,787.93 11,805.90 11,506.85 05/31/14 11,939.72 11,988.11 11,693.46 06/30/14 11,950.07 12,002.50 11,661.40 07/31/14 11,971.12 11,995.70 11,657.85 08/31/14 12,116.12 12,188.98 11,837.29 09/30/14 12,128.43 12,213.54 11,881.33 10/31/14 12,211.57 12,302.10 11,939.25 11/30/14 12,232.73 12,316.47 11,954.48 12/31/14 12,294.37 12,383.75 12,021.16 01/31/15 12,512.28 12,568.27 12,202.56 02/28/15 12,383.26 12,430.24 12,082.20 03/31/15 12,419.02 12,463.43 12,115.85 04/30/15 12,353.82 12,389.50 12,044.30 05/31/15 12,319.66 12,369.54 12,039.31 06/30/15 12,308.51 12,350.10 11,961.40 07/31/15 12,397.63 12,429.45 12,013.89 08/31/15 12,422.01 12,477.06 12,040.58 09/30/15 12,511.93 12,535.74 12,137.12 10/31/15 12,561.73 12,560.19 12,188.06 11/30/15 12,611.63 12,617.42 12,230.42 12/31/15 12,700.29 12,707.67 12,307.64 01/31/16 12,851.86 12,797.69 12,405.79 02/29/16 12,871.98 12,799.52 12,442.90 03/31/16 12,912.80 12,867.39 12,496.97 04/30/16 13,007.79 12,958.00 12,567.83 05/31/16 13,042.97 13,024.00 12,631.41 06/30/16 13,250.42 13,203.00 12,895.06 07/31/16 13,258.47 13,178.00 12,888.94 08/31/16 13,276.41 13,196.00 12,909.84 09/30/16 13,210.17 13,149.00 12,867.54
[END CHART] Data from 7/31/10 through 9/30/16.* The graph illustrates the comparison of a $10,000 hypothetical investment in the USAA Virginia Bond Fund Adviser Shares to the benchmarks listed above (see page 8 for benchmark definitions). *The performance of the Bloomberg Barclays Municipal Bond Index and the Lipper Virginia Municipal Debt Funds Index is calculated from the end of the month, July 31, 2010, while the inception date of the Adviser Shares is August 1, 2010. There may be a slight variation of performance numbers because of this difference. Past performance is no guarantee of future results, and the cumulative performance quoted does not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of shares. Indexes are unmanaged and you cannot invest directly in an index. The return information for the indexes does not reflect the deduction of any fees, expenses, or taxes, except that the Lipper index reflects the fees and expenses of the underlying funds included in the index. ================================================================================ 12 | USAA VIRGINIA BOND FUND ================================================================================ o 12-MONTH DIVIDEND YIELD COMPARISON o [CHART OF 12-MONTH DIVIDEND YIELD COMPARISON]
USAA VIRGINIA LIPPER VIRGINIA BOND FUND MUNICIPAL DEBT ADVISER SHARES FUNDS AVERAGE 09/30/11 3.84% 3.90% 09/30/12 3.62% 3.49% 09/30/13 3.83% 3.56% 09/30/14 3.60% 3.47% 09/30/15 3.42% 3.43% 09/30/16 3.10% 3.27%
[END CHART] The 12-month dividend yield is computed by dividing net investment income dividends paid during the previous 12 months by the latest adjusted month-end net asset value. The yields quoted do not reflect adjustments made to the enclosed financial statements in accordance with U.S. generally accepted accounting principles. The net asset value is adjusted for a portion of the capital gains, if any, distributed during the previous nine months. The graph represents data for periods ending 9/30/11 to 9/30/16. The Lipper Virginia Municipal Debt Funds Average is an average performance level of all Virginia municipal debt funds, reported by Lipper Inc., an independent organization that monitors the performance of mutual funds. ================================================================================ INVESTMENT OVERVIEW | 13 ================================================================================ o TOP 10 INDUSTRIES - 9/30/16 o (% of Net Assets) Hospital ................................................................ 21.3% Education ............................................................... 18.4% Escrowed Bonds .......................................................... 12.8% Water/Sewer Utility ..................................................... 6.2% Airport/Port ............................................................ 6.1% Nursing/CCRC ............................................................ 5.2% Toll Roads .............................................................. 4.8% Health Miscellaneous .................................................... 4.3% Appropriated Debt ....................................................... 3.5% Multifamily Housing ..................................................... 2.8%
You will find a complete list of securities that the Fund owns on pages 16-23. ================================================================================ 14 | USAA VIRGINIA BOND FUND ================================================================================ o PORTFOLIO RATINGS MIX - 9/30/16 o [PIE CHART OF PORTFOLIO RATINGS MIX] AAA 14.4% AA 52.6% A 11.3% BBB 9.4% BELOW INVESTMENT-GRADE 4.3% UNRATED 8.0%
[END CHART] This chart reflects the highest long-term rating from a Nationally Recognized Statistical Rating Organization (NRSRO), with the four highest long-term credit ratings labeled, in descending order of credit quality, AAA, AA, A, and BBB. These categories represent investment-grade quality. NRSRO ratings are shown because they provide independent analysis of the credit quality of the Fund's investments. USAA Asset Management Company (the Manager) also performs its own fundamental credit analysis of each security. As part of its fundamental credit analysis, the Manager considers various criteria, including industry specific actions, peer comparisons, payment ranking, and structure specific characteristics. Any of the Fund's securities that are not rated by an NRSRO appear in the chart above as "Unrated," but these securities are analyzed and monitored by the Manager on an ongoing basis. Government securities that are issued or guaranteed as to principal and interest by the U.S. government and pre-refunded and escrowed-to-maturity municipal bonds that are not rated are treated as AAA for credit quality purposes. Percentages are of the total market value of the Fund's investments. You will find a complete list of securities that the Fund owns on pages 16-23. ================================================================================ INVESTMENT OVERVIEW | 15 ================================================================================ PORTFOLIO OF INVESTMENTS September 30, 2016 (unaudited) -------------------------------------------------------------------------------- o CATEGORIES AND DEFINITIONS FIXED-RATE INSTRUMENTS - Consist of municipal bonds, notes, and commercial paper. The interest rate is constant to maturity. Prior to maturity, the market price of a fixed-rate instrument generally varies inversely to the movement of interest rates. PUT BONDS - Provide the right to sell the bond at face value at specific tender dates prior to final maturity. The put feature shortens the effective maturity of the security. VARIABLE-RATE DEMAND NOTES (VRDNs) - Provide the right to sell the security at face value on either that day or within the rate-reset period. The interest rate is adjusted at a stipulated daily, weekly, monthly, quarterly, or other specified time interval to reflect current market conditions. VRDNs will normally trade as if the maturity is the earlier put date, even though stated maturity is longer. o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS EDA Economic Development Authority IDA Industrial Development Authority/Agency MTA Metropolitan Transportation Authority PRE Pre-refunded to a date prior to maturity CREDIT ENHANCEMENTS - Adds the financial strength of the provider of the enhancement to support the issuer's ability to repay the principal and interest payments when due. The enhancement may be provided by a high-quality bank, insurance company or other corporation, or a ================================================================================ 16 | USAA VIRGINIA BOND FUND ================================================================================ collateral trust. The enhancements do not guarantee the market values of the securities. (INS) Principal and interest payments are insured by one of the following: AMBAC Assurance Corp., Assured Guaranty Corp., Assured Guaranty Municipal Corp., or National Public Finance Guarantee Corp. Although bond insurance reduces the risk of loss due to default by an issuer, such bonds remain subject to the risk that value may fluctuate for other reasons, and there is no assurance that the insurance company will meet its obligations. (LIQ) Liquidity enhancement that may, under certain circumstances, provide for repayment of principal and interest upon demand from Barclays Bank plc, Northern Trust Co., U.S. Bancorp, or Wells Fargo & Co. (LOC) Principal and interest payments are guaranteed by a bank letter of credit or other bank credit agreement. (NBGA) Principal and interest payments or, under certain circumstances, underlying mortgages, are guaranteed by a nonbank guarantee agreement from Fannie Mae. ================================================================================ PORTFOLIO OF INVESTMENTS | 17 ================================================================================ INVESTMENTS
--------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) --------------------------------------------------------------------------------------------------------------- FIXED-RATE INSTRUMENTS (82.0%) VIRGINIA (73.8%) $ 2,500 Albemarle County IDA 5.00% 1/01/2031 $ 2,510 1,000 Alexandria IDA 4.75 1/01/2036 1,081 2,000 Amherst IDA 5.00 9/01/2026 1,932 2,000 Amherst IDA 4.75 9/01/2030 1,837 15,000 Arlington County IDA 5.00 7/01/2031 16,607 2,615 Capital Region Airport Commission (INS) (PRE) 5.00 7/01/2031 2,803 700 Capital Region Airport Commission 4.00 7/01/2036 785 750 Capital Region Airport Commission 4.00 7/01/2038 840 5,000 Chesapeake Bay Bridge and Tunnel District 5.50 7/01/2025 6,339 6,520 Chesapeake, 4.75%, 7/15/2023 4.65(a) 7/15/2032 5,527 3,000 Chesapeake, 4.88%, 7/15/2023 4.88(a) 7/15/2040 2,479 5,000 College Building Auth. 5.00 6/01/2029 5,002 2,725 College Building Auth. 5.00 9/01/2031 3,325 5,615 College Building Auth. 5.00 9/01/2032 6,820 6,380 College Building Auth. 5.00 9/01/2033 7,723 10,000 College Building Auth. 5.00 3/01/2034 11,195 8,000 College Building Auth. 4.00 2/01/2035 8,834 11,710 College Building Auth. 5.00 6/01/2036 11,711 2,540 College Building Auth. 5.00 3/01/2041 2,843 7,100 Fairfax County EDA (PRE) 5.00 10/01/2027 7,400 2,000 Fairfax County EDA 5.00 10/01/2029 2,452 2,000 Fairfax County EDA 5.00 10/01/2030 2,453 2,000 Fairfax County EDA 5.00 10/01/2031 2,445 1,500 Fairfax County EDA 5.00 10/01/2032 1,825 1,500 Fairfax County EDA 5.00 12/01/2032 1,621 2,200 Fairfax County EDA 5.00 10/01/2033 2,668 2,000 Fairfax County EDA 5.00 10/01/2034 2,417 5,750 Fairfax County EDA 4.88 10/01/2036 5,768 7,500 Fairfax County EDA (PRE) 5.13 10/01/2037 7,826 1,500 Fairfax County EDA 4.00 10/01/2042 1,604 2,800 Fairfax County EDA 5.00 12/01/2042 2,998 1,500 Fairfax County IDA (PRE) 5.25 5/15/2026 1,670 14,000 Fairfax County IDA 5.00 5/15/2037 16,313 1,000 Fairfax County IDA 4.00 5/15/2042 1,061 6,900 Fairfax County IDA 4.00 5/15/2044 7,421 5,770 Farms of New Kent Community Dev. Auth., acquired 9/08/2006-10/03/2007; cost $5,630(b),(h) 5.45 3/01/2036 1,442
================================================================================ 18 | USAA VIRGINIA BOND FUND ================================================================================
--------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) --------------------------------------------------------------------------------------------------------------- $ 1,000 Fauquier County IDA (PRE) 5.00% 10/01/2027 $ 1,043 8,825 Fauquier County IDA (PRE) 5.25 10/01/2037 9,224 1,500 Greater Richmond Convention Center Auth. 5.00 6/15/2032 1,818 3,340 Hampton Roads Sanitation District (PRE) 5.00 4/01/2033 3,548 5,660 Hampton Roads Sanitation District (PRE) 5.00 4/01/2033 6,013 4,700 Hampton Roads Sanitation District 5.00 8/01/2043 5,788 2,795 Hanover County EDA 4.50 7/01/2030 2,950 1,100 Hanover County EDA 4.50 7/01/2032 1,155 2,000 Hanover County EDA 5.00 7/01/2042 2,136 3,630 Hanover County IDA (INS) 6.38 8/15/2018 3,803 1,200 Henrico County EDA 5.00 6/01/2024 1,382 140 Henrico County EDA 4.25 6/01/2026 153 2,105 Henrico County EDA 5.00 11/01/2030 2,453 2,500 Henrico County EDA 4.00 10/01/2035 2,586 3,175 Housing Dev. Auth. 4.50 10/01/2036 3,385 5,000 Housing Dev. Auth. 4.80 7/01/2038 5,480 5,000 Housing Dev. Auth. 5.10 10/01/2038 5,547 4,480 Housing Dev. Auth. 4.60 9/01/2040 4,677 7,000 Housing Dev. Auth. 3.60 5/01/2046 7,145 1,539 Lewistown Commerce Center Community Dev. Auth. 6.05 3/01/2044 1,493 741 Lewistown Commerce Center Community Dev. Auth. 6.05 3/01/2044 752 2,401 Lewistown Commerce Center Community Dev. Auth., acquired 10/12/2007; cost $2,402(b) 6.05 3/01/2054 354 750 Lexington IDA(c) 4.00 1/01/2031 817 5,000 Lexington IDA (PRE) 5.00 12/01/2036 5,543 1,000 Lexington IDA(c) 4.00 1/01/2037 1,062 2,000 Lexington IDA 5.00 1/01/2043 2,324 1,135 Loudoun County EDA 5.00 12/01/2031 1,392 800 Loudoun County EDA 5.00 12/01/2032 977 775 Loudoun County EDA 5.00 12/01/2033 943 805 Loudoun County EDA 5.00 12/01/2034 976 5,000 Lynchburg 4.00 6/01/2044 5,466 3,000 Lynchburg EDA 5.00 9/01/2043 3,331 5,389 Marquis Community Dev. Auth., acquired 3/01/2012; cost $468(b),(d) 5.63(e) 9/01/2041 764 3,532 Marquis Community Dev. Auth., acquired 3/01/2012; cost $2,926(b),(d) 5.63 9/01/2041 2,858 1,093 Marquis Community Dev. Auth., 7.50%, 9/01/2021(f) 7.50(a) 9/01/2045 724 5,000 Montgomery County EDA 5.00 6/01/2035 5,614 5,500 Montgomery County IDA (PRE) 5.00 2/01/2029 5,806 1,000 Norfolk EDA 5.00 11/01/2030 1,165 3,500 Norfolk EDA 5.00 11/01/2043 4,053
================================================================================ PORTFOLIO OF INVESTMENTS | 19 ================================================================================
--------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) --------------------------------------------------------------------------------------------------------------- $ 1,300 Norfolk Redevelopment and Housing Auth. 5.50% 11/01/2019 $ 1,305 4,816 Peninsula Town Center Community Dev. Auth. 6.45 9/01/2037 4,986 3,000 Port Auth. 5.00 7/01/2030 3,302 10,000 Port Auth. 5.00 7/01/2040 10,990 1,000 Portsmouth 5.00 2/01/2033 1,195 2,815 Powhatan County EDA (INS) (PRE) 5.00 3/15/2032 2,870 3,370 Prince William County IDA 4.88 1/01/2020 3,378 8,000 Prince William County IDA 5.13 1/01/2026 8,015 1,705 Prince William County IDA(g) 5.50 9/01/2031 2,007 2,000 Prince William County IDA 5.50 9/01/2031 2,359 1,000 Prince William County IDA 5.50 9/01/2034 1,177 10,000 Prince William County IDA 5.00 11/01/2046 11,310 10,000 Public School Auth. 5.00 8/01/2024 12,676 4,000 Radford IDA (NBGA) 3.50 9/15/2029 4,233 5,310 Rappahannock Regional Jail Auth. (INS) (PRE) 4.75 12/01/2031 5,346 2,340 Rappahannock Regional Jail Auth. 5.00 10/01/2034 2,853 1,165 Rappahannock Regional Jail Auth. 5.00 10/01/2035 1,415 6,280 Rappahannock Regional Jail Auth. (INS) (PRE) 4.50 12/01/2036 6,320 1,030 Resources Auth. 5.00 11/01/2032 1,255 420 Resources Auth. (PRE) 4.38 11/01/2036 421 1,580 Resources Auth. 4.38 11/01/2036 1,584 1,435 Resources Auth. 5.00 11/01/2040 1,634 7,310 Resources Auth. 4.00 11/01/2041 7,874 2,500 Richmond Public Utility (INS) 4.50 1/15/2033 2,527 2,000 Richmond Public Utility 5.00 1/15/2035 2,175 6,000 Richmond Public Utility 5.00 1/15/2038 7,098 4,500 Richmond Public Utility 5.00 1/15/2040 4,895 5,120 Roanoke County EDA (INS) (PRE) 5.00 10/15/2027 5,548 2,850 Roanoke County EDA (INS) (PRE) 5.00 10/15/2032 3,088 1,150 Roanoke County EDA 5.00 7/01/2033 1,292 4,285 Roanoke County EDA (INS) (PRE) 5.13 10/15/2037 4,654 110 Roanoke County EDA (INS) (PRE) 5.00 7/01/2038 126 6,890 Roanoke County EDA (INS) 5.00 7/01/2038 7,597 420 Small Business Financing Auth. 5.00 4/01/2025 470 185 Small Business Financing Auth. 5.25 4/01/2026 207 1,500 Small Business Financing Auth. 5.25 9/01/2027 1,550 855 Small Business Financing Auth. 5.50 4/01/2028 968 750 Small Business Financing Auth. 5.50 4/01/2033 846 15,000 Small Business Financing Auth. 5.25 9/01/2037 15,444 11,945 Small Business Financing Auth. 5.00 11/01/2040 13,373 520 Stafford County and City of Stauton IDA (INS) 5.25 8/01/2036 522 2,700 Stafford County EDA 5.00 6/15/2036 3,231
================================================================================ 20 | USAA VIRGINIA BOND FUND ================================================================================
--------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) --------------------------------------------------------------------------------------------------------------- $ 3,995 Stafford County EDA 4.00% 6/15/2037 $ 4,289 10,000 Tobacco Settlement Financing Corp. 5.00 6/01/2047 9,821 6,315 Univ. Health System Auth. 4.75 7/01/2036 6,963 3,000 Univ. Health System Auth. 4.75 7/01/2041 3,301 4,405 Univ. of Virginia 5.00 6/01/2037 5,343 5,000 Univ. of Virginia 4.00 4/01/2045 5,624 5,000 Upper Occoquan Sewage Auth. 4.00 7/01/2039 5,624 5,000 Upper Occoquan Sewage Auth. (PRE) 5.00 7/01/2041 5,160 1,795 Virginia Beach Dev. Auth. 5.00 5/01/2029 2,183 2,165 Washington County IDA (PRE) 5.25 8/01/2030 2,514 2,160 Washington County IDA (PRE) 5.50 8/01/2040 2,529 2,645 Watkins Centre Community Dev. Auth. 5.40 3/01/2020 2,651 2,000 Western Virginia Regional Jail Auth. 5.00 12/01/2038 2,436 3,250 Winchester EDA 5.00 1/01/2044 3,754 3,250 Winchester EDA 5.00 1/01/2044 3,836 3,000 Winchester IDA (PRE) 5.63 1/01/2044 3,317 -------- 529,738 -------- DISTRICT OF COLUMBIA (5.3%) 2,825 Metropolitan Washington Airports Auth. 5.00 10/01/2029 3,122 12,465 Metropolitan Washington Airports Auth. 5.00 10/01/2030 13,432 5,500 Metropolitan Washington Airports Auth. (INS) 5.32(e) 10/01/2030 3,465 11,230 Metropolitan Washington Airports Auth. 5.00 10/01/2039 12,379 4,000 Metropolitan Washington Airports Auth. 5.00 10/01/2053 4,524 1,000 Washington MTA 5.13 7/01/2032 1,105 -------- 38,027 -------- GUAM (2.6%) 1,250 Government 5.00 12/01/2046 1,464 2,000 Government Business Privilege Tax 5.00 11/15/2039 2,302 1,500 Government Business Privilege Tax 5.00 1/01/2042 1,637 1,255 International Airport Auth. (INS) 5.75 10/01/2043 1,527 500 Power Auth. 5.00 10/01/2031 572 1,000 Power Auth. 5.00 10/01/2034 1,103 750 Power Auth. (INS) 5.00 10/01/2039 879 1,000 Power Auth. (INS) 5.00 10/01/2044 1,166 2,850 Waterworks Auth. 5.00 7/01/2035 3,240 4,000 Waterworks Auth. 5.50 7/01/2043 4,620 -------- 18,510 -------- U.S. VIRGIN ISLANDS (0.3%) 2,000 Public Finance Auth. 5.00 10/01/2032 1,994 -------- Total Fixed-Rate Instruments (cost: $556,606) 588,269 --------
================================================================================ PORTFOLIO OF INVESTMENTS | 21 ================================================================================
--------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) --------------------------------------------------------------------------------------------------------------- PUT BONDS (1.2%) VIRGINIA (1.2%) $ 5,000 Wise County IDA 2.15% 10/01/2040 $ 5,156 3,000 York County EDA 1.88 5/01/2033 3,052 -------- 8,208 -------- Total Put Bonds (cost: $8,000) 8,208 -------- VARIABLE-RATE DEMAND NOTES (16.0%) VIRGINIA (14.6%) 3,335 College Building Auth. (LIQ)(f) 0.92 2/18/2017 3,335 8,500 College Building Auth. (LIQ) 0.84 8/01/2034 8,500 6,885 College Building Auth. (LIQ) 0.78 11/01/2036 6,885 2,600 College Building Auth. 0.75 1/01/2043 2,600 8,925 Fairfax County EDA (LIQ) 0.84 12/01/2033 8,925 4,200 Fairfax County EDA (LIQ) 0.86 12/01/2033 4,200 4,400 Fauquier County IDA (LOC - BB&T Corp.) 0.95 12/01/2033 4,400 10,000 Hanover County EDA (LOC - U.S. Bancorp) 0.83 11/01/2025 10,000 1,435 Hanover County EDA (LOC - Bank of New York Mellon Corp.) 0.83 11/01/2025 1,435 28,850 Loudoun County IDA 0.84 2/15/2038 28,850 12,600 Lynchburg IDA (LOC - Federal Home Loan Bank of Atlanta) 0.86 1/01/2028 12,600 8,800 Madison County IDA (LOC - SunTrust Bank) 0.91 10/01/2037 8,800 4,555 Small Business Financing Auth. (LOC - Bank of America Corp.) 0.88 7/01/2030 4,555 -------- 105,085 -------- DISTRICT OF COLUMBIA (1.4%) 10,000 Metropolitan Washington Airports Auth. (LOC - Toronto-Dominion Bank) 0.88 10/01/2039 10,000 -------- Total Variable-Rate Demand Notes (cost: $115,085) 115,085 -------- TOTAL INVESTMENTS (COST: $679,691) $711,562 ========
================================================================================ 22 | USAA VIRGINIA BOND FUND ================================================================================
--------------------------------------------------------------------------------------------------------------- ($ IN 000s) VALUATION HIERARCHY --------------------------------------------------------------------------------------------------------------- ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL --------------------------------------------------------------------------------------------------------------- Fixed-Rate Instruments $- $586,827 $1,442 $588,269 Put Bonds - 8,208 - 8,208 Variable-Rate Demand Notes - 115,085 - 115,085 --------------------------------------------------------------------------------------------------------------- Total $- $710,120 $1,442 $711,562 ---------------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or geographic region classifications.
--------------------------------------------------------------------------------------------------------------- RECONCILIATION OF LEVEL 3 INVESTMENTS --------------------------------------------------------------------------------------------------------------- FIXED-RATE INSTRUMENTS --------------------------------------------------------------------------------------------------------------- Balance as of March 31, 2016 $1,443 Purchases - Sales - Transfers into Level 3 - Transfers out of Level 3 - Net realized gain (loss) on investments - Change in net unrealized appreciation/(depreciation) of investments (1) --------------------------------------------------------------------------------------------------------------- Balance as of September 30, 2016 $1,442 ---------------------------------------------------------------------------------------------------------------
For the period of April 1, 2016, through September 30, 2016, there were no transfers of securities between levels. The Fund's policy is to recognize any transfers in and transfers out as of the beginning of the reporting period in which the event or circumstance that caused the transfer occurred. ================================================================================ PORTFOLIO OF INVESTMENTS | 23 ================================================================================ NOTES TO PORTFOLIO OF INVESTMENTS September 30, 2016 (unaudited) -------------------------------------------------------------------------------- o GENERAL NOTES Market values of securities are determined by procedures and practices discussed in Note 1A to the financial statements. The Portfolio of Investments category percentages shown represent the percentages of the investments to net assets, and, in total, may not equal 100%. A category percentage of 0.0% represents less than 0.1% of net assets. o SPECIFIC NOTES (a) Stepped-coupon security that is initially issued in zero-coupon form and converts to coupon form at the specified date and rate shown in the security's description. The rate presented in the coupon rate column represents the effective yield at the date of purchase. (b) Security deemed illiquid by USAA Asset Management Company (the Manager), under liquidity guidelines approved by the USAA Mutual Funds Trust's Board of Trustees (the Board). The aggregate market value of these securities at September 30, 2016, was $5,418,000, which represented 0.8% of the Fund's net assets. (c) At September 30, 2016, the aggregate market value of securities purchased on a delayed-delivery basis was $1,879,000, of which all were when-issued securities. (d) Restricted security that is not registered under the Securities Act of 1933. ================================================================================ 24 | USAA VIRGINIA BOND FUND ================================================================================ (e) Zero-coupon security. Rate represents the effective yield at the date of purchase. (f) Restricted security that is not registered under the Securities Act of 1933. A resale of this security in the United States may occur in an exempt transaction to a qualified institutional buyer as defined by Rule 144A, and as such has been deemed liquid by the Manager under liquidity guidelines approved by the Board, unless otherwise noted as illiquid. (g) At September 30, 2016, the security, or a portion thereof, was segregated to cover delayed-delivery and/or when-issued purchases. (h) At September 30, 2016, the issuer was in default with respect to interest and/or principal payments. See accompanying notes to financial statements. ================================================================================ NOTES TO PORTFOLIO OF INVESTMENTS | 25 ================================================================================ STATEMENT OF ASSETS AND LIABILITIES (IN THOUSANDS) September 30, 2016 (unaudited) -------------------------------------------------------------------------------- ASSETS Investments in securities, at market value (cost of $679,691) $711,562 Cash 87 Receivables: Capital shares sold 234 Interest 8,011 -------- Total assets 719,894 -------- LIABILITIES Payables: Securities purchased 1,889 Capital shares redeemed 220 Dividends on capital shares 419 Accrued management fees 206 Accrued transfer agent's fees 7 Other accrued expenses and payables 51 -------- Total liabilities 2,792 -------- Net assets applicable to capital shares outstanding $717,102 ======== NET ASSETS CONSIST OF: Paid-in capital $691,840 Undistributed net investment income 2 Accumulated net realized loss on investments (6,611) Net unrealized appreciation of investments 31,871 -------- Net assets applicable to capital shares outstanding $717,102 ======== Net asset value, redemption price, and offering price per share: Fund Shares (net assets of $689,965/59,499 capital shares outstanding, no par value) $ 11.60 ======== Adviser Shares (net assets of $27,137/2,341 capital shares outstanding, no par value) $ 11.59 ========
See accompanying notes to financial statements. ================================================================================ 26 | USAA VIRGINIA BOND FUND ================================================================================ STATEMENT OF OPERATIONS (IN THOUSANDS) Six-month period ended September 30, 2016 (unaudited) -------------------------------------------------------------------------------- INVESTMENT INCOME Interest income $13,164 ------- EXPENSES Management fees 1,276 Administration and servicing fees: Fund Shares 506 Adviser Shares 19 Transfer agent's fees: Fund Shares 98 Adviser Shares 5 Distribution and service fees (Note 6D): Adviser Shares 32 Custody and accounting fees: Fund Shares 50 Adviser Shares 2 Postage: Fund Shares 5 Shareholder reporting fees: Fund Shares 11 Adviser Shares 1 Trustees' fees 15 Professional fees 44 Other 10 ------- Total expenses 2,074 ------- NET INVESTMENT INCOME 11,090 ------- NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS Net realized gain 76 Change in net unrealized appreciation/(depreciation) 4,470 ------- Net realized and unrealized gain 4,546 ------- Increase in net assets resulting from operations $15,636 =======
See accompanying notes to financial statements. ================================================================================ FINANCIAL STATEMENTS | 27 ================================================================================ STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS) Six-month period ended September 30, 2016 (unaudited), and year ended March 31, 2016
---------------------------------------------------------------------------------------------------- 9/30/2016 3/31/2016 ---------------------------------------------------------------------------------------------------- FROM OPERATIONS Net investment income $ 11,090 $ 23,366 Net realized gain on investments 76 248 Change in net unrealized appreciation/(depreciation) of investments 4,470 (1,202) --------------------------- Increase in net assets resulting from operations 15,636 22,412 --------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income: Fund Shares (10,673) (22,859) Adviser Shares (367) (717) --------------------------- Distributions to shareholders (11,040) (23,576) --------------------------- NET INCREASE IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS (NOTE 5) Fund Shares 36,599 1,716 Adviser Shares 4,043 1,952 --------------------------- Total net increase in net assets from capital share transactions 40,642 3,668 --------------------------- Net increase in net assets 45,238 2,504 NET ASSETS Beginning of period 671,864 669,360 --------------------------- End of period $717,102 $671,864 =========================== Undistributed (overdistribution of) net investment income: End of period $ 2 $ (48) ===========================
See accompanying notes to financial statements. ================================================================================ 28 | USAA VIRGINIA BOND FUND ================================================================================ NOTES TO FINANCIAL STATEMENTS September 30, 2016 (unaudited) -------------------------------------------------------------------------------- (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company Act of 1940, as amended (the 1940 Act), is an open-end management investment company organized as a Delaware statutory trust consisting of 54 separate funds. Additionally, the Fund qualifies as a registered investment company under Accounting Standards Codification Topic 946. The information presented in this semiannual report pertains only to the USAA Virginia Bond Fund (the Fund), which is classified as diversified under the 1940 Act. The Fund's investment objective is to provide Virginia investors with a high level of current interest income that is exempt from federal and Virginia state income taxes. The Fund consists of two classes of shares: Virginia Bond Fund Shares (Fund Shares) and Virginia Bond Fund Adviser Shares (Adviser Shares). Each class of shares has equal rights to assets and earnings, except that each class bears certain class-related expenses specific to the particular class. These expenses include administration and servicing fees, transfer agent fees, postage, shareholder reporting fees, distribution and service (12b-1) fees, and certain registration and custodian fees. Expenses not attributable to a specific class, income, and realized gains or losses on investments are allocated to each class of shares based on each class' relative net assets. Each class has exclusive voting rights on matters related solely to that class and separate voting rights on matters that relate to all classes. The Adviser Shares permit investors to purchase shares through financial intermediaries, including banks, broker-dealers, insurance companies, investment advisers, plan sponsors, and financial professionals that provide various administrative and distribution services. A. SECURITY VALUATION - The Trust's Board of Trustees (the Board) has established the Valuation Committee (the Committee), and subject to ================================================================================ NOTES TO FINANCIAL STATEMENTS | 29 ================================================================================ Board oversight, the Committee administers and oversees the Fund's valuation policies and procedures, which are approved by the Board. Among other things, these policies and procedures allow the Fund to utilize independent pricing services, quotations from securities dealers, and a wide variety of sources and information to establish and adjust the fair value of securities as events occur and circumstances warrant. The Committee reports to the Board on a quarterly basis and makes recommendations to the Board as to pricing methodologies and services used by the Fund and presents additional information to the Board regarding application of the pricing and fair valuation policies and procedures during the preceding quarter. The Committee meets as often as necessary to make pricing and fair value determinations. In addition, the Committee holds regular monthly meetings to review prior actions taken by the Committee and USAA Asset Management Company (the Manager), an affiliate of the Fund. Among other things, these monthly meetings include a review and analysis of back testing reports, pricing service quotation comparisons, illiquid securities and fair value determinations, pricing movements, and daily stale price monitoring. The value of each security is determined (as of the close of trading on the New York Stock Exchange (NYSE) on each business day the NYSE is open) as set forth below: 1. Debt securities with maturities greater than 60 days are valued each business day by a pricing service (the Service) approved by the Board. The Service uses an evaluated mean between quoted bid and asked prices or the last sales price to value a security when, in the Service's judgment, these prices are readily available and are representative of the security's market value. For many securities, such prices are not readily available. The Service generally prices those securities based on methods which include consideration of yields or prices of securities of comparable quality, coupon, maturity, and type; indications as to values from dealers in securities; and general market conditions. Generally, debt securities are categorized in Level 2 of the fair value hierarchy; however, to the ================================================================================ 30 | USAA VIRGINIA BOND FUND ================================================================================ extent the valuations include significant unobservable inputs, the securities would be categorized in Level 3. 2. Short-term debt securities with original or remaining maturities of 60 days or less may be valued at amortized cost, provided that amortized cost represents the fair value of such securities. 3. In the event that price quotations or valuations are not readily available, are not reflective of market value, or a significant event has been recognized in relation to a security or class of securities, the securities are valued in good faith by the Committee in accordance with valuation procedures approved by the Board. The effect of fair value pricing is that securities may not be priced on the basis of quotations from the primary market in which they are traded and the actual price realized from the sale of a security may differ materially from the fair value price. Valuing these securities at fair value is intended to cause the Fund's net asset value (NAV) to be more reliable than it otherwise would be. Fair value methods used by the Manager include, but are not limited to, obtaining market quotations from secondary pricing services, broker-dealers, other pricing services, or widely used quotation systems. General factors considered in determining the fair value of securities include fundamental analytical data, the nature and duration of any restrictions on disposition of the securities, evaluation of credit quality, and an evaluation of the forces that influenced the market in which the securities are purchased and sold. B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The three-level valuation hierarchy disclosed in the Portfolio of Investments is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows: Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) in active markets for identical securities. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 31 ================================================================================ Level 2 - inputs to the valuation methodology are other significant observable inputs, including quoted prices for similar securities, inputs that are observable for the securities, either directly or indirectly, and market-corroborated inputs such as market indexes. Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value measurement, including the Manager's own assumptions in determining the fair value. The inputs or methodologies used for valuing securities are not necessarily an indication of the risks associated with investing in those securities. The valuation of securities falling in the Level 3 category are primarily supported by the value derived based upon the use of inputs such as real property appraisals. However, these securities are included in the Level 3 category due to limited market transparency and/or a lack of corroboration to support the quoted prices. Refer to the Portfolio of Investments for a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining value. C. FEDERAL TAXES - The Fund's policy is to comply with the requirements of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies and to distribute substantially all of its taxable income and net capital gains, if any, to its shareholders. Therefore, no federal income tax provision is required. D. INVESTMENTS IN SECURITIES - Securities transactions are accounted for on the date the securities are purchased or sold (trade date). Gains or losses from sales of investment securities are computed on the identified cost basis. Interest income is recorded daily on the accrual basis. Premiums and discounts are amortized over the life of the respective securities, using the effective yield method for long-term securities and the straight-line method for short-term securities. The Fund concentrates its investments in Virginia tax-exempt securities and, therefore, may be exposed to more credit risk than portfolios with a broader geographical diversification. ================================================================================ 32 | USAA VIRGINIA BOND FUND ================================================================================ E. SECURITIES PURCHASED ON A DELAYED-DELIVERY OR WHEN-ISSUED BASIS - Delivery and payment for securities that have been purchased by the Fund on a delayed-delivery or when-issued basis can take place a month or more after the trade date. During the period prior to settlement, these securities do not earn interest, are subject to market fluctuation, and may increase or decrease in value prior to their delivery. The Fund maintains segregated assets with a market value equal to or greater than the amount of its purchase commitments. The purchase of securities on a delayed-delivery or when-issued basis may increase the volatility of the Fund's NAV to the extent that the Fund makes such purchases while remaining substantially fully invested. As of September 30, 2016, the Fund's outstanding delayed-delivery commitments, including interest purchased, were $1,889,000; all of which included were when-issued securities. F. EXPENSES PAID INDIRECTLY - Through arrangements with the Fund's custodian and other banks utilized by the Fund for cash management purposes, realized credits, if any, generated from cash balances in the Fund's bank accounts may be used to directly reduce the Fund's expenses. For the six-month period ended September 30, 2016, custodian and other bank credits reduced the Fund's expenses by less than $500. G. REDEMPTION FEES - All share classes held in the Fund less than 60 days are subject to a redemption fee equal to 1.00% of the proceeds of the redeemed or exchanged shares. All redemption fees paid will be accounted for by the Fund as an addition to paid in capital. For the six-month period ended September 30, 2016, the Fund Shares and Adviser Shares did not charge any redemption fees. H. INDEMNIFICATIONS - Under the Trust's organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Trust. In addition, in the normal course of business, the Trust enters into contracts that contain a variety of representations and warranties that provide general indemnifications. The Trust's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Trust ================================================================================ NOTES TO FINANCIAL STATEMENTS | 33 ================================================================================ that have not yet occurred. However, the Trust expects the risk of loss to be remote. I. USE OF ESTIMATES - The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that may affect the reported amounts in the financial statements. (2) LINE OF CREDIT The Fund participates in a joint, short-term, revolving, committed loan agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate of the Manager. The purpose of the agreement is to meet temporary or emergency cash needs, including redemption requests that might otherwise require the untimely disposition of securities. Subject to availability, the Fund may borrow from CAPCO an amount up to 5% of the Fund's total assets at an interest rate based on the London Interbank Offered Rate (LIBOR), plus 100.0 basis points. The USAA Funds that are party to the loan agreement are assessed facility fees by CAPCO in the amount of 12.0 basis points of the amount of the committed loan agreement. Prior to September 30, 2016, the maximum annual facility fee was 9.0 basis points of the amount of the committed loan agreement. The facility fees are allocated among the USAA Funds based on their respective average net assets for the period. The USAA Funds may request an optional increase of the committed loan agreement from $500 million up to $750 million. If the USAA Funds increase the committed loan agreement, the assessed facility fee on the amount of the additional commitment will be 13.0 basis points. For the six-month period ended September 30, 2016, the Fund paid CAPCO facility fees of $2,000, which represents 1.0% of the total fees paid to CAPCO by the USAA Funds. The Fund had no borrowings under this agreement during the six-month period ended September 30, 2016. ================================================================================ 34 | USAA VIRGINIA BOND FUND ================================================================================ (3) DISTRIBUTIONS The tax basis of distributions and any accumulated undistributed net investment income will be determined as of the Fund's tax year-end of March 31, 2017, in accordance with applicable federal tax law. Net investment income is accrued daily as dividends and distributed to shareholders monthly. Distributions of realized gains from security transactions not offset by capital losses are made annually in the succeeding fiscal year or as otherwise required to avoid the payment of federal income taxes. At March 31, 2016, the Fund had net capital loss carryforwards of $6,687,000, for federal income tax purposes, as shown in the table below. It is unlikely that the Board will authorize a distribution of capital gains realized in the future until the capital loss carryforwards have been used.
CAPITAL LOSS CARRYFORWARDS -------------------------------------- TAX CHARACTER -------------------------------------- (NO EXPIRATION) BALANCE --------------- ---------- Short-Term $1,027,000 Long-Term 5,660,000 ---------- Total $6,687,000 ==========
For the six-month period ended September 30, 2016, the Fund did not incur any income tax, interest, or penalties, and has recorded no liability for net unrecognized tax benefits relating to uncertain income tax positions. On an ongoing basis, the Manager will monitor the Fund's tax basis to determine if adjustments to this conclusion are necessary. The statute of limitations on the Fund's tax return filings generally remain open for the three preceding fiscal reporting year ends and remain subject to examination by the Internal Revenue Service and state taxing authorities. (4) INVESTMENT TRANSACTIONS Cost of purchases and proceeds from sales/maturities of securities, excluding short-term securities, for the six-month period ended September 30, 2016, were $23,298,000 and $73,969,000, respectively. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 35 ================================================================================ As of September 30, 2016, the cost of securities, including short-term securities, for federal income tax purposes, was approximately the same as the cost reported in the financial statements. Gross unrealized appreciation and depreciation of investments as of September 30, 2016, were $38,739,000 and $6,868,000, respectively, resulting in net unrealized appreciation of $31,871,000. (5) CAPITAL SHARE TRANSACTIONS At September 30, 2016, there were an unlimited number of shares of capital stock at no par value authorized for the Fund. Capital share transactions for all classes were as follows, in thousands:
SIX-MONTH PERIOD ENDED YEAR ENDED SEPTEMBER 30, 2016 MARCH 31, 2016 ------------------------------------------------------------------------------------------ SHARES AMOUNT SHARES AMOUNT ------------------------------------------------------ FUND SHARES: Shares sold 4,508 $ 52,426 4,756 $ 54,371 Shares issued from reinvested dividends 723 8,421 1,560 17,821 Shares redeemed (2,084) (24,248) (6,183) (70,476) ------------------------------------------------------ Net increase from capital share transactions 3,147 $ 36,599 133 $ 1,716 ====================================================== ADVISER SHARES: Shares sold 469 $ 5,458 585 $ 6,684 Shares issued from reinvested dividends 25 286 47 537 Shares redeemed* (147) (1,701) (462) (5,269) ------------------------------------------------------ Net increase from capital share transactions 347 $ 4,043 170 $ 1,952 ======================================================
*Net of redemption fees, if any. (6) TRANSACTIONS WITH MANAGER A. MANAGEMENT FEES - The Manager provides investment management services to the Fund pursuant to an Advisory Agreement. Under this agreement, the Manager is responsible for managing the business and ================================================================================ 36 | USAA VIRGINIA BOND FUND ================================================================================ affairs of the Fund, and for directly managing the day-to-day investment of the Fund's assets, subject to the authority of and supervision by the Board. The investment management fee for the Fund is comprised of a base fee and a performance adjustment. The Fund's base fee is accrued daily and paid monthly as a percentage of aggregate average net assets of the USAA Virginia Bond Fund and USAA Virginia Money Market Fund combined, which on an annual basis is equal to 0.50% of the first $50 million, 0.40% of that portion over $50 million but not over $100 million, and 0.30% of that portion over $100 million. These fees are allocated on a proportional basis to each Fund monthly based upon average net assets. For the six-month period ended September 30, 2016, the Fund's effective annualized base fee was 0.32% of the Fund's average net assets for the same period. The performance adjustment is calculated separately for each share class on a monthly basis by comparing each class' performance over the performance period to that of the Lipper Virginia Municipal Debt Funds Index. The Lipper Virginia Municipal Debt Funds Index tracks the total return performance of Funds that limit their assets to those securities that are exempt from taxation in the Commonwealth of Virginia. The performance period for each class consists of the current month plus the previous 35 months. The following table is utilized to determine the extent of the performance adjustment:
OVER/UNDER PERFORMANCE RELATIVE TO INDEX ANNUAL ADJUSTMENT RATE (IN BASIS POINTS)(1) (IN BASIS POINTS)(1) ------------------------------------------------------------------- +/- 20 to 50 +/- 4 +/- 51 to 100 +/- 5 +/- 101 and greater +/- 6
(1)Based on the difference between average annual performance of the relevant share class of the Fund and its relevant index, rounded to the nearest basis point. Average net assets of the share class are calculated over a rolling 36-month period. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 37 ================================================================================ Each class' annual performance adjustment rate is multiplied by the average net assets of each respective class over the entire performance period, which is then multiplied by a fraction, the numerator of which is the number of days in the month and the denominator of which is 365 (366 in leap years). The resulting amount is then added to (in the case of overperformance), or subtracted from (in the case of underperformance) the base fee. Under the performance fee arrangement, each class will pay a positive performance fee adjustment for a performance period whenever the class outperforms the Lipper Virginia Municipal Debt Funds Index over that period, even if the class had overall negative returns during the performance period. For the six-month period ended September 30, 2016, the Fund incurred total management fees, paid or payable to the Manager, of $1,276,000, which included a performance adjustment for the Fund Shares and Adviser Shares of $162,000 and $3,000, respectively. For the Fund Shares and Adviser Shares, the performance adjustments were 0.05% and 0.03%, respectively. B. ADMINISTRATION AND SERVICING FEES - The Manager provides certain administration and servicing functions for the Fund. For such services, the Manager receives a fee accrued daily and paid monthly at an annualized rate of 0.15% of average net assets for both the Fund Shares and Adviser Shares. For the six-month period ended September 30, 2016, the Fund Shares and Adviser Shares incurred administration and servicing fees, paid or payable to the Manager, of $506,000 and $19,000, respectively. In addition to the services provided under its Administration and Servicing Agreement with the Fund, the Manager also provides certain compliance and legal services for the benefit of the Fund. The Board has approved the reimbursement of a portion of these expenses incurred by the Manager. For the six-month period ended September 30, 2016, the Fund reimbursed the Manager $10,000 for these compliance and legal services. These expenses are included in the professional fees on the Fund's Statement of Operations. ================================================================================ 38 | USAA VIRGINIA BOND FUND ================================================================================ C. TRANSFER AGENT'S FEES - USAA Transfer Agency Company, d/b/a USAA Shareholder Account Services (SAS), an affiliate of the Manager, provides transfer agent services to the Fund Shares and Adviser Shares based on an annual charge of $25.50 per shareholder account plus out-of-pocket expenses. SAS pays a portion of these fees to certain intermediaries for the administration and servicing of accounts that are held with such intermediaries. For the six-month period ended September 30, 2016, the Fund Shares and Adviser Shares incurred transfer agent's fees, paid or payable to SAS, of $98,000 and $5,000, respectively. D. DISTRIBUTION AND SERVICE (12b-1) FEES - The Fund has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Adviser Shares. Under the plan, the Adviser Shares pay fees to USAA Investment Management Company (IMCO), the distributor, for distribution and shareholder services. IMCO pays all or a portion of such fees to intermediaries that make the Adviser Shares available for investment by their customers. The fee is accrued daily and paid monthly at an annual rate of 0.25% of the Adviser Shares' average net assets. Adviser Shares are offered and sold without imposition of an initial sales charge or a contingent deferred sales charge. For the six- month period ended September 30, 2016, the Adviser Shares incurred distribution and service (12b-1) fees of $32,000. E. UNDERWRITING SERVICES - IMCO provides exclusive underwriting and distribution of the Fund's shares on a continuing best-efforts basis and receives no fee or other compensation for these services, but may receive 12b-1 fees as described above, with respect to Adviser Shares. (7) TRANSACTIONS WITH AFFILIATES The Manager is indirectly wholly owned by United Services Automobile Association (USAA), a large, diversified financial services institution. At September 30, 2016, USAA and its affiliates owned 448,000 Adviser Shares, which represents 19.1% of the Adviser Shares outstanding and 0.7% of the Fund's total outstanding shares. Certain trustees and officers of the Fund are also directors, officers, and/or employees of the Manager. None of the affiliated trustees or Fund officers received any compensation from the Fund. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 39 ================================================================================ (8) FINANCIAL HIGHLIGHTS - FUND SHARES Per share operating performance for a share outstanding throughout each period is as follows:
SIX-MONTH PERIOD ENDED SEPTEMBER 30, YEAR ENDED MARCH 31, ------------------------------------------------------------------------------ 2016 2016 2015 2014 2013 2012 ------------------------------------------------------------------------------ Net asset value at beginning of period $ 11.52 $ 11.53 $ 11.17 $ 11.60 $ 11.40 $ 10.48 ------------------------------------------------------------------------------ Income (loss) from investment operations: Net investment income .19 .41 .43 .44 .44 .46 Net realized and unrealized gain (loss) .07 (.01) .35 (.43) .20 .92 ------------------------------------------------------------------------------ Total from investment operations .26 .40 .78 .01 .64 1.38 ------------------------------------------------------------------------------ Less distributions from: Net investment income (.18) (.41) (.42) (.44) (.44) (.46) ------------------------------------------------------------------------------ Net asset value at end of period $ 11.60 $ 11.52 $ 11.53 $ 11.17 $ 11.60 $ 11.40 ============================================================================== Total return (%)* 2.30 3.58 7.10 .23 5.65 13.37 Net assets at end of period (000) $689,965 $648,913 $648,331 $595,246 $671,320 $628,271 Ratios to average net assets:** Expenses (%)(a) .58(b) .60 .59 .59 .57 .55 Net investment income (%) 3.17(b) 3.57 3.70 4.01 3.77 4.14 Portfolio turnover (%) 4 3 12 7 6 5
* Assumes reinvestment of all net investment income and realized capital gain distributions, if any, during the period. Includes adjustments in accordance with U.S. generally accepted accounting principles and could differ from the Lipper reported return. Total returns for periods of less than one year are not annualized. ** For the six-month period ended September 30, 2016, average net assets were $673,597,000. (a) Reflects total annual operating expenses of the Fund Shares before reductions of any expenses paid indirectly. The Fund Shares' expenses paid indirectly decreased the expense ratios by less than 0.01%. (b) Annualized. The ratio is not necessarily indicative of 12 months of operations. ================================================================================ 40 | USAA VIRGINIA BOND FUND ================================================================================ (8) FINANCIAL HIGHLIGHTS (CONTINUED) - ADVISER SHARES Per share operating performance for a share outstanding throughout each period is as follows:
SIX-MONTH PERIOD ENDED SEPTEMBER 30, YEAR ENDED MARCH 31, ----------------------------------------------------------------------------- 2016 2016 2015 2014 2013 2012 ----------------------------------------------------------------------------- Net asset value at beginning of period $ 11.51 $ 11.53 $ 11.17 $ 11.60 $ 11.40 $10.47 ----------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income .17 .38 .40 .42 .42 .43 Net realized and unrealized gain (loss) .08 (.02) .36 (.43) .20 .93 ----------------------------------------------------------------------------- Total from investment operations .25 .36 .76 (.01) .62 1.36 ----------------------------------------------------------------------------- Less distributions from: Net investment income (.17) (.38) (.40) (.42) (.42) (.43) Redemption fees added to beneficial interests - .00(a) - - - - ----------------------------------------------------------------------------- Net asset value at end of period $ 11.59 $ 11.51 $ 11.53 $ 11.17 $ 11.60 $11.40 ============================================================================= Total return (%)* 2.18 3.24 6.84 .03 5.46 13.23 Net assets at end of period (000) $27,137 $22,951 $21,029 $12,701 $11,912 $7,028 Ratios to average net assets:** Expenses (%)(c) .82(d) .84 .84(b) .79 .76 .78 Expenses, excluding reimbursements (%)(c) .82(d) .84 .84 .79 .76 .78 Net investment income (%) 2.92(d) 3.34 3.44 3.80 3.57 3.90 Portfolio turnover (%) 4 3 12 7 6 5
* Assumes reinvestment of all net investment income and realized capital gain distributions, if any, during the period. Includes adjustments in accordance with U.S. generally accepted accounting principles and could differ from the Lipper reported return. Total returns for periods of less than one year are not annualized. ** For the six-month period ended September 30, 2016, average net assets were $25,186,000. (a) Represents less than $0.01 per share. (b) Prior to August 1, 2014, the Manager had voluntarily agreed to limit the annual expenses of the Adviser Shares to 0.90% of the Adviser Shares' average net assets. (c) Reflects total annual operating expenses of the Adviser Shares before reductions of any expenses paid indirectly. The Adviser Shares' expenses paid indirectly decreased the expense ratios by less than 0.01%. (d) Annualized. The ratio is not necessarily indicative of 12 months of operations. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 41 ================================================================================ EXPENSE EXAMPLE September 30, 2016 (unaudited) -------------------------------------------------------------------------------- EXAMPLE As a shareholder of the Fund, you incur two types of costs: direct costs, such as wire fees, redemption fees, and low balance fees; and indirect costs, including management fees, transfer agency fees, distribution and service (12b-1) fees, and other Fund operating expenses. This example is intended to help you understand your indirect costs, also referred to as "ongoing costs" (in dollars), of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire six-month period of April 1, 2016, through September 30, 2016. ACTUAL EXPENSES The line labeled "actual" under each share class in the table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested at the beginning of the period, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number for your share class in the "actual" line under the heading "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The line labeled "hypothetical" under each share class in the table provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratios for each class and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to ================================================================================ 42 | USAA VIRGINIA BOND FUND ================================================================================ estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any direct costs, such as wire fees, redemption fees, or low balance fees. Therefore, the line labeled "hypothetical" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these direct costs were included, your costs would have been higher.
EXPENSES PAID BEGINNING ENDING DURING PERIOD* ACCOUNT VALUE ACCOUNT VALUE APRIL 1, 2016 - APRIL 1, 2016 SEPTEMBER 30, 2016 SEPTEMBER 30, 2016 --------------------------------------------------------------- FUND SHARES Actual $1,000.00 $1,023.00 $2.94 Hypothetical (5% return before expenses) 1,000.00 1,022.16 2.94 ADVISER SHARES Actual 1,000.00 1,021.80 4.16 Hypothetical (5% return before expenses) 1,000.00 1,020.96 4.15
*Expenses are equal to the annualized expense ratio of 0.58% for Fund Shares and 0.82% for Adviser Shares, which are net of any reimbursements and expenses paid indirectly, multiplied by the average account value over the period, multiplied by 183 days/365 days (to reflect the one-half-year period). The Fund's actual ending account values are based on its actual total returns of 2.30% for Fund Shares and 2.18% for Adviser Shares for the six-month period of April 1, 2016, through September 30, 2016. ================================================================================ EXPENSE EXAMPLE | 43 ================================================================================ ADVISORY AGREEMENT(S) September 30, 2016 (unaudited) -------------------------------------------------------------------------------- At an in-person meeting of the Board of Trustees (the Board) held on April 22, 2016, the Board, including the Trustees who are not "interested persons" (as that term is defined in the Investment Company Act of 1940, as amended) of the Trust (the Independent Trustees), approved for an annual period the continuance of the Advisory Agreement between the Trust and the Manager with respect to the Fund. In advance of the meeting, the Trustees received and considered a variety of information relating to the Advisory Agreement and the Manager and were given the opportunity to ask questions and request additional information from management. The information provided to the Board included, among other things: (i) a separate report prepared by an independent third party, which provided a statistical analysis comparing the Fund's investment performance, expenses, and fees to comparable investment companies; (ii) information concerning the services rendered to the Fund, as well as information regarding the Manager's revenues and costs of providing services to the Fund and compensation paid to affiliates of the Manager; and (iii) information about the Manager's operations and personnel. Prior to voting, the Independent Trustees reviewed the proposed continuation of the Advisory Agreement with management and with experienced counsel retained by the Independent Trustees (Independent Counsel) and received materials from such Independent Counsel discussing the legal standards for their consideration of the proposed continuation of the Advisory Agreement with respect to the Fund. The Independent Trustees also reviewed the proposed continuation of the Advisory Agreement with respect to the Fund in private sessions with Independent Counsel at which no representatives of management were present. At each regularly scheduled meeting of the Board and its committees, the Board receives and reviews, among other things, information concerning the Fund's performance and related services provided by the Manager. ================================================================================ 44 | USAA VIRGINIA BOND FUND ================================================================================ At the meeting at which the renewal of the Advisory Agreement is considered, particular focus is given to information concerning Fund performance, fees and total expenses as compared to comparable investment companies, and the Manager's profitability with respect to the Fund. However, the Board noted that the evaluation process with respect to the Manager is an ongoing one. In this regard, the Board's and its committees' consideration of the Advisory Agreement included information previously received at such meetings. ADVISORY AGREEMENT After full consideration of a variety of factors, the Board, including the Independent Trustees, voted to approve the Advisory Agreement. In approving the Advisory Agreement, the Trustees did not identify any single factor as controlling, and each Trustee may have attributed different weights to various factors. Throughout their deliberations, the Independent Trustees were represented and assisted by Independent Counsel. NATURE, EXTENT, AND QUALITY OF SERVICES - In considering the nature, extent, and quality of the services provided by the Manager under the Advisory Agreement, the Board reviewed information provided by the Manager relating to its operations and personnel. The Board also took into account its knowledge of the Manager's management and the quality of the performance of the Manager's duties through Board meetings, discussions, and reports during the preceding year. The Board considered the fees paid to the Manager and the services provided to the Fund by the Manager under the Advisory Agreement, as well as other services provided by the Manager and its affiliates under other agreements, and the personnel who provide these services. In addition to the investment advisory services provided to the Fund, the Manager and its affiliates provide administrative services, stockholder services, oversight of Fund accounting, marketing services, assistance in meeting legal and regulatory requirements, and other services necessary for the operation of the Fund and the Trust. The Board considered the Manager's management style and the performance of the Manager's duties under the Advisory Agreement. The Board considered the level and depth of knowledge of the Manager, including the professional experience and qualifications of its senior and investment ================================================================================ ADVISORY AGREEMENT(S) | 45 ================================================================================ personnel, as well as current staffing levels. The allocation of the Fund's brokerage, including the Manager's process for monitoring "best execution," also was considered. The Manager's role in coordinating the activities of the Fund's other service providers also was considered. The Board also considered the Manager's risk management processes. The Board considered the Manager's financial condition and that it had the financial wherewithal to continue to provide the same scope and high quality of services under the Advisory Agreement. In reviewing the Advisory Agreement, the Board focused on the experience, resources, and strengths of the Manager and its affiliates in managing the Fund, as well as the other funds in the Trust. The Board also reviewed the compliance and administrative services provided to the Fund by the Manager, including the Manager's oversight of the Fund's day-to-day operations and oversight of Fund accounting. The Trustees, guided also by information obtained from their experiences as trustees of the Trust, also focused on the quality of the Manager's compliance and administrative staff. EXPENSES AND PERFORMANCE - In connection with its consideration of the Advisory Agreement, the Board evaluated the Fund's advisory fees and total expense ratio as compared to other open-end investment companies deemed to be comparable to the Fund as determined by the independent third party in its report. The Fund's expenses were compared to (i) a group of investment companies chosen by the independent third party to be comparable to the Fund based upon certain factors, including fund type, comparability of investment objective and classification, sales load type (in this case, investment companies with front-end loads or with no sales loads), asset size, and expense components (the "expense group") and (ii) a larger group of investment companies that includes all no-load and front-end load retail open-end investment companies with the same investment classification/objective as the Fund regardless of asset size, excluding outliers (the "expense universe"). Among other data, the Board noted that the Fund's management fee rate - which includes advisory and administrative services and the effects of any performance adjustment - was above the median of its expense group and equal to the median of its expense universe. The data indicated that the Fund's total expense ratio was below the median of its expense group and its expense universe. The Board took into account the various services provided ================================================================================ 46 | USAA VIRGINIA BOND FUND ================================================================================ to the Fund by the Manager and its affiliates, including the nature and high quality of services provided by the Manager. The Board took into account management's discussion of the Fund's expenses. The Board also noted the level and method of computing the management fee, including any performance adjustment to such fee. In considering the Fund's performance, the Board noted that it reviews at its regularly scheduled meetings information about the Fund's performance results. The Trustees also reviewed various comparative data provided to them in connection with their consideration of the renewal of the Advisory Agreement, including, among other information, a comparison of the Fund's average annual total return with its Lipper index and with that of other mutual funds deemed to be in its peer group by the independent third party in its report (the "performance universe"). The Fund's performance universe consisted of the Fund and all retail and institutional open-end investment companies with the same classification/objective as the Fund regardless of asset size or primary channel of distribution. This comparison indicated that, among other data, the Fund's performance was above the average of its performance universe and its Lipper index for the one-, three, five-, and ten-year periods ended December 31, 2015. The Board also noted that the Fund's percentile performance ranking was in the top 25% of its performance universe for the one-year period ended December 31, 2015, was in the top 5% of its performance universe for the three- and five-year periods ended December 31, 2015, and was in the top 20% of its performance universe for the ten-year period ended December 31, 2015. COMPENSATION AND PROFITABILITY - The Board took into consideration the level and method of computing the management fee. The information considered by the Board included operating profit margin information for the Manager's business as a whole. The Board also received and considered profitability information related to the management revenues from the Fund. This information included a review of the methodology used in the allocation of certain costs to the Fund. The Trustees reviewed the profitability of the Manager's relationship with the Fund before tax expenses. In reviewing the overall profitability of the management fee to the Manager, the Board also considered the fact that affiliates provide shareholder servicing and ================================================================================ ADVISORY AGREEMENT(S) | 47 ================================================================================ administrative services to the Fund for which they receive compensation. The Board also considered the possible direct and indirect benefits to the Manager from its relationship with the Trust, including that the Manager may derive reputational and other benefits from its association with the Fund. The Board also took into account the high quality of services received by the Fund from the Manager. The Trustees recognized that the Manager should be entitled to earn a reasonable level of profits in exchange for the level of services it provides to the Fund and the entrepreneurial risk that it assumes as Manager. ECONOMIES OF SCALE - The Board noted that the Fund has advisory fee breakpoints that allow the Fund to participate in economies of scale and that such economies of scale currently were reflected in the advisory fee. The Board also considered the effect of the Fund's growth and size on its performance and fees, noting that the Fund may realize additional economies of scale if assets increase proportionally more than some expenses. The Board determined that the current investment management fee structure was reasonable. CONCLUSIONS - The Board reached the following conclusions regarding the Fund's Advisory Agreement with the Manager, among others: (i) the Manager has demonstrated that it possesses the capability and resources to perform the duties required of it under the Advisory Agreement; (ii) the Manager maintains an appropriate compliance program; (iii) the performance of the Fund is reasonable in relation to the performance of funds with similar investment objectives and relevant indices; (iv) the Fund's advisory expenses are reasonable in relation to those of similar funds and to the services to be provided by the Manager; and (v) the Manager's and its affiliates' level of profitability from its relationship with the Fund is reasonable in light of the nature and high quality of services provided by the Manager and the type of fund. Based on its conclusions, the Board determined that continuation of the Advisory Agreement would be in the best interests of the Fund and its shareholders. ================================================================================ 48 | USAA VIRGINIA BOND FUND ================================================================================ TRUSTEES Daniel S. McNamara Robert L. Mason, Ph.D. Jefferson C. Boyce Dawn M. Hawley Paul L. McNamara Barbara B. Ostdiek, Ph.D. Michael F. Reimherr -------------------------------------------------------------------------------- ADMINISTRATOR AND USAA Asset Management Company INVESTMENT ADVISER P.O. Box 659453 San Antonio, Texas 78265-9825 -------------------------------------------------------------------------------- UNDERWRITER AND USAA Investment Management Company DISTRIBUTOR P.O. Box 659453 San Antonio, Texas 78265-9825 -------------------------------------------------------------------------------- TRANSFER AGENT USAA Shareholder Account Services 9800 Fredericksburg Road San Antonio, Texas 78288 -------------------------------------------------------------------------------- CUSTODIAN AND State Street Bank and Trust Company ACCOUNTING AGENT P.O. Box 1713 Boston, Massachusetts 02105 -------------------------------------------------------------------------------- INDEPENDENT Ernst & Young LLP REGISTERED PUBLIC 100 West Houston St., Suite 1700 ACCOUNTING FIRM San Antonio, Texas 78205 -------------------------------------------------------------------------------- MUTUAL FUND Under "My Accounts" on SELF-SERVICE 24/7 usaa.com select your mutual fund AT USAA.COM account and either click the link or select 'I want to...' and select OR CALL the desired action. (800) 531-USAA (8722) (210) 531-8722 -------------------------------------------------------------------------------- Copies of the Manager's proxy voting policies and procedures, approved by the Trust's Board of Trustees for use in voting proxies on behalf of the Fund, are available without charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722; (ii) at USAA.COM; and (iii) in summary within the Statement of Additional Information on the SEC's website at HTTP://WWW.SEC.GOV. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge (i) at USAA.COM; and (ii) on the SEC's website at HTTP://WWW.SEC.GOV. The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. These Forms N-Q are available at no charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722; (ii) at USAA.COM; and (iii) on the SEC's website at HTTP://WWW.SEC.GOV. These Forms N-Q also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling (800) 732-0330. ================================================================================ -------------- USAA PRSRT STD 9800 Fredericksburg Road U.S. Postage San Antonio, TX 78288 PAID USAA -------------- >> SAVE PAPER AND FUND COSTS Under MY PROFILE on USAA.COM select MANAGE PREFERENCES Set your DOCUMENT PREFERENCES to USAA DOCUMENTS ONLINE. [LOGO OF USAA] USAA We know what it means to serve.(R) ============================================================================= 39604-1116 (C)2016, USAA. All rights reserved. [LOGO OF USAA] USAA(R) [GRAPHIC OF USAA VIRGINIA MONEY MARKET FUND] ============================================================== SEMIANNUAL REPORT USAA VIRGINIA MONEY MARKET FUND SEPTEMBER 30, 2016 ============================================================== ================================================================================ ================================================================================ PRESIDENT'S MESSAGE "THE CLOSING WEEKS OF A YEAR CAN BE A GOOD TIME TO TAKE A LOOK AT YOUR FINANCIAL SITUATION [PHOTO OF BROOKS ENGLEHARDT] WITH A GOAL OF GETTING YOUR FINANCES IN ORDER." -------------------------------------------------------------------------------- NOVEMBER 2016 Investors were generally rewarded during the reporting period ended September 30, 2016. Most asset classes posted gains as global growth concerns eased and many of the world's central banks, including the Federal Reserve (the Fed), maintained accommodative monetary policies. Stock prices generally climbed, despite two brief setbacks. In June 2016, a brief retreat followed the United Kingdom's unexpected vote to withdraw from the European Union (commonly known as Brexit). In September 2016, stocks fell--before quickly recovering--on concerns about a potential Fed interest rate increase. Meanwhile, bond prices recorded positive returns during the reporting period. As bond prices rose, longer-term interest rates, which move in the opposite direction, fell. As you know, the Fed only has direct control over short-term interest rates. Bond prices and longer-term interest rates are determined by buyers and sellers, sometimes based on their views of Fed policy. During the reporting period, market expectations about potential Fed interest rate increases shifted into the future. The Fed, which in December 2015 had raised short-term interest rates for the first time since 2008, also initially signaled that four interest rate increases were on tap for 2016. However, policymakers backed off that forecast in March 2016, just before the reporting period began, indicating that only two interest rate increases were on the table. They pointed to the global market turmoil during the first six weeks of 2016 as a contributing factor. Policymakers subsequently hinted there would be a single interest rate increase, but ultimately left interest rates unchanged. In our view, December 2016 is the Fed's only remaining window of opportunity to increase short-term interest rates. It is unlikely to act at its November 2016 meeting, which is just days before the presidential election. We believe that as of this writing, the futures market, which generally is a proxy for investor sentiment, indicates approximately a two-thirds chance that the Fed would raise rates in December 2016. ================================================================================ ================================================================================ This begs the question: Is it good or bad if low interest rates persist? We think it depends on your perspective. On one hand, consumers and businesses are able to continue borrowing at affordable interest rates. On the other hand, savers may continue to see returns lower than the rate of inflation. At USAA Investments, we believe the Fed is likely to raise interest rates at a gradual pace. We've long held the belief that interest rates will stay lower for longer than many market participants expect. Currently, there is no urgency for the Fed to act. Interest rate increases are typically a response to an overheating economy, and the U.S. remains in slow-growth mode with low inflation. Americans are still carrying large amounts of household debt, so higher interest rates are likely to hinder their spending and slow what little growth there is. Tax-exempt bonds, like most other fixed-income investments, generated positive returns during the reporting period. Municipal bonds performed well, as investors continued to favor them for their tax-advantaged status. At the same time, municipal issuance remained low, though it has increased since January 2016. Still, the supply is far from enough to satisfy demand and we expect municipal bonds to continue to benefit from this situation for some time to come. Although state and local finances are in better shape than they were a few years ago, municipal governments have been reluctant to take on additional debt. We believe eventually this will change, but likely not for the foreseeable future. Looking ahead, the end of 2016 is just weeks away. The closing weeks of a year can be a good time to take a look at your financial situation with a goal of getting your finances in order. One way to help ensure you're doing the most with what you have is to consider investing a set amount each month, also known as dollar-cost averaging. Please call USAA Investments to speak with a financial advisor. We are committed to helping you meet your financial objectives. On behalf of everyone at USAA Investments, thank you for relying on us to help you with your investment needs. We appreciate the opportunity to serve you. Sincerely, /S/ BROOKS ENGLEHARDT Brooks Englehardt President USAA Investments Investments provided by USAA Investment Management Company and USAA Financial Advisors, Inc., both registered broker-dealers, and affiliates. Financial planning services and financial advice provided by USAA Financial Planning Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in California, License # 0E36312), a registered investment adviser and insurance agency and its wholly owned subsidiary, USAA Financial Advisors, Inc., a registered broker dealer. ================================================================================ ================================================================================ TABLE OF CONTENTS -------------------------------------------------------------------------------- FUND OBJECTIVE 1 MANAGER'S COMMENTARY ON THE FUND 2 INVESTMENT OVERVIEW 5 FINANCIAL INFORMATION Portfolio of Investments 9 Notes to Portfolio of Investments 13 Financial Statements 14 Notes to Financial Statements 17 EXPENSE EXAMPLE 25 ADVISORY AGREEMENT(S) 27
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS ABOUT THE FUND. (C)2016, USAA. All rights reserved. 211760-1116 ================================================================================ ================================================================================ FUND OBJECTIVE THE USAA VIRGINIA MONEY MARKET FUND (THE FUND) PROVIDES VIRGINIA INVESTORS WITH A HIGH LEVEL OF CURRENT INTEREST INCOME THAT IS EXEMPT FROM FEDERAL AND VIRGINIA STATE INCOME TAXES AND HAS A FURTHER OBJECTIVE OF PRESERVING CAPITAL AND MAINTAINING LIQUIDITY. -------------------------------------------------------------------------------- TYPES OF INVESTMENTS The Fund primarily invests in high-quality Virginia tax-exempt securities with remaining maturities of 397 days or less. During normal market conditions, at least 80% of the Fund's net assets will consist of Virginia tax-exempt securities. IRA DISTRIBUTION WITHHOLDING DISCLOSURE We generally must withhold federal income tax at a rate of 10% of the taxable portion of your distribution and, if you live in a state that requires state income tax withholding, at your state's tax rate. However, you may elect not to have withholding apply or to have income tax withheld at a higher rate. Any withholding election that you make will apply to any subsequent distribution unless and until you change or revoke the election. If you wish to make a withholding election or change or revoke a prior withholding election, call (800) 531-USAA (8722) or (210) 531-8722. If you do not have a withholding election in place by the date of a distribution, federal income tax will be withheld from the taxable portion of your distribution at a rate of 10%. If you must pay estimated taxes, you may be subject to estimated tax penalties if your estimated tax payments are not sufficient and sufficient tax is not withheld from your distribution. For more specific information, please consult your tax adviser. ================================================================================ FUND OBJECTIVE | 1 ================================================================================ MANAGER'S COMMENTARY ON THE FUND DALE R. HOFFMANN [PHOTO OF DALE R. HOFFMANN] USAA Asset Management Company -------------------------------------------------------------------------------- o WHAT WERE THE MARKET CONDITIONS DURING THE REPORTING PERIOD? When the reporting period began in April 2016, investors were still digesting the change in the Federal Reserve's (the Fed) guidance on short-term interest-rate increases. At its March 2016 policy meeting, the Fed had called for two interest rate increases in 2016, down from the four it had forecasted in December 2015. Ultimately, however, the Fed remained steady, leaving the federal funds target rate in a range between 0.25% and 0.50% throughout the reporting period. Although the Fed did not change its monetary policy, interest rates on money market securities rose, largely due to shifting market dynamics. At the beginning of the reporting period, the SIFMA Municipal Swap Index*, the index of seven-day variable rate demand notes (VRDNs), stood at 0.40%. It stayed near that level through July 2016 and then climbed 44 basis points to close the reporting period at 0.84%. (A basis point is 1/100(th) of a percent.) During August and September 2016, shortly before the Securities and Exchange Commission's money market fund reform became effective, a large number of money market funds sold VRDNs as they liquidated, consolidated, or shifted assets into treasury *The SIFMA Municipal Swap Index is a 7-day high-grade market index comprised of tax-exempt variable-rate demand obligations (VRDOs) with certain characteristics. The index is calculated and published by Bloomberg. The index is overseen by SIFMA's Municipal Swap Index Committee. ================================================================================ 2 | USAA VIRGINIA MONEY MARKET FUND ================================================================================ money market funds. This caused inventories of VRDNs to increase, leading many dealers to raise interest rates in order to attract buyers. o HOW DID THE USAA VIRGINIA MONEY MARKET FUND (THE FUND) PERFORM DURING THE REPORTING PERIOD? For the reporting period ended September 30, 2016, the Fund had a return of 0.01%, compared to an average return of 0.06% for the tax-exempt money market funds category, according to iMoneyNet, Inc. USAA Asset Management Company (the Manager) is the Fund's investment adviser. The investment adviser provides day-to-day discretionary management for the Fund's assets. o WHAT ARE THE CONDITIONS IN THE COMMONWEALTH OF VIRGINIA? Given its proximity to Washington, D.C. and its dependency on government and government-related jobs, Virginia's economy appears to be feeling the effects of federal spending cuts. However, at the end of the reporting period, its economy continued to be stronger than that of most states. Virginia has been proactive in cutting expenditures to maintain overall balance and has been able to post budget surpluses to restore financial reserves. Virginia's conservative fiscal practices seem to be serving it well, as it remains one of the few states rated AAA by all three credit-rating companies at the end of the reporting period. Virginia is characterized by a broad-based economy, with a well-educated work force and high wealth levels, as well as a history of conservative fiscal management. o WHAT WERE YOUR STRATEGIES IN THIS ENVIRONMENT? We continued to focus our purchases on VRDNs, which added to the Fund's yield during the reporting period. Because the VRDNs owned by Refer to page 6 for benchmark definition. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. ================================================================================ MANAGER'S COMMENTARY ON THE FUND | 3 ================================================================================ the Fund can be sold at par value (100% of face value) upon seven days or less notice, the Fund had the flexibility to take advantage of higher interest rates. Many of the Fund's VRDNs also are guaranteed by a bank letter-of-credit for the payment of both principal and interest, providing the Fund with a certain degree of stability. In addition, the Fund benefited from investments with longer maturities. We continued to work with our in-house team of analysts to help us identify attractive opportunities for the Fund. They also continue to analyze and monitor the Fund's portfolio. We appreciate the opportunity to help you with your investment needs. As interest rates rise, bond prices generally fall; given the historically low interest rate environment, risks associated with rising interest rates may be heightened. o VRDNs are securities for which the interest rate is reset periodically; typically weekly, although reset intervals may vary. o Investing in securities products involves risk, including possible loss of principal. o Some income may be subject to state or local taxes but not the federal alternative minimum tax. ================================================================================ 4 | USAA VIRGINIA MONEY MARKET FUND ================================================================================ INVESTMENT OVERVIEW USAA VIRGINIA MONEY MARKET FUND (THE FUND) (Ticker Symbol: UVAXX)
-------------------------------------------------------------------------------- 9/30/16 3/31/16 -------------------------------------------------------------------------------- Net Assets $161.2 Million $172.1 Million Net Asset Value Per Share $1.00 $1.00 Dollar-Weighted Average Portfolio Maturity(+) 19 Days 10 Days (+)Obtained by multiplying the dollar value of each investment by the number of days left to its maturity, adding those figures together, and dividing them by the total dollar value of the Fund's portfolio. -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 9/30/16 -------------------------------------------------------------------------------- 3/31/16-9/30/16* 1 YEAR 5 YEARS 10 YEARS 0.01% 0.02% 0.03% 0.65% -------------------------------------------------------------------------------- 7-DAY YIELD AS OF 9/30/16 EXPENSE RATIO AS OF 3/31/16** -------------------------------------------------------------------------------- 0.07% 0.70%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT USAA.COM. *Total returns for periods of less than one year are not annualized. This return is cumulative. **The expense ratio represents the total annual operating expenses, before reductions of any expenses paid indirectly and including any acquired fund fees and expenses, as reported in the Fund's prospectus dated August 1, 2016, and is calculated as a percentage of average net assets. This expense ratio may differ from the expense ratio disclosed in the Financial Highlights, which excludes acquired fund fees and expenses. YOU COULD LOSE MONEY BY INVESTING IN THE FUND. ALTHOUGH THE FUND SEEKS TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1 PER SHARE, IT CANNOT GUARANTEE IT WILL DO SO. THE FUND MAY IMPOSE A FEE UPON THE SALE OF YOUR SHARES OR MAY TEMPORARILY SUSPEND YOUR ABILITY TO SELL SHARES IF THE FUND'S LIQUIDITY FALLS BELOW REQUIRED MINIMUMS BECAUSE OF MARKET CONDITIONS OR OTHER FACTORS. AN INVESTMENT IN THE FUND IS NOT A DEPOSIT IN USAA FEDERAL SAVINGS BANK, OR ANY OTHER BANK, AND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. THE FUND'S SPONSOR HAS NO LEGAL OBLIGATION TO PROVIDE FINANCIAL SUPPORT TO THE FUND, AND YOU SHOULD NOT EXPECT THAT THE SPONSOR WILL PROVIDE FINANCIAL SUPPORT TO THE FUND AT ANY TIME. Total return measures the price change in a share assuming the reinvestment of all net investment income and realized capital gain distributions, if any. The total returns quoted do not reflect adjustments made to the enclosed financial statements in accordance with U.S. generally accepted accounting principles or the deduction of taxes that a shareholder would pay on net investment income and realized capital gain distributions, including reinvested distributions, or redemptions of shares. Yields and returns fluctuate. The seven-day yield quotation more closely reflects current earnings of the Fund than the total return quotation. ================================================================================ INVESTMENT OVERVIEW | 5 ================================================================================ o 7-DAY YIELD COMPARISON o [CHART OF 7-DAY YIELD COMPARISON]
USAA VIRGINIA iMoneyNet MONEY MARKET AVERAGE FUND 9/28/2015 0.01% 0.01% 10/26/2015 0.01 0.01 11/30/2015 0.01 0.01 12/28/2015 0.01 0.01 1/25/2016 0.01 0.01 2/29/2016 0.01 0.01 3/28/2016 0.02 0.01 4/25/2016 0.03 0.01 5/23/2016 0.04 0.01 6/27/2016 0.05 0.01 7/25/2016 0.05 0.01 8/29/2016 0.09 0.01 9/26/2016 0.20 0.04
[END CHART] Data represents the last Monday of each month. Ending date 9/26/16. The graph tracks the USAA Virginia Money Market Fund's seven-day yield against an average of money market fund yields of all state-specific retail state tax-free and municipal money funds, calculated by iMoneyNet, Inc. iMoneyNet, Inc. is an organization that tracks the performance of money market funds. Past performance is no guarantee of future results. ================================================================================ 6 | USAA VIRGINIA MONEY MARKET FUND ================================================================================ o TOP 10 INDUSTRIES - 9/30/16 o (% of Net Assets) Education ................................................................ 23.5% Hospital ................................................................. 21.0% Airport/Port ............................................................. 9.9% Community Service ........................................................ 9.2% Special Assessment/Tax/Fee ............................................... 8.6% General Obligation ....................................................... 6.0% Appropriated Debt ........................................................ 5.7% Health Miscellaneous ..................................................... 5.0% Water/Sewer Utility ...................................................... 5.0% Multifamily Housing ...................................................... 3.0%
o PORTFOLIO MIX - 9/30/16 o [PIE CHART OF PORTFOLIO MIX] VARIABLE-RATE DEMAND NOTES 86.6% FIXED-RATE INSTRUMENTS 12.8%
[END CHART] Percentages are of the net assets of the Fund and may not equal 100%. You will find a complete list of securities that the Fund owns on pages 9-12. ================================================================================ INVESTMENT OVERVIEW | 7 ================================================================================ o CUMULATIVE PERFORMANCE OF $10,000 o [CHART OF CUMULATIVE PERFORMANCE]
USAA VIRGINIA MONEY MARKET FUND 09/30/06 $10,000.00 10/31/06 10,025.00 11/30/06 10,050.00 12/31/06 10,078.00 01/31/07 10,102.00 02/28/07 10,127.00 03/31/07 10,154.00 04/30/07 10,180.00 05/31/07 10,209.00 06/30/07 10,237.00 07/31/07 10,263.00 08/31/07 10,294.00 09/30/07 10,319.00 10/31/07 10,347.00 11/30/07 10,374.00 12/31/07 10,400.00 01/31/08 10,423.00 02/29/08 10,442.00 03/31/08 10,464.00 04/30/08 10,481.00 05/31/08 10,500.00 06/30/08 10,514.00 07/31/08 10,527.00 08/31/08 10,542.00 09/30/08 10,569.00 10/31/08 10,600.00 11/30/08 10,610.00 12/31/08 10,621.00 01/31/09 10,625.00 02/28/09 10,628.00 03/31/09 10,632.00 04/30/09 10,636.00 05/31/09 10,641.00 06/30/09 10,645.00 07/31/09 10,649.00 08/31/09 10,652.00 09/30/09 10,653.00 10/31/09 10,653.00 11/30/09 10,653.00 12/31/09 10,655.00 01/31/10 10,655.00 02/28/10 10,655.00 03/31/10 10,655.00 04/30/10 10,656.00 05/31/10 10,656.00 06/30/10 10,656.00 07/31/10 10,656.00 08/31/10 10,656.00 09/30/10 10,656.00 10/31/10 10,656.00 11/30/10 10,656.00 12/31/10 10,656.00 01/31/11 10,657.00 02/28/11 10,657.00 03/31/11 10,657.00 04/30/11 10,657.00 05/31/11 10,657.00 06/30/11 10,657.00 07/31/11 10,657.00 08/31/11 10,657.00 09/30/11 10,657.00 10/31/11 10,657.00 11/30/11 10,657.00 12/31/11 10,658.00 01/31/12 10,659.00 02/29/12 10,659.00 03/31/12 10,659.00 04/30/12 10,659.00 05/31/12 10,659.00 06/30/12 10,659.00 07/31/12 10,659.00 08/31/12 10,659.00 09/30/12 10,659.00 10/31/12 10,660.00 11/30/12 10,660.00 12/31/12 10,660.00 01/31/13 10,660.00 02/28/13 10,661.00 03/31/13 10,661.00 04/30/13 10,661.00 05/31/13 10,661.00 06/30/13 10,661.00 07/31/13 10,661.00 08/31/13 10,661.00 09/30/13 10,661.00 10/31/13 10,661.00 11/30/13 10,661.00 12/31/13 10,666.00 01/31/14 10,667.00 02/28/14 10,667.00 03/31/14 10,667.00 04/30/14 10,667.00 05/31/14 10,667.00 06/30/14 10,667.00 07/31/14 10,667.00 08/31/14 10,667.00 09/30/14 10,667.00 10/31/14 10,667.00 11/30/14 10,667.00 12/31/14 10,668.00 01/31/15 10,668.00 02/28/15 10,668.00 03/31/15 10,668.00 04/30/15 10,668.00 05/31/15 10,668.00 06/30/15 10,668.00 07/31/15 10,668.00 08/31/15 10,668.00 09/30/15 10,668.00 10/31/15 10,668.00 11/30/15 10,669.00 12/31/15 10,670.00 01/31/16 10,670.00 02/29/16 10,670.00 03/31/16 10,670.00 04/30/16 10,670.00 05/31/16 10,670.00 06/30/16 10,670.00 07/31/16 10,670.00 08/31/16 10,671.00 09/30/16 10,671.00
[END CHART] Data from 9/30/06 through 9/30/16. The graph illustrates the performance of a hypothetical $10,000 investment in the USAA Virginia Money Market Fund. Past performance is no guarantee of future results. The cumulative performance quoted does not reflect the deduction of taxes that a shareholder would pay on reinvested net investment income and realized capital gain distributions or on the redemption of shares. Some income may be subject to federal, state, or local taxes. For seven-day yield information, please refer to the Fund's Investment Overview. ================================================================================ 8 | USAA VIRGINIA MONEY MARKET FUND ================================================================================ PORTFOLIO OF INVESTMENTS September 30, 2016 (unaudited) -------------------------------------------------------------------------------- o CATEGORIES AND DEFINITIONS VARIABLE-RATE DEMAND NOTES (VRDNs) - Provide the right to sell the security at face value on either that day or within the rate-reset period. The interest rate is adjusted at a stipulated daily, weekly, monthly, quarterly, or other specified time interval to reflect current market conditions. The effective maturity of these instruments is deemed to be less than 397 days in accordance with detailed regulatory requirements. FIXED-RATE INSTRUMENTS - Consist of municipal bonds, notes, and commercial paper. The interest rate is constant to maturity. Prior to maturity, the market price of a fixed-rate instrument generally varies inversely to the movement of interest rates. o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS EDA Economic Development Authority IDA Industrial Development Authority/Agency CREDIT ENHANCEMENTS - Adds the financial strength of the provider of the enhancement to support the issuer's ability to repay the principal and interest payments when due. The enhancement may be provided by a high-quality bank, insurance company or other corporation, or a collateral trust. The enhancements do not guarantee the values of the securities. The Fund's purchases consist of securities meeting the requirements to qualify as "eligible securities" under the Securities and Exchange Commission (SEC) regulations applicable to money market funds. In order to qualify as an eligible security, the USAA Mutual Funds Trust's Board of Trustees (the Board), must determine that the particular ================================================================================ PORTFOLIO OF INVESTMENTS | 9 ================================================================================ investment presents minimal credit risk in accordance with these SEC regulations. With respect to quality, eligible securities generally are rated or subject to a guarantee that is rated in one of the two highest categories for short-term securities by at least two Nationally Recognized Statistical Rating Organizations (NRSROs), or by one NRSRO if the security is rated by only one NRSRO, or if unrated, determined by USAA Asset Management Company (the Manager) to be of comparable quality. (LIQ) Liquidity enhancement that may, under certain circumstances, provide for repayment of principal and interest upon demand from JPMorgan Chase & Co. or Royal Bank of Canada. (LOC) Principal and interest payments are guaranteed by a bank letter of credit or other bank credit agreement. ================================================================================ 10 | USAA VIRGINIA MONEY MARKET FUND ================================================================================ INVESTMENTS
---------------------------------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) ---------------------------------------------------------------------------------------------------------------------------- VARIABLE-RATE DEMAND NOTES (86.6%) VIRGINIA (76.7%) $ 3,630 Albemarle County IDA (LOC - Wells Fargo & Co.) 0.83% 10/01/2022 $ 3,630 6,400 Albemarle County IDA (LOC - SunTrust Bank) 0.90 10/01/2037 6,400 1,510 Alexandria IDA (LOC - Bank of America Corp.) 0.97 7/01/2026 1,510 1,400 Fairfax County EDA (LOC - SunTrust Bank) 0.90 6/01/2037 1,400 7,000 Fairfax County IDA 0.87 5/15/2042 7,000 6,955 Fauquier County IDA (LOC - PNC Financial Services Group) 0.87 4/01/2038 6,955 8,000 Hampton Roads Sanitation District 0.85 8/01/2046 8,000 4,205 Hanover County EDA (LOC - U.S. Bancorp) 0.83 11/01/2025 4,205 3,370 Hanover County EDA (LOC - Bank of New York Mellon Corp.) 0.83 11/01/2025 3,370 7,820 Lexington IDA 0.75 1/01/2035 7,820 7,000 Loudoun County IDA (LOC - Northern Trust Corp.) 0.85 6/01/2034 7,000 8,000 Loudoun County IDA 0.83 2/15/2038 8,000 3,605 Loudoun County IDA (LOC - PNC Financial Services Group) 0.87 3/01/2038 3,605 7,595 Lynchburg IDA (LOC - Federal Home Loan Bank of Atlanta) 0.86 1/01/2028 7,595 5,000 Madison County IDA (LOC - SunTrust Bank) 0.91 10/01/2037 5,000 4,000 Montgomery County IDA (LOC - Bank of New York Mellon Corp.) 0.90 6/01/2035 4,000 8,000 Norfolk EDA 0.86 11/01/2034 8,000 4,850 Norfolk Redevelopment and Housing Auth. (LOC - Bank of America Corp.) 0.94 7/01/2034 4,850 2,640 Roanoke County EDA (LOC - BB&T Corp.) 0.99 10/01/2028 2,640 2,495 Stafford County EDA (LIQ)(a) 0.92 4/01/2017 2,495 910 Stafford County IDA (LOC - U.S. Bancorp) 0.89 5/01/2049 910 6,775 Transportation Board (LIQ)(a) 0.88 5/15/2020 6,775 3,700 Univ. of Virginia (LIQ)(a) 0.87 12/01/2017 3,700 2,000 Virginia Beach (LIQ)(a) 0.87 4/01/2017 2,000 6,825 Virginia College Building Auth. (LIQ)(a) 0.87 2/01/2021 6,825 -------- 123,685 --------
================================================================================ PORTFOLIO OF INVESTMENTS | 11 ================================================================================
---------------------------------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT COUPON FINAL VALUE (000) SECURITY RATE MATURITY (000) ---------------------------------------------------------------------------------------------------------------------------- DISTRICT OF COLUMBIA (9.9%) $ 8,055 Metropolitan Washington Airports Auth. (LOC - Toronto-Dominion Bank) 0.88% 10/01/2039 $ 8,055 7,800 Metropolitan Washington Airports Auth. (LOC - Sumitomo Mitsui Banking Corp.) 0.90 10/01/2039 7,800 -------- 15,855 -------- Total Variable-Rate Demand Notes (cost: $139,540) 139,540 -------- FIXED-RATE INSTRUMENTS (12.8%) VIRGINIA (12.8%) 7,480 Commonwealth 5.00 6/01/2017 7,706 13,000 Stafford County & Staunton IDA (LOC - Bank of America Corp.) 0.80 10/18/2016 13,000 -------- 20,706 -------- Total Fixed-Rate Instruments (cost: $20,706) 20,706 -------- TOTAL INVESTMENTS (COST: $160,246) $160,246 ======== ---------------------------------------------------------------------------------------------------------------------------- ($ IN 000s) VALUATION HIERARCHY ---------------------------------------------------------------------------------------------------------------------------- ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL ---------------------------------------------------------------------------------------------------------------------------- Variable-Rate Demand Notes $- $139,540 $- $139,540 Fixed-Rate Instruments - 20,706 - 20,706 ---------------------------------------------------------------------------------------------------------------------------- Total $- $160,246 $- $160,246 ----------------------------------------------------------------------------------------------------------------------------
================================================================================ 12 | USAA VIRGINIA MONEY MARKET FUND ================================================================================ NOTES TO PORTFOLIO OF INVESTMENTS September 30, 2016 (unaudited) -------------------------------------------------------------------------------- o GENERAL NOTES Values of securities are determined by procedures and practices discussed in Note 1A to the financial statements. The cost of securities at September 30, 2016, for federal income tax purposes, was approximately the same as that reported in the financial statements. The Portfolio of Investments category percentages shown represent the percentages of the investments to net assets, and, in total, may not equal 100%. A category percentage of 0.0% represents less than 0.1% of net assets. o SPECIFIC NOTES (a) Restricted security that is not registered under the Securities Act of 1933. A resale of this security in the United States may occur in an exempt transaction to a qualified institutional buyer as defined by Rule 144A, and as such has been deemed liquid by USAA Asset Management Company (the Manager) under liquidity guidelines approved by USAA Mutual Funds Trust's Board of Trustees (the Board), unless otherwise noted as illiquid. See accompanying notes to financial statements. ================================================================================ NOTES TO PORTFOLIO OF INVESTMENTS | 13 ================================================================================ STATEMENT OF ASSETS AND LIABILITIES (IN THOUSANDS) September 30, 2016 (unaudited) -------------------------------------------------------------------------------- ASSETS Investments in securities (amortized cost approximates market value) $160,246 Cash 90 Receivables: Capital shares sold 1,069 Interest 232 -------- Total assets 161,637 -------- LIABILITIES Payables: Capital shares redeemed 293 Dividends on capital shares 4 Accrued management fees 43 Other accrued expenses and payables 62 -------- Total liabilities 402 -------- Net assets applicable to capital shares outstanding $161,235 ======== NET ASSETS CONSIST OF: Paid-in capital $161,187 Overdistribution of net investment income (1) Accumulated net realized gain on investments 49 -------- Net assets applicable to capital shares outstanding $161,235 ======== Capital shares outstanding, unlimited number of shares authorized, no par value 161,187 ======== Net asset value, redemption price, and offering price per share $ 1.00 ========
See accompanying notes to financial statements. ================================================================================ 14 | USAA VIRGINIA MONEY MARKET FUND ================================================================================ STATEMENT OF OPERATIONS (IN THOUSANDS) Six-month period ended September 30, 2016 (unaudited) -------------------------------------------------------------------------------- INVESTMENT INCOME Interest income $ 403 ----- EXPENSES Management fees 274 Administration and servicing fees 86 Transfer agent's fees 144 Custody and accounting fees 44 Postage 7 Shareholder reporting fees 6 Trustees' fees 15 Professional fees 43 Other 7 ----- Total expenses 626 Expenses reimbursed (233) ----- Net expenses 393 ----- NET INVESTMENT INCOME 10 ----- NET REALIZED GAIN ON INVESTMENTS Net realized gain 49 ----- Increase in net assets resulting from operations $ 59 =====
See accompanying notes to financial statements. ================================================================================ FINANCIAL STATEMENTS | 15 ================================================================================ STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS) Six-month period ended September 30, 2016 (unaudited), and year ended March 31, 2016
--------------------------------------------------------------------------------------------------------- 9/30/2016 3/31/2016 --------------------------------------------------------------------------------------------------------- FROM OPERATIONS Net investment income $ 10 $ 17 Net realized gain on investments 49 20 ----------------------------- Increase in net assets resulting from operations 59 37 ----------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income (11) (17) Net realized gains - (20) ----------------------------- Distributions to shareholders (11) (37) ----------------------------- FROM CAPITAL SHARE TRANSACTIONS Proceeds from shares sold 108,459 104,952 Reinvested dividends 10 37 Cost of shares redeemed (119,372) (117,276) ----------------------------- Decrease in net assets from capital share transactions (10,903) (12,287) ----------------------------- Net decrease in net assets (10,855) (12,287) NET ASSETS Beginning of period 172,090 184,377 ----------------------------- End of period $ 161,235 $ 172,090 ============================= Overdistribution of net investment income: End of period $ (1) $ - ============================= CHANGE IN SHARES OUTSTANDING Shares sold 108,459 104,952 Shares issued for dividends reinvested 10 37 Shares redeemed (119,372) (117,276) ----------------------------- Decrease in shares outstanding (10,903) (12,287) =============================
See accompanying notes to financial statements. ================================================================================ 16 | USAA VIRGINIA MONEY MARKET FUND ================================================================================ NOTES TO FINANCIAL STATEMENTS September 30, 2016 (unaudited) -------------------------------------------------------------------------------- (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company Act of 1940, as amended (the 1940 Act), is an open-end management investment company organized as a Delaware statutory trust consisting of 54 separate funds. Additionally, the Fund qualifies as a registered investment company under Accounting Standards Codification Topic 946. The information presented in this semiannual report pertains only to the USAA Virginia Money Market Fund (the Fund), which is classified as diversified under the 1940 Act. The Fund's investment objective is to provide Virginia investors with a high level of current interest income that is exempt from federal and Virginia state income taxes, with a further objective of preserving capital and maintaining liquidity. A. SECURITY VALUATION - The Trust's Board of Trustees (the Board) has established the Valuation Committee (the Committee), and subject to Board oversight, the Committee administers and oversees the Fund's valuation policies and procedures, which are approved by the Board. Among other things, these policies and procedures allow the Fund to utilize independent pricing services, quotations from securities dealers, and a wide variety of sources and information to establish and adjust the fair value of securities as events occur and circumstances warrant. The Committee reports to the Board on a quarterly basis and makes recommendations to the Board as to pricing methodologies and services used by the Fund and presents additional information to the Board regarding application of the pricing and fair valuation policies and procedures during the preceding quarter. The Committee meets as often as necessary to make pricing and fair value determinations. In addition, the Committee holds regular monthly ================================================================================ NOTES TO FINANCIAL STATEMENTS | 17 ================================================================================ meetings to review prior actions taken by the Committee and USAA Asset Management Company (the Manager), an affiliate of the Fund. Among other things, these monthly meetings include a review and analysis of back testing reports, pricing service quotation comparisons, illiquid securities and fair value determinations, pricing movements, and daily stale price monitoring. The value of each security is determined (as of the close of trading on the New York Stock Exchange (NYSE) on each business day the NYSE is open) as set forth below: 1. All securities held in the Fund are short-term debt securities which are valued pursuant to Rule 2a-7 under the 1940 Act. This method values a security at its purchase price, and thereafter, assumes a constant amortization to maturity of any premiums or discounts. 2. Securities for which amortized cost valuations are considered unreliable or whose values have been materially affected by a significant event are valued in good faith at fair value, using methods determined by the Committee, under procedures to stabilize net assets and valuation procedures approved by the Board. B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The three-level valuation hierarchy disclosed in the Portfolio of Investments is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows: Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) in active markets for identical securities. Level 2 - inputs to the valuation methodology are other significant observable inputs, including quoted prices for similar securities, inputs that are observable for the securities, either directly or indirectly, and market-corroborated inputs such as market indexes. ================================================================================ 18 | USAA VIRGINIA MONEY MARKET FUND ================================================================================ Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value measurement, including the Manager's own assumptions in determining the fair value. The inputs or methodologies used for valuing securities are not necessarily an indication of the risks associated with investing in those securities. For example, money market securities are valued using amortized cost, in accordance with rules under the 1940 Act. Generally, amortized cost approximates the current fair value of a security, but since the value is not obtained from a quoted price in an active market, such securities are reflected as Level 2. C. FEDERAL TAXES - The Fund's policy is to comply with the requirements of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies and to distribute substantially all of its taxable income and net capital gains, if any, to its shareholders. Therefore, no federal income tax provision is required. D. INVESTMENTS IN SECURITIES - Securities transactions are accounted for on the date the securities are purchased or sold (trade date). Gains or losses from sales of investment securities are computed on the identified cost basis. Interest income is recorded daily on the accrual basis. Premiums and discounts are amortized over the life of the respective securities using the straight-line method. The Fund concentrates its investments in Virginia tax-exempt securities and, therefore, may be exposed to more credit risk than portfolios with a broader geographical diversification. E. SECURITIES PURCHASED ON A DELAYED-DELIVERY OR WHEN-ISSUED BASIS - Delivery and payment for securities that have been purchased by the Fund on a delayed-delivery or when-issued basis can take place a month or more after the trade date. During the period prior to settlement, these securities do not earn interest, are subject to market fluctuation, and may increase or decrease in value prior to their delivery. The Fund maintains segregated assets with a market value equal to or greater than the amount of its purchase commitments. F. EXPENSES PAID INDIRECTLY - Through arrangements with the Fund's custodian and other banks utilized by the Fund for cash management ================================================================================ NOTES TO FINANCIAL STATEMENTS | 19 ================================================================================ purposes, realized credits, if any, generated from cash balances in the Fund's bank accounts may be used to directly reduce the Fund's expenses. For the six-month period ended September 30, 2016, custodian and other bank credits reduced the Fund's expenses by less than $500. G. INDEMNIFICATIONS - Under the Trust's organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Trust. In addition, in the normal course of business, the Trust enters into contracts that contain a variety of representations and warranties that provide general indemnifications. The Trust's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Trust that have not yet occurred. However, the Trust expects the risk of loss to be remote. H. USE OF ESTIMATES - The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that may affect the reported amounts in the financial statements. (2) LINE OF CREDIT The Fund participates in a joint, short-term, revolving, committed loan agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate of the Manager. The purpose of the agreement is to meet temporary or emergency cash needs, including redemption requests that might otherwise require the untimely disposition of securities. Subject to availability, the Fund may borrow from CAPCO an amount up to 5% of the Fund's total assets at an interest rate based on the London Interbank Offered Rate (LIBOR), plus 100.0 basis points. The USAA Funds that are party to the loan agreement are assessed facility fees by CAPCO in the amount of 12.0 basis points of the amount of the committed loan agreement. Prior to September 30, 2016, the maximum annual facility fee was 9.0 basis points of the amount of the committed loan agreement. The facility fees are allocated among the USAA Funds based on their respective average net assets for the period. ================================================================================ 20 | USAA VIRGINIA MONEY MARKET FUND ================================================================================ The USAA Funds may request an optional increase of the committed loan agreement from $500 million up to $750 million. If the USAA Funds increase the committed loan agreement, the assessed facility fee on the amount of the additional commitment will be 13.0 basis points. For the six-month period ended September 30, 2016, the Fund paid CAPCO facility fees of $1,000, which represents 0.2% of the total fees paid to CAPCO by the USAA Funds. The Fund had no borrowings under this agreement during the six-month period ended September 30, 2016. (3) DISTRIBUTIONS The tax basis of distributions and any accumulated undistributed net investment income will be determined as of the Fund's tax year-end of March 31, 2017, in accordance with applicable federal tax law. Net investment income is accrued daily as dividends and distributed to shareholders monthly. Distributions of realized gains from security transactions not offset by capital losses are made annually in the succeeding fiscal year or as otherwise required to avoid the payment of federal income taxes. At March 31, 2016, the Fund had no capital loss carryforwards, for federal income tax purposes. For the six-month period ended September 30, 2016, the Fund did not incur any income tax, interest, or penalties, and has recorded no liability for net unrecognized tax benefits relating to uncertain income tax positions. On an ongoing basis, the Manager will monitor the Fund's tax basis to determine if adjustments to this conclusion are necessary. The statute of limitations on the Fund's tax return filings generally remain open for the three preceding fiscal reporting year ends and remain subject to examination by the Internal Revenue Service and state taxing authorities. (4) TRANSACTIONS WITH MANAGER A. MANAGEMENT FEES - The Manager provides investment management services to the Fund pursuant to an Advisory Agreement. Under this agreement, the Manager is responsible for managing the business and ================================================================================ NOTES TO FINANCIAL STATEMENTS | 21 ================================================================================ affairs of the Fund, and for directly managing the day-to-day investment of the Fund's assets, subject to the authority of and supervision by the Board. The Fund's investment management fee is accrued daily and paid monthly as a percentage of aggregate average net assets of the USAA Virginia Bond Fund and USAA Virginia Money Market Fund combined, which on an annual basis is equal to 0.50% of the first $50 million, 0.40% of that portion over $50 million but not over $100 million, and 0.30% of that portion over $100 million. These fees are allocated on a proportional basis to each Fund monthly based upon average net assets. For the six-month period ended September 30, 2016, the Fund incurred total management fees, paid or payable to the Manager, of $274,000, resulting in an effective annualized management fee of 0.32% of the Fund's average net assets for the same period. B. ADMINISTRATION AND SERVICING FEES - The Manager provides certain administration and servicing functions for the Fund. For such services, the Manager receives a fee accrued daily and paid monthly at an annualized rate of 0.10% of the Fund's average net assets. For the six-month period ended September 30, 2016, the Fund incurred administration and servicing fees, paid or payable to the Manager, of $86,000. In addition to the services provided under its Administration and Servicing Agreement with the Fund, the Manager also provides certain compliance and legal services for the benefit of the Fund. The Board has approved the reimbursement of a portion of these expenses incurred by the Manager. For the six-month period ended September 30, 2016, the Fund reimbursed the Manager $2,000 for these compliance and legal services. These expenses are included in the professional fees on the Fund's Statement of Operations. C. EXPENSE LIMITATION - The Manager has voluntarily agreed, on a temporary basis, to reimburse management, administrative, or other fees to limit the Fund's expenses and attempt to prevent a negative yield. The Manager can modify or terminate this arrangement at any time without prior notice to shareholders. For the six-month period ended September 30, 2016, the Fund incurred reimbursable expenses of $233,000. ================================================================================ 22 | USAA VIRGINIA MONEY MARKET FUND ================================================================================ D. TRANSFER AGENT'S FEES - USAA Transfer Agency Company, d/b/a USAA Shareholder Account Services (SAS), an affiliate of the Manager, provides transfer agent services to the Fund. The Fund's transfer agent's fees are accrued daily and paid monthly at an annualized rate of 0.15% of the Fund's average net assets, plus out-of-pocket expenses. SAS pays a portion of these fees to certain intermediaries for the administration and servicing of accounts that are held with such intermediaries. Prior to June 1, 2016, the Fund paid transfer agent service fees based on an annual charge of $25.50 per shareholder account plus out-of-pocket expenses. For the six-month period ended September 30, 2016, the Fund incurred transfer agent's fees, paid or payable to SAS, of $144,000. E. UNDERWRITING SERVICES - USAA Investment Management Company provides exclusive underwriting and distribution of the Fund's shares on a continuing best-efforts basis and receives no fee or other compensation for these services. (5) TRANSACTIONS WITH AFFILIATES The Manager is indirectly wholly owned by United Services Automobile Association (USAA), a large, diversified financial services institution. Certain trustees and officers of the Fund are also directors, officers, and/or employees of the Manager. None of the affiliated trustees or Fund officers received any compensation from the Fund. (6) REGULATORY MATTERS In July 2014, the Securities and Exchange Commission (SEC) adopted amendments to the rules that govern money market funds that will affect the manner in which money market funds are structured and operated. The amendments also will allow money market funds to impose liquidity fees and suspend redemptions temporarily (redemption gates), and will impose new requirements related to diversification, stress testing, and disclosure. Money market funds that qualify as "retail" (Retail MMFs) or "government" will be permitted to continue to utilize amortized cost to value their portfolio securities and to transact at a stable $1 net asset value per share as they do today. Effective October 14, 2016, the Fund operates as a Retail MMF and, in doing so, will have the ability to impose liquidity fees and redemption gates. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 23 ================================================================================ (7) FINANCIAL HIGHLIGHTS Per share operating performance for a share outstanding throughout each period is as follows:
SIX-MONTH PERIOD ENDED SEPTEMBER 30, YEAR ENDED MARCH 31, ------------------------------------------------------------------------------ 2016 2016 2015 2014 2013 2012 ------------------------------------------------------------------------------ Net asset value at beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ------------------------------------------------------------------------------ Income from investment operations: Net investment income(a) .00 .00 .00 .00 .00 .00 Net realized and unrealized gain - .00(a) .00(a) .00(a) .00(a) - ------------------------------------------------------------------------------ Total from investment operations(a) .00 .00 .00 .00 .00 .00 ------------------------------------------------------------------------------ Less distributions from: Net investment income(a) (.00) (.00) (.00) (.00) (.00) (.00) Realized capital gains - (.00)(a) (.00)(a) (.00)(a) (.00)(a) - ------------------------------------------------------------------------------ Total distributions(a) (.00) (.00) (.00) (.00) (.00) (.00) ------------------------------------------------------------------------------ Net asset value at end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ============================================================================== Total return (%)*,(c) .01 .02 .01 .06 .02 .02(b) Net assets at end of period (000) $161,235 $172,090 $184,377 $189,070 $177,326 $187,423 Ratios to average net assets:** Expenses (%)(c),(d) .46(e) .04 .05 .08 .19 .20(b) Expenses, excluding reimbursements (%)(d) .73(e) .70 .66 .65 .64 .64(b) Net investment income (%) .01(e) .01 .01 .01 .01 .02
* Assumes reinvestment of all net investment income and realized capital gain distributions, if any, during the period. Includes adjustments in accordance with U.S. generally accepted accounting principles and could differ from the iMoneyNet reported return. Total returns for periods of less than one year are not annualized. ** For the six-month period ended September 30, 2016, average net assets were $172,101,000. (a) Represents less than $0.01 per share. (b) During the year ended March 31, 2012, SAS reimbursed the Fund $20,000 for corrections in fees paid for the administration and servicing of certain accounts. The effect of this reimbursement on the Fund's total return was less than 0.01%. The reimbursement decreased the Fund's expense ratio by 0.01%. This decrease is excluded from the expense ratio in the Financial Highlights table. (c) The Manager voluntarily agreed, on a temporary basis, to reimburse management, administrative, or other fees to limit the Fund's expenses and attempt to prevent a negative yield. (d) Reflects total annual operating expenses of the Fund before reductions of any expenses paid indirectly. The Fund's expenses paid indirectly decreased the expense ratios by less than 0.01%. (e) Annualized. The ratio is not necessarily indicative of 12 months of operations. ================================================================================ 24 | USAA VIRGINIA MONEY MARKET FUND ================================================================================ EXPENSE EXAMPLE September 30, 2016 (unaudited) -------------------------------------------------------------------------------- EXAMPLE As a shareholder of the Fund, you incur two types of costs: direct costs, such as wire fees, redemption fees, and low balance fees; and indirect costs, including management fees, transfer agency fees, and other Fund operating expenses. This example is intended to help you understand your indirect costs, also referred to as "ongoing costs" (in dollars), of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire six-month period of April 1, 2016, through September 30, 2016. ACTUAL EXPENSES The line labeled "actual" in the table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested at the beginning of the period, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "actual" line under the heading "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The line labeled "hypothetical" in the table provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to ================================================================================ EXPENSE EXAMPLE | 25 ================================================================================ compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any direct costs, such as wire fees, redemption fees, or low balance fees. Therefore, the line labeled "hypothetical" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these direct costs were included, your costs would have been higher.
EXPENSES PAID BEGINNING ENDING DURING PERIOD* ACCOUNT VALUE ACCOUNT VALUE APRIL 1, 2016 - APRIL 1, 2016 SEPTEMBER 30, 2016 SEPTEMBER 30, 2016 -------------------------------------------------------------- Actual $1,000.00 $1,000.10** $2.31** Hypothetical (5% return before expenses) 1,000.00 1,022.76** 2.33**
*Expenses are equal to the Fund's annualized expense ratio of 0.46%, which is net of any reimbursements and expenses paid indirectly, multiplied by the average account value over the period, multiplied by 183 days/365 days (to reflect the one-half-year period). The Fund's actual ending account value is based on its actual total return of 0.01% for the six-month period of April 1, 2016, through September 30, 2016. **The Funds' annualized expense ratio of 0.46% above reflects a change in the transfer agency fee structure from a per-account fee to an asset-based fee effective June 1, 2016. Had this change been in effect for the entire six-month period of April 1, 2016, through September 30, 2016, the Funds' expense ratio would have been 0.50%, net of expenses paid indirectly, and the values in the table above would be as shown below.
EXPENSES PAID BEGINNING ENDING DURING PERIOD* ACCOUNT VALUE ACCOUNT VALUE APRIL 1, 2016 - APRIL 1, 2016 SEPTEMBER 30, 2016 SEPTEMBER 30, 2016 -------------------------------------------------------------- Actual $1,000.00 $1,000.10 $2.51 Hypothetical (5% return before expenses) 1,000.00 1,022.56 2.54
================================================================================ 26 | USAA VIRGINIA MONEY MARKET FUND ================================================================================ ADVISORY AGREEMENT(S) September 30, 2016 (unaudited) -------------------------------------------------------------------------------- At an in-person meeting of the Board of Trustees (the Board) held on April 22, 2016, the Board, including the Trustees who are not "interested persons" (as that term is defined in the Investment Company Act of 1940, as amended) of the Trust (the Independent Trustees), approved for an annual period the continuance of the Advisory Agreement between the Trust and the Manager with respect to the Fund. In advance of the meeting, the Trustees received and considered a variety of information relating to the Advisory Agreement and the Manager and were given the opportunity to ask questions and request additional information from management. The information provided to the Board included, among other things: (i) a separate report prepared by an independent third party, which provided a statistical analysis comparing the Fund's investment performance, expenses, and fees to comparable investment companies; (ii) information concerning the services rendered to the Fund, as well as information regarding the Manager's revenues and costs of providing services to the Fund and compensation paid to affiliates of the Manager; and (iii) information about the Manager's operations and personnel. Prior to voting, the Independent Trustees reviewed the proposed continuation of the Advisory Agreement with management and with experienced counsel retained by the Independent Trustees (Independent Counsel) and received materials from such Independent Counsel discussing the legal standards for their consideration of the proposed continuation of the Advisory Agreement with respect to the Fund. The Independent Trustees also reviewed the proposed continuation of the Advisory Agreement with respect to the Fund in private sessions with Independent Counsel at which no representatives of management were present. At each regularly scheduled meeting of the Board and its committees, the Board receives and reviews, among other things, information concerning the Fund's performance and related services provided by the Manager. At the meeting at which the renewal of the ================================================================================ ADVISORY AGREEMENT(S) | 27 ================================================================================ Advisory Agreement is considered, particular focus is given to information concerning Fund performance, fees and total expenses as compared to comparable investment companies, and the Manager's profitability with respect to the Fund. However, the Board noted that the evaluation process with respect to the Manager is an ongoing one. In this regard, the Board's and its committees' consideration of the Advisory Agreement included information previously received at such meetings. ADVISORY AGREEMENT After full consideration of a variety of factors, the Board, including the Independent Trustees, voted to approve the Advisory Agreement. In approving the Advisory Agreement, the Trustees did not identify any single factor as controlling, and each Trustee may have attributed different weights to various factors. Throughout their deliberations, the Independent Trustees were represented and assisted by Independent Counsel. NATURE, EXTENT, AND QUALITY OF SERVICES - In considering the nature, extent, and quality of the services provided by the Manager under the Advisory Agreement, the Board reviewed information provided by the Manager relating to its operations and personnel. The Board also took into account its knowledge of the Manager's management and the quality of the performance of the Manager's duties through Board meetings, discussions, and reports during the preceding year. The Board considered the fees paid to the Manager and the services provided to the Fund by the Manager under the Advisory Agreement, as well as other services provided by the Manager and its affiliates under other agreements, and the personnel who provide these services. In addition to the investment advisory services provided to the Fund, the Manager and its affiliates provide administrative services, stockholder services, oversight of Fund accounting, marketing services, assistance in meeting legal and regulatory requirements, and other services necessary for the operation of the Fund and the Trust. The Board considered the Manager's management style and the performance of the Manager's duties under the Advisory Agreement. The Board considered the level and depth of knowledge of the Manager, including the professional experience and qualifications of its senior and investment personnel, as well ================================================================================ 28 | USAA VIRGINIA MONEY MARKET FUND ================================================================================ as current staffing levels. The allocation of the Fund's brokerage, including the Manager's process for monitoring "best execution," also was considered. The Manager's role in coordinating the activities of the Fund's other service providers also was considered. The Board also considered the Manager's risk management processes. The Board considered the Manager's financial condition and that it had the financial wherewithal to continue to provide the same scope and high quality of services under the Advisory Agreement. In reviewing the Advisory Agreement, the Board focused on the experience, resources, and strengths of the Manager and its affiliates in managing the Fund, as well as the other funds in the Trust. The Board also reviewed the compliance and administrative services provided to the Fund by the Manager, including the Manager's oversight of the Fund's day-to-day operations and oversight of Fund accounting. The Trustees, guided also by information obtained from their experiences as trustees of the Trust, also focused on the quality of the Manager's compliance and administrative staff. EXPENSES AND PERFORMANCE - In connection with its consideration of the Advisory Agreement, the Board evaluated the Fund's advisory fees and total expense ratio as compared to other open-end investment companies deemed to be comparable to the Fund as determined by the independent third party in its report. The Fund's expenses were compared to (i) a group of investment companies chosen by the independent third party to be comparable to the Fund based upon certain factors, including fund type, comparability of investment objective and classification, sales load type (in this case, investment companies with no sales loads), asset size, and expense components (the "expense group") and (ii) a larger group of investment companies that includes the Fund and all other no-load retail "other states" tax-exempt money market funds regardless of asset size, excluding outliers (the "expense universe"). Among other data, the Board noted that the Fund's management fee rate - which includes advisory and administrative services as well as any fee waivers or reimbursements - was equal to the median of its expense group and its expense universe. The data indicated that the Fund's total expense ratio, after reimbursements, was below the median of its expense group and its expense universe. The Board took into account the various services provided to the ================================================================================ ADVISORY AGREEMENT(S) | 29 ================================================================================ Fund by the Manager and its affiliates, including the nature and high quality of the services provided by the Manager. The Board also noted the level and method of computing the management fee. The Board took into account management's discussion of the Fund's expenses, noting that the Manager had reimbursed a significant portion of Fund expenses during the previous year. In considering the Fund's performance, the Board noted that it reviews at its regularly scheduled meetings information about the Fund's performance results. The Trustees also reviewed various comparative data provided to them in connection with their consideration of the renewal of the Advisory Agreement, including, among other information, a comparison of the Fund's average annual total return with its Lipper index and with that of other mutual funds deemed to be in its peer group by the independent third party in its report (the "performance universe"). The Fund's performance universe consisted of the Fund and all retail and institutional "other states" tax-exempt money market funds regardless of asset size or primary channel of distribution. This comparison indicated that, among other data, the Fund's performance was lower than the average of its performance universe and above its Lipper index for the one-year period ended December 31, 2015, and was above the average of its performance universe and its Lipper index for the three-, five-, and ten-year periods ended December 31, 2015. The Board also noted that the Fund's percentile performance ranking was in the top 40% of its performance universe for the one-and five-year periods ended December 31, 2015 and was in the top 25% of its performance universe for the three-and ten-year periods ended December 31, 2015. The Board also took into account management's discussion regarding current market conditions. COMPENSATION AND PROFITABILITY - The Board took into consideration the level and method of computing the management fee. The information considered by the Board included operating profit margin information for the Manager's business as a whole. The Board also received and considered profitability information related to the management revenues from the Fund. This information included a review of the methodology used in the allocation of certain costs to the Fund. The Trustees reviewed the profitability of the Manager's relationship with the Fund before tax expenses, noting that the Manager has reimbursed a portion of its management fee for the Fund. ================================================================================ 30 | USAA VIRGINIA MONEY MARKET FUND ================================================================================ In reviewing the overall profitability of the management fee to the Manager, the Board also considered the fact that affiliates provide shareholder servicing and administrative services to the Fund for which they receive compensation. The Board also considered the possible direct and indirect benefits to the Manager from its relationship with the Trust, including that the Manager may derive reputational and other benefits from its association with the Fund. The Board also took into account the high quality of the services received by the Fund from the Manager as well as the type of fund. The Trustees recognized that the Manager should be entitled to earn a reasonable level of profits in exchange for the level of services it provides to the Fund and the entrepreneurial risk that it assumes as Manager. ECONOMIES OF SCALE - The Board noted that the Fund has advisory fee breakpoints that allow the Fund to participate in economies of scale and that such economies of scale currently were reflected in the advisory fee. The Board also considered the effect of the Fund's growth and size on its performance and fees, noting that the Fund may realize additional economies of scale if assets increase proportionally more than some expenses. The Board also considered the fee waiver and expense reimbursement arrangements by the Manager. The Board determined that the current investment management fee structure was reasonable. CONCLUSIONS - The Board reached the following conclusions regarding the Fund's Advisory Agreement with the Manager, among others: (i) the Manager has demonstrated that it possesses the capability and resources to perform the duties required of it under the Advisory Agreement; (ii) the Manager maintains an appropriate compliance program; (iii) the performance of the Fund is reasonable in relation to the performance of funds with similar investment objectives and to relevant indices; (iv) the Fund's advisory expenses are reasonable in relation to those of similar funds and to the services to be provided by the Manager; and (v) the Manager's and its affiliates' level of profitability from its relationship with the Fund is reasonable in light of the nature and high quality of services provided by the Manager and the type of fund. Based on its conclusions, the Board determined that continuation of the Advisory Agreement would be in the best interests of the Fund and its shareholders. ================================================================================ ADVISORY AGREEMENT(S) | 31 ================================================================================ TRUSTEES Daniel S. McNamara Robert L. Mason, Ph.D. Jefferson C. Boyce Dawn M. Hawley Paul L. McNamara Barbara B. Ostdiek, Ph.D. Michael F. Reimherr -------------------------------------------------------------------------------- ADMINISTRATOR AND USAA Asset Management Company INVESTMENT ADVISER P.O. Box 659453 San Antonio, Texas 78265-9825 -------------------------------------------------------------------------------- UNDERWRITER AND USAA Investment Management Company DISTRIBUTOR P.O. Box 659453 San Antonio, Texas 78265-9825 -------------------------------------------------------------------------------- TRANSFER AGENT USAA Shareholder Account Services 9800 Fredericksburg Road San Antonio, Texas 78288 -------------------------------------------------------------------------------- CUSTODIAN AND State Street Bank and Trust Company ACCOUNTING AGENT P.O. Box 1713 Boston, Massachusetts 02105 -------------------------------------------------------------------------------- INDEPENDENT Ernst & Young LLP REGISTERED PUBLIC 100 West Houston St., Suite 1700 ACCOUNTING FIRM San Antonio, Texas 78205 -------------------------------------------------------------------------------- MUTUAL FUND Under "My Accounts" on SELF-SERVICE 24/7 usaa.com select your mutual fund AT USAA.COM account and either click the link or select 'I want to...' and select OR CALL the desired action. (800) 531-USAA (8722) (210) 531-8722 -------------------------------------------------------------------------------- Copies of the Manager's proxy voting policies and procedures, approved by the Trust's Board of Trustees for use in voting proxies on behalf of the Fund, are available without charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722; (ii) at USAA.COM; and (iii) in summary within the Statement of Additional Information on the SEC's website at HTTP://WWW.SEC.GOV. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge (i) at USAA.COM; and (ii) on the SEC's website at HTTP://WWW.SEC.GOV. The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. These Forms N-Q are available at no charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722; (ii) at USAA.COM; and (iii) on the SEC's website at HTTP://WWW.SEC.GOV. These Forms N-Q also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling (800) 732-0330. ================================================================================ -------------- USAA PRSRT STD 9800 Fredericksburg Road U.S. Postage San Antonio, TX 78288 PAID USAA -------------- >> SAVE PAPER AND FUND COSTS Under MY PROFILE on USAA.COM select MANAGE PREFERENCES Set your DOCUMENT PREFERENCES to USAA DOCUMENTS ONLINE. [LOGO OF USAA] USAA We know what it means to serve.(R) ============================================================================= 39606-1116 (C)2016, USAA. All rights reserved. ITEM 2. CODE OF ETHICS. NOT APPLICABLE. This item must be disclosed only in annual reports. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. NOT APPLICABLE. This item must be disclosed only in annual reports. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. NOT APPLICABLE. This item must be disclosed only in annual reports. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not Applicable. ITEM 6. SCHEDULE OF INVESTMENTS. Filed as part of the report to shareholders. ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not Applicable. ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not Applicable. ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. Not Applicable. ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. The Corporate Governance Committee selects and nominates candidates for membership on the Board as independent trustees. The Corporate Governance Committee has adopted procedures to consider Board candidates suggested by shareholders. The procedures are initiated by the receipt of nominations submitted by a fund shareholder sent to Board member(s) at the address specified in fund disclosure documents or as received by AMCO or a fund officer. Any recommendations for a nomination by a shareholder, to be considered by the Board, must include at least the following information: name; date of birth; contact information; education; business profession and other expertise; affiliations; experience relating to serving on the Board; and references. The Corporate Governance Committee gives shareholder recommendations the same consideration as any other candidate. ITEM 11. CONTROLS AND PROCEDURES The principal executive officer and principal financial officer of USAA Mutual Funds Trust (Trust) have concluded that the Trust's disclosure controls and procedures are sufficient to ensure that information required to be disclosed by the Trust in this Form N-CSR/S was recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, based upon such officers' evaluation of these controls and procedures as of a date within 90 days of the filing date of the report. There were no significant changes or corrective actions with regard to significant deficiencies or material weaknesses in the Trust's internal controls or in other factors that could significantly affect the Trust's internal controls subsequent to the date of their evaluation. The only change to the procedures was to document the annual disclosure controls and procedures established for the new section of the shareholder reports detailing the factors considered by the Funds' Board in approving the Funds' advisory agreements. ITEM 12. EXHIBITS. (a)(1). NOT APPLICABLE. This item must be disclosed only in annual reports. (a)(2). Certification pursuant to Rule 30a-2(a) under the Investment Company Act of 1940 (17 CFR 270.30a-2(a)) is filed and attached hereto as Exhibit 99.CERT. (a)(3). Not Applicable. (b). Certification pursuant to Rule 30a-2(b) under the Investment Company Act of 1940 (17 CFR 270.30a-2(b))is filed and attached hereto as Exhibit 99.906CERT. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Registrant: USAA MUTUAL FUNDS TRUST, Period Ended September 30, 2016 By:* /S/ DANIEL J. MAVICO ----------------------------------------------------------- Signature and Title: Daniel J. Mavico, Assistant Secretary Date: 11/28/2016 ------------------------------ Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By:* /S/ DANIEL S. MCNAMARA ----------------------------------------------------- Signature and Title: Daniel S. McNamara, President Date: 11/28/2016 ------------------------------ By:* /S/ ROBERTO GALINDO, JR. ----------------------------------------------------- Signature and Title: Roberto Galindo, Jr., Treasurer Date: 11/28/2016 ------------------------------ *Print the name and title of each signing officer under his or her signature. EX-99 2 f105_d2-SEC.htm 99 CERTIFICATION PDFtoHTML Conversion Output

Certifications

I, DANIEL S. MCNAMARA , certify that:

1. I have reviewed the reports on Form N-CSR/S for the period ending September 30, 2016 for the following funds of USAA MUTUAL FUNDS TRUST:

TAX EXEMPT LONG-TERM FUND SHARES

CALIFORNIA BOND FUND SHARES

TAX EXEMPT LONG-TERM FUND ADVISER SHARES

CALIFORNIA BOND FUND ADVISER SHARES

TAX EXEMPT SHORT-TERM FUND SHARES

CALIFORNIA MONEY MARKET FUND

TAX EXEMPT SHORT-TERM FUND ADVISER SHARES

NEW YORK BOND FUND SHARES

TAX EXEMPT INTERMEDIATE-TERM FUND SHARES

NEW YORK BOND FUND ADVISER SHARES

TAX EXEMPT INTERMEDIATE-TERM FUND

NEW YORK MONEY MARKET FUND

ADVISER SHARES

VIRGINIA BOND FUND SHARES

TAX EXEMPT MONEY MARKET FUND

VIRGINIA BOND FUND ADVISER SHARES

GLOBAL EQUITY INCOME FUND

VIRGINIA MONEY MARKET FUND

GLOBAL EQUITY INCOME FUND INSTITUTIONAL SHARES

TARGET MANAGED ALLOCATION FUND

2. Based on my knowledge, these reports do not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by these reports;

3. Based on my knowledge, the financial statements, and other financial information included in these reports, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the Registrant as of, and for, the periods presented in these reports;

4. The Registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the Registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which these reports are being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in these reports our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and

(d) Disclosed in these reports any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal half-year (the Registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and

5. The Registrant's other certifying officer(s) and I have disclosed to the Registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize, and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting.

Date: 11/28/2016 /S/ DANIEL S. MCNAMARA

------------------- ----------------------------------------

Daniel S. McNamara

President

I, ROBERTO GALINDO, JR. , certify that:

1. I have reviewed the reports on Form N-CSR/S for the period ending September 30, 2016 for the following funds of USAA MUTUAL FUNDS TRUST:

TAX EXEMPT LONG-TERM FUND SHARES

CALIFORNIA BOND FUND SHARES

TAX EXEMPT LONG-TERM FUND ADVISER SHARES

CALIFORNIA BOND FUND ADVISER SHARES

TAX EXEMPT SHORT-TERM FUND SHARES

CALIFORNIA MONEY MARKET FUND

TAX EXEMPT SHORT-TERM FUND ADVISER SHARES

NEW YORK BOND FUND SHARES

TAX EXEMPT INTERMEDIATE-TERM FUND SHARES

NEW YORK BOND FUND ADVISER SHARES

TAX EXEMPT INTERMEDIATE-TERM FUND

NEW YORK MONEY MARKET FUND

ADVISER SHARES

VIRGINIA BOND FUND SHARES

TAX EXEMPT MONEY MARKET FUND

VIRGINIA BOND FUND ADVISER SHARES

GLOBAL EQUITY INCOME FUND

VIRGINIA MONEY MARKET FUND

GLOBAL EQUITY INCOME FUND INSTITUTIONAL SHARES

TARGET MANAGED ALLOCATION FUND

2. Based on my knowledge, these reports do not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by these reports;

3. Based on my knowledge, the financial statements, and other financial information included in these reports, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the Registrant as of, and for, the periods presented in these reports;

4. The Registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the Registrant and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which these reports are being prepared;

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in these reports our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based such evaluation; and

(d) disclosed in these reports any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal half-year (the Registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and

5. The Registrant's other certifying officer(s) and I have disclosed to the Registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize, and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting.

Date: 11/28/2016

/S/ ROBERTO GALINDO, JR.

-----------------

___________________________________

 

Roberto Galindo, Jr.

 

Treasurer

EX-99 3 f105_d3-SEC.htm 906 CERTIFICATION PDFtoHTML Conversion Output

SECTION 906 CERTIFICATION

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Name of Issuer:

USAA MUTUAL FUNDS TRUST

TAX EXEMPT LONG-TERM FUND SHARES

TAX EXEMPT LONG-TERM FUND ADVISER SHARES

TAX EXEMPT SHORT-TERM FUND SHARES

TAX EXEMPT SHORT-TERM FUND ADVISER SHARES

TAX EXEMPT INTERMEDIATE-TERM FUND SHARES

TAX EXEMPT INTERMEDIATE-TERM FUND ADVISER SHARES

TAX EXEMPT MONEY MARKET FUND

GLOGAL EQUITY INCOME FUND

GLOGAL EQUITY INCOME FUND INSTITUTIONAL SHARES

TARGET MANAGED ALLOCATION FUND

CALIFORNIA BOND FUND SHARES

CALIFORNIA BOND FUND ADVISER SHARES

CALIFORNIA MONEY MARKET FUND

NEW YORK BOND FUND SHARES

NEW YORK BOND FUND ADVISER SHARES

NEW YORK MONEY MARKET FUND

VIRGINIA BOND FUND SHARES

VIRGINIA BOND FUND ADVISER SHARES

VIRGINIA MONEY MARKET FUND

In connection with the Annual Reports on Form N-CSR/S (Reports) of the above-named issuer for the Funds listed above for the period ended September 30, 2016, the undersigned hereby certifies, that:

1. The Reports fully comply with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Reports fairly present, in all material respects, the financial condition and results of operations of the issuer.

Date:

11/28/2016

/S/ DANIEL S. MCNAMARA

 

________________

___________________________________

 

 

Daniel S. McNamara

 

 

President

SECTION 906 CERTIFICATION

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Name of Issuer:

USAA MUTUAL FUNDS TRUST

TAX EXEMPT LONG-TERM FUND SHARES

TAX EXEMPT LONG-TERM FUND ADVISER SHARES

TAX EXEMPT SHORT-TERM FUND SHARES

TAX EXEMPT SHORT-TERM FUND ADVISER SHARES

TAX EXEMPT INTERMEDIATE-TERM FUND SHARES

TAX EXEMPT INTERMEDIATE-TERM FUND ADVISER SHARES

TAX EXEMPT MONEY MARKET FUND

GLOGAL EQUITY INCOME FUND

GLOGAL EQUITY INCOME FUND INSTITUTIONAL SHARES

TARGET MANAGED ALLOCATION FUND

CALIFORNIA BOND FUND SHARES

CALIFORNIA BOND FUND ADVISER SHARES

CALIFORNIA MONEY MARKET FUND

NEW YORK BOND FUND SHARES

NEW YORK BOND FUND ADVISER SHARES

NEW YORK MONEY MARKET FUND

VIRGINIA BOND FUND SHARES

VIRGINIA BOND FUND ADVISER SHARES

VIRGINIA MONEY MARKET FUND

In connection with the Annual Reports on Form N-CSR/S (Reports) of the above-named issuer for the Funds listed above for the period ended September 30, 2016, the undersigned hereby certifies, that:

1. The Reports fully comply with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Reports fairly present, in all material respects, the financial condition and results of operations of the issuer.

Date:

11/28/2016

/S/ ROBERTO GALINDO, JR.

 

________________

__________________________________

 

 

Roberto Galindo, Jr.

 

 

Treasurer