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: MAY 31
Date of reporting period: NOVEMBER 30, 2016
ITEM 1. SEMIANNUAL REPORT TO STOCKHOLDERS.
USAA MUTUAL FUNDS TRUST - SEMIANNUAL REPORT FOR PERIOD ENDED NOVEMBER 30, 2016
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA GROWTH AND TAX STRATEGY FUND]
==============================================================
SEMIANNUAL REPORT
USAA GROWTH AND TAX STRATEGY FUND
NOVEMBER 30, 2016
==============================================================
================================================================================
================================================================================
PRESIDENT'S MESSAGE
"AS THE NEW YEAR BEGINS, WHY NOT MAKE
A RESOLUTION TO PUT YOUR FINANCIAL HOUSE [PHOTO OF BROOKS ENGLEHARDT]
IN ORDER?"
--------------------------------------------------------------------------------
JANUARY 2017
Financial markets are unpredictable. Many factors can confound those who try to
predict the direction of the markets based on economic or political factors. In
other words, it's easy to get it wrong. And, even if one correctly forecasts
what will happen in the macroeconomic environment, predicting how the markets
will respond is another matter altogether.
Consider the response to the Presidential election. Stocks rose on Monday and
Tuesday (Election Day) at the prospect of a Hillary Clinton victory--virtually
a "sure thing," according to some media pundits. U.S. Treasury securities and
other segments of the bond market sold off as investors likely assumed a
continuation of current economic policy under another Democratic administration.
But these trends reversed on Tuesday evening when it became clear that Donald J.
Trump would be elected the 45th President of the United States. Asian and
European equity markets dropped and U.S. stock index futures plunged. The
decline in stock index futures suggested that U.S. stocks might fall when
trading began on Wednesday, however the opposite happened. Stock prices rose and
then rallied strongly, with major stock indexes hitting one record high after
another through the end of November 2016. U.S. Treasury prices fell, driving up
yields on longer-maturity U.S. Treasuries. (Yields move in the opposite
direction of prices.)
Few market participants would have forecasted such a scenario. But with
hindsight, we may be able to understand some of the reasons why the markets
behaved the way they did.
U.S. equity investors appeared to like President-elect Trump's promises of lower
tax rates, less regulation, and more fiscal stimulus through infrastructure
spending. Other explanations may lie overseas, such as complications relating to
the United Kingdom's decision to exit from the European Union ("Brexit") and
continued slow economic growth in China--uncertainties that may have
================================================================================
================================================================================
increased the attractiveness of U.S. stocks. As for bond investors, they may
have been worried about an increase in interest rates if economic growth picks
up under a Trump Administration. Higher growth rates typically correspond with
rising inflation, which in turn could prompt the Federal Reserve (the Fed) to
accelerate the pace of interest rate increases.
What actually happens, however, is yet to be seen. No one knows, except in the
most general terms, what President-elect Trump's plans and priorities will be or
how they could affect economic growth in 2017 and beyond. By extension, it is
also too early to forecast how inflation might be affected and how the Fed could
respond.
At USAA Investments, we are long-term, fundamental investors, who seek to look
at the full market cycle rather than current geopolitical events. We believe
measures such as assessing a company's intrinsic value compared to its current
price tend to be more effective at forecasting potential stock returns over
time. In selecting bonds, our analysts take a bottom-up approach to evaluating
each security individually, building portfolios on a bond-by-bond basis.
It is important to remember market conditions are always fluctuating and time
horizon matters. We believe that it is important to stay focused on your
long-term objectives, using an investment plan that is based on your personal
time horizon and risk tolerance. If you are uneasy about market risk in general
or have concerns about too much exposure to specific asset classes, please call
USAA to speak with an advisor. As the new year begins, why not make a resolution
to put your financial house in order?
Thank you for allowing us to help you in your efforts to achieve your financial
goals. At USAA Investments, we are committed to providing you with our best
advice, top-notch service, and a variety of mutual funds. On behalf of everyone
here, I wish you a happy and healthy 2017.
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 11
Notes to Portfolio of Investments 38
Financial Statements 41
Notes to Financial Statements 44
EXPENSE EXAMPLE 57
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE
RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY
USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN
PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS
ABOUT THE FUND.
(C)2017, USAA. All rights reserved.
200983-0117
================================================================================
================================================================================
FUND OBJECTIVE
THE USAA GROWTH AND TAX STRATEGY FUND (THE FUND) IS AN ASSET ALLOCATION FUND
THAT SEEKS A CONSERVATIVE BALANCE FOR THE INVESTOR BETWEEN INCOME, THE MAJORITY
OF WHICH IS EXEMPT FROM FEDERAL INCOME TAX, AND THE POTENTIAL FOR LONG-TERM
GROWTH OF CAPITAL TO PRESERVE PURCHASING POWER.
--------------------------------------------------------------------------------
TYPES OF INVESTMENTS
Using preset target ranges, the Fund's strategy is to invest a majority of its
assets in tax-exempt bonds and money market instruments (50%-70%) and the
remainder in blue chip stocks (30%-50%). The Fund is managed with the goal of
minimizing the impact of federal income tax to shareholders.
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 Northern Trust Investments, Inc.
JOHN C. BONNELL, CFA CHRISTOPHER A. FRONK, CFA
DALE R. HOFFMAN JACOB C. WEAVER, CFA
--------------------------------------------------------------------------------
o WHAT WERE THE MARKET CONDITIONS DURING THE REPORTING PERIOD?
During the reporting period ended November 30, 2016, municipal bond prices
declined and municipal yields rose, likely based on the belief that the U.S.
economy could grow more than expected. Although the supply of municipal bonds
increased, demand was strong as municipal bond funds experienced positive
investment flows consistently into early November 2016. However, following
the November 8, 2016 U.S. presidential election, investment flows into
municipal bond funds tapered off and turned negative through the end of the
reporting period. Longer-term U.S. Treasury yields, which had remained near
their lows of the 2016 calendar year, edged up in late September 2016 and
then increased again after the election. President-elect Trump has pledged to
cut taxes and decrease regulation, which if combined with his proposal for
increased infrastructure spending, could potentially lead to stronger
economic growth and possibly higher inflation.
The U.S. stock market recorded a solid gain for the reporting period overall.
When the period began in June 2016, stocks declined as a weaker-than-expected
U.S. jobs report raised questions about the outlook for economic growth.
After the Federal Reserve (the Fed) shelved its plans for an interest rate
increase, stocks rallied. In the last week of June 2016, the United Kingdom's
vote to exit the European Union ("Brexit") rattled investors, leading to a
decline in stock prices. By the end of the month, however, the U.S. stock
market had generally retraced its losses. Stocks were bolstered in July 2016
by positive
================================================================================
2 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
economic data but then traded in a narrow range until early September 2016,
when they sold off as investors fled riskier asset classes on fears that
global central banks might reduce their accommodative easing policies sooner
than expected. Stocks recovered some of the lost ground later in the month
after the Fed said it would leave short-term interest rates unchanged. Stocks
trended lower in October 2016 on signs the Fed was on track for an interest
rate increase later in the year and amid uncertainty about the outcome of the
U.S. presidential election. After Donald Trump's victory in the U.S.
presidential election on November 8, 2016, stocks staged a rally, reaching
new record highs. Six of the eleven sectors in the S&P 500(R) Index advanced
during the reporting period. The strongest performing sectors were
financials, industrials, and energy, all of which posted double-digit gains.
The utilities, real estate, health care, and consumer staples sectors
recorded declines. (Real estate was reclassified as an eleventh sector in the
S&P 500(R) Index after the market close on August 31, 2016.)
o HOW DID THE USAA GROWTH AND TAX STRATEGY FUND (THE FUND) PERFORM DURING THE
REPORTING PERIOD?
The Fund had a total return of 0.21% for the reporting period ended November
30, 2016. This compares to a total return of 6.01% for the S&P 500(R) Index
(the Index), -3.52% for the Bloomberg Barclays Municipal Bond Index*, and
1.71% for the Composite Index.
USAA Asset Management Company (the Manager) is the Fund's investment adviser.
As the investment adviser, the Manager employs dedicated resources to support
the research, selection, and monitoring of the Fund's subadviser. Northern
Trust Investments, Inc. (NTI) is a subadviser to the Fund. The investment
adviser and the subadviser each
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 indexes. Thus, the Fund's
benchmark is now called the Bloomberg Barclays Municipal Bond Index.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 3
================================================================================
provide day-to-day discretionary management for a portion of the Fund's
assets.
o HOW DID THE MUNICIPAL BOND PORTION OF THE FUND PERFORM?
During the reporting period, the municipal bond portion of the Fund's
portfolio benefited from our focus on income generation through which we seek
to maximize tax-free income without taking undue risk. Over the long-term,
the income distribution provided by the municipal bond portion of the Fund,
not its price appreciation, accounts for most of its total return. We
continued to work with our in-house team of analysts, as we sought to
identify what we believe are attractive opportunities. We choose investments
on a bond-by-bond basis, employing fundamental analysis that emphasizes an
issuer's ability and willingness to repay its debt. Through research, we seek
to both recognize value and avoid potential risks. The municipal bond portion
of the Fund remains well diversified and we generally avoid municipal bonds
subject to the federal alternative minimum tax for individuals.
o HOW DID THE EQUITY PORTION OF THE FUND PERFORM?
Our stock selection added to results as we sought to match the performance of
the Index. In addition, because the equity portfolio's sector exposures are
similar to those of the Index, the relative strength or weakness of certain
sectors did not have a large impact on portfolio returns during the reporting
period.
In keeping with our investment process, we sought to limit both short-term
and long-term capital gains. Our objective is generally to limit the sale of
securities that have increased in value and to realize capital losses on
securities that have decreased in value, thereby offsetting realized capital
gains. This strategy allows the Fund to obtain tax efficient exposure to the
equity market. As always, we continue to manage the portfolio's "active risk"
(the risk that it will not perform in line with the Index because of our
efforts to achieve tax efficiency).
================================================================================
4 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
The equity portion of the Fund also continued to receive dividend income from
its stock holdings. Because of the solid dividend growth of S&P 500(R)
Index-listed companies, it maintained a dividend yield similar to prior
periods even though the stock market appreciated.
Thank you for allowing us to help you manage your investments.
As interest rates rise, existing bond prices generally fall; given the
historically low interest rate environment, risks associated with rising
interest rates may be heightened. o Some income may have been subject to
state or local taxes but not the federal alternative minimum tax.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 5
================================================================================
INVESTMENT OVERVIEW
USAA GROWTH AND TAX STRATEGY FUND (THE FUND)
(Ticker Symbol: USBLX)
--------------------------------------------------------------------------------
11/30/16 5/31/16
--------------------------------------------------------------------------------
Net Assets $349.6 Million $327.3 Million
Net Asset Value Per Share $17.63 $17.79
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 11/30/16
--------------------------------------------------------------------------------
5/31/16-11/30/16* 1 YEAR 5 YEARS 10 YEARS
0.21% 3.58% 8.58% 5.01%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/16
--------------------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS
5.36% 8.56% 5.13%
--------------------------------------------------------------------------------
30-DAY SEC YIELD** AS OF 11/30/16 EXPENSE RATIO AS OF 5/31/16***
--------------------------------------------------------------------------------
1.90% 0.87%
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 October 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 GROWTH AND TAX STRATEGY FUND
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
BLOOMBERG
USAA GROWTH AND BARCLAYS MUNICIPAL
S&P 500 INDEX COMPOSITE INDEX TAX STRATEGY FUND BOND INDEX
11/30/06 $10,000.00 $10,000.00 $10,000.00 $10,000.00
12/31/06 10,140.28 10,031.28 10,045.00 9,964.67
01/31/07 10,293.63 10,100.84 10,109.00 9,939.15
02/28/07 10,092.30 10,076.91 10,066.00 10,070.12
03/31/07 10,205.18 10,113.29 10,104.00 10,045.29
04/30/07 10,657.22 10,335.74 10,339.00 10,075.03
05/31/07 11,029.11 10,485.87 10,495.00 10,030.42
06/30/07 10,845.88 10,393.87 10,376.00 9,978.45
07/31/07 10,509.60 10,276.11 10,240.00 10,055.80
08/31/07 10,667.14 10,283.88 10,262.00 10,012.41
09/30/07 11,066.08 10,540.78 10,533.00 10,160.57
10/31/07 11,242.11 10,668.11 10,626.00 10,205.86
11/30/07 10,772.11 10,469.37 10,381.00 10,270.94
12/31/07 10,697.38 10,435.57 10,300.00 10,299.45
01/31/08 10,055.74 10,199.32 10,024.00 10,429.33
02/29/08 9,729.07 9,804.22 9,566.00 9,951.84
03/31/08 9,687.06 9,874.71 9,708.00 10,236.29
04/30/08 10,158.85 10,180.46 10,008.00 10,356.07
05/31/08 10,290.43 10,310.64 10,096.00 10,418.68
06/30/08 9,422.91 9,848.96 9,621.00 10,301.09
07/31/08 9,343.70 9,775.40 9,547.00 10,340.24
08/31/08 9,478.85 9,883.16 9,687.00 10,461.25
09/30/08 8,634.22 9,168.70 8,970.00 9,970.67
10/31/08 7,184.12 8,264.99 8,064.00 9,868.90
11/30/08 6,668.63 7,896.09 7,737.00 9,900.27
12/31/08 6,739.58 7,950.01 7,694.00 10,044.61
01/31/09 6,171.53 7,839.54 7,596.00 10,412.27
02/28/09 5,514.40 7,506.77 7,325.00 10,466.98
03/31/09 5,997.43 7,804.88 7,583.00 10,468.89
04/30/09 6,571.44 8,307.99 8,015.00 10,678.03
05/31/09 6,939.00 8,647.64 8,341.00 10,790.99
06/30/09 6,952.77 8,597.24 8,320.00 10,689.90
07/31/09 7,478.65 8,989.68 8,679.00 10,868.75
08/31/09 7,748.67 9,259.46 8,909.00 11,054.56
09/30/09 8,037.81 9,656.84 9,361.00 11,451.28
10/31/09 7,888.49 9,431.16 9,138.00 11,210.90
11/30/09 8,361.67 9,690.97 9,407.00 11,303.53
12/31/09 8,523.18 9,847.95 9,544.00 11,341.73
01/31/10 8,216.57 9,705.07 9,404.00 11,400.80
02/28/10 8,471.09 9,887.76 9,591.00 11,511.30
03/31/10 8,982.28 10,162.03 9,857.00 11,483.75
04/30/10 9,124.09 10,296.32 9,982.00 11,623.31
05/31/10 8,395.53 9,906.08 9,606.00 11,710.48
06/30/10 7,956.03 9,646.70 9,363.00 11,717.44
07/31/10 8,513.46 10,027.33 9,717.00 11,863.55
08/31/10 8,129.13 9,930.09 9,646.00 12,135.17
09/30/10 8,854.61 10,368.95 10,034.00 12,116.21
10/31/10 9,191.52 10,546.12 10,185.00 12,082.65
11/30/10 9,192.70 10,385.47 10,034.00 11,841.04
12/31/10 9,807.06 10,587.41 10,225.00 11,611.57
01/31/11 10,039.50 10,632.14 10,256.00 11,526.04
02/28/11 10,383.44 10,876.09 10,520.00 11,709.53
03/31/11 10,387.57 10,853.85 10,497.00 11,670.51
04/30/11 10,695.20 11,109.85 10,747.00 11,879.51
05/31/11 10,574.14 11,168.65 10,811.00 12,082.51
06/30/11 10,397.88 11,113.08 10,753.00 12,124.66
07/31/11 10,186.44 11,065.15 10,720.00 12,248.40
08/31/11 9,633.09 10,841.29 10,518.00 12,457.95
09/30/11 8,955.90 10,525.90 10,315.00 12,586.73
10/31/11 9,934.72 11,051.83 10,788.00 12,539.94
11/30/11 9,912.76 11,062.98 10,804.00 12,614.02
12/31/11 10,014.16 11,208.79 10,979.00 12,853.99
01/31/12 10,462.95 11,648.89 11,398.00 13,151.25
02/29/12 10,915.39 11,897.65 11,644.00 13,164.21
03/31/12 11,274.60 12,021.01 11,786.00 13,078.68
04/30/12 11,203.83 12,056.72 11,827.00 13,229.56
05/31/12 10,530.48 11,748.69 11,579.00 13,339.38
06/30/12 10,964.35 11,970.18 11,787.00 13,325.06
07/31/12 11,116.64 12,160.93 11,961.00 13,536.24
08/31/12 11,367.02 12,313.07 12,102.00 13,551.66
09/30/12 11,660.76 12,490.57 12,266.00 13,633.51
10/31/12 11,445.45 12,444.75 12,200.00 13,671.98
11/30/12 11,511.85 12,626.07 12,342.00 13,897.22
12/31/12 11,616.77 12,608.58 12,300.00 13,725.46
01/31/13 12,218.47 12,987.07 12,637.00 13,782.62
02/28/13 12,384.33 13,082.15 12,746.00 13,824.37
03/31/13 12,848.78 13,278.57 12,955.00 13,764.75
04/30/13 13,096.34 13,483.81 13,141.00 13,915.64
05/31/13 13,402.68 13,555.53 13,209.00 13,745.65
06/30/13 13,222.70 13,214.39 12,903.00 13,356.43
07/31/13 13,895.53 13,445.28 13,184.00 13,239.66
08/31/13 13,493.09 13,151.44 12,886.00 13,050.71
09/30/13 13,916.23 13,530.71 13,236.00 13,331.61
10/31/13 14,555.92 13,847.35 13,571.00 13,436.92
11/30/13 14,999.50 14,021.38 13,759.00 13,409.23
12/31/13 15,379.23 14,172.75 13,918.00 13,374.99
01/31/14 14,847.51 14,103.70 13,841.00 13,635.56
02/28/14 15,526.69 14,524.06 14,212.00 13,795.45
03/31/14 15,657.20 14,613.92 14,294.00 13,818.64
04/30/14 15,772.94 14,724.51 14,433.00 13,984.67
05/31/14 16,143.20 15,015.36 14,651.00 14,164.75
06/30/14 16,476.68 15,156.73 14,802.00 14,177.02
07/31/14 16,249.45 15,044.96 14,714.00 14,201.99
08/31/14 16,899.51 15,406.58 15,012.00 14,374.02
09/30/14 16,662.51 15,327.95 14,931.00 14,388.62
10/31/14 17,069.50 15,523.94 15,134.00 14,487.25
11/30/14 17,528.58 15,738.31 15,327.00 14,512.35
12/31/14 17,484.42 15,762.94 15,378.00 14,585.48
01/31/15 16,959.55 15,664.29 15,324.00 14,844.00
02/28/15 17,934.24 16,028.03 15,599.00 14,690.93
03/31/15 17,650.62 15,932.46 15,518.00 14,733.36
04/30/15 17,819.95 15,956.89 15,509.00 14,656.01
05/31/15 18,049.10 16,018.57 15,553.00 14,615.49
06/30/15 17,699.71 15,842.02 15,384.00 14,602.26
07/31/15 18,070.54 16,034.82 15,599.00 14,707.98
08/31/15 16,980.27 15,570.24 15,204.00 14,736.91
09/30/15 16,560.12 15,406.82 15,080.00 14,843.59
10/31/15 17,957.03 16,053.49 15,658.00 14,902.66
11/30/15 18,010.43 16,102.30 15,740.00 14,961.87
12/31/15 17,726.38 16,022.52 15,717.00 15,067.05
01/31/16 16,846.72 15,712.99 15,453.00 15,246.86
02/29/16 16,823.99 15,676.06 15,444.00 15,270.73
03/31/16 17,965.30 16,227.39 15,967.00 15,319.16
04/30/16 18,034.95 16,361.73 16,076.00 15,431.85
05/31/16 18,358.82 16,539.18 16,268.00 15,473.60
06/30/16 18,406.39 16,639.64 16,497.00 15,719.70
07/31/16 19,085.01 16,959.54 16,754.00 15,729.25
08/31/16 19,111.81 17,027.35 16,782.00 15,750.54
09/30/16 19,115.42 17,007.82 16,719.00 15,671.96
10/31/16 18,766.73 16,790.05 16,441.00 15,507.43
11/30/16 19,461.75 16,818.87 16,302.00 14,929.13
[END OF CHART]
Data from 11/30/06 through 11/30/16.
See next page for benchmark definitions.
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 Composite Index reflects the fees and expenses of the underlying funds
included in the Composite Index.
================================================================================
INVESTMENT OVERVIEW | 7
================================================================================
The graph on page 7 illustrates the comparison of a $10,000 hypothetical
investment in the USAA Growth and Tax Strategy Fund to the benchmarks listed
below. The Manager has developed the Composite Index, which is used to measure
the Fund's performance. The custom benchmark was created by the Manager to show
how the Fund's performance compares with the return of an index or indexes with
similar asset allocations.
o The unmanaged S&P 500(R) Index represents the weighted average performance of
a group of 500 widely held, publicly traded stocks.
o The Composite Index is comprised of 51% of the Lipper General Municipal Bond
Funds Index and 49% of the Lipper Large-Cap Core Funds Index. The unmanaged
Lipper General Municipal Bond Funds Index tracks the total return performance
of the funds within this category. This category includes funds that invest
at least 65% of their assets in municipal debt issues in the top four credit
categories. The unmanaged Lipper Large-Cap Core Funds Index tracks the total
return performance of the funds within this category. This category includes
funds that, by portfolio practice, invest at least 75% of their equity assets
in companies with market capitalizations (on a three-year weighted basis) of
greater than 300% of the dollar-weighted median market capitalization of the
middle 1,000 securities of the S&P 500(R) Index. Large-cap core funds have
more latitude in the companies in which they invest. These funds have an
above-average price-to-earnings ratio, price-to-book ratio, and three-year
sales growth figure, compared to the S&P 500(R) Index.
o The unmanaged Bloomberg Barclays Municipal Bond Index is a benchmark of total
return performance for the long-term, investment-grade, tax-exempt bond
market.
================================================================================
8 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
o TOP 10 INDUSTRIES - 11/30/16 o
(% of Net Assets)
Diversified Banks ......................................................... 2.5%
Pharmaceuticals ........................................................... 2.4%
Internet Software & Services .............................................. 2.0%
Technology Hardware, Storage, & Peripherals ............................... 1.8%
Systems Software .......................................................... 1.6%
Integrated Oil & Gas ...................................................... 1.6%
Semiconductors ............................................................ 1.4%
Biotechnology ............................................................. 1.4%
Industrial Conglomerates .................................................. 1.2%
Integrated Telecommunication Services ..................................... 1.2%
o TOP 5 TAX-EXEMPT BONDS - 11/30/16 o
(% of Net Assets)
Lewisville ................................................................ 1.6%
Oneida County IDA ......................................................... 1.1%
Emmaus General Auth. ...................................................... 1.0%
Orlando ................................................................... 0.9%
Rockport .................................................................. 0.9%
o TOP 5 BLUE CHIP STOCKS - 11/30/16 o
(% of Net Assets)
Apple, Inc. ............................................................... 1.5%
Microsoft Corp. ........................................................... 1.2%
Exxon Mobil Corp. ......................................................... 0.9%
Johnson & Johnson ......................................................... 0.8%
Berkshire Hathaway, Inc. "B" .............................................. 0.8%
You will find a complete list of securities that the Fund owns on pages 11-37.
================================================================================
INVESTMENT OVERVIEW | 9
================================================================================
o ASSET ALLOCATION* - 11/30/16 o
[PIE CHART OF ASSET ALLOCATION*]
TAX-EXEMPT BONDS 50.3%
BLUE CHIP STOCKS 48.1%
TAX-EXEMPT MONEY MARKET INSTRUMENTS 2.3%
BONDS 0.1%
RIGHTS** 0.0%
[END CHART]
* Excludes futures
** Represents less than 0.1% of the Fund.
Percentages are of the net assets of the Fund and may not equal 100%.
================================================================================
10 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
PORTFOLIO OF INVESTMENTS
November 30, 2016 (unaudited)
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
TAX-EXEMPT SECURITIES (52.6%)
TAX-EXEMPT BONDS (50.3%)
ALABAMA (0.3%)
$ 1,000 Lower Alabama Gas District 5.00% 9/01/2046 $ 1,099
--------
ARIZONA (0.7%)
1,300 Phoenix IDA 5.00 7/01/2046 1,341
1,000 Student and Academic Service, LLC (INS) 5.00 6/01/2044 1,088
--------
2,429
--------
CALIFORNIA (3.7%)
1,200 Jurupa Public Financing Auth. 5.00 9/01/2042 1,287
2,000 Monterey Peninsula USD (INS) 5.50 8/01/2034 2,277
1,000 State 5.00 2/01/2043 1,096
1,000 State 5.00 8/01/2045 1,108
1,000 Statewide Communities Development Auth. (INS) 5.00 11/15/2049 1,098
1,000 Sutter Butte Flood Control Agency (INS) 5.00 10/01/2040 1,089
1,500 Twin Rivers USD (INS) 5.00 8/01/2040 1,630
1,000 Val Verde USD (INS) 5.00 8/01/2044 1,089
4,435 West Contra Costa USD (INS) 5.05(a) 8/01/2034 2,102
--------
12,776
--------
COLORADO (1.8%)
1,000 Denver Convention Center Hotel Auth. 5.00 12/01/2040 1,047
1,000 Health Facilities Auth. 5.00 12/01/2042 1,023
1,000 Health Facilities Auth. 5.00 6/01/2045 1,041
1,000 Park Creek Metropolitan District 5.00 12/01/2045 1,053
2,000 Regional Transportation District 5.38 6/01/2031 2,199
--------
6,363
--------
CONNECTICUT (0.0%)
4,187 Mashantucket (Western) Pequot Tribe(b),(c) 6.05 7/01/2031 163
--------
DISTRICT OF COLUMBIA (0.3%)
1,100 District of Columbia 5.00 7/01/2042 1,162
--------
FLORIDA (4.4%)
1,875 Escambia County Housing Finance Auth. (INS) 5.75 6/01/2031 2,074
1,000 Halifax Hospital Medical Center 5.00 6/01/2046 1,069
================================================================================
PORTFOLIO OF INVESTMENTS | 11
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 1,000 Jacksonville 5.00% 10/01/2029 $ 1,109
2,000 Lee County IDA 5.00 11/01/2025 2,216
645 Lee County IDA 5.50 10/01/2047 665
1,300 Miami-Dade County 5.00 10/01/2034 1,426
3,000 Orlando (INS) 5.13 11/01/2027 3,091
1,000 Southeast Overtown/Park West Community
Redevelopment Agency(d) 5.00 3/01/2030 1,064
1,505 Tampa-Hillsborough County Expressway Auth. 5.00 7/01/2037 1,638
1,000 Volusia County Educational Facilities Auth. 5.00 10/15/2045 1,044
--------
15,396
--------
GUAM (0.6%)
750 International Airport Auth. (INS) 5.50 10/01/2033 852
1,000 Waterworks Auth. 5.50 7/01/2043 1,089
--------
1,941
--------
ILLINOIS (4.6%)
1,000 Chicago 5.00 1/01/2044 1,042
1,000 Chicago 5.00 11/01/2044 1,056
1,000 Chicago-Midway Airport 5.00 1/01/2046 1,080
1,000 Chicago-O'Hare International Airport (INS) 5.25 1/01/2033 1,113
1,000 Educational Facilities Auth. 4.00 11/01/2036 898
1,000 Finance Auth. 3.90 3/01/2030 1,013
2,000 Finance Auth. (PRE) 6.00 10/01/2032 2,349
1,275 Finance Auth. 5.00 5/15/2040 1,297
1,000 Finance Auth. 4.00 10/01/2040 970
1,000 Finance Auth. 4.00 2/15/2041 847
1,000 Finance Auth. 5.00 8/15/2044 1,045
1,000 Finance Auth. 5.00 5/15/2045 1,032
1,000 Municipal Power Agency 4.00 12/01/2041 962
1,235 Springfield Metro Sanitary District 5.75 1/01/2053 1,381
--------
16,085
--------
INDIANA (2.8%)
500 Ball State Univ. 5.00 7/01/2030 544
1,000 Evansville Redevelopment Auth. (INS) 4.00 2/01/2039 990
1,250 Finance Auth. 5.38 11/01/2032 1,326
1,000 Finance Auth. 5.00 2/01/2040 1,052
1,000 Finance Auth. 5.00 10/01/2044 1,062
1,500 Richmond Hospital Auth. 5.00 1/01/2039 1,605
3,000 Rockport (INS) 4.63 6/01/2025 3,040
--------
9,619
--------
================================================================================
12 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
KANSAS (1.0%)
$ 1,000 Coffeyville (INS)(d) 5.00% 6/01/2042 $ 1,018
1,250 Wyandotte County/Kansas City 5.00 9/01/2044 1,357
1,000 Wyandotte County/Kansas City 5.00 9/01/2045 1,081
--------
3,456
--------
KENTUCKY (0.9%)
1,000 Ashland Medical Center 5.00 2/01/2040 1,038
1,000 Economic Dev. Finance Auth. (INS) 6.00 12/01/2033 1,050
1,000 Economic Dev. Finance Auth. 5.00 5/15/2046 903
--------
2,991
--------
LOUISIANA (2.9%)
985 Local Government Environmental Facilities and
Community Dev. Auth. (INS) 6.55 9/01/2025 1,035
1,000 Local Government Environmental Facilities and
Community Dev. Auth. (INS) 4.00 10/01/2046 947
2,000 Parish of St. John the Baptist 5.13 6/01/2037 2,000
1,000 Public Facilities Auth. 5.00 11/01/2045 1,051
1,000 Public Facilities Auth. (INS) 5.25 6/01/2051 1,080
1,000 Public Facilities Auth. 4.00 1/01/2056 947
1,000 Shreveport (INS) 5.00 12/01/2039 1,075
1,000 Shreveport 5.00 12/01/2040 1,046
1,000 Tobacco Settlement Financing Corp. 5.25 5/15/2035 1,078
--------
10,259
--------
MAINE (0.2%)
1,000 Health and Higher Education Facilities Auth. 4.00 7/01/2046 821
--------
MASSACHUSETTS (1.8%)
1,000 Dev. Finance Agency 5.00 4/15/2040 1,051
1,000 Dev. Finance Agency 5.25 11/15/2041 1,098
1,000 Dev. Finance Agency 5.75 7/15/2043 1,092
1,000 Dev. Finance Agency 5.00 7/01/2044 1,043
1,000 Dev. Finance Agency 5.50 7/01/2044 1,052
1,000 Dev. Finance Agency 5.00 7/01/2046 1,051
--------
6,387
--------
MICHIGAN (1.3%)
1,250 Lincoln Consolidated School District (INS) 5.00 5/01/2040 1,359
1,000 Livonia Public Schools School District (INS) 5.00 5/01/2045 1,078
1,000 Wayne County Airport Auth. 5.00 12/01/2044 1,066
1,000 Wyandotte (INS) 5.00 10/01/2044 1,027
--------
4,530
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
MINNESOTA (0.3%)
$ 1,000 Saint Paul Housing and Redevelopment Auth. 5.00% 11/15/2044 $ 1,052
--------
MISSOURI (0.4%)
1,270 Health and Educational Facilities Auth. 5.00 8/01/2045 1,302
--------
NEBRASKA (0.3%)
1,000 Douglas County Hospital Auth. 5.00 11/01/2048 1,063
--------
NEVADA (0.9%)
1,555 Las Vegas Convention and Visitors Auth. 4.00 7/01/2041 1,536
1,500 Las Vegas Redevelopment Agency 5.00 6/15/2045 1,608
--------
3,144
--------
NEW JERSEY (1.6%)
1,000 EDA 5.00 6/15/2029 1,043
2,000 EDA (PRE) 5.00 9/01/2033 2,133
1,250 South Jersey Transportation Auth. 5.00 11/01/2039 1,322
1,000 Transportation Trust Fund Auth. 5.00 6/15/2044 979
--------
5,477
--------
NEW MEXICO (0.3%)
1,000 Farmington 5.90 6/01/2040 1,105
--------
NEW YORK (3.8%)
1,000 Dormitory Auth. (PRE) 5.50 5/01/2037 1,097
1,205 Dormitory Auth. (INS) 5.50 7/01/2040 1,506
630 Liberty Dev. Corp. 5.25 10/01/2035 738
1,500 Liberty Dev. Corp. 5.50 10/01/2037 1,811
1,000 MTA 5.00 11/15/2042 1,099
1,000 New York City 5.25 8/15/2023 1,065
2,000 New York City Trust for Cultural Resources 5.00 12/01/2039 2,155
8,455 Oneida County IDA (INS) 4.65(a) 7/01/2035 3,635
--------
13,106
--------
NORTH CAROLINA (0.3%)
1,000 Medical Care Commission 5.00 10/01/2035 1,070
--------
OHIO (0.2%)
750 Southeastern Port Auth. Hospital Facilities 5.00 12/01/2043 759
--------
OKLAHOMA (0.4%)
1,315 Comanche County Hospital Auth. 5.00 7/01/2032 1,348
--------
PENNSYLVANIA (2.9%)
1,125 Butler County Hospital Auth. 5.00 7/01/2039 1,189
1,000 Chester County IDA 5.00 10/01/2044 1,010
1,625 Indiana County Hospital Auth. 6.00 6/01/2039 1,769
1,000 Lancaster County Hospital Auth. 5.00 11/01/2035 1,089
================================================================================
14 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 1,000 Montgomery County IDA 5.25% 1/15/2045 $ 1,048
1,000 Northampton County General Purpose Auth. 4.00 8/15/2040 939
1,000 Philadelphia School District 5.00 9/01/2037 1,045
1,000 Turnpike Commission 5.25 12/01/2044 1,093
1,000 Turnpike Commission 5.00 12/01/2046 1,058
--------
10,240
--------
PUERTO RICO (0.3%)
1,000 Commonwealth (INS) 5.00 7/01/2035 1,043
--------
RHODE ISLAND (0.3%)
50 Housing and Mortgage Finance Corp. 6.85 10/01/2024 50
1,000 Turnpike and Bridge Auth. 5.00 10/01/2040 1,090
--------
1,140
--------
SOUTH CAROLINA (0.6%)
2,000 Piedmont Municipal Power Agency (INS) 5.75 1/01/2034 2,261
--------
TENNESSEE (0.8%)
2,000 Knox County Health, Educational and
Housing Facilities Board 5.01(a) 1/01/2035 820
1,000 Metropolitan Government of Nashville and Davidson
County Health and Educational Facilities Board 5.00 10/01/2045 1,051
1,000 Metropolitan Government of Nashville and Davidson
County Health and Educational Facilities Board 5.00 7/01/2046 1,067
--------
2,938
--------
TEXAS (8.2%)
1,000 Central Texas Regional Mobility Auth. 4.00 1/01/2041 958
1,000 Central Texas Regional Mobility Auth. 5.00 1/01/2045 1,069
1,000 Clifton Higher Education Finance Corp. (NBGA) 5.00 8/15/2039 1,110
2,000 El Paso (INS)(PRE) 4.75 8/15/2033 2,055
1,000 Harris County Cultural Education Facilities
Finance Corp. 5.00 6/01/2038 1,040
1,000 Harris County Hospital District 4.00 2/15/2042 962
1,000 Houston 5.00 9/01/2039 1,079
1,000 Houston 5.00 9/01/2040 1,078
1,000 Karnes County Hospital District 5.00 2/01/2044 1,025
1,000 Laredo Waterworks and Sewer System 4.00 3/01/2041 986
5,375 Lewisville (INS) 5.80 9/01/2025 5,651
1,000 Matagorda County 4.00 6/01/2030 1,021
1,000 Mesquite Health Facilities Dev. Corp. 5.00 2/15/2035 1,034
1,600 New Hope Cultural Education Facilities Finance Corp. 5.00 4/01/2047 1,621
1,000 New Hope Cultural Education Facilities Finance Corp. 5.00 7/01/2047 1,016
1,500 North Texas Tollway Auth. 5.00 1/01/2031 1,680
1,000 North Texas Tollway Auth. 5.00 1/01/2045 1,095
================================================================================
PORTFOLIO OF INVESTMENTS | 15
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 820 San Leanna Education Facilities Corp. (PRE) 4.75% 6/01/2032 $ 836
180 San Leanna Education Facilities Corp. 4.75 6/01/2032 181
1,000 Tarrant County Cultural Education Facilities
Finance Corp. 5.00 11/15/2036 1,009
1,000 Tarrant County Cultural Education Facilities
Finance Corp. 5.00 11/15/2045 1,001
1,000 Transportation Commission 5.00 8/15/2042 1,079
--------
28,586
--------
VIRGINIA (0.3%)
1,000 Alexandria IDA 5.00 10/01/2050 1,057
--------
WEST VIRGINIA (0.4%)
1,500 Pleasants County 5.25 10/15/2037 1,425
--------
WISCONSIN (0.3%)
1,000 Health and Educational Facilities Auth. 5.25 4/15/2035 1,080
--------
WYOMING (0.4%)
1,250 Laramie County 5.00 5/01/2037 1,333
--------
Total Tax-Exempt Bonds (cost: $176,676) 176,006
--------
TAX-EXEMPT MONEY MARKET INSTRUMENTS (1.6%)
VARIABLE-RATE DEMAND NOTES (1.6%)
GEORGIA (0.1%)
200 Appling County Dev. Auth. 0.64 9/01/2029 200
--------
LOUISIANA (0.5%)
2,000 Public Facilities Auth. 0.58 12/01/2043 2,000
--------
PENNSYLVANIA (1.0%)
3,500 Emmaus General Auth. (INS) (LIQ) 0.63 12/01/2028 3,500
--------
Total Variable-Rate Demand Notes 5,700
--------
Total Tax-Exempt Money Market Instruments (cost: $5,700) 5,700
--------
Total Tax-Exempt Securities (cost: $182,376) 181,706
--------
------------------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES
------------------------------------------------------------------------------------------------------------------
GOVERNMENT & U.S. TREASURY MONEY MARKET INSTRUMENTS (0.8%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (0.7%)
2,346,554 State Street Institutional Treasury Money Market Fund Premier Class, 0.25%(e) 2,347
--------
================================================================================
16 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
(000) SECURITY (000)
------------------------------------------------------------------------------------------------------------------
U.S. TREASURY BILLS (0.1%)
$ 300 0.47%, 3/02/2017(i) $ 300
--------
Total Government & U.S. Treasury Money Market Instruments (cost: $2,647) 2,647
--------
------------------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES
------------------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (48.1%)
BLUE CHIP STOCKS (48.1%)
CONSUMER DISCRETIONARY (5.9%)
-----------------------------
ADVERTISING (0.1%)
2,760 Interpublic Group of Companies, Inc. 66
2,185 Omnicom Group, Inc. 190
--------
256
--------
APPAREL RETAIL (0.3%)
1,264 Foot Locker, Inc. 90
1,580 Gap, Inc. 39
2,433 L Brands, Inc. 171
3,606 Ross Stores, Inc. 244
6,493 TJX Companies, Inc. 509
749 Urban Outfitters, Inc.* 24
--------
1,077
--------
APPAREL, ACCESSORIES & LUXURY GOODS (0.2%)
2,313 Coach, Inc. 84
2,721 Hanesbrands, Inc. 63
1,332 Michael Kors Holdings Ltd.* 62
820 PVH Corp. 87
420 Ralph Lauren Corp. 44
1,305 Under Armour, Inc. "A"* 40
1,314 Under Armour, Inc. "C"* 34
3,036 VF Corp. 166
--------
580
--------
AUTO PARTS & EQUIPMENT (0.1%)
803 Adient plc* 43
1,762 BorgWarner, Inc. 63
2,703 Delphi Automotive plc 173
--------
279
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
AUTOMOBILE MANUFACTURERS (0.2%)
33,522 Ford Motor Co. $ 401
13,478 General Motors Co. 465
--------
866
--------
AUTOMOTIVE RETAIL (0.2%)
504 Advance Auto Parts, Inc. 86
610 AutoNation, Inc.* 27
303 AutoZone, Inc.* 237
1,750 CarMax, Inc.* 101
878 O'Reilly Automotive, Inc.* 241
--------
692
--------
BROADCASTING (0.1%)
3,847 CBS Corp. "B" 234
1,246 Discovery Communications, Inc. "A"* 34
2,101 Discovery Communications, Inc. "C"* 55
941 Scripps Networks Interactive "A" 65
1,870 Tegna, Inc. 42
--------
430
--------
CABLE & SATELLITE (0.6%)
1,906 Charter Communications, Inc. "A"* 525
21,030 Comcast Corp. "A" 1,462
--------
1,987
--------
CASINOS & GAMING (0.0%)
724 Wynn Resorts Ltd. 74
--------
COMPUTER & ELECTRONICS RETAIL (0.0%)
2,846 Best Buy Co., Inc. 130
--------
CONSUMER ELECTRONICS (0.0%)
700 Garmin Ltd. 37
714 Harman International Industries, Inc. 78
--------
115
--------
DEPARTMENT STORES (0.1%)
1,536 Kohl's Corp. 82
3,123 Macy's, Inc. 132
1,287 Nordstrom, Inc. 72
--------
286
--------
DISTRIBUTORS (0.1%)
1,110 Genuine Parts Co. 107
2,565 LKQ Corp.* 84
--------
191
--------
================================================================================
18 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
FOOTWEAR (0.2%)
11,468 NIKE, Inc. "B" $ 574
--------
GENERAL MERCHANDISE STORES (0.2%
2,656 Dollar General Corp. 205
2,334 Dollar Tree, Inc.* 206
5,251 Target Corp. 406
--------
817
--------
HOME FURNISHINGS (0.0%)
859 Leggett & Platt, Inc. 41
566 Mohawk Industries, Inc.* 112
--------
153
--------
HOME IMPROVEMENT RETAIL (0.6%)
10,957 Home Depot, Inc. 1,418
7,411 Lowe's Companies, Inc. 523
--------
1,941
--------
HOMEBUILDING (0.1%)
3,030 D.R. Horton, Inc. 84
1,491 Lennar Corp. "A" 63
2,360 PulteGroup, Inc. 45
--------
192
--------
HOMEFURNISHING RETAIL (0.0%)
1,357 Bed Bath & Beyond, Inc. 61
--------
HOTELS, RESORTS & CRUISE LINES (0.2%)
4,149 Carnival Corp. 213
2,715 Marriott International, Inc. "A" 214
1,243 Royal Caribbean Cruises Ltd. 101
1,010 Wyndham Worldwide Corp. 73
--------
601
--------
HOUSEHOLD APPLIANCES (0.0%)
674 Whirlpool Corp. 109
--------
HOUSEWARES & SPECIALTIES (0.1%)
4,392 Newell Rubbermaid, Inc. 206
--------
INTERNET RETAIL (1.1%)
3,333 Amazon.com, Inc.* 2,502
925 Expedia, Inc. 115
3,772 Netflix, Inc.* 441
427 Priceline Group, Inc.* 642
975 TripAdvisor, Inc.* 47
--------
3,747
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
LEISURE PRODUCTS (0.0%)
1,004 Hasbro, Inc. $ 86
2,666 Mattel, Inc. 84
--------
170
--------
MOTORCYCLE MANUFACTURERS (0.0%)
1,600 Harley-Davidson, Inc. 97
--------
MOVIES & ENTERTAINMENT (0.7%)
7,789 Time Warner, Inc. 715
10,093 Twenty-First Century Fox, Inc. "A" 284
3,916 Twenty-First Century Fox, Inc. "B" 110
2,735 Viacom, Inc. "B" 102
13,147 Walt Disney Co. 1,303
--------
2,514
--------
PUBLISHING (0.0%)
2,721 News Corp. "A" 31
--------
RESTAURANTS (0.6%)
226 Chipotle Mexican Grill, Inc.* 90
842 Darden Restaurants, Inc. 62
7,587 McDonald's Corp. 905
12,252 Starbucks Corp. 710
3,762 Yum China Holdings, Inc.* 106
3,762 Yum! Brands, Inc. 238
--------
2,111
--------
SPECIALIZED CONSUMER SERVICES (0.0%)
1,670 H&R Block, Inc. 37
--------
SPECIALTY STORES (0.1%)
548 Signet Jewelers Ltd. 50
5,555 Staples, Inc. 54
720 Tiffany & Co. 59
1,196 Tractor Supply Co. 90
586 Ulta Salon, Cosmetics & Fragrance, Inc.* 152
--------
405
--------
TIRES & RUBBER (0.0%)
2,240 Goodyear Tire & Rubber Co. 69
--------
Total Consumer Discretionary 20,798
--------
CONSUMER STAPLES (4.4%)
-----------------------
AGRICULTURAL PRODUCTS (0.1%)
5,652 Archer-Daniels-Midland Co. 244
--------
================================================================================
20 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
BREWERS (0.1%)
1,823 Molson Coors Brewing Co. "B" $ 179
--------
DISTILLERS & VINTNERS (0.1%)
2,102 Brown-Forman Corp. "B" 95
1,408 Constellation Brands, Inc. "A" 213
--------
308
--------
DRUG RETAIL (0.4%)
10,223 CVS Health Corp. 786
7,416 Walgreens Boots Alliance, Inc. 628
--------
1,414
--------
FOOD DISTRIBUTORS (0.1%)
4,020 Sysco Corp. 214
--------
FOOD RETAIL (0.1%)
8,610 Kroger Co. 278
2,681 Whole Foods Market, Inc. 82
--------
360
--------
HOUSEHOLD PRODUCTS (0.9%)
2,600 Church & Dwight Co., Inc. 114
910 Clorox Co. 105
8,455 Colgate-Palmolive Co. 552
3,274 Kimberly-Clark Corp. 378
23,403 Procter & Gamble Co. 1,930
--------
3,079
--------
HYPERMARKETS & SUPER CENTERS (0.4%)
3,929 Costco Wholesale Corp. 590
12,558 Wal-Mart Stores, Inc. 884
--------
1,474
--------
PACKAGED FOODS & MEAT (0.7%)
1,381 Campbell Soup Co. 78
3,855 ConAgra Foods, Inc. 141
5,717 General Mills, Inc. 348
1,241 Hershey Co. 120
1,830 Hormel Foods Corp. 63
1,151 J.M. Smucker Co. 145
2,219 Kellogg Co. 160
5,130 Kraft Heinz Co. 419
1,285 Lamb Weston Holdings, Inc.* 43
1,040 McCormick & Co., Inc. 95
1,716 Mead Johnson Nutrition Co. 124
================================================================================
PORTFOLIO OF INVESTMENTS | 21
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
13,670 Mondelez International, Inc. "A" $ 564
2,697 Tyson Foods, Inc. "A" 153
--------
2,453
--------
PERSONAL PRODUCTS (0.0%)
1,921 Estee Lauder Companies, Inc. "A" 149
--------
SOFT DRINKS (0.8%)
34,294 Coca-Cola Co. 1,384
1,841 Dr. Pepper Snapple Group, Inc. 160
3,261 Monster Beverage Corp.* 146
12,441 PepsiCo, Inc. 1,245
--------
2,935
--------
TOBACCO (0.7%)
17,066 Altria Group, Inc. 1,091
13,540 Philip Morris International, Inc. 1,195
7,833 Reynolds American, Inc. 424
--------
2,710
--------
Total Consumer Staples 15,519
--------
ENERGY (3.6%)
-------------
INTEGRATED OIL & GAS (1.6%)
16,483 Chevron Corp. 1,839
36,257 Exxon Mobil Corp.(f) 3,165
6,727 Occidental Petroleum Corp. 480
--------
5,484
--------
OIL & GAS DRILLING (0.0%)
951 Helmerich & Payne, Inc. 72
2,533 Transocean Ltd.* 33
--------
105
--------
OIL & GAS EQUIPMENT & SERVICES (0.5%)
4,004 Baker Hughes, Inc. 258
1,899 FMC Technologies, Inc.* 65
7,620 Halliburton Co. 405
3,243 National Oilwell Varco, Inc. 121
12,365 Schlumberger Ltd. 1,039
--------
1,888
--------
OIL & GAS EXPLORATION & PRODUCTION (0.9%)
4,154 Anadarko Petroleum Corp. 287
3,642 Apache Corp. 240
3,449 Cabot Oil & Gas Corp. 76
4,313 Chesapeake Energy Corp.* 30
================================================================================
22 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
788 Cimarex Energy Co. $ 109
1,150 Concho Resources, Inc.* 165
11,096 ConocoPhillips 538
5,191 Devon Energy Corp. 251
5,027 EOG Resources, Inc. 515
1,317 EQT Corp. 92
2,256 Hess Corp. 126
7,765 Marathon Oil Corp. 140
1,489 Murphy Oil Corp. 51
1,347 Newfield Exploration Co.* 61
3,345 Noble Energy, Inc. 128
1,502 Pioneer Natural Resources Co. 287
1,411 Range Resources Corp. 50
4,794 Southwestern Energy Co.* 54
--------
3,200
--------
OIL & GAS REFINING & MARKETING (0.3%)
4,699 Marathon Petroleum Corp. 221
4,633 Phillips 66 385
970 Tesoro Corp. 79
4,653 Valero Energy Corp. 286
--------
971
--------
OIL & GAS STORAGE & TRANSPORTATION (0.3%)
16,116 Kinder Morgan, Inc. 358
2,128 ONEOK, Inc. 117
5,594 Spectra Energy Corp. 229
5,685 Williams Companies, Inc. 174
--------
878
--------
Total Energy 12,526
--------
FINANCIALS (7.1%)
-----------------
ASSET MANAGEMENT & CUSTODY BANKS (0.6%)
518 Affiliated Managers Group, Inc.* 77
1,556 Ameriprise Financial, Inc. 178
10,361 Bank of New York Mellon Corp. 491
1,246 BlackRock, Inc. 462
3,271 Franklin Resources, Inc. 128
3,240 Invesco Ltd. 102
750 Legg Mason, Inc. 24
1,926 Northern Trust Corp.(g) 158
3,592 State Street Corp. 283
1,970 T. Rowe Price Group, Inc. 146
--------
2,049
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 23
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
CONSUMER FINANCE (0.4%)
7,931 American Express Co. $ 571
4,738 Capital One Financial Corp. 398
3,494 Discover Financial Services 237
2,650 Navient Corp. 46
7,675 Synchrony Financial 265
--------
1,517
--------
DIVERSIFIED BANKS (2.5%)
93,775 Bank of America Corp. 1,981
25,615 Citigroup, Inc. 1,444
1,300 Comerica, Inc. 83
30,506 JPMorgan Chase & Co. 2,446
13,952 U.S. Bancorp 692
39,794 Wells Fargo & Co.(f) 2,106
--------
8,752
--------
FINANCIAL EXCHANGES & DATA (0.3%)
3,355 CME Group, Inc. 379
5,160 Intercontinental Exchange, Inc. 286
1,370 Moody's Corp. 138
840 NASDAQ OMX Group, Inc. 54
2,406 S&P Global, Inc. 286
--------
1,143
--------
INSURANCE BROKERS (0.2%)
2,487 Aon plc 284
1,703 Arthur J. Gallagher & Co. 86
4,644 Marsh & McLennan Companies, Inc. 322
1,331 Willis Towers Watson plc 165
--------
857
--------
INVESTMENT BANKING & BROKERAGE (0.5%)
11,569 Charles Schwab Corp. 447
2,079 E*Trade Financial Corp.* 72
3,402 Goldman Sachs Group, Inc. 746
13,036 Morgan Stanley 539
--------
1,804
--------
LIFE & HEALTH INSURANCE (0.5%)
3,709 AFLAC, Inc. 265
1,769 Lincoln National Corp. 113
10,567 MetLife, Inc. 581
2,592 Principal Financial Group, Inc. 150
3,711 Prudential Financial, Inc. 373
================================================================================
24 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
1,113 Torchmark Corp. $ 78
2,028 Unum Group 86
--------
1,646
--------
MULTI-LINE INSURANCE (0.3%)
10,947 American International Group, Inc. 693
684 Assurant, Inc. 59
2,900 Hartford Financial Services Group, Inc. 137
2,091 Loews Corp. 93
--------
982
--------
MULTI-SECTOR HOLDINGS (0.8%)
16,505 Berkshire Hathaway, Inc. "B"* 2,599
2,777 Leucadia National Corp. 61
--------
2,660
--------
PROPERTY & CASUALTY INSURANCE (0.4%)
3,040 Allstate Corp. 213
3,977 Chubb Ltd. 509
970 Cincinnati Financial Corp. 74
5,079 Progressive Corp. 169
2,350 Travelers Companies, Inc. 266
2,680 XL Group Ltd. 97
--------
1,328
--------
REGIONAL BANKS (0.6%)
8,131 BB&T Corp. 368
4,555 Citizens Financial Group, Inc. 153
5,810 Fifth Third Bancorp 151
10,992 Huntington Bancshares, Inc. 137
10,595 KeyCorp 183
1,257 M&T Bank Corp. 181
2,677 People's United Financial, Inc. 50
4,521 PNC Financial Services Group, Inc. 500
9,790 Regions Financial Corp. 133
4,820 SunTrust Banks, Inc. 250
1,440 Zions Bancorp 57
--------
2,163
--------
Total Financials 24,901
--------
HEALTH CARE (6.6%)
------------------
BIOTECHNOLOGY (1.4%)
13,528 AbbVie, Inc. 823
2,220 Alexion Pharmaceuticals, Inc.* 272
6,617 Amgen, Inc. 953
================================================================================
PORTFOLIO OF INVESTMENTS | 25
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
1,962 Biogen, Inc.* $ 577
6,812 Celgene Corp.* 807
11,730 Gilead Sciences, Inc. 865
680 Regeneron Pharmaceuticals, Inc.* 258
2,268 Vertex Pharmaceuticals, Inc.* 185
--------
4,740
--------
HEALTH CARE DISTRIBUTORS (0.2%)
1,410 AmerisourceBergen Corp. 110
2,930 Cardinal Health, Inc. 208
831 Henry Schein, Inc.* 124
2,002 McKesson Corp. 288
--------
730
--------
HEALTH CARE EQUIPMENT (1.2%)
13,883 Abbott Laboratories(f) 528
4,106 Baxter International, Inc. 182
1,869 Becton, Dickinson & Co. 316
11,978 Boston Scientific Corp.* 245
658 C.R. Bard, Inc. 139
5,012 Danaher Corp. 392
1,920 Edwards Lifesciences Corp.* 159
1,977 Hologic, Inc.* 76
377 Intuitive Surgical, Inc.* 243
12,384 Medtronic plc 904
2,439 St. Jude Medical, Inc. 193
3,021 Stryker Corp. 343
810 Varian Medical Systems, Inc.* 73
1,973 Zimmer Biomet Holdings, Inc. 201
--------
3,994
--------
HEALTH CARE FACILITIES (0.1%)
3,006 HCA Holdings, Inc.* 213
832 Universal Health Services, Inc. "B" 102
--------
315
--------
HEALTH CARE SERVICES (0.2%)
1,439 DaVita HealthCare Partners, Inc.* 91
5,236 Express Scripts Holding Co.* 397
738 Laboratory Corp. of America Holdings* 93
979 Quest Diagnostics, Inc. 86
--------
667
--------
HEALTH CARE SUPPLIES (0.0%)
2,148 DENTSPLY SIRONA, Inc. 125
--------
HEALTH CARE TECHNOLOGY (0.0%)
2,532 Cerner Corp.* 126
--------
================================================================================
26 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
LIFE SCIENCES TOOLS & SERVICES (0.3%)
2,762 Agilent Technologies, Inc. $ 121
1,459 Illumina, Inc.* 194
252 Mettler-Toledo International, Inc.* 104
680 PerkinElmer, Inc. 35
3,390 Thermo Fisher Scientific, Inc. 475
690 Waters Corp.* 93
--------
1,022
--------
MANAGED HEALTH CARE (0.8%)
3,154 Aetna, Inc. 413
2,477 Anthem, Inc. 353
1,565 Centene Corp.* 90
2,514 Cigna Corp. 339
1,433 Humana, Inc. 305
7,880 UnitedHealth Group, Inc. 1,247
--------
2,747
--------
PHARMACEUTICALS (2.4%)
3,483 Allergan plc* 677
14,379 Bristol-Myers Squibb Co. 811
7,791 Eli Lilly and Co. 523
2,029 Endo International plc* 32
23,692 Johnson & Johnson(f) 2,637
1,001 Mallinckrodt plc* 53
25,155 Merck & Co., Inc. 1,539
3,969 Mylan N.V.* 145
1,377 Perrigo Co. plc 119
53,417 Pfizer, Inc. 1,717
3,969 Zoetis, Inc. 200
--------
8,453
--------
Total Health Care 22,919
--------
INDUSTRIALS (5.1%)
------------------
AEROSPACE & DEFENSE (1.1%)
4,440 Arconic, Inc. 86
5,274 Boeing Co. 794
2,846 General Dynamics Corp. 499
653 L-3 Communications Holdings, Inc. 103
2,300 Lockheed Martin Corp. 610
1,509 Northrop Grumman Corp. 377
2,772 Raytheon Co. 415
1,090 Rockwell Collins, Inc. 101
2,070 Textron, Inc. 95
================================================================================
PORTFOLIO OF INVESTMENTS | 27
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
443 TransDigm Group, Inc. $ 111
6,854 United Technologies Corp. 738
--------
3,929
--------
AGRICULTURAL & FARM MACHINERY (0.1%)
2,480 Deere & Co. 248
--------
AIR FREIGHT & LOGISTICS (0.4%)
940 C.H. Robinson Worldwide, Inc. 70
1,610 Expeditors International of Washington, Inc. 85
2,220 FedEx Corp. 426
5,913 United Parcel Service, Inc. "B" 685
--------
1,266
--------
AIRLINES (0.3%)
1,031 Alaska Air Group, Inc. 85
4,668 American Airlines Group, Inc. 217
7,265 Delta Air Lines, Inc. 350
5,625 Southwest Airlines Co. 262
3,028 United Continental Holdings, Inc.* 209
--------
1,123
--------
BUILDING PRODUCTS (0.2%)
613 Allegion plc 41
1,553 Fortune Brands Home & Security, Inc. 86
8,034 Johnson Controls International plc 361
3,073 Masco Corp. 97
--------
585
--------
CONSTRUCTION & ENGINEERING (0.1%)
1,410 Fluor Corp. 75
963 Jacobs Engineering Group, Inc.* 60
--------
135
--------
CONSTRUCTION MACHINERY & HEAVY TRUCKS (0.3%)
5,784 Caterpillar, Inc. 553
1,570 Cummins, Inc. 223
3,016 PACCAR, Inc. 187
--------
963
--------
DIVERSIFIED SUPPORT SERVICES (0.0%)
670 Cintas Corp. 77
--------
ELECTRICAL COMPONENTS & EQUIPMENT (0.3%)
367 Acuity Brands, Inc. 92
2,365 AMETEK, Inc. 112
================================================================================
28 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
4,405 Eaton Corp. plc $ 293
5,920 Emerson Electric Co. 334
1,319 Rockwell Automation, Inc. 177
--------
1,008
--------
ENVIRONMENTAL & FACILITIES SERVICES (0.1%)
2,211 Republic Services, Inc. 123
708 Stericycle, Inc.* 52
4,092 Waste Management, Inc. 284
--------
459
--------
HUMAN RESOURCE & EMPLOYMENT SERVICES (0.0%)
1,300 Robert Half International, Inc. 58
--------
INDUSTRIAL CONGLOMERATES (1.2%)
5,072 3M Co. 871
80,992 General Electric Co.(f) 2,492
6,699 Honeywell International, Inc. 763
973 Roper Industries, Inc. 176
--------
4,302
--------
INDUSTRIAL MACHINERY (0.4%)
1,306 Dover Corp. 95
1,268 Flowserve Corp. 60
2,506 Fortive Corp. 138
3,014 Illinois Tool Works, Inc. 377
2,175 Ingersoll-Rand plc 162
1,295 Parker-Hannifin Corp. 180
1,502 Pentair plc 86
451 Snap-On, Inc. 76
1,292 Stanley Black & Decker, Inc. 153
1,548 Xylem, Inc. 80
--------
1,407
--------
RAILROADS (0.4%)
9,195 CSX Corp. 329
909 Kansas City Southern 81
2,386 Norfolk Southern Corp. 254
7,875 Union Pacific Corp. 798
--------
1,462
--------
RESEARCH & CONSULTING SERVICES (0.1%)
368 Dun & Bradstreet Corp. 45
1,023 Equifax, Inc. 117
================================================================================
PORTFOLIO OF INVESTMENTS | 29
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
2,884 Nielsen Holdings plc $ 124
1,224 Verisk Analytics, Inc.* 102
--------
388
--------
TRADING COMPANIES & DISTRIBUTORS (0.1%)
2,501 Fastenal Co. 118
896 United Rentals, Inc.* 91
480 W.W. Grainger, Inc. 111
--------
320
--------
TRUCKING (0.0%)
714 JB Hunt Transport Services, Inc. 68
--------
Total Industrials 17,798
--------
INFORMATION TECHNOLOGY (10.0%)
------------------------------
APPLICATION SOFTWARE (0.4%)
4,812 Adobe Systems, Inc.* 495
1,953 Autodesk, Inc.* 142
1,224 Citrix Systems, Inc.* 106
2,350 Intuit, Inc. 267
5,462 salesforce.com, Inc.* 393
--------
1,403
--------
COMMUNICATIONS EQUIPMENT (0.5%)
44,288 Cisco Systems, Inc. 1,321
561 F5 Networks, Inc.* 79
1,199 Harris Corp. 124
3,064 Juniper Networks, Inc. 84
1,756 Motorola Solutions, Inc. 141
--------
1,749
--------
DATA PROCESSING & OUTSOURCED SERVICES (1.1%)
444 Alliance Data Systems Corp. 102
4,211 Automatic Data Processing, Inc. 404
2,669 Fidelity National Information Services, Inc. 206
1,700 Fiserv, Inc.* 178
1,450 Global Payments, Inc. 99
7,848 MasterCard, Inc. "A" 802
2,957 Paychex, Inc. 174
9,855 PayPal Holdings, Inc.* 387
1,410 Total System Services, Inc. 70
16,776 Visa, Inc. "A" 1,297
4,210 Western Union Co. 89
6,735 Xerox Corp. 63
--------
3,871
--------
================================================================================
30 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
ELECTRONIC COMPONENTS (0.1%)
2,540 Amphenol Corp. "A" $ 174
8,581 Corning, Inc. 206
--------
380
--------
ELECTRONIC MANUFACTURING SERVICES (0.1%)
3,149 TE Connectivity Ltd. 213
--------
HOME ENTERTAINMENT SOFTWARE (0.1%)
4,493 Activision Blizzard, Inc. 164
2,332 Electronic Arts, Inc.* 185
--------
349
--------
INTERNET SOFTWARE & SERVICES (2.0%)
1,689 Akamai Technologies, Inc.* 113
2,587 Alphabet, Inc. "A"* 2,007
2,602 Alphabet, Inc. "C"* 1,973
9,835 eBay, Inc.* 274
20,362 Facebook, Inc. "A"* 2,411
690 VeriSign, Inc.* 54
8,656 Yahoo! Inc.* 355
--------
7,187
--------
IT CONSULTING & OTHER SERVICES (0.7%)
6,168 Accenture plc "A" 736
5,828 Cognizant Technology Solutions Corp. "A"* 321
900 CSRA, Inc. 29
7,778 International Business Machines Corp. 1,262
1,005 Teradata Corp.* 27
--------
2,375
--------
SEMICONDUCTOR EQUIPMENT (0.2%)
9,030 Applied Materials, Inc. 291
1,542 KLA-Tencor Corp. 123
1,535 Lam Research Corp. 162
893 Versum Materials, Inc.* 22
--------
598
--------
SEMICONDUCTORS (1.4%)
3,045 Analog Devices, Inc. 226
3,614 Broadcom Ltd. 616
511 First Solar, Inc.* 15
39,495 Intel Corp. 1,370
2,064 Linear Technology Corp. 129
1,370 Microchip Technology, Inc. 91
9,667 Micron Technology, Inc.* 189
================================================================================
PORTFOLIO OF INVESTMENTS | 31
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
4,550 NVIDIA Corp. $ 420
1,030 Qorvo, Inc.* 55
12,317 QUALCOMM, Inc. 839
1,701 Skyworks Solutions, Inc. 131
9,253 Texas Instruments, Inc. 684
2,567 Xilinx, Inc. 139
--------
4,904
--------
SYSTEMS SOFTWARE (1.6%)
2,000 CA, Inc. 64
1,737 Dell Technologies, Inc. "V"* 93
67,807 Microsoft Corp.(f) 4,086
27,412 Oracle Corp. 1,101
1,425 Red Hat, Inc.* 113
4,631 Symantec Corp. 113
--------
5,570
--------
TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (1.8%)
48,244 Apple, Inc.(f) 5,332
14,301 Hewlett Packard Enterprise Co. 341
15,593 HP, Inc. 240
2,928 NetApp, Inc. 107
2,663 Seagate Technology plc 107
2,267 Western Digital Corp. 144
--------
6,271
--------
Total Information Technology 34,870
--------
MATERIALS (1.4%)
----------------
ALUMINUM (0.0%)
1,480 Alcoa Corp. 43
--------
COMMODITY CHEMICALS (0.1%)
267 AdvanSix, Inc.* 5
2,687 LyondellBasell Industries N.V. "A" 243
--------
248
--------
CONSTRUCTION MATERIALS (0.1%)
517 Martin Marietta Materials, Inc. 113
1,110 Vulcan Materials Co. 140
--------
253
--------
DIVERSIFIED CHEMICALS (0.4%)
9,391 Dow Chemical Co. 523
8,648 E.I. du Pont de Nemours & Co. 637
1,283 Eastman Chemical Co. 96
--------
1,256
--------
================================================================================
32 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
DIVERSIFIED METALS & MINING (0.1%)
11,714 Freeport-McMoRan, Inc.* $ 180
--------
FERTILIZERS & AGRICULTURAL CHEMICALS (0.2%)
2,035 CF Industries Holdings, Inc. 59
1,113 FMC Corp. 62
3,653 Monsanto Co. 375
2,635 Mosaic Co. 75
--------
571
--------
GOLD (0.0%)
4,833 Newmont Mining Corp. 157
--------
INDUSTRIAL GASES (0.2%)
1,787 Air Products & Chemicals, Inc. 258
2,524 Praxair, Inc. 304
--------
562
--------
METAL & GLASS CONTAINERS (0.0%)
1,366 Ball Corp. 102
--------
PAPER PACKAGING (0.1%)
660 Avery Dennison Corp. 47
4,164 International Paper Co. 203
1,361 Sealed Air Corp. 62
2,219 WestRock Co. 114
--------
426
--------
SPECIALTY CHEMICALS (0.2%)
1,113 Albemarle Corp. 98
2,539 Ecolab, Inc. 296
1 Ingevity Corp.* -
807 International Flavors & Fragrances, Inc. 98
2,397 PPG Industries, Inc. 230
593 Sherwin-Williams Co. 159
--------
881
--------
STEEL (0.0%)
2,663 Nucor Corp. 166
--------
Total Materials 4,845
--------
REAL ESTATE (1.3%)
------------------
REAL ESTATE SERVICES (0.0%)
2,808 CBRE Group, Inc. "A"* 82
--------
REITs - HEALTH CARE (0.2%)
3,875 HCP, Inc. 114
775 Quality Care Properties, Inc.* 12
================================================================================
PORTFOLIO OF INVESTMENTS | 33
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
2,774 Ventas, Inc. $ 168
3,536 Welltower, Inc. 222
--------
516
--------
REITs - HOTEL & RESORT (0.0%)
6,924 Host Hotels & Resorts, Inc. 123
--------
REITs - INDUSTRIAL (0.1%)
5,203 ProLogis, Inc. 265
--------
REITs - OFFICE (0.1%)
1,478 Boston Properties, Inc. 183
887 SL Green Realty Corp. 93
1,706 Vornado Realty Trust 167
--------
443
--------
REITs - RESIDENTIAL (0.2%)
998 Apartment Investment & Management Co."A" 42
1,141 AvalonBay Communities, Inc. 188
3,035 Equity Residential 182
507 Essex Property Trust, Inc. 110
2,624 UDR, Inc. 89
--------
611
--------
REITs - RETAIL (0.3%)
600 Federal Realty Investment Trust 84
4,318 General Growth Properties, Inc. 110
3,567 Kimco Realty Corp. 91
894 Macerich Co. 61
2,079 Realty Income Corp. 115
2,878 Simon Property Group, Inc. 517
--------
978
--------
REITs - SPECIALIZED (0.4%)
3,903 American Tower Corp. 399
3,338 Crown Castle International Corp. 279
1,412 Digital Realty Trust, Inc. 130
571 Equinix, Inc. 193
1,066 Extra Space Storage, Inc. 75
1,246 Iron Mountain, Inc. 41
1,203 Public Storage 252
6,302 Weyerhaeuser Co. 194
--------
1,563
--------
Total Real Estate 4,581
--------
================================================================================
34 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES (1.2%)
---------------------------------
ALTERNATIVE CARRIERS (0.0%)
2,615 Level 3 Communications, Inc.* $ 144
--------
INTEGRATED TELECOMMUNICATION SERVICES (1.2%)
54,322 AT&T, Inc.(f) 2,098
4,889 CenturyLink, Inc. 115
9,734 Frontier Communications Corp. 36
35,902 Verizon Communications, Inc. 1,791
--------
4,040
--------
Total Telecommunication Services 4,184
--------
UTILITIES (1.5%)
----------------
ELECTRIC UTILITIES (0.9%)
2,301 Alliant Energy Corp. 83
4,277 American Electric Power Co., Inc. 253
6,147 Duke Energy Corp. 453
2,813 Edison International 193
1,402 Entergy Corp. 96
3,052 Eversource Energy 158
8,119 Exelon Corp. 264
3,652 FirstEnergy Corp. 114
4,239 NextEra Energy, Inc. 484
4,043 PG&E Corp. 238
850 Pinnacle West Capital Corp. 63
5,981 PPL Corp. 200
9,296 Southern Co. 435
4,885 Xcel Energy, Inc. 191
--------
3,225
--------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS (0.0%)
5,809 AES Corp. 66
2,797 NRG Energy, Inc. 32
--------
98
--------
MULTI-UTILITIES (0.5%)
1,840 Ameren Corp. 90
2,918 CenterPoint Energy, Inc. 70
2,468 CMS Energy Corp. 99
2,201 Consolidated Edison, Inc. 154
5,927 Dominion Resources, Inc. 434
1,653 DTE Energy Co. 154
2,170 NiSource, Inc. 48
4,866 Public Service Enterprise Group, Inc. 201
================================================================================
PORTFOLIO OF INVESTMENTS | 35
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
899 SCANA Corp. $ 64
2,035 Sempra Energy 203
2,417 WEC Energy Group, Inc. 135
--------
1,652
--------
WATER UTILITIES (0.1%)
1,639 American Water Works Co., Inc. 119
--------
Total Utilities 5,094
--------
Total Blue Chip Stocks (cost: $95,228) 168,035
--------
RIGHTS (0.0%)
CONSUMER STAPLES (0.0%)
-----------------------
FOOD RETAIL (0.0%)
1,460 Safeway Casa Ley CVR*(b),(h) 1
1,460 Safeway PDC, LLC CVR*(b),(h) -
--------
1
--------
Total Consumer Staples 1
--------
Total Rights (cost: $1) 1
--------
Total Equity Securities (cost: $95,229) 168,036
--------
TOTAL INVESTMENTS (COST: $280,252) $352,389
========
------------------------------------------------------------------------------------------------------------------
UNREALIZED
APPRECIATION/
NUMBER OF EXPIRATION CONTRACT (DEPRECIATION)
CONTRACTS DATE VALUE (000) (000)
------------------------------------------------------------------------------------------------------------------
FUTURES(j)
LONG FUTURES
EQUITY CONTRACTS
21 E-mini S&P 500 12/16/2016 $2,309 $ 54
------ ---------
TOTAL FUTURES $2,309 $ 54
====== =========
================================================================================
36 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
------------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------------------------------------------------------------------------------------------------------------------
Tax-Exempt Securities:
Tax-Exempt Bonds $ - $176,006 $- $176,006
Tax-Exempt Money Market Instruments:
Variable-Rate Demand Notes - 5,700 - 5,700
Government & U.S. Treasury Money
Market Instruments:
Government & U.S. Treasury Money
Market Funds 2,347 - - 2,347
U.S. Treasury Bills 300 - - 300
Equity Securities:
Blue Chip Stocks 168,035 - - 168,035
Rights - - 1 1
Futures(1) 54 - - 54
------------------------------------------------------------------------------------------------------------------
Total $170,736 $181,706 $1 $352,443
------------------------------------------------------------------------------------------------------------------
(1)Futures are valued at the unrealized appreciation/(depreciation) on the
investment.
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
------------------------------------------------------------------------------------------------------------------
RECONCILIATION OF LEVEL 3 INVESTMENTS
------------------------------------------------------------------------------------------------------------------
RIGHTS
------------------------------------------------------------------------------------------------------------------
Balance as of May 31, 2016 $1
Purchases -
Sales -
Transfers into Level 3 -
Transfers out of Level 3 -
Net realized gain (loss) on investments -
Change in net unrealized appreciation/(depreciation) of investments -
------------------------------------------------------------------------------------------------------------------
Balance as of November 30, 2016 $1
------------------------------------------------------------------------------------------------------------------
For the period of June 1, 2016, through November 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 | 37
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
November 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 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. VRDNs
will normally trade as if the maturity is the earlier put date, even though
stated maturity is longer.
RIGHTS - Enable the holder to buy a specified number of shares of new issues
of a common stock before it is offered to the public.
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
REIT Real estate investment trust
USD Unified School District
================================================================================
38 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
CREDIT ENHANCEMENTS - Adds the financial strength of the provider of the
enhancement to support the issuer's ability to repay the principal and
interest payments when due. The enhancement may be provided by a high-quality
bank, insurance company or other corporation, or a collateral trust. The
enhancements do not guarantee the market values of the securities.
(INS) Principal and interest payments are insured by one of the following:
ACA Financial Guaranty Corp., AMBAC Assurance Corp., Assured Guaranty
Corp., Assured Guaranty Municipal Corp., Build America Mutual
Assurance Corp., Financial Guaranty Insurance Co., or National Public
Finance Guarantee Corp. Although bond insurance reduces the risk of
loss due to default by an issuer, such bonds remain subject to the
risk that value may fluctuate for other reasons, and there is no
assurance that the insurance company will meet its obligations.
(LIQ) Liquidity enhancement that may, under certain circumstances, provide
for repayment of principal and interest upon demand from Wells Fargo
Bank, N.A.
(NBGA) Principal and interest payments are guaranteed by a nonbank guarantee
agreement from Texas Permanent School Fund.
o SPECIFIC NOTES
(a) Zero-coupon security. Rate 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 November 30, 2016, was $164,000, which represented less
than 0.1% of the Fund's net assets.
(c) Pay-in-kind (PIK) - Security in which the issuer has or will have the
option to make all or a portion of the interest or dividend payments in
additional securities in lieu of cash.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 39
================================================================================
(d) Restricted security that is not registered under the Securities Act of
1933. A resale of this security in the United States may occur in an
exempt transaction to a qualified institutional buyer as defined by Rule
144A, and as such has been deemed liquid by the Manager under liquidity
guidelines approved by the Board, unless otherwise noted as illiquid.
(e) Rate represents the money market fund annualized seven-day yield at
November 30, 2016.
(f) The security, or a portion thereof, is segregated to cover the value of
open futures contracts at November 30, 2016.
(g) Northern Trust Corp. is the parent of Northern Trust Investments, Inc.,
which is the subadviser of the Fund.
(h) Security was fair valued at November 30, 2016, by the Manager in
accordance with valuation procedures approved by the Board. The total
value of all such securities was $1,000, which represented less than 0.1%
of the Fund's net assets.
(i) Securities with a value of $300,000 are segregated as collateral for
initial margin requirements on open futures contracts.
(j) The contract value of futures purchased as a percentage of net assets is
0.7%.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
40 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
November 30, 2016 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $280,252) $352,389
Receivables:
Capital shares sold 187
Dividends and interest 2,824
Variation margin on futures contracts 54
--------
Total assets 355,454
--------
LIABILITIES
Payables:
Securities purchased 5,511
Capital shares redeemed 28
Bank overdraft 33
Accrued management fees 135
Accrued transfer agent's fees 12
Other accrued expenses and payables 102
--------
Total liabilities 5,821
--------
Net assets applicable to capital shares outstanding $349,633
========
NET ASSETS CONSIST OF:
Paid-in capital $288,899
Accumulated undistributed net investment income 1,576
Accumulated net realized loss on investments and futures transactions (13,033)
Net unrealized appreciation of investments and futures contracts 72,191
--------
Net assets applicable to capital shares outstanding $349,633
========
Capital shares outstanding, no par value 19,826
========
Net asset value, redemption price, and offering price per share $ 17.63
========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 41
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended November 30, 2016 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends $ 1,832
Interest 3,767
-------
Total income 5,599
-------
EXPENSES
Management fees 900
Administration and servicing fees 262
Transfer agent's fees 142
Custody and accounting fees 63
Postage 8
Shareholder reporting fees 14
Trustees' fees 15
Registration fees 24
Professional fees 60
Other 6
-------
Total expenses 1,494
-------
NET INVESTMENT INCOME 4,105
-------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FUTURES CONTRACTS
Net realized gain on:
Investments 876
Futures transactions 120
Change in net unrealized appreciation/(depreciation) of:
Investments (4,701)
Futures contracts (22)
-------
Net realized and unrealized loss (3,727)
-------
Increase in net assets resulting from operations $ 378
=======
See accompanying notes to financial statements.
================================================================================
42 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended November 30, 2016 (unaudited), and year ended
May 31, 2016
---------------------------------------------------------------------------------------------------
11/30/2016 5/31/2016
---------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 4,105 $ 7,347
Net realized gain on investments 876 1,051
Net realized gain (loss) on futures transactions 120 (123)
Change in net unrealized appreciation/(depreciation) of:
Investments (4,701) 5,788
Futures contracts (22) 76
--------------------
Increase in net assets resulting from operations 378 14,139
--------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (3,830) (7,796)
--------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 46,915 85,967
Reinvested dividends 3,561 7,346
Cost of shares redeemed (24,725) (55,503)
--------------------
Increase in net assets from capital share transactions 25,751 37,810
--------------------
Net increase in net assets 22,299 44,153
NET ASSETS
Beginning of period 327,334 283,181
--------------------
End of period $349,633 $327,334
====================
Accumulated undistributed net investment income:
End of period $ 1,576 $ 1,301
====================
CHANGE IN SHARES OUTSTANDING
Shares sold 2,605 4,990
Shares issued for dividends reinvested 199 428
Shares redeemed (1,375) (3,221)
--------------------
Increase in shares outstanding 1,429 2,197
====================
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 43
================================================================================
NOTES TO FINANCIAL STATEMENTS
November 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 Growth and Tax Strategy Fund (the
Fund), which is classified as diversified under the 1940 Act. The Fund's
investment objective is to seek a conservative balance for the investor between
income, the majority of which is exempt from federal income tax, and the
potential for long-term growth of capital to preserve purchasing power.
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
================================================================================
44 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
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.
Equity 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. Investments in open-end investment companies, commingled, or other funds,
other than ETFs, are valued at their net asset value (NAV) at the end of
each business day and are categorized in Level 1 of the fair value
hierarchy.
3. 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.
4. 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 45
================================================================================
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.
5. 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
transaction between market participants at the measurement date. The
three-level valuation hierarchy disclosed in the Portfolio of Investments is
based upon
================================================================================
46 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
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.
The valuation of securities falling in the Level 3 category are primarily
supported by the value being derived based upon information regarding the
values used for tax valuation and reporting purposes. 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. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - The Fund may buy, sell, and
enter into certain types of derivatives, including, but not limited to
futures contracts, options, and options on futures contracts, under
circumstances in which such instruments are expected by the portfolio manager
to aid in achieving the Fund's investment objective. The Fund also may use
derivatives in circumstances where the portfolio manager believes they offer
an economical means of gaining exposure to a particular asset class or
securities market or to keep cash on hand to meet shareholder redemptions or
other needs while maintaining exposure to the market. With exchange-listed
futures contracts and options, counterparty credit risk to the Fund is
limited to the exchange's clearinghouse which, as counterparty to all
exchange-traded futures contracts and options,
================================================================================
NOTES TO FINANCIAL STATEMENTS | 47
================================================================================
guarantees the transactions against default from the actual counterparty to
the transaction. The Fund's derivative agreements held at November 30, 2016,
did not include master netting provisions.
FUTURES CONTRACTS - The Fund is subject to equity price risk, interest rate
risk, and foreign currency exchange rate risk in the normal course of
pursuing its investment objectives. The Fund may use futures contracts to
gain exposure to, or hedge against, changes in the value of equities,
interest rates, or foreign currencies. A futures contract represents a
commitment for the future purchase or sale of an asset at a specified price
on a specified date. Upon entering into such contracts, the Fund is required
to deposit with the broker in either cash or securities an initial margin in
an amount equal to a certain percentage of the contract amount. Subsequent
payments (variation margin) are made or received by the Fund each day,
depending on the daily fluctuations in the value of the contract, and are
recorded for financial statement purposes as unrealized gains or losses. When
the contract is closed, the Fund records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and
the value at the time it was closed. Upon entering into such contracts, the
Fund bears the risk of interest or exchange rates or securities prices moving
unexpectedly in an unfavorable direction, in which case, the Fund may not
achieve the anticipated benefits of the futures contracts.
FAIR VALUES OF DERIVATIVE INSTRUMENTS AS OF NOVEMBER 30, 2016* (IN THOUSANDS)
ASSET DERIVATIVES LIABILITY DERIVATIVES
-------------------------------------------------------------------------------------------------
STATEMENT OF STATEMENT OF
DERIVATIVES NOT ASSETS AND ASSETS AND
ACCOUNTED FOR AS LIABILITIES LIABILITIES
HEDGING INSTRUMENTS LOCATION FAIR VALUE LOCATION FAIR VALUE
-------------------------------------------------------------------------------------------------
Equity contracts Net unrealized $54** $-
appreciation of
investments and
futures contracts
-------------------------------------------------------------------------------------------------
* For open derivative instruments as of November 30, 2016, see the Portfolio
of Investments, which also is indicative of activity for the six-month
period ended November 30, 2016.
** Includes cumulative appreciation/(depreciation) of futures as reported on
the Portfolio of Investments. Only current day's variation margin is
reported within the Statement of Assets and Liabilities.
================================================================================
48 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
THE EFFECT OF DERIVATIVE INSTRUMENTS ON THE STATEMENT OF OPERATIONS FOR THE
SIX-MONTH PERIOD ENDED NOVEMBER 30, 2016 (IN THOUSANDS)
CHANGE IN
UNREALIZED
DERIVATIVES NOT APPRECIATION/
ACCOUNTED FOR AS STATEMENT OF OPERATIONS REALIZED GAIN (LOSS) (DEPRECIATION)
HEDGING INSTRUMENTS LOCATION ON DERIVATIVES ON DERIVATIVES
-----------------------------------------------------------------------------------------
Equity contracts Net realized gain $120 $(22)
on Futures transactions /
Change in net unrealized
appreciation/(depreciation)
of Futures contracts
-----------------------------------------------------------------------------------------
D. FEDERAL TAXES - The Fund's policy is to comply with the requirements of the
Internal Revenue Code of 1986, as amended, applicable to regulated investment
companies and to distribute substantially all of its taxable income and net
capital gains, if any, to its shareholders. Therefore, no federal income tax
provision is required.
E. INVESTMENTS IN SECURITIES - Securities transactions are accounted for on the
date the securities are purchased or sold (trade date). Gains or losses from
sales of investment securities are computed on the identified cost basis.
Dividend income, less foreign taxes, if any, is recorded on the ex-dividend
date. If the ex-dividend date has passed, certain dividends from foreign
securities are recorded upon notification. Interest income is recorded daily
on the accrual basis. Premiums and discounts are amortized over the life of
the respective securities, using the effective yield method for long-term
securities and the straight-line method for short-term securities.
F. SECURITIES PURCHASED ON A DELAYED-DELIVERY OR WHEN-ISSUED BASIS - Delivery
and payment for securities that have been purchased by the Fund on a
delayed-delivery or when-issued basis can take place a month or more after
the trade date. During the period prior to settlement, these securities do
not earn interest, are subject to market fluctuation, and may increase or
decrease in value prior to their delivery. The Fund maintains segregated
assets with a market value equal to or greater than the amount of its
purchase commitments. The purchase of securities on a delayed-delivery or
when-issued basis may increase the volatility of the Fund's NAV to the extent
that the Fund makes such purchases while remaining substantially fully
invested.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 49
================================================================================
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 November 30, 2016, there were no custodian and other bank credits.
H. INDEMNIFICATIONS - Under the Trust's organizational documents, its officers
and trustees are indemnified against certain liabilities arising out of the
performance of their duties to the Trust. In addition, in the normal course
of business, the Trust enters into contracts that contain a variety of
representations and warranties that provide general indemnifications. The
Trust's maximum exposure under these arrangements is unknown, as this would
involve future claims that may be made against the Trust that have not yet
occurred. However, the Trust expects the risk of loss to be remote.
I. USE OF ESTIMATES - The preparation of financial statements in conformity with
U.S. generally accepted accounting principles requires management to make
estimates and assumptions that may affect the reported amounts in the
financial statements.
(2) LINE OF CREDIT
The Fund participates with other USAA Funds 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 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
================================================================================
50 | USAA GROWTH AND TAX STRATEGY 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 November 30, 2016, the Fund paid CAPCO facility
fees of $1,000, which represents 0.5% 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 November 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 May 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 tax.
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 May 31, 2016, the Fund had pre-enactment capital loss carryforwards of
$13,730,000, and no post-enactment capital loss carryforwards, for federal
income tax purposes. If not offset by subsequent capital gains, the pre-
enactment capital loss carryforwards will expire between 2017 and 2018, 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.
PRE-ENACTMENT CAPITAL LOSS CARRYFORWARDS
----------------------------------------
EXPIRES BALANCE
-------- -----------
2017 $ 2,198,000
2018 11,532,000
-----------
Total $13,730,000
===========
================================================================================
NOTES TO FINANCIAL STATEMENTS | 51
================================================================================
For the six-month period ended November 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 November 30, 2016, were
$35,050,000 and $4,591,000, respectively.
As of November 30, 2016, the cost of securities, including short-term
securities, for federal income tax purposes, was approximately the same as their
cost reported in the financial statements.
Gross unrealized appreciation and depreciation of investments as of November 30,
2016, were $79,436,000 and $7,299,000, respectively, resulting in net unrealized
appreciation of $72,137,000.
(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 of a portion of the Fund's
assets, subject to the authority of and supervision by the Board. The Manager
is authorized to select (with approval of the Board and without shareholder
approval) one or more subadvisers to manage the day-to-day investment of a
portion of the Fund's assets.
The Manager monitors each subadviser's performance through quantitative and
qualitative analysis and periodically reports to the Board as to whether each
subadviser's agreement should be renewed, terminated,
================================================================================
52 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
or modified. The Manager is also responsible for determining the asset
allocation for the subadviser(s). The allocation for each subadviser could
range from 0% to 100% of the Fund's assets, and the Manager could change the
allocations without shareholder approval.
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 monthly by comparing the Fund's
performance over the performance period to the Composite Index which is
comprised of 51% of the Lipper General Municipal Bond Funds Index, which
measures the total return performance of the largest funds tracked by Lipper
that invest at least 65% of their assets in municipal debt issues in the top
four credit categories, and 49% of the Lipper Large-Cap Core Funds Index,
which measures the total return performance of the funds tracked by Lipper
that by portfolio practice invest at least 75% of their equity assets in
companies with market capitalizations of greater than 300% of the
dollar-weighted median market capitalization of the middle 1,000 securities
of the S&P 500 Index. The performance period for the Fund 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 Fund and
its relevant index, rounded to the nearest basis point. Average net assets
are calculated over a rolling 36-month period.
The annual performance adjustment rate is multiplied by the average net
assets of the Fund over the entire performance period, which is then
multiplied by a fraction, the numerator of which is the number of days
================================================================================
NOTES TO FINANCIAL STATEMENTS | 53
================================================================================
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, the Fund will pay a positive
performance fee adjustment for a performance period whenever the Fund
outperforms the Composite Index over that period, even if the Fund had
overall negative returns during the performance period.
For the six-month period ended November 30, 2016, the Fund incurred total
management fees, paid or payable to the Manager, of $900,000, which included
a 0.02% performance adjustment of $28,000.
B. SUBADVISORY ARRANGEMENT(S) - The Manager entered into an Investment
Subadvisory Agreement with Northern Trust Investments, Inc. (NTI), under
which NTI directs the investment and reinvestment of the portion of the
Fund's assets invested in blue chip stocks (as allocated from time to time by
the Manager). The Manager (not the Fund) pays NTI a subadvisory fee equal to
the greater of a minimum annual fee of $100,000 or a fee at an annual amount
of 0.25% on the first $40 million of assets and 0.10% on assets over $40
million of the portion of the Fund's average net assets that NTI manages. For
the six-month period ended November 30, 2016, the Manager incurred
subadvisory fees with respect to the Fund, paid or payable to NTI, of
$111,000.
C. 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 the Fund's average net assets. For the six-month period ended
November 30, 2016, the Fund incurred administration and servicing fees, paid
or payable to the Manager, of $262,000.
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 November 30, 2016, the Fund reimbursed the Manager
$5,000 for these compliance and legal
================================================================================
54 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
services. These expenses are included in the professional fees on the Fund's
Statement of Operations.
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 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. For the six-month period ended November 30, 2016,
the Fund incurred transfer agent's fees, paid or payable to SAS, of $142,000.
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.
(6) TRANSACTIONS WITH AFFILIATES
The Manager is indirectly wholly owned by United Services Automobile Association
(USAA), a large, diversified financial services institution.
Certain trustees and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Fund.
(7) UPCOMING REGULATORY MATTERS
In October 2016, the U.S. Securities and Exchange Commission (SEC) adopted final
rules intended to modernize the reporting and disclosure of information by
registered investment companies. In part, the final rules amend Regulation S-X
to require standardized, enhanced disclosure about derivatives in investment
company financial statements. The Manager is currently evaluating the impact
these rules and amendments will have on the financial statements and related
disclosures. The compliance date for the amendments to Regulation S-X is August
1, 2017, with other staggered compliance dates extending through December 2018.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 55
================================================================================
(8) FINANCIAL HIGHLIGHTS
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
NOVEMBER 30, YEAR ENDED MAY 31,
---------------------------------------------------------------------------
2016 2016 2015 2014 2013 2012
---------------------------------------------------------------------------
Net asset value at
beginning of period $ 17.79 $ 17.48 $ 16.86 $ 15.59 $ 14.02 $ 13.44
--------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .21 .43 .44 .41 .37 .36
Net realized and
unrealized gain (loss) (.17) .35 .59 1.26 1.57 .57
--------------------------------------------------------------------------
Total from investment
operations .04 .78 1.03 1.67 1.94 .93
--------------------------------------------------------------------------
Less distributions from:
Net investment income (.20) (.47) (.41) (.40) (.37) (.35)
--------------------------------------------------------------------------
Net asset value at
end of period $ 17.63 $ 17.79 $ 17.48 $ 16.86 $ 15.59 $ 14.02
==========================================================================
Total return (%)* .21 4.60 6.16 10.92 14.07 7.11
Net assets at end of
period (000) $349,633 $327,334 $283,181 $221,445 $188,461 $162,718
Ratios to average
net assets:**
Expenses (%)(a) .86(b) .87 .85 .92 .96 .98
Net investment
income (%) 2.35(b) 2.53 2.63 2.60 2.51 2.65
Portfolio turnover (%) 1 10 9 5 5 8
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended November 30, 2016, average net assets were
$348,262,000.
(a) Reflects total annual operating expenses of the Fund before reductions of
any expenses paid indirectly. The Fund's expenses paid indirectly decreased
the expense ratios as follows:
- - - (.00%)(+) (.00%)(+) (.00%)(+)
(+) Represents less than 0.01% of average net assets.
(b) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
56 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
EXPENSE EXAMPLE
November 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 June 1, 2016, through
November 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 | 57
================================================================================
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 JUNE 1, 2016 -
JUNE 1, 2016 NOVEMBER 30, 2016 NOVEMBER 30, 2016
--------------------------------------------------------------
Actual $1,000.00 $1,002.10 $4.32
Hypothetical
(5% return before expenses) 1,000.00 1,020.76 4.36
*Expenses are equal to the Fund's annualized expense ratio of 0.86%, which is
net of any expenses paid indirectly, multiplied by the average account value
over the period, multiplied by 183 days/365 days (to reflect the one-half-year
period). The Fund's actual ending account value is based on its actual total
return of 0.21% for the six-month period of June 1, 2016, through November 30,
2016.
================================================================================
58 | USAA GROWTH AND TAX STRATEGY 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] [LOGO OF RECYCLE PAPER]
USAA We know what it means to serve.(R) 10%
=============================================================================
27801-0117 (C)2017, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA CORNERSTONE MODERATE FUND]
==============================================================
SEMIANNUAL REPORT
USAA CORNERSTONE MODERATE FUND
NOVEMBER 30, 2016
==============================================================
================================================================================
================================================================================
PRESIDENT'S MESSAGE
"AS THE NEW YEAR BEGINS, WHY NOT MAKE
A RESOLUTION TO PUT YOUR FINANCIAL HOUSE [PHOTO OF BROOKS ENGLEHARDT]
IN ORDER?"
--------------------------------------------------------------------------------
JANUARY 2017
Financial markets are unpredictable. Many factors can confound those who try to
predict the direction of the markets based on economic or political factors. In
other words, it's easy to get it wrong. And, even if one correctly forecasts
what will happen in the macroeconomic environment, predicting how the markets
will respond is another matter altogether.
Consider the response to the Presidential election. Stocks rose on Monday and
Tuesday (Election Day) at the prospect of a Hillary Clinton victory--virtually
a "sure thing," according to some media pundits. U.S. Treasury securities and
other segments of the bond market sold off as investors likely assumed a
continuation of current economic policy under another Democratic administration.
But these trends reversed on Tuesday evening when it became clear that Donald J.
Trump would be elected the 45th President of the United States. Asian and
European equity markets dropped and U.S. stock index futures plunged. The
decline in stock index futures suggested that U.S. stocks might fall when
trading began on Wednesday, however the opposite happened. Stock prices rose and
then rallied strongly, with major stock indexes hitting one record high after
another through the end of November 2016. U.S. Treasury prices fell, driving up
yields on longer-maturity U.S. Treasuries. (Yields move in the opposite
direction of prices.)
Few market participants would have forecasted such a scenario. But with
hindsight, we may be able to understand some of the reasons why the markets
behaved the way they did.
U.S. equity investors appeared to like President-elect Trump's promises of lower
tax rates, less regulation, and more fiscal stimulus through infrastructure
spending. Other explanations may lie overseas, such as complications relating to
the United Kingdom's decision to exit from the European Union ("Brexit") and
continued slow economic growth in China--uncertainties that may have
================================================================================
================================================================================
increased the attractiveness of U.S. stocks. As for bond investors, they may
have been worried about an increase in interest rates if economic growth picks
up under a Trump Administration. Higher growth rates typically correspond with
rising inflation, which in turn could prompt the Federal Reserve (the Fed) to
accelerate the pace of interest rate increases.
What actually happens, however, is yet to be seen. No one knows, except in the
most general terms, what President-elect Trump's plans and priorities will be or
how they could affect economic growth in 2017 and beyond. By extension, it is
also too early to forecast how inflation might be affected and how the Fed could
respond.
At USAA Investments, we are long-term, fundamental investors, who seek to look
at the full market cycle rather than current geopolitical events. We believe
measures such as assessing a company's intrinsic value compared to its current
price tend to be more effective at forecasting potential stock returns over
time. In selecting bonds, our analysts take a bottom-up approach to evaluating
each security individually, building portfolios on a bond-by-bond basis.
It is important to remember market conditions are always fluctuating and time
horizon matters. We believe that it is important to stay focused on your
long-term objectives, using an investment plan that is based on your personal
time horizon and risk tolerance. If you are uneasy about market risk in general
or have concerns about too much exposure to specific asset classes, please call
USAA to speak with an advisor. As the new year begins, why not make a resolution
to put your financial house in order?
Thank you for allowing us to help you in your efforts to achieve your financial
goals. At USAA Investments, we are committed to providing you with our best
advice, top-notch service, and a variety of mutual funds. On behalf of everyone
here, I wish you a happy and healthy 2017.
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 11
Notes to Portfolio of Investments 34
Financial Statements 39
Notes to Financial Statements 42
EXPENSE EXAMPLE 58
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE
RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY
USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN
PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS
ABOUT THE FUND.
(C)2017, USAA. All rights reserved.
200992-0117
================================================================================
================================================================================
FUND OBJECTIVE
THE USAA CORNERSTONE MODERATE FUND (THE FUND) SEEKS HIGH TOTAL RETURN.
--------------------------------------------------------------------------------
TYPES OF INVESTMENTS
The Fund invests in equity securities, bonds, money market instruments and other
instruments including derivatives. The Fund has a target asset class allocation
of approximately 50% equity securities and 50% fixed-income securities. The
actual asset class allocation can deviate from time to time from these targets
as market conditions warrant. The implementation of the asset allocation may
involve the extensive use of equity and fixed-income exchange-traded funds
(ETFs). The Fund may invest in securities issued by domestic or foreign
companies. The Fund also may invest in investment-grade and below-
investment-grade ("junk" or high-yield) fixed-income securities.
The Fund's investments also include real estate investment trusts (REITs),
investments that provide exposure to commodities (such as ETFs or national
resources companies), and derivatives, including futures and options.
Derivatives may be utilized by the Fund to reduce its volatility over time, to
enhance returns, or to provide diversification.
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
JOHN P. TOOHEY, CFA LANCE HUMPHREY, CFA
WASIF A. LATIF ARNOLD J. ESPE, CFA
--------------------------------------------------------------------------------
o HOW DID THE GLOBAL FINANCIAL MARKETS PERFORM DURING THE REPORTING PERIOD?
Financial assets produced mixed results during the reporting period ended
November 30, 2016, reflecting the broad range of headlines that
characterized the reporting period.
U.S. equities posted the strongest gains among the major asset categories.
The U.S. economy continued to deliver economic growth ahead of its
developed-market global peers, driving healthy relative performance for the
stock market. Small-cap stocks, in particular, generated favorable gains
thanks in part to their greater exposure to the country's positive growth.
U.S. equities performed particularly well in the wake of the U.S. election,
which removed the element of political uncertainty that had weighed on the
market.
Developed-market international equities finished with a small loss and
trailed the U.S. market by a wide margin. While Japanese stocks were
bolstered by the substantial fiscal and monetary stimulus being provided by
the nation's government, European equities lagged. The leading cause of the
shortfall was likely the region's higher sensitivity to the United Kingdom's
June 2016 vote to exit the European Union ("Brexit"). In addition, the
European markets were pressured by the combination of slow economic growth,
possible instability within the banking system, and the potential impact of
rising nationalism across Europe.
In contrast to the developed markets, emerging-market stocks performed well
during the reporting period. The renewed stability in commodity prices
provided a positive backdrop for the asset class, as did improving
================================================================================
2 | USAA CORNERSTONE MODERATE FUND
================================================================================
corporate earnings and signs of stronger economic growth in both Russia and
China.
The U.S. bond market also experienced mixed performance during the reporting
period. Market segments that are sensitive to interest-rate movements, such
as longer-term U.S. Treasuries, generally finished with slightly negative
returns. The stimulation of the U.S. economy, in conjunction with the
prospects of increasingly growth-oriented policies in the year ahead, raised
concerns that the Federal Reserve (the Fed) would take an aggressive
approach to raising interest rates. However, the improving growth
outlook--together with investors' increasing appetite for risk--helped fuel
strong returns for lower-rated segments of the market, including high-yield
bonds.
o HOW DID THE USAA CORNERSTONE MODERATE FUND (THE FUND) PERFORM DURING THE
REPORTING PERIOD?
For the reporting period ended November 30, 2016, the Fund had a total
return of 1.92%. This compares to returns of 3.67% for the MSCI All-Country
World Index, 2.08% for the Cornerstone Moderate Composite Index, and 3.17%
for the Lipper Balanced 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 PLEASE DISCUSS THE FACTORS THAT HELPED AND HURT PERFORMANCE.
We maintained a patient approach to managing the Fund's portfolio. Rather
than trying to keep pace with the rapidly shifting trends in the global
markets, we remained focused on asset classes where we believed there was
value. While low valuations don't necessarily translate to outperformance in
the short term, undervalued market segments have historically demonstrated
superior results over time. We believe this value-driven strategy is
appropriate for an environment in which macroeconomic headlines are a key
driver of financial-market performance.
Refer to page 8 for benchmark definitions.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 3
================================================================================
In the Fund's U.S. equity allocation, a diversified portfolio of large-cap,
blue-chip stocks performed well and participated in the broader rally.
Stock selection in the mid-cap space was an additional positive. Although
stronger returns could have been produced through a larger weighting in
small caps, we think that a focus on fundamentally sound, reasonably valued
large-and mid-cap companies is prudent at this stage of the cycle. The Fund
remained underweight in the United States overall, as we continued to see
more attractive valuations overseas.
The Fund's developed-market international allocation, aided performance
during the middle of the reporting period, but was a net detractor overall.
Although we continue to see a long-term opportunity in the international
markets due to their compelling valuations relative to U.S. stocks, the
unsteady economic conditions overseas prompted us to slightly reduce the
Fund's position.
The Fund's allocation to emerging-market stocks contributed positively to
its performance. We remain enthusiastic on the longer-term outlook for the
emerging markets, where the combination of improving growth, healthy
corporate earnings, and stabilizing commodity prices makes the low
valuations of the asset class particularly compelling.
The Fund's allocation to gold stocks, though modest, slightly detracted from
results. After rallying in the first half of the reporting period, gold
prices subsequently weakened due to the prospect of rising interest rates.
Shares of gold mining companies declined from their mid-August 2016 peak as
a result, causing the sector to finish with a loss. Overall, however, this
aspect of our positioning had only a small effect on the Fund's performance.
The Fund's actively managed bond portfolio made a positive contribution to
results due in part to its above-average weightings in lower-rated
investment-grade and high-yield corporate bonds. In addition, the Fund's
performance was aided by positive security selection in both areas. The
portfolio maintained an allocation to longer-term U.S. Treasuries to
counterbalance some of its credit exposure, but this aspect of its
positioning was a slight detractor due to the weaker returns for government
bonds.
The investment backdrop offered a varied picture for investors at the close
of the reporting period. The U.S. economy has continued to produce modest
growth despite the challenging economic conditions elsewhere in
================================================================================
4 | USAA CORNERSTONE MODERATE FUND
================================================================================
the developed world. In addition, the ultra-loose monetary policies of
certain foreign central banks represent an ongoing engine of demand for
higher-risk, higher-yielding financial assets. While these factors are
generally a positive for the markets, potential sources of volatility
include global political uncertainty and the possibility that the Fed could
begin to raise interest rates more aggressively.
Our response to this ambiguity is to maintain our strategy: maintain
diversification, stay focused on the long-term picture, and emphasize
undervalued asset classes. We believe this steady approach--rather than one
that tries to keep up with the day-to-day considerations driving short-term
market performance--is well suited to a highly uncertain investment
environment.
Thank you for allowing us to help you manage your investments.
Asset Allocation funds may be invested in, among other things:
(1) exchange-traded funds; (2) futures, options, and other derivatives;
(3) non-investment-grade securities; (4) precious metals and minerals
companies; (5) real estate investment trusts; (6) money market instruments;
(7) foreign and emerging markets. These types of investments and asset
classes may be more volatile and prone to experience significant loss than
others. In addition, it is possible that a particular asset allocation used
by the Manager may not produce the intended result. 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 Foreign investing is subject to additional risks, such as currency
fluctuations, market illiquidity, and political instability. Emerging
market countries are less diverse and mature than other countries and tend
to be politically less stable. o Precious metals and minerals is a volatile
asset class and is subject to additional risks, such as currency
fluctuation, market illiquidity, political instability, and increased price
volatility. It may be more volatile than other asset classes that diversify
across many industries and companies. 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 credit worthy investment-grade securities. o
Diversification is a technique intended to help reduce risk and does not
guarantee a profit or prevent a loss. o Exchange Traded Funds (ETFs) are
subject to risks similar to those of stocks. Investment returns may
fluctuate and are subject to market volatility, so that an investor's
shares, when redeemed or sold, may be worth more or less than their
original cost.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 5
================================================================================
INVESTMENT OVERVIEW
USAA CORNERSTONE MODERATE FUND (THE FUND)
(Ticker Symbol: USBSX)
--------------------------------------------------------------------------------
11/30/16 5/31/16
--------------------------------------------------------------------------------
Net Assets $1.1 Billion $1.1 Billion
Net Asset Value Per Share $14.11 $14.01
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 11/30/16
--------------------------------------------------------------------------------
5/31/16-11/30/16* 1 YEAR 5 YEARS 10 YEARS
1.92% 1.77% 5.17% 3.27%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/16
--------------------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS
4.85% 5.33% 3.31%
--------------------------------------------------------------------------------
EXPENSE RATIOS AS OF 5/31/16**
--------------------------------------------------------------------------------
BEFORE REIMBURSEMENT 1.16% AFTER REIMBURSEMENT 1.07%
(includes acquired fund fees and expenses of 0.07%)
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 October 1, 2016, and
are calculated as a percentage of average net assets. USAA Asset Management
Company (the Manager) has agreed, through September 30, 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 1.00% of the Fund's 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 September 30, 2017. If
the total annual operating expense ratio is lower than 1.00%, the Fund 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. Effective October 1, 2016, the base investment
management fee was reduced from 0.70% to 0.65% of the Fund's average net assets.
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 CORNERSTONE MODERATE FUND
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
CORNERSTONE USAA
MODERATE MSCI CORNERSTONE
LIPPER BALANCED COMPOSITE ALL-COUNTRY MODERATE
FUNDS INDEX INDEX WORLD INDEX FUND
11/30/06 $10,000.00 $10,000.00 $10,000.00 $10,000.00
12/31/06 10,073.95 10,065.80 10,223.12 10,068.00
01/31/07 10,182.60 10,140.94 10,324.81 10,223.00
02/28/07 10,143.74 10,185.05 10,270.46 10,176.00
03/31/07 10,230.77 10,274.28 10,476.55 10,238.00
04/30/07 10,525.02 10,516.09 10,940.47 10,496.00
05/31/07 10,751.17 10,649.12 11,266.74 10,680.00
06/30/07 10,650.72 10,580.96 11,233.64 10,574.00
07/31/07 10,469.16 10,494.40 11,062.11 10,334.00
08/31/07 10,553.79 10,564.43 11,031.49 10,430.00
09/30/07 10,851.95 10,862.62 11,623.70 10,680.00
10/31/07 11,042.78 11,089.40 12,077.16 10,865.00
11/30/07 10,783.89 10,911.37 11,543.19 10,529.00
12/31/07 10,731.51 10,875.57 11,415.41 10,441.00
01/31/08 10,376.74 10,562.02 10,480.42 10,120.00
02/29/08 10,241.73 10,540.19 10,510.01 9,931.00
03/31/08 10,163.46 10,490.51 10,355.86 9,810.00
04/30/08 10,500.41 10,774.87 10,933.53 10,074.00
05/31/08 10,616.40 10,845.88 11,104.48 10,272.00
06/30/08 10,055.13 10,401.65 10,192.65 9,695.00
07/31/08 9,927.79 10,286.95 9,927.97 9,525.00
08/31/08 9,965.53 10,282.20 9,713.98 9,555.00
09/30/08 9,212.63 9,601.49 8,499.92 8,735.00
10/31/08 8,031.90 8,484.82 6,815.65 7,417.00
11/30/08 7,666.00 8,281.15 6,367.89 6,925.00
12/31/08 7,922.52 8,580.58 6,598.67 7,052.00
01/31/09 7,555.78 8,192.68 6,034.89 6,645.00
02/28/09 7,067.05 7,760.68 5,444.01 6,095.00
03/31/09 7,460.11 8,136.90 5,892.43 6,408.00
04/30/09 7,973.98 8,668.78 6,588.01 6,965.00
05/31/09 8,374.02 9,090.68 7,244.43 7,683.00
06/30/09 8,394.02 9,113.05 7,203.81 7,878.00
07/31/09 8,898.36 9,582.29 7,837.94 8,318.00
08/31/09 9,136.49 9,822.42 8,118.27 8,635.00
09/30/09 9,428.63 10,111.71 8,490.71 9,098.00
10/31/09 9,318.40 10,041.75 8,359.50 9,122.00
11/30/09 9,665.29 10,330.75 8,703.31 9,395.00
12/31/09 9,772.62 10,403.98 8,883.54 9,593.00
01/31/10 9,605.49 10,271.86 8,499.62 9,537.00
02/28/10 9,776.34 10,398.30 8,607.89 9,711.00
03/31/10 10,148.15 10,739.85 9,161.67 10,080.00
04/30/10 10,272.70 10,862.51 9,177.08 10,254.00
05/31/10 9,747.43 10,400.56 8,307.04 9,738.00
06/30/10 9,513.04 10,279.99 8,051.13 9,491.00
07/31/10 9,974.55 10,744.34 8,706.23 9,925.00
08/31/10 9,760.02 10,604.53 8,401.87 9,740.00
09/30/10 10,313.27 11,128.54 9,205.65 10,296.00
10/31/10 10,575.07 11,367.19 9,538.35 10,563.00
11/30/10 10,518.63 11,267.00 9,326.12 10,514.00
12/31/10 10,935.59 11,634.22 10,009.06 10,888.00
01/31/11 11,088.99 11,745.34 10,166.13 11,068.00
02/28/11 11,336.74 11,948.53 10,462.16 11,361.00
03/31/11 11,361.63 11,969.40 10,451.71 11,452.00
04/30/11 11,664.19 12,271.26 10,879.32 11,771.00
05/31/11 11,587.18 12,231.78 10,645.46 11,706.00
06/30/11 11,445.85 12,104.07 10,477.72 11,557.00
07/31/11 11,358.31 12,094.36 10,307.13 11,391.00
08/31/11 10,930.32 11,740.87 9,554.20 10,797.00
09/30/11 10,344.47 11,211.03 8,652.17 10,197.00
10/31/11 11,064.29 11,859.80 9,579.19 10,795.00
11/30/11 10,982.54 11,709.54 9,292.44 10,729.00
12/31/11 11,016.49 11,777.33 9,273.67 10,752.00
01/31/12 11,429.53 12,178.77 9,812.90 11,088.00
02/29/12 11,757.09 12,478.67 10,306.62 11,390.00
03/31/12 11,884.17 12,531.11 10,375.05 11,495.00
04/30/12 11,873.11 12,541.18 10,256.43 11,469.00
05/31/12 11,360.19 12,066.10 9,336.86 11,039.00
06/30/12 11,648.87 12,359.80 9,798.00 11,274.00
07/31/12 11,789.09 12,527.56 9,932.13 11,393.00
08/31/12 11,974.43 12,684.83 10,148.09 11,572.00
09/30/12 12,183.23 12,890.71 10,467.71 11,774.00
10/31/12 12,122.07 12,847.63 10,397.94 11,817.00
11/30/12 12,207.69 12,933.33 10,530.91 11,877.00
12/31/12 12,332.16 13,067.84 10,769.44 12,027.00
01/31/13 12,683.32 13,352.38 11,265.57 12,312.00
02/28/13 12,747.60 13,406.65 11,263.82 12,321.00
03/31/13 12,997.69 13,579.43 11,469.77 12,480.00
04/30/13 13,180.25 13,815.18 11,797.43 12,680.00
05/31/13 13,226.60 13,724.44 11,765.06 12,611.00
06/30/13 13,012.14 13,433.66 11,421.18 12,296.00
07/31/13 13,446.44 13,783.47 11,967.94 12,611.00
08/31/13 13,211.40 13,594.34 11,718.60 12,453.00
09/30/13 13,608.53 13,988.30 12,323.88 12,717.00
10/31/13 13,974.84 14,327.44 12,819.21 13,061.00
11/30/13 14,172.85 14,419.43 13,000.75 13,140.00
12/31/13 14,353.70 14,529.19 13,225.04 13,256.00
01/31/14 14,137.35 14,377.51 12,696.03 13,096.00
02/28/14 14,583.36 14,779.09 13,309.35 13,461.00
03/31/14 14,614.71 14,802.96 13,368.52 13,517.00
04/30/14 14,671.88 14,907.90 13,495.79 13,633.00
05/31/14 14,914.96 15,142.15 13,782.83 13,812.00
06/30/14 15,126.09 15,319.22 14,042.33 14,014.00
07/31/14 14,945.51 15,170.33 13,872.02 13,888.00
08/31/14 15,309.02 15,452.72 14,178.47 14,077.00
09/30/14 15,039.76 15,135.85 13,718.69 13,794.00
10/31/14 15,248.94 15,307.00 13,815.27 13,876.00
11/30/14 15,462.00 15,466.68 14,046.35 14,003.00
12/31/14 15,387.94 15,344.68 13,775.31 13,855.00
01/31/15 15,281.95 15,362.02 13,559.93 13,874.00
02/28/15 15,753.57 15,735.82 14,314.83 14,186.00
03/31/15 15,661.93 15,666.79 14,093.03 14,083.00
04/30/15 15,772.05 15,836.10 14,501.93 14,212.00
05/31/15 15,839.91 15,845.30 14,483.01 14,240.00
06/30/15 15,597.07 15,596.21 14,142.05 13,966.00
07/31/15 15,738.48 15,691.31 14,264.86 14,031.00
08/31/15 15,132.58 15,163.44 13,286.99 13,464.00
09/30/15 14,881.02 14,935.97 12,805.62 13,190.00
10/31/15 15,543.35 15,514.52 13,810.66 13,667.00
11/30/15 15,541.17 15,445.77 13,696.62 13,565.00
12/31/15 15,323.73 15,268.14 13,449.62 13,298.00
01/31/16 14,875.59 14,891.02 12,638.46 12,913.00
02/29/16 14,859.15 14,908.89 12,551.52 12,875.00
03/31/16 15,522.09 15,555.93 13,481.69 13,370.00
04/30/16 15,663.78 15,723.94 13,680.70 13,505.00
05/31/16 15,761.50 15,771.11 13,697.94 13,544.00
06/30/16 15,830.21 15,881.51 13,615.02 13,682.00
07/31/16 16,242.87 16,278.54 14,201.74 14,032.00
08/31/16 16,283.11 16,306.22 14,249.52 14,061.00
09/30/16 16,315.49 16,361.66 14,336.82 14,117.00
10/31/16 16,096.13 16,145.68 14,093.47 13,932.00
11/30/16 16,260.50 16,100.48 14,200.57 13,804.00
[END CHART]
Data from 11/30/06 through 11/30/16.
See next page for benchmark definitions.
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 Balanced Funds Index reflects the fees and expenses of the
underlying funds included in the index.
================================================================================
INVESTMENT OVERVIEW | 7
================================================================================
The graph on page 7 illustrates the comparison of a $10,000 hypothetical
investment in the USAA Cornerstone Moderate Fund to the benchmarks listed below.
The Manager has developed the Cornerstone Moderate Composite Index, which is
used to measure the Fund's performance. The custom benchmark was created by the
Manager to show how the Fund's performance compares with the returns of an index
or indexes with similar asset allocations.
o The unmanaged Lipper Balanced Funds Index tracks the total return
performance of funds within the Lipper Balanced Funds category.
o The Cornerstone Moderate Composite Index is a combination of unmanaged
indexes representing the Fund's model allocation, and consists of the MSCI
USA Investable Market Index (IMI) Gross (29%), the MSCI ACWI ex USA IMI Net
(19%), the Bloomberg Barclays U.S. Universal Index (48%), the Bloomberg
Commodity Index Total Return (1%), the MSCI U.S. Real Estate Investment
Trust (REIT) Index Gross (1%), and the Bloomberg Barclays U.S. Treasury -
Bills (1-3M) (2%).
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.
================================================================================
8 | USAA CORNERSTONE MODERATE FUND
================================================================================
o TOP 10 HOLDINGS* - 11/30/16 o
(% of Net Assets)
iShares Core MSCI EAFE ETF** ............................................. 4.6%
Vanguard Short-Term Corporate Bond ETF** ................................. 4.6%
U.S. Treasury Bond, 3.13%, 8/15/2044 ..................................... 4.3%
U.S. Treasury Bond, 3.00%, 5/15/2045 ..................................... 3.6%
Vanguard FTSE Developed Markets ETF** .................................... 2.6%
iShares Currency Hedged MSCI EAFE ETF** .................................. 2.4%
iShares Core MSCI Emerging Markets ETF** ................................. 2.3%
Schwab Fundamental International Large Co. Index ETF** ................... 2.3%
U.S. Treasury Note, 1.63%, 2/15/2026 ..................................... 2.2%
U.S. Treasury Note, 1.13%, 2/28/2021 ..................................... 1.7%
* Excludes money market instruments.
** 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.
You will find a complete list of securities that the Fund owns on pages 11-33.
================================================================================
INVESTMENT OVERVIEW | 9
================================================================================
o ASSET ALLOCATION*** - 11/30/16 o
[PIE CHART OF ASSET ALLOCATION]
INTERNATIONAL EQUITY SECURITIES* 22.5%
U.S. EQUITY SECURITIES* 22.0%
U.S. TREASURY SECURITIES 14.2%
FIXED INCOME EXCHANGE-TRADED FUNDS* 11.9%
CORPORATE OBLIGATIONS 11.8%
U.S. GOVERNMENT AGENCY ISSUES 6.0%
COMMERCIAL MORTGAGE SECURITIES 4.3%
MONEY MARKET INSTRUMENTS 3.8%
PRECIOUS METALS AND COMMODITY-RELATED SECURITIES 1.4%
EURODOLLAR AND YANKEE OBLIGATIONS 1.2%
GLOBAL REAL ESTATE EQUITY SECURITIES* 0.8%
ASSET-BACKED SECURITIES 0.3%
COLLATERALIZED MORTGAGE OBLIGATIONS 0.3%
CONVERTIBLE SECURITIES** 0.0%
[END CHART]
Percentages are of the net assets of the Fund and may not equal 100%.
* 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.
** Represents less than 0.1% of the Fund.
*** Excludes futures.
================================================================================
10 | USAA CORNERSTONE MODERATE FUND
================================================================================
PORTFOLIO OF INVESTMENTS
November 30, 2016 (unaudited)
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
U.S. EQUITY SECURITIES (22.0%)
COMMON STOCKS (16.9%)
CONSUMER DISCRETIONARY (1.5%)
-----------------------------
ADVERTISING (0.1%)
8,950 Omnicom Group, Inc. $ 778
----------
APPAREL RETAIL (0.2%)
7,260 American Eagle Outfitters, Inc. 120
5,850 Buckle, Inc. 148
1,450 Caleres, Inc. 47
24,300 TJX Companies, Inc. 1,904
----------
2,219
----------
APPAREL, ACCESSORIES & LUXURY GOODS (0.0%)
5,600 Fossil Group, Inc.* 187
----------
AUTO PARTS & EQUIPMENT (0.0%)
8,150 Gentex Corp. 151
5,270 Gentherm, Inc.* 168
----------
319
----------
AUTOMOBILE MANUFACTURERS (0.0%)
3,090 Thor Industries, Inc. 311
----------
FOOTWEAR (0.0%)
5,850 Steven Madden Ltd.* 217
8,040 Wolverine World Wide, Inc. 181
----------
398
----------
GENERAL MERCHANDISE STORES (0.1%)
2,390 Big Lots, Inc. 121
9,400 Target Corp. 726
----------
847
----------
HOME IMPROVEMENT RETAIL (0.3%)
20,000 Home Depot, Inc. 2,588
----------
HOMEBUILDING (0.2%)
21,980 CalAtlantic Group, Inc. 734
13,780 KB Home 218
================================================================================
PORTFOLIO OF INVESTMENTS | 11
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
7,070 M/I Homes, Inc.* $ 165
7,050 Meritage Homes Corp.* 254
80 NVR, Inc.* 128
----------
1,499
----------
HOTELS, RESORTS & CRUISE LINES (0.2%)
13,100 Carnival Corp. 674
10,450 Norwegian Cruise Line Holdings Ltd.* 416
6,500 Royal Caribbean Cruises Ltd. 526
----------
1,616
----------
INTERNET RETAIL (0.3%)
3,600 Amazon.com, Inc.* 2,702
----------
LEISURE PRODUCTS (0.0%)
14,360 Callaway Golf Co. 174
----------
MOVIES & ENTERTAINMENT (0.0%)
4,750 Time Warner, Inc. 436
----------
PUBLISHING (0.0%)
7,560 Gannett Co., Inc. 72
3,230 John Wiley & Sons, Inc. "A" 177
3,190 Meredith Corp. 177
----------
426
----------
RESTAURANTS (0.0%)
2,460 DineEquity, Inc. 206
----------
SPECIALTY STORES (0.1%)
8,420 Hibbett Sports, Inc.* 339
3,210 Ulta Salon, Cosmetics & Fragrance, Inc.* 833
----------
1,172
----------
Total Consumer Discretionary 15,878
----------
CONSUMER STAPLES (1.6%)
-----------------------
AGRICULTURAL PRODUCTS (0.2%)
18,650 Bunge Ltd. 1,273
3,320 Ingredion, Inc. 390
----------
1,663
----------
DRUG RETAIL (0.3%)
11,300 CVS Health Corp. 869
24,010 Walgreens Boots Alliance, Inc. 2,034
----------
2,903
----------
FOOD RETAIL (0.1%)
23,100 Kroger Co. 746
----------
================================================================================
12 | USAA CORNERSTONE MODERATE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS (0.2%)
20,860 Procter & Gamble Co. $ 1,720
----------
HYPERMARKETS & SUPER CENTERS (0.2%)
37,500 Wal-Mart Stores, Inc. 2,641
----------
PACKAGED FOODS & MEAT (0.2%)
34,100 Blue Buffalo Pet Products, Inc.* 799
14,200 Kraft Heinz Co. 1,160
----------
1,959
----------
SOFT DRINKS (0.3%)
18,200 Coca-Cola Co. 734
24,900 PepsiCo, Inc. 2,493
----------
3,227
----------
TOBACCO (0.1%)
10,250 Altria Group, Inc. 655
7,660 Philip Morris International, Inc. 676
3,170 Universal Corp. 175
----------
1,506
----------
Total Consumer Staples 16,365
----------
ENERGY (1.2%)
-------------
INTEGRATED OIL & GAS (0.6%)
13,130 Chevron Corp. 1,465
26,200 Exxon Mobil Corp. 2,287
30,870 Occidental Petroleum Corp. 2,203
----------
5,955
----------
OIL & GAS DRILLING (0.1%)
10,680 Atwood Oceanics, Inc. 101
10,980 Helmerich & Payne, Inc. 831
11,430 Noble Corp. plc 71
9,820 Rowan Companies plc "A" 175
----------
1,178
----------
OIL & GAS EQUIPMENT & SERVICES (0.1%)
5,690 Dril-Quip, Inc.* 321
14,050 Schlumberger Ltd. 1,181
----------
1,502
----------
OIL & GAS EXPLORATION & PRODUCTION (0.4%)
19,550 Cabot Oil & Gas Corp. 432
1,350 Cimarex Energy Co. 186
43,560 ConocoPhillips 2,114
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
9,100 EOG Resources, Inc. $ 933
5,560 PDC Energy, Inc.* 414
----------
4,079
----------
OIL & GAS REFINING & MARKETING (0.0%)
2,170 REX American Resources Corp.* 212
----------
Total Energy 12,926
----------
FINANCIALS (2.8%)
-----------------
ASSET MANAGEMENT & CUSTODY BANKS (0.2%)
25,060 Bank of New York Mellon Corp. 1,188
10,180 Eaton Vance Corp. 412
10,870 Federated Investors, Inc. "B" 299
----------
1,899
----------
CONSUMER FINANCE (0.3%)
101,582 Synchrony Financial 3,511
----------
DIVERSIFIED BANKS (1.0%)
233,200 Bank of America Corp. 4,925
28,833 Citigroup, Inc. 1,626
36,800 JPMorgan Chase & Co. 2,951
15,500 U.S. Bancorp 769
----------
10,271
----------
FINANCIAL EXCHANGES & DATA (0.0%)
1,958 Donnelley Financial Solutions, Inc.* 37
----------
INVESTMENT BANKING & BROKERAGE (0.1%)
6,150 Raymond James Financial, Inc. 443
----------
LIFE & HEALTH INSURANCE (0.0%)
4,650 American Equity Investment Life Holding Co. 96
----------
MULTI-LINE INSURANCE (0.0%)
1,360 American Financial Group, Inc. 112
----------
PROPERTY & CASUALTY INSURANCE (0.5%)
20,000 Allstate Corp. 1,398
2,590 AMERISAFE, Inc. 165
13,530 Chubb Ltd. 1,732
1,800 Hanover Insurance Group, Inc. 156
9,420 Old Republic International Corp. 168
32,000 Progressive Corp. 1,066
5,120 Selective Insurance Group, Inc. 210
2,820 W.R. Berkley Corp. 174
----------
5,069
----------
================================================================================
14 | USAA CORNERSTONE MODERATE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
REGIONAL BANKS (0.6%)
36,150 Fifth Third Bancorp $ 941
157,950 KeyCorp 2,734
8,540 PacWest Bancorp 438
11,900 PNC Financial Services Group, Inc. 1,315
5,350 Prosperity Bancshares, Inc. 354
27,750 TCF Financial Corp. 481
5,730 Wintrust Financial Corp. 377
----------
6,640
----------
REINSURANCE (0.1%)
710 Alleghany Corp.* 403
2,050 Everest Re Group Ltd. 432
1,670 Reinsurance Group of America, Inc. 204
----------
1,039
----------
SPECIALIZED FINANCE (0.0%)
3,400 CME Group, Inc. 384
----------
THRIFTS & MORTGAGE FINANCE (0.0%)
10,800 Astoria Financial Corp. 176
7,080 Washington Federal, Inc. 230
----------
406
----------
Total Financials 29,907
----------
HEALTH CARE (2.3%)
------------------
BIOTECHNOLOGY (0.5%)
44,250 AbbVie, Inc. 2,690
3,500 Amgen, Inc. 504
980 Biogen, Inc.* 288
16,950 Gilead Sciences, Inc. 1,249
660 Ligand Pharmaceuticals, Inc.* 69
1,620 United Therapeutics Corp.* 204
----------
5,004
----------
HEALTH CARE DISTRIBUTORS (0.1%)
4,780 McKesson Corp. 687
4,240 Owens & Minor, Inc. 144
----------
831
----------
HEALTH CARE EQUIPMENT (0.4%)
28,130 Hologic, Inc.* 1,077
5,120 Masimo Corp.* 317
39,110 Medtronic plc 2,855
----------
4,249
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 15
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
HEALTH CARE FACILITIES (0.0%)
22,270 Select Medical Holdings Corp.* $ 270
2,850 Surgical Care Affiliates, Inc.* 120
----------
390
----------
HEALTH CARE SERVICES (0.1%)
3,630 AMN Healthcare Services, Inc.* 121
1,980 Chemed Corp. 295
3,450 MEDNAX, Inc.* 226
----------
642
----------
HEALTH CARE SUPPLIES (0.0%)
3,400 Anika Therapeutics, Inc.* 159
----------
LIFE SCIENCES TOOLS & SERVICES (0.2%)
2,800 Cambrex Corp.* 140
3,920 Charles River Laboratories International, Inc.* 279
9,690 Luminex Corp.* 197
15,000 Thermo Fisher Scientific, Inc. 2,102
----------
2,718
----------
MANAGED HEALTH CARE (0.3%)
17,700 UnitedHealth Group, Inc. 2,802
----------
PHARMACEUTICALS (0.7%)
900 Allergan plc* 175
25,640 Johnson & Johnson 2,854
32,100 Merck & Co., Inc. 1,964
84,384 Pfizer, Inc. 2,712
----------
7,705
----------
Total Health Care 24,500
----------
INDUSTRIALS (2.2%)
------------------
AEROSPACE & DEFENSE (0.6%)
8,650 Boeing Co. 1,302
1,290 Huntington Ingalls Industries, Inc. 231
750 Lockheed Martin Corp. 199
2,270 Moog, Inc. "A"* 159
33,600 Spirit AeroSystems Holdings, Inc. "A"* 1,957
1,740 Teledyne Technologies, Inc.* 217
18,300 United Technologies Corp. 1,971
----------
6,036
----------
AIR FREIGHT & LOGISTICS (0.3%)
10,000 FedEx Corp. 1,917
8,050 United Parcel Service, Inc. "B" 933
----------
2,850
----------
================================================================================
16 | USAA CORNERSTONE MODERATE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
AIRLINES (0.2%)
16,460 JetBlue Airways Corp.* $ 330
27,200 Southwest Airlines Co. 1,268
9,760 United Continental Holdings, Inc.* 673
----------
2,271
----------
BUILDING PRODUCTS (0.1%)
7,080 A.O. Smith Corp. 345
14,100 Masco Corp. 446
1,400 Universal Forest Products, Inc. 139
----------
930
----------
COMMERCIAL PRINTING (0.0%)
3,140 Deluxe Corp. 213
1,958 LSC Communications, Inc. 40
5,223 R.R Donnelley & Sons Co. 91
----------
344
----------
CONSTRUCTION & ENGINEERING (0.1%)
22,770 AECOM* 828
----------
CONSTRUCTION MACHINERY & HEAVY TRUCKS (0.1%)
4,800 Greenbrier Companies, Inc. 186
4,130 Trinity Industries, Inc. 115
10,800 Wabtec Corp. 914
----------
1,215
----------
DIVERSIFIED SUPPORT SERVICES (0.0%)
1,000 UniFirst Corp. 141
----------
ELECTRICAL COMPONENTS & EQUIPMENT (0.1%)
6,500 Eaton Corp. plc 432
2,540 EnerSys 202
----------
634
----------
ENVIRONMENTAL & FACILITIES SERVICES (0.0%)
4,160 ABM Industries, Inc. 183
----------
HEAVY ELECTRICAL EQUIPMENT (0.0%)
2,270 AZZ, Inc. 148
----------
HUMAN RESOURCE & EMPLOYMENT SERVICES (0.0%)
3,350 ManpowerGroup, Inc. 286
----------
INDUSTRIAL CONGLOMERATES (0.6%)
14,180 Carlisle Companies, Inc. 1,591
104,517 General Electric Co. 3,215
7,030 Honeywell International, Inc. 801
----------
5,607
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
INDUSTRIAL MACHINERY (0.1%)
2,890 Barnes Group, Inc. $ 134
2,000 Crane Co. 147
3,930 Mueller Industries, Inc. 149
2,210 Nordson Corp. 236
----------
666
----------
MARINE (0.0%)
5,510 Matson, Inc. 207
----------
TRADING COMPANIES & DISTRIBUTORS (0.0%)
2,410 Applied Industrial Technologies, Inc. 144
2,540 GATX Corp. 139
----------
283
----------
Total Industrials 22,629
----------
INFORMATION TECHNOLOGY (3.9%)
-----------------------------
APPLICATION SOFTWARE (0.1%)
3,160 Ebix, Inc. 188
1,700 MicroStrategy, Inc. "A"* 330
7,190 Synopsys, Inc.* 435
----------
953
----------
COMMUNICATIONS EQUIPMENT (0.4%)
128,956 Cisco Systems, Inc. 3,846
2,030 Plantronics, Inc. 105
----------
3,951
----------
DATA PROCESSING & OUTSOURCED SERVICES (0.5%)
4,910 Broadridge Financial Solutions, Inc. 318
7,910 Convergys Corp. 204
2,200 CSG Systems International, Inc. 98
1,530 DST Systems, Inc. 158
4,890 Jack Henry & Associates, Inc. 423
10,050 MasterCard, Inc. "A" 1,027
4,730 Sykes Enterprises, Inc.* 133
42,600 Visa, Inc. "A" 3,294
----------
5,655
----------
ELECTRONIC COMPONENTS (0.1%)
3,030 Belden, Inc. 224
1,340 Littelfuse, Inc. 195
----------
419
----------
ELECTRONIC EQUIPMENT & INSTRUMENTS (0.0%)
4,700 Keysight Technologies, Inc.* 173
----------
================================================================================
18 | USAA CORNERSTONE MODERATE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
ELECTRONIC MANUFACTURING SERVICES (0.0%)
3,180 Methode Electronics, Inc. $ 118
3,390 Plexus Corp.* 173
----------
291
----------
INTERNET SOFTWARE & SERVICES (0.7%)
6,830 Alphabet, Inc. "A"* 5,299
15,000 Facebook, Inc. "A"* 1,776
1,460 J2 Global, Inc. 108
----------
7,183
----------
SEMICONDUCTOR EQUIPMENT (0.2%)
26,400 Applied Materials, Inc. 850
2,400 Cabot Microelectronics Corp. 143
10,700 Lam Research Corp. 1,134
3,050 MKS Instruments, Inc. 176
3,820 Tessera Technologies, Inc. 151
----------
2,454
----------
SEMICONDUCTORS (0.3%)
9,790 Intel Corp. 340
21,230 Maxim Integrated Products, Inc. 834
14,050 QUALCOMM, Inc. 957
12,500 Texas Instruments, Inc. 924
----------
3,055
----------
SYSTEMS SOFTWARE (0.8%)
87,160 Microsoft Corp. 5,252
75,200 Oracle Corp. 3,023
----------
8,275
----------
TECHNOLOGY DISTRIBUTORS (0.1%)
3,750 Arrow Electronics, Inc.* 256
6,090 Ingram Micro, Inc. "A" 228
1,640 SYNNEX Corp. 192
1,290 Tech Data Corp.* 109
----------
785
----------
TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (0.7%)
42,980 Apple, Inc. 4,750
24,100 Hewlett Packard Enterprise Co. 574
94,550 HP, Inc. 1,456
12,250 Western Digital Corp. 780
----------
7,560
----------
Total Information Technology 40,754
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
MATERIALS (0.4%)
----------------
DIVERSIFIED CHEMICALS (0.1%)
26,000 Dow Chemical Co. $ 1,449
----------
METAL & GLASS CONTAINERS (0.0%)
1,870 AptarGroup, Inc. 137
----------
PAPER PACKAGING (0.1%)
2,120 Bemis Co., Inc. 106
2,970 Packaging Corp. of America 252
2,690 Sonoco Products Co. 145
----------
503
----------
PAPER PRODUCTS (0.0%)
11,230 KapStone Paper & Packaging Corp. 229
----------
SPECIALTY CHEMICALS (0.1%)
3,100 Ecolab, Inc. 362
2,190 Innospec, Inc. 144
10,800 RPM International, Inc. 571
2,410 Stepan Co. 196
2,400 Valspar Corp. 245
----------
1,518
----------
STEEL (0.1%)
4,340 Reliance Steel & Aluminum Co. 352
4,310 Worthington Industries, Inc. 243
----------
595
----------
Total Materials 4,431
----------
TELECOMMUNICATION SERVICES (0.4%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (0.4%)
72,600 AT&T, Inc. 2,805
5,920 Consolidated Communications Holdings, Inc. 169
22,689 Verizon Communications, Inc. 1,132
----------
4,106
----------
Total Telecommunication Services 4,106
----------
UTILITIES (0.6%)
----------------
ELECTRIC UTILITIES (0.5%)
6,510 ALLETE, Inc. 402
21,000 American Electric Power Co., Inc. 1,240
19,000 Duke Energy Corp. 1,402
18,750 Edison International 1,289
================================================================================
20 | USAA CORNERSTONE MODERATE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
7,000 NextEra Energy, Inc. $ 800
13,600 PPL Corp. 455
----------
5,588
----------
GAS UTILITIES (0.0%)
1,750 Spire, Inc. 113
4,440 UGI Corp. 199
----------
312
----------
MULTI-UTILITIES (0.1%)
3,810 Avista Corp. 154
6,190 NorthWestern Corp. 347
3,500 Sempra Energy 350
----------
851
----------
Total Utilities 6,751
----------
Total Common Stocks (cost: $145,557) 178,247
----------
PREFERRED STOCKS (2.0%)
CONSUMER STAPLES (1.0%)
-----------------------
AGRICULTURAL PRODUCTS (1.0%)
161,682 CHS, Inc., Series B, 7.88%, cumulative redeemable, perpetual 4,697
58,000 Dairy Farmers of America, Inc., 7.88%, cumulative redeemable, perpetual(a),(b) 6,045
----------
10,742
----------
Total Consumer Staples 10,742
----------
ENERGY (0.4%)
-------------
OIL & GAS EXPLORATION & PRODUCTION (0.3%)
4,900 Chesapeake Energy Corp., 5.75%, perpetual*(a) 2,646
----------
OIL & GAS STORAGE & TRANSPORTATION (0.1%)
1,550 Kinder Morgan G.P., Inc., 4.81%, cumulative redeemable(a) 1,390
----------
Total Energy 4,036
----------
FINANCIALS (0.4%)
-----------------
LIFE & HEALTH INSURANCE (0.4%)
167,198 Delphi Financial Group, Inc., 7.38%, cumulative redeemable(b) 3,699
----------
REINSURANCE (0.0%)
1,500 American Overseas Group Ltd., 7.50%, non-cumulative, perpetual*(c),(d) 300
----------
Total Financials 3,999
----------
TELECOMMUNICATION SERVICES (0.2%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (0.2%)
112,000 Qwest Corp., 6.50% 2,663
----------
Total Preferred Stocks (cost: $23,010) 21,440
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 21
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
EXCHANGE-TRADED FUNDS (3.1%)
41,900 iShares Core S&P 500 ETF $ 9,282
96,900 Vanguard Mid-Cap ETF 12,729
90,740 Vanguard Total Stock Market ETF 10,324
----------
Total Exchange-Traded Funds (cost: $28,757) 32,335
----------
Total U.S. Equity Securities (cost: $197,324) 232,022
----------
INTERNATIONAL EQUITY SECURITIES (22.5%)
COMMON STOCKS (0.6%)
CONSUMER DISCRETIONARY (0.2%)
-----------------------------
AUTO PARTS & EQUIPMENT (0.2%)
14,750 Delphi Automotive plc 944
41,500 Magna International, Inc. 1,679
----------
2,623
----------
Total Consumer Discretionary 2,623
----------
ENERGY (0.1%)
-------------
INTEGRATED OIL & GAS (0.1%)
11,750 TOTAL S.A. ADR 560
----------
FINANCIALS (0.1%)
-----------------
PROPERTY & CASUALTY INSURANCE (0.1%)
36,400 XL Group Ltd. 1,315
----------
INFORMATION TECHNOLOGY (0.1%)
-----------------------------
SEMICONDUCTORS (0.1%)
3,400 Broadcom Ltd. 580
4,200 NXP Semiconductors N.V.* 416
----------
996
----------
Total Information Technology 996
----------
TELECOMMUNICATION SERVICES (0.1%)
---------------------------------
WIRELESS TELECOMMUNICATION SERVICES (0.1%)
36,650 Vodafone Group plc ADR 896
----------
Total Common Stocks (cost: $6,484) 6,390
----------
EXCHANGE-TRADED FUNDS (21.9%)
912,760 iShares Core MSCI EAFE ETF 48,248
558,300 iShares Core MSCI Emerging Markets ETF 24,158
1,002,200 iShares Currency Hedged MSCI EAFE ETF 25,481
236,200 iShares Edge MSCI Minimum Volatility EAFE ETF 14,649
107,800 iShares Edge MSCI Minimum Volatility Emerging Markets ETF 5,414
================================================================================
22 | USAA CORNERSTONE MODERATE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
30 iShares MSCI Canada Fund ETF $ 1
191,600 iShares MSCI Pacific ex Japan ETF 7,865
224,400 PowerShares FTSE RAFI Developed Markets ex-U.S. Portfolio 8,213
597,600 PowerShares FTSE RAFI Emerging Markets Portfolio 10,829
951,800 Schwab Fundamental International Large Co. Index ETF 23,662
34,497 SPDR S&P Emerging Markets SmallCap ETF 1,420
149,150 Vanguard FTSE All-World ex-US ETF 6,519
760,600 Vanguard FTSE Developed Markets ETF 27,351
458,530 Vanguard FTSE Emerging Markets ETF 16,608
64,700 Vanguard FTSE Europe ETF 2,970
59,797 WisdomTree Emerging Markets SmallCap Dividend Fund 2,343
223,351 WisdomTree India Earnings Fund 4,521
----------
Total Exchange-Traded Funds (cost: $239,986) 230,252
----------
Total International Equity Securities (cost: $246,470) 236,642
----------
PRECIOUS METALS AND COMMODITY-RELATED SECURITIES (1.4%)
GOLD (0.1%)
NORTH AMERICAN GOLD COMPANIES (0.1%)
110,164 Hycroft Mining Corp.*(c),(d) 110
8,800 Newmont Mining Corp. 285
----------
395
----------
Total Gold (cost: $4,279) 395
----------
EXCHANGE-TRADED FUNDS (1.3%)
65,300 First Trust Global Tactical Commodity Strategy Fund* 1,334
69,416 iShares Silver Trust* 1,087
114,500 PowerShares DB Commodity Index Tracking Fund* 1,742
141,800 United States Commodity Index Fund* 5,907
178,530 VanEck Vectors Gold Miners ETF 3,719
----------
Total Exchange-Traded Funds (cost: $15,339) 13,789
----------
Total Precious Metals and Commodity-Related Securities (cost: $19,618) 14,184
----------
GLOBAL REAL ESTATE EQUITY SECURITIES (0.8%)
COMMON STOCKS (0.6%)
REAL ESTATE SERVICES (0.0%)
2,720 Jones Lang LaSalle, Inc. 275
----------
REITs - DIVERSIFIED (0.0%)
2,550 PS Business Parks, Inc. 285
----------
REITs - HEALTH CARE (0.0%)
15,050 Medical Properties Trust, Inc. 179
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 23
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
REITs - HOTEL & RESORT (0.1%)
7,390 Hospitality Properties Trust $ 214
19,830 Summit Hotel Properties, Inc. 282
----------
496
----------
REITs - INDUSTRIAL (0.0%)
3,830 EastGroup Properties, Inc. 262
----------
REITs - MORTGAGE (0.2%)
143,137 Annaly Capital Management, Inc. 1,463
14,770 Capstead Mortgage Corp. 153
107,400 Two Harbors Investment Corp. 931
----------
2,547
----------
REITs - OFFICE (0.1%)
2,200 Boston Properties, Inc. 273
9,430 Corporate Office Properties Trust 270
4,080 Highwoods Properties, Inc. 196
3,240 Kilroy Realty Corp. 234
----------
973
----------
REITs - RETAIL (0.1%)
2,950 Simon Property Group, Inc. 530
11,610 Urstadt Biddle Properties, Inc. "A" 263
----------
793
----------
REITs - SPECIALIZED (0.1%)
4,230 Lamar Advertising Co. "A" 280
1,200 Public Storage 251
----------
531
----------
Total Common Stocks (cost: $6,393) 6,341
----------
PREFERRED STOCKS (0.1%)
REITs - MORTGAGE (0.1%)
24,000 Arbor Realty Trust, Inc., 7.38% (cost: $600) 610
----------
EXCHANGE-TRADED FUNDS (0.1%)
22,700 Vanguard REIT ETF (cost: $1,816) 1,825
----------
Total Global Real Estate Equity Securities (cost: $8,809) 8,776
----------
================================================================================
24 | USAA CORNERSTONE MODERATE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
BONDS (50.0%)
CORPORATE OBLIGATIONS (11.8%)
CONSUMER STAPLES (0.1%)
-----------------------
FOOD RETAIL (0.1%)
$ 1,200 BI-LO, LLC & BI-LO Finance Corp.(a) 9.25% 2/15/2019 $ 960
----------
ENERGY (1.8%)
-------------
OIL & GAS DRILLING (0.0%)
1,407 Schahin II Finance Co. SPV Ltd.(a),(e) 5.88 9/25/2023 190
----------
OIL & GAS STORAGE & TRANSPORTATION (1.8%)
2,950 Enbridge Energy Partners, LP 7.38 10/15/2045 3,609
3,059 Enbridge Energy Partners, LP(b) 8.05 10/01/2077 2,765
7,300 Energy Transfer Partners, LP 3.90(f) 11/01/2066 5,621
4,000 Enterprise Products Operating, LLC(b) 7.00 6/01/2067 3,400
2,500 Enterprise TE Partners 7.00 6/01/2067 2,087
800 Martin Midstream Partners, LP & Martin
Midstream Finance Corp. 7.25 2/15/2021 780
1,000 Southern Union Co.(b) 3.90(f) 11/01/2066 763
----------
19,025
----------
Total Energy 19,215
----------
FINANCIALS (8.0%)
-----------------
ASSET MANAGEMENT & CUSTODY BANKS (0.7%)
1,600 Ares Capital Corp. 3.63 1/19/2022 1,562
6,000 Prospect Capital Corp. 5.00 7/15/2019 6,048
----------
7,610
----------
LIFE & HEALTH INSURANCE (1.5%)
5,500 Lincoln National Corp.(b) 3.26(f) 5/17/2066 4,393
2,000 Lincoln National Corp.(b) 6.05(f) 4/20/2067 1,545
4,000 Prudential Financial, Inc. 5.63 6/15/2043 4,155
1,000 Prudential Financial, Inc. 5.20 3/15/2044 997
6,150 StanCorp Financial Group, Inc.(b) 6.90 6/01/2067 4,911
----------
16,001
----------
MULTI-LINE INSURANCE (1.0%)
6,300 Glen Meadow Pass-Through Trust(a),(b) 6.51(f) 2/12/2067 4,851
5,670 Nationwide Mutual Insurance Co.(a) 3.14(f) 12/15/2024 5,594
----------
10,445
----------
MULTI-SECTOR HOLDINGS (0.3%)
3,000 BNSF Funding Trust I(b) 6.61 12/15/2055 3,454
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 25
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
PROPERTY & CASUALTY INSURANCE (2.6%)
$ 5,000 Allstate Corp. 5.75% 8/15/2053 $ 5,253
5,800 AmTrust Financial Services, Inc. 6.13 8/15/2023 5,901
4,875 HSB Group, Inc.(b) 1.79(f) 7/15/2027 3,646
4,530 Ironshore Holdings, Inc.(a) 8.50 5/15/2020 5,055
5,350 Oil Insurance Ltd.(a),(b) 3.82(f) -(g) 4,280
2,500 Travelers Companies, Inc.(b) 6.25(f) 3/15/2067 2,487
----------
26,622
----------
REGIONAL BANKS (1.7%)
1,000 Allfirst Preferred Capital Trust(b) 2.38(f) 7/15/2029 886
600 Compass Bank 6.40 10/01/2017 620
2,000 Compass Bank 3.88 4/10/2025 1,899
4,000 Cullen/Frost Capital Trust II(b) 2.39(f) 3/01/2034 3,465
2,850 First Maryland Capital Trust I(b) 1.88(f) 1/15/2027 2,533
2,000 Huntington Capital Trust II "B"(b) 1.48(f) 6/15/2028 1,648
2,000 Manufacturers & Traders Trust Co.(b) 5.63(f) 12/01/2021 1,963
6,000 SunTrust Capital I(b) 1.57(f) 5/15/2027 5,115
----------
18,129
----------
REINSURANCE (0.2%)
1,500 Alterra USA Holdings Ltd.(a),(b) 7.20 4/14/2017 1,524
----------
Total Financials 83,785
----------
HEALTH CARE (0.2%)
------------------
HEALTH CARE FACILITIES (0.2%)
1,000 Community Health Systems, Inc. 6.88 2/01/2022 672
1,600 HCA, Inc. 4.50 2/15/2027 1,512
----------
2,184
----------
Total Health Care 2,184
----------
INDUSTRIALS (0.1%)
------------------
AIRLINES (0.1%)
471 America West Airlines, Inc. Pass-Through Trust (INS)(b) 7.93 7/02/2020 500
----------
ELECTRICAL COMPONENTS & EQUIPMENT (0.0%)
500 Artesyn Embedded Technologies, Inc.(a) 9.75 10/15/2020 448
----------
Total Industrials 948
----------
REAL ESTATE (0.2%)
------------------
REAL ESTATE DEVELOPMENT (0.1%)
630 Crescent Communities, LLC & Crescent
Ventures, Inc.(a) 8.88 10/15/2021 627
----------
================================================================================
26 | USAA CORNERSTONE MODERATE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
REITs - HEALTH CARE (0.1%)
$ 1,000 Care Capital Properties, LP(a) 5.13% 8/15/2026 $ 963
----------
Total Real Estate 1,590
----------
UTILITIES (1.4%)
----------------
ELECTRIC UTILITIES (0.8%)
2,800 NextEra Energy Capital Holdings, Inc.(b) 2.91(f) 10/01/2066 2,394
1,750 NextEra Energy Capital Holdings, Inc. 6.65 6/15/2067 1,544
2,150 NextEra Energy Capital Holdings, Inc.(b) 7.30 9/01/2067 2,145
3,312 PPL Capital Funding, Inc.(b) 6.70(f) 3/30/2067 2,923
----------
9,006
----------
MULTI-UTILITIES (0.6%)
7,000 WEC Energy Group, Inc.(b) 6.25(f) 5/15/2067 6,125
----------
Total Utilities 15,131
----------
Total Corporate Obligations (cost: $125,803) 123,813
----------
CONVERTIBLE SECURITIES (0.0%)
MATERIALS (0.0%)
----------------
GOLD (0.0%)
274 Hycroft Mining Corp.(h) (cost: $264) 15.00 10/22/2020 431
----------
EURODOLLAR AND YANKEE OBLIGATIONS (1.2%)
ENERGY (0.5%)
-------------
OIL & GAS STORAGE & TRANSPORTATION (0.5%)
5,544 TransCanada PipeLines Ltd.(b) 6.35(f) 5/15/2067 4,352
600 TransCanada Trust 5.63 5/20/2075 603
----------
4,955
----------
Total Energy 4,955
----------
FINANCIALS (0.3%)
-----------------
PROPERTY & CASUALTY INSURANCE (0.3%)
3,430 QBE Capital Funding III Ltd.(a) 7.25 5/24/2041 3,803
----------
MATERIALS (0.4%)
----------------
GOLD (0.4%)
4,285 Newcrest Finance Property Ltd.(a) 4.45 11/15/2021 4,438
----------
Total Eurodollar and Yankee Obligations (cost: $13,335) 13,196
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 27
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES (0.3%)
FINANCIALS (0.3%)
-----------------
ASSET-BACKED FINANCING (0.3%)
$ 950 Navient Student Loan Trust 2.08%(f) 8/25/2050 $ 821
2,000 SLC Student Loan Trust 1.33(f) 7/15/2036 1,785
502 SLM Student Loan Trust 1.43(f) 10/25/2065 443
----------
3,049
----------
Total Financials 3,049
----------
Total Asset-Backed Securities (cost: $2,748) 3,049
----------
COLLATERALIZED MORTGAGE OBLIGATIONS (0.3%)
FINANCIALS (0.3%)
-----------------
349 Sequoia Mortgage Trust 1.46(f) 9/20/2033 310
2,646 Structured Asset Mortgage Investments, Inc. 1.06(f) 7/19/2035 2,444
347 Wells Fargo Mortgage Backed Securities Trust 3.00(f) 4/25/2035 329
----------
Total Financials 3,083
----------
Total Collateralized Mortgage Obligations (cost: $3,163) 3,083
----------
COMMERCIAL MORTGAGE SECURITIES (4.3%)
FINANCIALS (4.3%)
-----------------
COMMERCIAL MORTGAGE-BACKED SECURITIES (4.0%)
1,000 Banc of America Commercial Mortgage, Inc. 5.00 11/10/2042 810
3,238 Banc of America Commercial Mortgage, Inc. 6.00 7/10/2044 2,500
370 Banc of America Commercial Mortgage, Inc. 5.85 5/10/2045 369
4,000 Banc of America Commercial Mortgage, Inc. 6.48 2/10/2051 3,991
2,000 BCRR Trust(a) 5.86 7/17/2040 2,004
4,034 Bear Stearns Commercial Mortgage Securities, Inc.(a) 5.66 9/11/2041 3,932
39 Bear Stearns Commercial Mortgage Securities, Inc. 4.99 9/11/2042 39
400 Citigroup Commercial Mortgage Trust 6.00 12/10/2049 280
2,818 Commercial Mortgage Loan Trust 6.30 12/10/2049 1,793
1,000 Commercial Mortgage Trust 5.38 12/10/2046 992
1,000 Commercial Mortgage Trust(a) 5.54 12/11/2049 1,007
7,400 Credit Suisse Commercial Mortgage Pass-Through
Trust 0.74 2/15/2040 7,334
4,200 FREMF Mortgage Trust(a) 3.00 8/25/2045 4,290
275 GE Capital Commercial Mortgage Corp. 5.61 12/10/2049 274
331 GMAC Commercial Mortgage Securities, Inc. 4.97 12/10/2041 336
500 GMAC Commercial Mortgage Securities, Inc. 4.98 12/10/2041 508
548 GMAC Commercial Mortgage Securities, Inc. 4.81 5/10/2043 506
372 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 5.72 12/15/2044 371
================================================================================
28 | USAA CORNERSTONE MODERATE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 4,500 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 6.11% 4/17/2045 $ 3,549
3,000 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 5.37 5/15/2047 2,999
279 Merrill Lynch Mortgage Trust 5.78 7/12/2038 278
1,000 ML-CFC Commercial Mortgage Trust 5.42 8/12/2048 1,003
1,500 ML-CFC Commercial Mortgage Trust 6.07 8/12/2049 1,501
460 ML-CFC Commercial Mortgage Trust 5.86 9/12/2049 475
800 Morgan Stanley Capital I Trust 5.59 3/12/2044 730
----------
41,871
----------
INTEREST-ONLY COMMERCIAL MORTGAGE-BACKED
SECURITIES (0.3%)
15,374 CSAIL Commercial Mortgage Trust(c) 1.00 1/15/2049 1,761
13,266 UBS Commercial Mortgage Trust(a),(c) 2.27 5/10/2045 1,205
----------
2,966
----------
Total Financials 44,837
----------
Total Commercial Mortgage Securities (cost: $46,842) 44,837
----------
U.S. GOVERNMENT AGENCY ISSUES (6.0%)(i)
COMMERCIAL MORTGAGE-BACKED SECURITIES (2.0%)
2,250 Fannie Mae(+) 2.15 1/25/2023 2,222
8,300 Freddie Mac(+) 3.00 12/25/2025 8,468
5,000 Freddie Mac(+) 3.51 4/25/2030 5,186
5,200 Freddie Mac(+) 3.33 5/25/2025 5,447
----------
21,323
----------
MORTGAGE-BACKED PASS-THROUGH SECURITIES (4.0%)
9,085 Freddie Mac(+) 3.00 4/01/2046 9,055
12,634 Freddie Mac(+) 3.00 6/01/2046 12,593
9,827 Freddie Mac(+) 3.00 8/01/2046 9,795
10,695 Freddie Mac(+) 3.50 4/01/2046 10,986
----------
42,429
----------
Total U.S. Government Agency Issues (cost: $65,027) 63,752
----------
U.S. TREASURY SECURITIES (14.2%)
BONDS (8.5%)
250 3.18%, 8/15/2044 (STRIPS Principal)(j) 106
44,100 3.13%, 8/15/2044 45,043
6,000 3.00%, 11/15/2044 5,980
38,200 3.00%, 5/15/2045 38,014
----------
89,143
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 29
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
(000) SECURITY (000)
------------------------------------------------------------------------------------------------------------------
NOTES (5.7%)
$ 19,000 1.13%, 2/28/2021(k) $ 18,511
12,000 1.63%, 4/30/2023 11,634
2,000 2.25%, 11/15/2024 1,994
5,000 2.25%, 11/15/2025 4,957
25,000 1.63%, 2/15/2026 23,462
----------
60,558
----------
Total U.S. Treasury Securities (cost: $150,199) 149,701
----------
------------------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES
------------------------------------------------------------------------------------------------------------------
EXCHANGE-TRADED FUNDS (11.9%)
103,790 iShares 20+ Year Treasury Bond ETF 12,480
149,200 iShares Core U.S. Aggregate Bond ETF 16,150
134,700 iShares iBoxx $ High Yield Corporate Bond ETF 11,537
593,500 Powershares Fundamental High Yield Corporate Bond Portfolio 11,027
209,000 Vanguard Mortgage-Backed Securities ETF 11,006
606,800 Vanguard Short-Term Corporate Bond ETF 48,192
179,100 Vanguard Total Bond Market ETF 14,487
----------
Total Exchange-Traded Funds (cost: $127,016) 124,879
----------
Total Bonds (cost: $534,379) 526,743
----------
MONEY MARKET INSTRUMENTS (3.8%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (3.8%)
39,603,679 State Street Institutional Treasury Money Market Fund Premier Class,
0.25%(l) (cost: $39,604) 39,604
----------
TOTAL INVESTMENTS (COST: $1,046,222) $1,057,969
==========
================================================================================
30 | USAA CORNERSTONE MODERATE FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------
UNREALIZED
NUMBER OF CONTRACT APPRECIATION/
CONTRACTS EXPIRATION VALUE (DEPRECIATION)
LONG/(SHORT) SECURITY DATE (000) (000)
-----------------------------------------------------------------------------------------------------------------
FUTURES(m)
LONG FUTURES
EQUITY CONTRACTS
265 E-mini S&P 500 12/16/2016 $ 29,134 $ 930
48 Mini MSCI EAFE 12/16/2016 3,924 (166)
185 Mini MSCI Emerging Markets Index 12/16/2016 7,983 (272)
-------- -----
$ 41,041 $ 492
-------- -----
TOTAL LONG FUTURES
SHORT FUTURES
INTEREST RATE CONTRACTS
(181) U.S. Treasury Bond 03/22/2017 $(27,382) $(126)
EQUITY CONTRACTS
(79) Russell 2000 Mini 12/16/2016 (10,446) (185)
-------- -----
TOTAL SHORT FUTURES (37,828) (311)
-------- -----
TOTAL FUTURES $ 3,213 $ 181
======== =====
================================================================================
PORTFOLIO OF INVESTMENTS | 31
================================================================================
------------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
------------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------------------------------------------------------------------------------------------------------------------
U.S. Equity Securities:
Common Stocks $178,247 $ - $ - $ 178,247
Preferred Stocks - 21,140 300 21,440
Exchange-Traded Funds 32,335 - - 32,335
International Equity Securities:
Common Stocks 6,390 - - 6,390
Exchange-Traded Funds 230,252 - - 230,252
Precious Metals and Commodity-
Related Securities:
Common Stocks 285 - 110 395
Exchange-Traded Funds 13,789 - - 13,789
Global Real Estate Equity Securities:
Common Stocks 6,341 - - 6,341
Preferred Stocks - 610 - 610
Exchange-Traded Funds 1,825 - - 1,825
Bonds:
Corporate Obligations - 123,813 - 123,813
Convertible Securities - 431 - 431
Eurodollar and Yankee Obligations - 13,196 - 13,196
Asset-Backed Securities - 3,049 - 3,049
Collateralized Mortgage Obligations - 3,083 - 3,083
Commercial Mortgage Securities - 44,837 - 44,837
U.S. Government Agency Issues - 63,752 - 63,752
U.S. Treasury Securities 149,595 106 - 149,701
Exchange-Traded Funds 124,879 - - 124,879
Money Market Instruments:
Government & U.S. Treasury
Money Market Funds 39,604 - - 39,604
Futures(1) 930 - - 930
------------------------------------------------------------------------------------------------------------------
Total $784,472 $274,017 $410 $1,058,899
------------------------------------------------------------------------------------------------------------------
LIABILITIES LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------------------------------------------------------------------------------------------------------------------
Futures(1) $ (749) $ - $ - $ (749)
------------------------------------------------------------------------------------------------------------------
(1) Futures are valued at the unrealized appreciation/(depreciation) on the
investment.
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
================================================================================
32 | USAA CORNERSTONE MODERATE FUND
================================================================================
Reconciliation of investments in which significant unobservable inputs (Level 3)
were used in determining value:
-----------------------------------------------------------------------------------------------------------------
COMMON PREFERRED CORPORATE
STOCKS STOCKS OBLIGATIONS
-----------------------------------------------------------------------------------------------------------------
Balance as of May 31, 2016 $ 83 $375 $ 3,449
Purchases - - -
Sales - - -
Transfers into Level 3 - - -
Transfers out of Level 3 - - (3,449)
Net realized gain (loss) on investments - - (1,000)
Change in net unrealized appreciation/
(depreciation) of investments 27 (75) 1,000
-----------------------------------------------------------------------------------------------------------------
Balance as of November 30, 2016 $110 $300 $ -
-----------------------------------------------------------------------------------------------------------------
FAIR VALUE LEVEL TRANSFERS
--------------------------
For the period of June 1, 2016, through November 30, 2016, the table below shows
the transfers between Level 1, Level 2, and Level 3. The Fund's policy is to
recognize any transfers in and transfers out as of the beginning of the
reporting period in which the event or circumstance that caused the transfer
occurred.
TRANSFERS INTO TRANSFERS INTO TRANSFERS INTO
(OUT OF) (OUT OF) (OUT OF)
ASSETS ($ IN 000s) LEVEL 1 LEVEL 2 LEVEL 3
-----------------------------------------------------------------------------------------------------------------
Corporate Obligations(I) $- $3,449 $(3,449)
-----------------------------------------------------------------------------------------------------------------
(I) Transferred from Level 3 to Level 2 as result of the securities no longer
being a single broker quote.
================================================================================
PORTFOLIO OF INVESTMENTS | 33
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
November 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 24.4% of net assets at November 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 CATEGORIES AND DEFINITIONS
EURODOLLAR AND YANKEE OBLIGATIONS - Eurodollar obligations are U.S.
dollar-denominated instruments that are issued outside the U.S. capital
markets by foreign corporations and financial institutions and by foreign
branches of U.S. corporations and financial institutions. Yankee obligations
are dollar-denominated instruments that are issued by foreign issuers in the
U.S. capital markets.
ASSET-BACKED AND COMMERCIAL MORTGAGE-BACKED SECURITIES - Asset-backed
securities represent a participation in, or are secured by and payable from,
a stream of payments generated by particular assets. Commercial
================================================================================
34 | USAA CORNERSTONE MODERATE FUND
================================================================================
mortgage-backed securities reflect an interest in, and are secured by,
mortgage loans on commercial real property. These securities represent
ownership in a pool of loans and are divided into pieces (tranches) with
varying maturities. The stated final maturity of such securities represents
the date the final principal payment will be made for the last outstanding
loans in the pool. The weighted average life is the average time for
principal to be repaid, which is calculated by assuming prepayment rates of
the underlying loans. The weighted average life is likely to be
substantially shorter than the stated final maturity as a result of
scheduled principal payments and unscheduled principal prepayments. Stated
interest rates on commercial mortgage-backed securities may change slightly
over time as underlying mortgages pay down.
COLLATERALIZED MORTGAGE OBLIGATIONS (CMOs) - Collateralized mortgage
obligations are debt obligations of a legal entity that are fully
collateralized by a portfolio of mortgages or mortgage-related securities.
CMOs are issued in multiple classes (tranches), with specific adjustable or
fixed interest rates, varying maturities, and must be fully retired no later
than its final distribution date. The cash flow from the underlying
mortgages is used to pay off each tranche separately. CMOs are designed to
provide investors with more predictable maturities than regular mortgage
securities, but such maturities can be difficult to predict because of the
effect of prepayments.
INTEREST-ONLY COMMERCIAL MORTGAGE-BACKED SECURITIES (CMBS IOs) - Represent
the right to receive only the interest payments on an underlying pool of
commercial mortgage loans. The purchase yield reflects an anticipated yield
based upon interest rates at the time of purchase and the estimated timing
and amount of future cash flows. Coupon rates after purchase vary from
period to period. The principal amount represents the notional amount of the
underlying pool on which current interest is calculated. CMBS IOs are backed
by loans that have various forms of prepayment protection, which include
lock-out provisions, yield maintenance provisions, and prepayment penalties.
This serves to moderate their prepayment risk. CMBS IOs are subject to
default-related prepayments that may have a negative impact on yield.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 35
================================================================================
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.
REIT Real estate investment trust
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. 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.
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) The security, or a portion thereof, is segregated to cover the value of
open futures contracts at November 30, 2016.
(c) Security deemed illiquid by the Manager, under liquidity guidelines
approved by the Board. The aggregate market value of these securities
at November 30, 2016, was $3,376,000, which represented 0.3% of the
Fund's net assets.
================================================================================
36 | USAA CORNERSTONE MODERATE FUND
================================================================================
(d) Security was fair valued at November 30, 2016, by the Manager in
accordance with valuation procedures approved by the Board. The total
value of all such securities was $410,000, which represented less than
0.1% of the Fund's net assets.
(e) At November 30, 2016, the issuer was in default with respect to
interest and/or principal payments.
(f) Variable-rate or floating-rate security - interest rate is adjusted
periodically. The interest rate disclosed represents the rate at
November 30, 2016.
(g) Security is perpetual and has no final maturity date but may be subject
to calls at various dates in the future.
(h) Pay-in-kind (PIK) - security in which the issuer has or will have the
option to make all or a portion of the interest or dividend payments
in additional securities in lieu of cash.
(i) U.S. government agency issues - Mortgage-backed securities issued by
certain U.S. Government Sponsored Enterprises (GSEs) such as the
Government National Mortgage Association (GNMA or Ginnie Mae) and
certain other U.S. government guaranteed securities are supported by
the full faith and credit of the U.S. government. Securities issued
by other GSEs, such as Freddie Mac (Federal Home Loan Mortgage
Corporation or FHLMC) and Fannie Mae (Federal National Mortgage
Association or FNMA), indicated with a "+", are supported only by the
right of the GSE to borrow from the U.S. Treasury, the discretionary
authority of the U.S. government to purchase the GSEs' obligations,
or only by the credit of the issuing agency, instrumentality, or
corporation, and are neither issued nor guaranteed by the U.S.
Treasury. In September of 2008, the U.S. Treasury placed Fannie Mae
and Freddie Mac under conservatorship and appointed the Federal
Housing Finance Agency (FHFA) to act as conservator and oversee their
daily operations. In addition, the U.S. Treasury entered into purchase
agreements with Fannie Mae and Freddie Mac to provide them with
capital in exchange for senior preferred stock. While these
arrangements are
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 37
================================================================================
intended to ensure that Fannie Mae and Freddie Mac can continue to
meet their obligations, it is possible that actions by the U.S.
Treasury, FHFA, or others could adversely impact the value of the
Fund's investments in securities issued by Fannie Mae and Freddie Mac.
(j) Zero-coupon security. Rate represents the effective yield at the date
of purchase.
(k) Security and cash with a value of $2,857,000 are segregated as
collateral for initial margin requirements on open futures contracts.
(l) Rate represents the money market fund annualized seven-day yield at
November 30, 2016.
(m) The contract value of futures purchased and/or sold as a percentage
of net assets is 0.3%.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
38 | USAA CORNERSTONE MODERATE FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
November 30, 2016 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $1,046,222) $1,057,969
Cash 921
Cash denominated in foreign currencies (identified cost of $37) 34
Receivables:
Capital shares sold 422
USAA Asset Management Company (Note 5C) 174
Dividends and interest 3,351
Securities sold 4,759
Variation margin on futures contracts 184
----------
Total assets 1,067,814
----------
LIABILITIES
Payables:
Securities purchased 13,754
Capital shares redeemed 881
Accrued management fees 528
Accrued transfer agent's fees 49
Other accrued expenses and payables 203
----------
Total liabilities 15,415
----------
Net assets applicable to capital shares outstanding $1,052,399
==========
NET ASSETS CONSIST OF:
Paid-in capital $1,043,560
Accumulated undistributed net investment income 2,649
Accumulated net realized loss on investments and
futures transactions (5,735)
Net unrealized appreciation of investments and futures contracts 11,928
Net unrealized depreciation of foreign currency translations (3)
----------
Net assets applicable to capital shares outstanding $1,052,399
==========
Capital shares outstanding, no par value 74,585
==========
Net asset value, redemption price, and offering price per share $ 14.11
==========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 39
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended November 30, 2016 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $12) $ 8,469
Interest 9,106
-------
Total income 17,575
-------
EXPENSES
Management fees 3,460
Administration and servicing fees 807
Transfer agent's fees 1,372
Custody and accounting fees 126
Postage 75
Shareholder reporting fees 39
Trustees' fees 15
Registration fees 25
Professional fees 67
Other 10
-------
Total expenses 5,996
Expenses reimbursed (627)
-------
Net expenses 5,369
-------
NET INVESTMENT INCOME 12,206
-------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS, FOREIGN CURRENCY, AND FUTURES CONTRACTS
Net realized gain on:
Unaffiliated transactions 5,324
Affiliated transactions (Note 7) 10
Futures transactions 3,169
Change in net unrealized appreciation/(depreciation) of:
Investments (316)
Foreign currency translations (1)
Futures contracts 68
-------
Net realized and unrealized gain 8,254
-------
Increase in net assets resulting from operations $20,460
=======
See accompanying notes to financial statements.
================================================================================
40 | USAA CORNERSTONE MODERATE FUND
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended November 30, 2016 (unaudited), and year ended
May 31, 2016
-------------------------------------------------------------------------------------------------------------
11/30/2016 5/31/2016
-------------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 12,206 $ 29,038
Net realized gain on investments 5,334 190
Net realized gain on long-term capital gain
distributions from other investment companies - 551
Net realized loss on foreign currency transactions - (1)
Net realized gain on options - 37
Net realized gain on futures transactions 3,169 26
Change in net unrealized appreciation/(depreciation) of:
Investments (316) (87,064)
Foreign currency translations (1) (1)
Options - 233
Futures contracts 68 113
-----------------------------------
Increase (decrease) in net assets resulting from operations 20,460 (56,878)
-----------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (12,676) (28,561)
Net realized gains - (20,748)
-----------------------------------
Distributions to shareholders (12,676) (49,309)
-----------------------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 58,136 149,272
Reinvested dividends 12,597 49,014
Cost of shares redeemed (83,777) (185,238)
-----------------------------------
Increase (decrease) in net assets from capital
share transactions (13,044) 13,048
-----------------------------------
Net decrease in net assets (5,260) (93,139)
NET ASSETS
Beginning of period 1,057,659 1,150,798
-----------------------------------
End of period $1,052,399 $1,057,659
===================================
Accumulated undistributed net investment income:
End of period $ 2,649 $ 3,119
===================================
CHANGE IN SHARES OUTSTANDING
Shares sold 4,080 10,498
Shares issued for dividends reinvested 894 3,466
Shares redeemed (5,874) (13,038)
-----------------------------------
Increase (decrease) in shares outstanding (900) 926
===================================
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 41
================================================================================
NOTES TO FINANCIAL STATEMENTS
November 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 Cornerstone Moderate Fund (the
Fund), which is classified as diversified under the 1940 Act. The Fund's
investment objective is to seek a high total return.
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
================================================================================
42 | USAA CORNERSTONE MODERATE FUND
================================================================================
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
events that would materially affect the value of the Fund's foreign
securities and the Committee will consider such available
================================================================================
NOTES TO FINANCIAL STATEMENTS | 43
================================================================================
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. 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.
================================================================================
44 | USAA CORNERSTONE MODERATE FUND
================================================================================
7. Futures are valued at the settlement price at the close of market on
the principal exchange on which they are traded or, in the absence of
any transactions that day, the settlement price on the prior trading
date if it is within the spread between the closing bid and asked
prices closest to the last reported sale price.
8. Options are valued by a pricing service at the National Best Bid/Offer
(NBBO) composite price, which is derived from the best available bid
and asked prices in all participating options exchanges determined to
most closely reflect market value of the options at the time of
computation of the Fund's NAV.
9. 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
transaction between market participants at the measurement date. The
================================================================================
NOTES TO FINANCIAL STATEMENTS | 45
================================================================================
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.
The valuation of securities falling in the Level 3 category are primarily
supported by discounted prior tender offer, or quoted prices obtained from
broker-dealers participating in the market for these 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. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - The Fund may buy, sell, and
enter into certain types of derivatives, including, but not limited to
futures contracts, options, and options on futures contracts, under
================================================================================
46 | USAA CORNERSTONE MODERATE FUND
================================================================================
circumstances in which such instruments are expected by the portfolio
manager to aid in achieving the Fund's investment objective. The Fund also
may use derivatives in circumstances where the portfolio manager believes
they offer an economical means of gaining exposure to a particular asset
class or securities market or to keep cash on hand to meet shareholder
redemptions or other needs while maintaining exposure to the market. With
exchange-listed futures contracts and options, counterparty credit risk to
the Fund is limited to the exchange's clearinghouse which, as counterparty
to all exchange-traded futures contracts and options, guarantees the
transactions against default from the actual counterparty to the
transaction. The Fund's derivative agreements held at November 30, 2016, did
not include master netting provisions.
FUTURES CONTRACTS - The Fund is subject to equity price risk, interest rate
risk, and foreign currency exchange rate risk in the normal course of
pursuing its investment objectives. The Fund may use futures contracts to
gain exposure to, or hedge against, changes in the value of equities,
interest rates, or foreign currencies. A futures contract represents a
commitment for the future purchase or sale of an asset at a specified price
on a specified date. Upon entering into such contracts, the Fund is required
to deposit with the broker in either cash or securities an initial margin in
an amount equal to a certain percentage of the contract amount. Subsequent
payments (variation margin) are made or received by the Fund each day,
depending on the daily fluctuations in the value of the contract, and are
recorded for financial statement purposes as unrealized gains or losses.
When the contract is closed, the Fund records a realized gain or loss equal
to the difference between the value of the contract at the time it was
opened and the value at the time it was closed. Upon entering into such
contracts, the Fund bears the risk of interest or exchange rates or
securities prices moving unexpectedly in an unfavorable direction, in which
case, the Fund may not achieve the anticipated benefits of the futures
contracts.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 47
================================================================================
FAIR VALUES OF DERIVATIVE INSTRUMENTS AS OF NOVEMBER 30, 2016*
(IN THOUSANDS)
ASSET DERIVATIVES LIABILITY DERIVATIVES
--------------------------------------------------------------------------------------------------
STATEMENT OF STATEMENT OF
DERIVATIVES NOT ASSETS AND ASSETS AND
ACCOUNTED FOR AS LIABILITIES LIABILITIES
HEDGING INSTRUMENTS LOCATION FAIR VALUE LOCATION FAIR VALUE
--------------------------------------------------------------------------------------------------
Interest rate contracts $ - Net unrealized $126**
appreciation of
investments and
futures contracts
--------------------------------------------------------------------------------------------------
Equity contracts Net unrealized 930** Net unrealized $623**
appreciation of appreciation of
investments and investments and
futures contracts futures contracts
--------------------------------------------------------------------------------------------------
Total $930 $749
--------------------------------------------------------------------------------------------------
* For open derivative instruments as of November 30, 2016, see the
Portfolio of Investments, which also is indicative of activity for the
six-month period ended November 30, 2016.
** Includes cumulative appreciation/(depreciation) of futures as reported on
the Portfolio of Investments. Only current day's variation margin is
reported within the Statement of Assets and Liabilities.
THE EFFECT OF DERIVATIVE INSTRUMENTS ON THE STATEMENT OF OPERATIONS FOR THE
SIX-MONTH PERIOD ENDED NOVEMBER 30, 2016 (IN THOUSANDS)
CHANGE IN
UNREALIZED
DERIVATIVES NOT REALIZED APPRECIATION/
ACCOUNTED FOR AS STATEMENT OF GAIN (LOSS) (DEPRECIATION)
HEDGING INSTRUMENTS OPERATIONS LOCATION ON DERIVATIVES ON DERIVATIVES
--------------------------------------------------------------------------------------------------
Interest rate contracts Net realized gain on $2,146 $(127)
Options and Futures
transactions / Change in
net unrealized appreciation/
(depreciation) of Options and
Futures contracts
--------------------------------------------------------------------------------------------------
Equity contracts Net realized gain (loss) on 1,023 195
Options and Futures
transactions / Change in
net unrealized appreciation/
(depreciation) of
Futures contracts
--------------------------------------------------------------------------------------------------
Total $3,169 $ 68
--------------------------------------------------------------------------------------------------
================================================================================
48 | USAA CORNERSTONE MODERATE FUND
================================================================================
D. FEDERAL TAXES - The Fund's policy is to comply with the requirements of the
Internal Revenue Code of 1986, as amended, applicable to regulated
investment companies and to distribute substantially all of its taxable
income and net capital gains, if any, to its shareholders. Therefore, no
federal income tax provision is required.
E. FOREIGN TAXATION - Foreign income and capital gains on some foreign
securities may be subject to foreign taxes, which are reflected as a
reduction to such income and realized gains. The Fund records a liability
based on unrealized gains to provide for potential foreign taxes payable
upon the sale of these securities. Foreign taxes have been provided for in
accordance with the Fund's understanding of the applicable countries'
prevailing tax rules and rates.
F. INVESTMENTS IN SECURITIES - Securities transactions are accounted for on the
date the securities are purchased or sold (trade date). Gains or losses from
sales of investment securities are computed on the identified cost basis.
Dividend income, less foreign taxes, if any, is recorded on the ex-dividend
date. If the ex-dividend date has passed, certain dividends from foreign
securities are recorded upon notification. Interest income is recorded daily
on the accrual basis. Premiums and discounts are amortized over the life of
the respective securities, using the effective yield method for long-term
securities and the straight-line method for short-term securities.
G. 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 49
================================================================================
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.
H. 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 or for delayed draws on loans 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 receives a commitment fee for delayed draws on loans. 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 and delayed-draw loan commitments may
increase the volatility of the Fund's NAV to the extent that the Fund makes
such purchases and commitments while remaining substantially fully invested.
I. 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
================================================================================
50 | USAA CORNERSTONE MODERATE FUND
================================================================================
expenses. For the six-month period ended November 30, 2016, there were no
custodian and other bank credits.
J. 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.
K. 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 with other USAA Funds 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 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 51
================================================================================
For the six-month period ended November 30, 2016, the Fund paid CAPCO facility
fees of $3,000, which represents 1.5% 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 November 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 May 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 tax.
At May 31, 2016, the Fund had no capital loss carryforwards, for federal income
tax purposes.
For the six-month period ended November 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 November 30, 2016, were
$330,964,000 and $320,494,000, respectively.
As of November 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 November 30,
2016, were $53,808,000 and $42,061,000, respectively, resulting in net
unrealized appreciation of $11,747,000.
================================================================================
52 | USAA CORNERSTONE MODERATE FUND
================================================================================
(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 of the Fund's assets, subject to
the authority of and supervision by the Board. The Manager is authorized to
select (with approval of the Board and without shareholder approval) one or
more subadvisers to manage the day-to-day investment of a portion of the
Fund's assets. For the six-month period ended November 30, 2016, the Fund
had 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 0.65% of the Fund's average net assets.
Prior to October 1, 2016, the base investment management fee was 0.70% of
the Fund's average net assets.
The performance adjustment is calculated monthly by comparing the Fund's
performance over the performance period to that of the Lipper Balanced Funds
Index. The Lipper Balanced Funds Index tracks the total return performance
of funds within the Lipper Balanced Funds category. The performance period
for the Fund consists of the current month plus the previous 35 months. The
following table is utilized to determine the extent of the performance
adjustment:
OVER/UNDER PERFORMANCE
RELATIVE TO INDEX ANNUAL ADJUSTMENT RATE
(IN BASIS POINTS)(1) (IN BASIS POINTS)(1)
-------------------------------------------------------------------
+/- 100 to 400 +/- 4
+/- 401 to 700 +/- 5
+/- 701 and greater +/- 6
(1)Based on the difference between average annual performance of the Fund
and its relevant index, rounded to the nearest basis point. Average net
assets are calculated over a rolling 36-month period.
The annual performance adjustment rate is multiplied by the average net
assets of the Fund over the entire performance period, which is then
multiplied by a fraction, the numerator of which is the number of days
================================================================================
NOTES TO FINANCIAL STATEMENTS | 53
================================================================================
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, the Fund will pay a positive
performance fee adjustment for a performance period whenever the Fund
outperforms the Lipper Balanced Funds Index over that period, even if the
Fund had overall negative returns during the performance period.
For the six-month period ended November 30, 2016, the Fund incurred total
management fees, paid or payable to the Manager, of $3,460,000, which
included a (0.04)% performance adjustment of $(215,000).
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 0.15% of the Fund's average net assets. For the six-month period ended
November 30, 2016, the Fund incurred administration and servicing fees, paid
or payable to the Manager, of $807,000.
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 November 30, 2016, the Fund reimbursed the
Manager $15,000 for these compliance and legal services. These expenses are
included in the professional fees on the Fund's Statement of Operations.
C. EXPENSE LIMITATION - The Manager agreed, through September 30, 2017, to
limit the total annual operating expenses of the Fund to 1.00% 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 September 30, 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
================================================================================
54 | USAA CORNERSTONE MODERATE FUND
================================================================================
ended November 30, 2016, the Fund incurred reimbursable expenses of
$627,000, of which $174,000 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 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. For the six-month period ended November
30, 2016, the Fund incurred transfer agent's fees, paid or payable to SAS,
of $1,372,000.
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.
(6) TRANSACTIONS WITH AFFILIATES
The Manager is indirectly wholly owned by United Services Automobile Association
(USAA), a large, diversified financial services institution.
Certain trustees and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Fund.
(7) SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
During the six-month period ended November 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
----------------------------------------------------------------------------------------
Cornerstone Moderate Cornerstone Aggressive $141,000 $10,000
Cornerstone Moderately Conservative Cornerstone Moderate 49,000 (1,000)
Cornerstone Aggressive Cornerstone Moderate 212,000 24,000
================================================================================
NOTES TO FINANCIAL STATEMENTS | 55
================================================================================
(8) UPCOMING REGULATORY MATTERS
In October 2016, the U.S. Securities and Exchange Commission (SEC) adopted final
rules intended to modernize the reporting and disclosure of information by
registered investment companies. In part, the final rules amend Regulation S-X
to require standardized, enhanced disclosure about derivatives in investment
company financial statements. The Manager is currently evaluating the impact
these rules and amendments will have on the financial statements and related
disclosures. The compliance date for the amendments to Regulation S-X is August
1, 2017, with other staggered compliance dates extending through December 2018.
================================================================================
56 | USAA CORNERSTONE MODERATE FUND
================================================================================
(9) FINANCIAL HIGHLIGHTS
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
NOVEMBER 30, YEAR ENDED MAY 31,
-------------------------------------------------------------------------------------
2016 2016 2015 2014 2013 2012
-------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 14.01 $ 15.43 $ 15.46 $ 14.49 $ 13.07 $ 14.29
-------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .16 .39 .37 .38 .40 .40
Net realized and
unrealized gain (loss) .11 (1.15) .10 .98 1.42 (1.22)
-------------------------------------------------------------------------------------
Total from investment
operations .27 (.76) .47 1.36 1.82 (.82)
-------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.17) (.38) (.38) (.39) (.40) (.40)
Realized capital gains - (.28) (.12) - - -
-------------------------------------------------------------------------------------
Total distributions (.17) (.66) (.50) (.39) (.40) (.40)
-------------------------------------------------------------------------------------
Net asset value at
end of period $ 14.11 $ 14.01 $ 15.43 $ 15.46 $ 14.49 $ 13.07
=====================================================================================
Total return (%)* 1.92 (4.89) 3.10 9.60 14.17 (5.70)
Net assets at end of
period (000) $1,052,399 $1,057,659 $1,150,798 $1,093,783 $944,828 $766,037
Ratios to average
net assets:**
Expenses (%)(a) 1.00(b) 1.00 1.00 1.00 1.00 1.00
Expenses, excluding
reimbursements (%)(a) 1.12(b) 1.16 1.19 1.22 1.30 1.38
Net investment income (%) 2.27(b) 2.72 2.46 2.60 2.87 3.03
Portfolio turnover (%) 31 70(c) 44 46 66(c) 119(c)
* 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 November 30, 2016, average net assets were
$1,071,937,000.
(a) Reflects total annual operating expenses of the Fund before reductions of
any expenses paid indirectly. The Fund's expenses paid indirectly decreased
the expense ratios as follows:
- - - (.00%)(+) (.00%)(+) (.00%)(+)
(+) Represents less than 0.01% of average net assets.
(b) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(c) Reflects increased/decreased trading activity due to asset allocation
changes.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 57
================================================================================
EXPENSE EXAMPLE
November 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 June 1, 2016, through
November 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
================================================================================
58 | USAA CORNERSTONE MODERATE FUND
================================================================================
balance or expenses you paid for the period. You may use this information to
compare the ongoing costs of investing in the Fund and other funds. To do so,
compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any direct costs, such as wire fees,
redemption fees, or low balance fees. Therefore, the line labeled "hypothetical"
is useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if these direct
costs were included, your costs would have been higher.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE JUNE 1, 2016 -
JUNE 1, 2016 NOVEMBER 30, 2016 NOVEMBER 30, 2016
--------------------------------------------------------------
Actual $1,000.00 $1,019.20 $5.06
Hypothetical
(5% return before expenses) 1,000.00 1,020.05 5.06
*Expenses are equal to the Fund's annualized expense ratio of 1.00%, 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 1.92% for the six-month period of June 1,
2016, through November 30, 2016.
================================================================================
EXPENSE EXAMPLE | 59
================================================================================
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] [LOGO OF RECYCLE PAPER]
USAA We know what it means to serve.(R) 10%
=============================================================================
27804-0117 (C)2017, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA CORNERSTONE MODERATELY AGGRESSIVE FUND]
============================================================
SEMIANNUAL REPORT
USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
NOVEMBER 30, 2016
============================================================
================================================================================
================================================================================
PRESIDENT'S MESSAGE
"AS THE NEW YEAR BEGINS, WHY NOT MAKE
A RESOLUTION TO PUT YOUR FINANCIAL HOUSE [PHOTO OF BROOKS ENGLEHARDT]
IN ORDER?"
--------------------------------------------------------------------------------
JANUARY 2017
Financial markets are unpredictable. Many factors can confound those who try to
predict the direction of the markets based on economic or political factors. In
other words, it's easy to get it wrong. And, even if one correctly forecasts
what will happen in the macroeconomic environment, predicting how the markets
will respond is another matter altogether.
Consider the response to the Presidential election. Stocks rose on Monday and
Tuesday (Election Day) at the prospect of a Hillary Clinton victory--virtually
a "sure thing," according to some media pundits. U.S. Treasury securities and
other segments of the bond market sold off as investors likely assumed a
continuation of current economic policy under another Democratic administration.
But these trends reversed on Tuesday evening when it became clear that Donald J.
Trump would be elected the 45th President of the United States. Asian and
European equity markets dropped and U.S. stock index futures plunged. The
decline in stock index futures suggested that U.S. stocks might fall when
trading began on Wednesday, however the opposite happened. Stock prices rose and
then rallied strongly, with major stock indexes hitting one record high after
another through the end of November 2016. U.S. Treasury prices fell, driving up
yields on longer-maturity U.S. Treasuries. (Yields move in the opposite
direction of prices.)
Few market participants would have forecasted such a scenario. But with
hindsight, we may be able to understand some of the reasons why the markets
behaved the way they did.
U.S. equity investors appeared to like President-elect Trump's promises of lower
tax rates, less regulation, and more fiscal stimulus through infrastructure
spending. Other explanations may lie overseas, such as complications relating to
the United Kingdom's decision to exit from the European Union ("Brexit") and
continued slow economic growth in China--uncertainties that may have
================================================================================
================================================================================
increased the attractiveness of U.S. stocks. As for bond investors, they may
have been worried about an increase in interest rates if economic growth picks
up under a Trump Administration. Higher growth rates typically correspond with
rising inflation, which in turn could prompt the Federal Reserve (the Fed) to
accelerate the pace of interest rate increases.
What actually happens, however, is yet to be seen. No one knows, except in the
most general terms, what President-elect Trump's plans and priorities will be
or how they could affect economic growth in 2017 and beyond. By extension, it
is also too early to forecast how inflation might be affected and how the Fed
could respond.
At USAA Investments, we are long-term, fundamental investors, who seek to look
at the full market cycle rather than current geopolitical events. We believe
measures such as assessing a company's intrinsic value compared to its current
price tend to be more effective at forecasting potential stock returns over
time. In selecting bonds, our analysts take a bottom-up approach to evaluating
each security individually, building portfolios on a bond-by-bond basis.
It is important to remember market conditions are always fluctuating and time
horizon matters. We believe that it is important to stay focused on your
long-term objectives, using an investment plan that is based on your personal
time horizon and risk tolerance. If you are uneasy about market risk in general
or have concerns about too much exposure to specific asset classes, please call
USAA to speak with an advisor. As the new year begins, why not make a
resolution to put your financial house in order?
Thank you for allowing us to help you in your efforts to achieve your financial
goals. At USAA Investments, we are committed to providing you with our best
advice, top-notch service, and a variety of mutual funds. On behalf of everyone
here, I wish you a happy and healthy 2017.
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 11
Notes to Portfolio of Investments 35
Financial Statements 40
Notes to Financial Statements 43
EXPENSE EXAMPLE 59
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE
RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY
USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN
PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS
ABOUT THE FUND.
(C)2017, USAA. All rights reserved.
200991-0117
================================================================================
================================================================================
FUND OBJECTIVE
THE USAA CORNERSTONE MODERATELY AGGRESSIVE FUND (THE FUND) SEEKS CAPITAL
APPRECIATION WITH A SECONDARY FOCUS ON CURRENT INCOME.
--------------------------------------------------------------------------------
TYPES OF INVESTMENTS
The Fund invests in equity securities, bonds, money market instruments, and
other instruments including derivatives. The Fund will have a target asset
class allocation of approximately 60% equity securities and 40% fixed-income
securities. The actual asset class allocation can deviate from time to time
from these targets as market conditions warrant. The implementation of the
asset allocation may involve the extensive use of equity and fixed-income
exchange-traded funds (ETFs). The Fund may invest in securities issued by
domestic and foreign companies. The Fund also may invest in investment-grade
and below-investment-grade ("junk" or high-yield) fixed-income securities.
The Fund's investments also include real estate investment trusts (REITs),
investments that provide exposure to commodities (such as ETFs or national
resources companies), and derivatives, including futures and options.
Derivatives may be utilized by the Fund to reduce its volatility over time, to
enhance returns, or to provide diversification.
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
JOHN P. TOOHEY, CFA DAN DENBOW, CFA
WASIF A. LATIF LANCE HUMPHREY, CFA
ARNOLD J. ESPE, CFA
--------------------------------------------------------------------------------
o HOW DID THE GLOBAL FINANCIAL MARKETS PERFORM DURING THE REPORTING PERIOD?
Financial assets produced mixed results during the reporting period ended
November 30, 2016, reflecting the broad range of headlines that
characterized the reporting period.
U.S. equities posted the strongest gains among the major asset categories.
The U.S. economy continued to deliver economic growth ahead of its
developed-market global peers, driving healthy relative performance for the
stock market. Small-cap stocks, in particular, generated favorable gains
thanks in part to their greater exposure to the country's positive growth.
U.S. equities performed particularly well in the wake of the U.S. election,
which removed the element of political uncertainty that had weighed on the
market.
Developed-market international equities finished with a small loss and
trailed the U.S. market by a wide margin. While Japanese stocks were
bolstered by the substantial fiscal and monetary stimulus being provided by
the nation's government, European equities lagged. The leading cause of the
shortfall was likely the region's higher sensitivity to the United Kingdom's
June 2016 vote to exit the European Union ("Brexit"). In addition, the
European markets were pressured by the combination of slow economic growth,
possible instability within the banking system, and the potential impact of
rising nationalism across Europe.
In contrast to the developed markets, emerging-market stocks performed well
during the reporting period. The renewed stability in commodity
================================================================================
2 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
prices provided a positive backdrop for the asset class, as did improving
corporate earnings and signs of stronger economic growth in both Russia and
China.
The U.S. bond market also experienced mixed performance during the reporting
period. Market segments that are sensitive to interest-rate movements, such
as longer-term U.S. Treasuries, generally finished with slightly negative
returns. The stimulation of the U.S. economy, in conjunction with the
prospects of increasingly growth-oriented policies in the year ahead, raised
concerns that the Federal Reserve (the Fed) would take an aggressive
approach to raising interest rates. However, the improving growth
outlook--together with investors' increasing appetite for risk--helped fuel
strong returns for lower-rated segments of the market, including high-yield
bonds.
o HOW DID THE USAA CORNERSTONE MODERATELY AGGRESSIVE FUND (THE FUND) PERFORM
DURING THE REPORTING PERIOD?
For the reporting period ended November 30, 2016, the Fund had a total
return of 2.03%. This compares to returns of 3.67% for the MSCI All-Country
World Index, 2.49% for the Cornerstone Moderately Aggressive Composite
Index, and 2.19% for the Lipper 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 PLEASE DISCUSS THE FACTORS THAT HELPED AND HURT PERFORMANCE.
We maintained a patient approach to managing the Fund's portfolio. Rather
than trying to keep pace with the rapidly shifting trends in the
*The Lipper Index tracks the total performance of the funds within the
category consisting of funds that allocate their investments across various
asset classes, including both domestic and foreign stocks, bonds, and money
market instruments, with a focus on total return, and which have at least
25% of their portfolio invested in securities traded outside of the United
States.
SOURCE: LIPPER, A THOMSON REUTERS COMPANY.
Refer to page 8 for benchmark definitions.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 3
================================================================================
global markets, we remained focused on asset classes where we believed there
was value. While low valuations don't necessarily translate to
outperformance in the short term, undervalued market segments have
historically demonstrated superior results over time. We believe this
value-driven strategy is appropriate for an environment in which
macroeconomic headlines are a key driver of financial-market performance.
In the Fund's U.S. equity allocation, a diversified portfolio of large-cap,
blue-chip stocks performed well and participated in the broader rally.
Stock selection in the mid-cap space was an additional positive. Although
stronger returns could have been produced through a larger position in small
caps or aggressive growth stocks, we think that a focus on fundamentally
sound, reasonably valued large-and mid-cap companies is prudent at this
stage of the cycle. The Fund remained underweight in the United States
overall, as we continued to see more attractive valuations overseas.
The Fund's developed-market international allocation, aided performance
during the middle of the reporting period, but was a net detractor overall.
Although we continue to see a long-term opportunity in the international
markets due to their compelling valuations relative to U.S. stocks, the
unsteady economic conditions overseas prompted us to slightly reduce the
Fund's position.
The Fund's allocation to emerging-market stocks contributed positively to
its performance. We remain enthusiastic on the longer-term outlook for the
emerging markets, where the combination of improving growth, healthy
corporate earnings, and stabilizing commodity prices makes the low
valuations of the asset class particularly compelling.
The Fund's allocation to gold stocks, though modest, slightly detracted from
results. After rallying in the first half of the reporting period, gold
prices subsequently weakened due to the prospect of rising interest rates.
Shares of gold mining companies declined from their mid-August 2016 peak as
a result, causing the sector to finish with a loss. Overall, however, this
aspect of our positioning had only a small effect on the Fund's performance.
The Fund's actively managed bond portfolio made a positive contribution to
results due in part to its above-average weightings in
================================================================================
4 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
lower-rated investment-grade and high-yield corporate bonds. In addition,
the Fund's performance was aided by positive security selection in both
areas. The portfolio maintained an allocation to longer-term U.S. Treasuries
to counterbalance some of its credit exposure, but this aspect of its
positioning was a slight detractor due to the weaker returns for government
bonds.
The investment backdrop offered a varied picture for investors at the close
of the reporting period. The U.S. economy has continued to produce modest
growth despite the challenging economic conditions elsewhere in the
developed world. In addition, the ultra-loose monetary policies of certain
foreign central banks represent an ongoing engine of demand for higher-risk,
higher-yielding financial assets. While these factors are generally a
positive for the markets, potential sources of volatility include global
political uncertainty and the possibility that the Fed could begin to raise
interest rates more aggressively.
Our response to this ambiguity is to maintain our strategy: maintain
diversification, stay focused on the long-term picture, and emphasize
undervalued asset classes. We believe this steady approach--rather than one
that tries to keep up with the day-to-day considerations driving short-term
market performance--is well suited to a highly uncertain investment
environment.
Thank you for allowing us to help you manage your investments.
Asset Allocation funds may be invested in, among other things:
(1) exchange-traded funds; (2) futures, options, and other derivatives;
(3) non-investment-grade securities; (4) precious metals and minerals
companies; (5) real estate investment trusts; (6) money market instruments;
(7) foreign and emerging markets. These types of investments and asset
classes may be more volatile and prone to experience significant loss than
others. In addition, it is possible that a particular asset allocation used
by the Manager may not produce the intended result. 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 Foreign investing is subject to additional risks, such as currency
fluctuations, market illiquidity, and political instability. Emerging market
countries are less diverse and mature than other countries and tend to be
politically less stable. o Precious metals and minerals is a volatile asset
class and is subject to additional risks, such as currency fluctuation,
market illiquidity, political instability, and increased price volatility.
It may be more volatile than other asset classes that diversify across many
industries and companies. 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 credit worthy investment-grade securities. o Diversification is a
technique intended to help reduce risk and does not guarantee a profit or
prevent a loss. o Exchange Traded Funds (ETFs) are subject to risks similar
to those of stocks. Investment returns may fluctuate and are subject to
market volatility, so that an investor's shares, when redeemed or sold, may
be worth more or less than their original cost.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 5
================================================================================
INVESTMENT OVERVIEW
USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
(THE FUND) (Ticker Symbol: USCRX)
--------------------------------------------------------------------------------
11/30/16 5/31/16
--------------------------------------------------------------------------------
Net Assets $2.3 Billion $2.3 Billion
Net Asset Value Per Share $24.57 $24.08
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 11/30/16
--------------------------------------------------------------------------------
5/31/16-11/30/16* 1 YEAR 5 YEARS 10 YEARS
2.03% 1.57% 5.06% 2.96%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/16
--------------------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS
4.74% 5.45% 2.92%
--------------------------------------------------------------------------------
EXPENSE RATIO AS OF 5/31/16**
--------------------------------------------------------------------------------
1.15%
(Includes acquired fund fees and expenses of 0.09%)
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 October 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. Effective October 1, 2016, the base
investment management fee was reduced from 0.70% to 0.65% of the Fund's average
net assets.
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 CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
CORNERSTONE USAA
MODERATELY MSCI CORNERSTONE
AGGRESSIVE ALL-COUNTRY MODERATELY
COMPOSITE WORLD AGGRESSIVE LIPPER
INDEX INDEX FUND INDEX
11/30/06 $10,000.00 $10,000.00 $10,000.00 $10,000.00
12/31/06 10,084.96 10,223.12 10,150.00 10,106.47
01/31/07 10,175.85 10,324.81 10,276.00 10,198.69
02/28/07 10,199.88 10,270.46 10,238.00 10,149.20
03/31/07 10,305.57 10,476.55 10,352.00 10,230.47
04/30/07 10,582.40 10,940.47 10,622.00 10,479.73
05/31/07 10,753.84 11,266.74 10,847.00 10,693.75
06/30/07 10,678.07 11,233.64 10,744.00 10,674.25
07/31/07 10,563.54 11,062.11 10,557.00 10,623.73
08/31/07 10,622.65 11,031.49 10,561.00 10,586.57
09/30/07 10,965.77 11,623.70 10,976.00 10,961.15
10/31/07 11,222.05 12,077.16 11,280.00 11,213.82
11/30/07 10,972.48 11,543.19 10,828.00 10,895.64
12/31/07 10,922.89 11,415.41 10,762.00 10,787.02
01/31/08 10,518.20 10,480.42 10,235.00 10,406.38
02/29/08 10,498.00 10,510.01 10,156.00 10,371.58
03/31/08 10,434.38 10,355.86 9,995.00 10,316.81
04/30/08 10,771.64 10,933.53 10,317.00 10,643.47
05/31/08 10,869.32 11,104.48 10,544.00 10,752.75
06/30/08 10,345.92 10,192.65 9,942.00 10,176.10
07/31/08 10,209.28 9,927.97 9,724.00 9,971.16
08/31/08 10,182.14 9,713.98 9,593.00 9,882.48
09/30/08 9,411.43 8,499.92 8,660.00 8,960.15
10/31/08 8,158.30 6,815.65 7,198.00 7,547.47
11/30/08 7,877.80 6,367.89 6,788.00 7,128.55
12/31/08 8,163.52 6,598.67 7,053.00 7,295.22
01/31/09 7,728.06 6,034.89 6,589.00 6,888.52
02/28/09 7,246.18 5,444.01 6,088.00 6,395.82
03/31/09 7,644.04 5,892.43 6,422.00 6,762.34
04/30/09 8,231.23 6,588.01 7,008.00 7,269.29
05/31/09 8,696.44 7,244.43 7,761.00 7,836.89
06/30/09 8,707.37 7,203.81 7,842.00 7,880.01
07/31/09 9,213.00 7,837.94 8,311.00 8,392.57
08/31/09 9,470.78 8,118.27 8,573.00 8,674.80
09/30/09 9,780.48 8,490.71 9,024.00 8,971.48
10/31/09 9,689.53 8,359.50 9,037.00 8,839.24
11/30/09 9,999.22 8,703.31 9,321.00 9,141.91
12/31/09 10,109.64 8,883.54 9,497.00 9,266.62
01/31/10 9,923.52 8,499.62 9,372.00 9,086.93
02/28/10 10,062.91 8,607.89 9,516.00 9,219.04
03/31/10 10,455.92 9,161.67 9,916.00 9,630.38
04/30/10 10,577.40 9,177.08 10,008.00 9,739.74
05/31/10 10,028.83 8,307.04 9,488.00 9,164.74
06/30/10 9,861.65 8,051.13 9,298.00 9,012.69
07/31/10 10,372.27 8,706.23 9,753.00 9,432.95
08/31/10 10,187.03 8,401.87 9,600.00 9,255.91
09/30/10 10,782.66 9,205.65 10,208.00 9,752.63
10/31/10 11,049.87 9,538.35 10,468.00 10,078.60
11/30/10 10,945.18 9,326.12 10,385.00 9,954.13
12/31/10 11,393.02 10,009.06 10,793.00 10,371.51
01/31/11 11,518.00 10,166.13 10,864.00 10,399.88
02/28/11 11,749.15 10,462.16 11,165.00 10,649.77
03/31/11 11,770.78 10,451.71 11,270.00 10,716.66
04/30/11 12,098.62 10,879.32 11,604.00 11,066.31
05/31/11 12,021.63 10,645.46 11,480.00 10,919.89
06/30/11 11,876.97 10,477.72 11,303.00 10,732.49
07/31/11 11,832.77 10,307.13 11,232.00 10,690.08
08/31/11 11,396.24 9,554.20 10,640.00 10,200.69
09/30/11 10,768.46 8,652.17 9,981.00 9,499.27
10/31/11 11,503.24 9,579.19 10,506.00 10,034.12
11/30/11 11,332.04 9,292.44 10,463.00 9,959.27
12/31/11 11,384.11 9,273.67 10,379.00 9,884.61
01/31/12 11,825.66 9,812.90 10,773.00 10,298.97
02/29/12 12,167.52 10,306.62 11,048.00 10,632.39
03/31/12 12,236.87 10,375.05 11,078.00 10,705.22
04/30/12 12,223.75 10,256.43 11,043.00 10,626.36
05/31/12 11,650.93 9,336.86 10,566.00 10,068.63
06/30/12 11,986.99 9,798.00 10,827.00 10,349.64
07/31/12 12,149.52 9,932.13 10,935.00 10,472.39
08/31/12 12,326.07 10,148.09 11,117.00 10,658.66
09/30/12 12,557.41 10,467.71 11,363.00 10,867.43
10/31/12 12,499.32 10,397.94 11,392.00 10,825.39
11/30/12 12,593.09 10,530.91 11,456.00 10,926.74
12/31/12 12,749.88 10,769.44 11,627.00 11,098.40
01/31/13 13,093.85 11,265.57 11,940.00 11,419.31
02/28/13 13,142.71 11,263.82 11,930.00 11,405.59
03/31/13 13,340.31 11,469.77 12,087.00 11,580.34
04/30/13 13,590.23 11,797.43 12,294.00 11,797.56
05/31/13 13,521.86 11,765.06 12,203.00 11,732.71
06/30/13 13,222.16 11,421.18 11,885.00 11,416.77
07/31/13 13,623.15 11,967.94 12,228.00 11,799.11
08/31/13 13,415.38 11,718.60 12,036.00 11,628.32
09/30/13 13,853.96 12,323.88 12,334.00 11,999.87
10/31/13 14,227.67 12,819.21 12,693.00 12,326.03
11/30/13 14,340.55 13,000.75 12,763.00 12,431.45
12/31/13 14,481.70 13,225.04 12,889.00 12,578.84
01/31/14 14,267.12 12,696.03 12,698.00 12,359.10
02/28/14 14,726.21 13,309.35 13,117.00 12,796.37
03/31/14 14,757.27 13,368.52 13,158.00 12,758.68
04/30/14 14,861.60 13,495.79 13,266.00 12,805.50
05/31/14 15,104.47 13,782.83 13,453.00 13,050.80
06/30/14 15,310.14 14,042.33 13,696.00 13,230.23
07/31/14 15,140.70 13,872.02 13,561.00 13,053.53
08/31/14 15,442.68 14,178.47 13,773.00 13,265.66
09/30/14 15,082.13 13,718.69 13,447.00 12,952.83
10/31/14 15,258.35 13,815.27 13,515.00 13,093.50
11/30/14 15,429.52 14,046.35 13,654.00 13,222.88
12/31/14 15,285.35 13,775.31 13,496.00 13,038.65
01/31/15 15,253.93 13,559.93 13,475.00 13,064.11
02/28/15 15,710.77 14,314.83 13,835.00 13,478.23
03/31/15 15,614.62 14,093.03 13,686.00 13,362.50
04/30/15 15,821.53 14,501.93 13,872.00 13,524.95
05/31/15 15,834.36 14,483.01 13,914.00 13,540.69
06/30/15 15,570.23 14,142.05 13,633.00 13,276.16
07/31/15 15,661.87 14,264.86 13,676.00 13,305.29
08/31/15 15,040.56 13,286.99 13,045.00 12,701.68
09/30/15 14,760.29 12,805.62 12,743.00 12,424.29
10/31/15 15,432.32 13,810.66 13,284.00 12,985.90
11/30/15 15,356.34 13,696.62 13,183.00 12,912.42
12/31/15 15,161.31 13,449.62 12,921.00 12,678.85
01/31/16 14,680.70 12,638.46 12,436.00 12,281.52
02/29/16 14,680.70 12,551.52 12,392.00 12,230.35
03/31/16 15,410.33 13,481.69 12,953.00 12,770.18
04/30/16 15,593.71 13,680.70 13,095.00 12,922.13
05/31/16 15,646.73 13,697.94 13,122.00 12,961.76
06/30/16 15,728.09 13,615.02 13,226.00 13,074.61
07/31/16 16,170.05 14,201.74 13,591.00 13,416.96
08/31/16 16,195.93 14,249.52 13,607.00 13,443.07
09/30/16 16,262.33 14,336.82 13,667.00 13,507.63
10/31/16 16,024.90 14,093.47 13,466.00 13,306.34
11/30/16 16,036.12 14,200.57 13,389.00 13,245.19
[END CHART]
Data from 11/30/06 through 11/30/16.
See next page for benchmark definitions.
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
================================================================================
The graph on page 7 illustrates the comparison of a $10,000 hypothetical
investment in the USAA Cornerstone Moderately Aggressive Fund to the benchmarks
listed below. The Manager has developed the Cornerstone Moderately Aggressive
Composite Index, which is used to measure the Fund's performance. The custom
benchmark was created by the Manager to show how the Fund's performance
compares with the returns of an index or indexes with similar asset allocations.
o The Cornerstone Moderately Aggressive Composite Index is a combination of
unmanaged indexes representing the Fund's model allocation, and consists of
the MSCI USA Investable Market Index (IMI) Gross (34%), the MSCI ACWI ex USA
IMI Net (23%), the Bloomberg Barclays U.S. Universal Index (38%), the
Bloomberg Commodity Index Total Return (1.5%), the MSCI U.S. Real Estate
Investment Trust (REIT) Index Gross (1.5%), and the Bloomberg Barclays U.S.
Treasury - Bills (1-3M) (2%).
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.
o The Lipper Index tracks the performance of funds within a category
consisting of funds that allocate their investments across various asset
classes, including both domestic and foreign stocks, bonds, and money market
instruments, with a focus on total return, and which have at least 25% of
their portfolio invested in securities traded outside of the United States.
SOURCE: LIPPER, A THOMSON REUTERS COMPANY.
================================================================================
8 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
o TOP 10 HOLDINGS* - 11/30/16 o
(% of Net Assets)
iShares Core MSCI EAFE ETF** ...................................... 5.6%
Vanguard Short-Term Corporate Bond ETF** .......................... 5.5%
Vanguard FTSE Developed Markets ETF** ............................. 4.5%
U.S. Treasury Bond, 3.13%, 8/15/2044 .............................. 3.3%
iShares Currency Hedged MSCI EAFE ETF** ........................... 2.7%
iShares Core MSCI Emerging Markets ETF** .......................... 2.7%
U.S. Treasury Bond, 3.00%, 5/15/2045 .............................. 2.4%
U.S. Treasury Note, 1.63%, 2/15/2026 .............................. 2.0%
Schwab Fundamental International Large Co.
Index ETF** ..................................................... 1.9%
U.S. Treasury Note, 1.13%, 2/28/2021 .............................. 1.7%
[END CHART]
* Excludes futures and money market instruments.
** 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.
You will find a complete list of securities that the Fund owns on pages
11-34.
================================================================================
INVESTMENT OVERVIEW | 9
================================================================================
o ASSET ALLOCATION* - 11/30/16 o
INTERNATIONAL EQUITY SECURITIES** 26.6%
U.S. EQUITY SECURITIES** 24.9%
FIXED INCOME EXCHANGE-TRADED FUNDS** 11.8%
U.S. TREASURY SECURITIES 11.3%
CORPORATE OBLIGATIONS 8.3%
U.S. GOVERNMENT AGENCY ISSUES 4.9%
MONEY MARKET INSTRUMENTS 4.0%
COMMERCIAL MORTGAGE SECURITIES 3.6%
PRECIOUS METALS AND COMMODITY-RELATED SECURITIES 2.1%
GLOBAL REAL ESTATE EQUITY SECURITIES** 1.1%
EURODOLLAR AND YANKEE OBLIGATIONS 0.9%
ASSET-BACKED SECURITIES 0.3%
COLLATERALIZED MORTGAGE OBLIGATIONS 0.1%
CONVERTIBLE SECURITIES 0.1%
[END CHART]
* Excludes futures.
** 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%.
================================================================================
10 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
PORTFOLIO OF INVESTMENTS
November 30, 2016 (unaudited)
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
U.S. EQUITY SECURITIES (24.9%)
COMMON STOCKS (19.9%)
CONSUMER DISCRETIONARY (1.7%)
-----------------------------
ADVERTISING (0.1%)
23,800 Omnicom Group, Inc.(a) $ 2,069
---------
APPAREL RETAIL (0.3%)
12,920 American Eagle Outfitters, Inc. 214
10,400 Buckle, Inc. 263
2,570 Caleres, Inc. 84
63,600 TJX Companies, Inc. 4,983
---------
5,544
---------
APPAREL, ACCESSORIES & LUXURY GOODS (0.0%)
9,910 Fossil Group, Inc.* 331
---------
AUTO PARTS & EQUIPMENT (0.0%)
14,460 Gentex Corp. 267
9,320 Gentherm, Inc.* 297
---------
564
---------
AUTOMOBILE MANUFACTURERS (0.0%)
5,490 Thor Industries, Inc. 552
---------
FOOTWEAR (0.0%)
10,400 Steven Madden Ltd.* 385
14,270 Wolverine World Wide, Inc. 322
---------
707
---------
GENERAL MERCHANDISE STORES (0.1%)
4,250 Big Lots, Inc. 215
24,950 Target Corp. 1,927
---------
2,142
---------
HOME IMPROVEMENT RETAIL (0.3%)
52,400 Home Depot, Inc. 6,781
---------
HOMEBUILDING (0.2%)
54,080 CalAtlantic Group, Inc. 1,806
24,490 KB Home 388
12,550 M/I Homes, Inc.* 293
================================================================================
PORTFOLIO OF INVESTMENTS | 11
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
12,480 Meritage Homes Corp.* $ 450
140 NVR, Inc.* 223
---------
3,160
---------
HOTELS, RESORTS & CRUISE LINES (0.2%)
34,670 Carnival Corp. 1,782
27,650 Norwegian Cruise Line Holdings Ltd.* 1,101
17,200 Royal Caribbean Cruises Ltd. 1,393
---------
4,276
---------
INTERNET RETAIL (0.3%)
9,250 Amazon.com, Inc.* 6,943
---------
LEISURE PRODUCTS (0.0%)
25,530 Callaway Golf Co. 310
---------
MOVIES & ENTERTAINMENT (0.1%)
12,650 Time Warner, Inc.(a) 1,162
---------
PUBLISHING (0.0%)
13,420 Gannett Co., Inc. 128
5,750 John Wiley & Sons, Inc. "A" 315
5,660 Meredith Corp. 315
---------
758
---------
RESTAURANTS (0.0%)
4,370 DineEquity, Inc. 365
---------
SPECIALTY STORES (0.1%)
14,970 Hibbett Sports, Inc.* 602
8,520 Ulta Salon, Cosmetics & Fragrance, Inc.* 2,211
---------
2,813
---------
Total Consumer Discretionary 38,477
---------
CONSUMER STAPLES (1.9%)
-----------------------
AGRICULTURAL PRODUCTS (0.2%)
49,750 Bunge Ltd. 3,397
5,890 Ingredion, Inc. 691
---------
4,088
---------
DRUG RETAIL (0.3%)
29,950 CVS Health Corp. 2,303
63,950 Walgreens Boots Alliance, Inc.(a) 5,418
---------
7,721
---------
FOOD RETAIL (0.1%)
66,200 Kroger Co. 2,138
---------
================================================================================
12 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS (0.2%)
55,200 Procter & Gamble Co. $ 4,552
---------
HYPERMARKETS & SUPER CENTERS (0.3%)
98,650 Wal-Mart Stores, Inc. 6,948
---------
PACKAGED FOODS & MEAT (0.2%)
90,350 Blue Buffalo Pet Products, Inc.* 2,117
37,150 Kraft Heinz Co. 3,033
---------
5,150
---------
SOFT DRINKS (0.4%)
48,100 Coca-Cola Co.(a) 1,941
67,200 PepsiCo, Inc. 6,727
---------
8,668
---------
TOBACCO (0.2%)
27,150 Altria Group, Inc.(a) 1,736
20,300 Philip Morris International, Inc. 1,792
5,630 Universal Corp. 310
---------
3,838
---------
Total Consumer Staples 43,103
---------
ENERGY (1.5%)
-------------
INTEGRATED OIL & GAS (0.7%)
35,830 Chevron Corp. 3,997
68,800 Exxon Mobil Corp. 6,006
81,650 Occidental Petroleum Corp. 5,827
---------
15,830
---------
OIL & GAS DRILLING (0.1%)
18,980 Atwood Oceanics, Inc. 180
29,010 Helmerich & Payne, Inc. 2,195
20,220 Noble Corp. plc 126
17,370 Rowan Companies plc "A" 309
---------
2,810
---------
OIL & GAS EQUIPMENT & SERVICES (0.2%)
10,110 Dril-Quip, Inc.* 572
36,950 Schlumberger Ltd.(a) 3,105
---------
3,677
---------
OIL & GAS EXPLORATION & PRODUCTION (0.5%)
51,750 Cabot Oil & Gas Corp. 1,145
3,650 Cimarex Energy Co. 503
115,350 ConocoPhillips(a) 5,597
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
23,750 EOG Resources, Inc. $ 2,435
9,860 PDC Energy, Inc.* 734
---------
10,414
---------
OIL & GAS REFINING & MARKETING (0.0%)
3,850 REX American Resources Corp.* 376
---------
Total Energy 33,107
---------
FINANCIALS (3.2%)
-----------------
ASSET MANAGEMENT & CUSTODY BANKS (0.2%)
66,370 Bank of New York Mellon Corp. 3,147
18,060 Eaton Vance Corp. 731
19,280 Federated Investors, Inc. "B" 530
---------
4,408
---------
CONSUMER FINANCE (0.4%)
268,404 Synchrony Financial 9,276
---------
DIVERSIFIED BANKS (1.2%)
586,200 Bank of America Corp. 12,381
76,307 Citigroup, Inc. 4,303
97,250 JPMorgan Chase & Co. 7,796
41,040 U.S. Bancorp 2,036
---------
26,516
---------
FINANCIAL EXCHANGES & DATA (0.0%)
3,470 Donnelley Financial Solutions, Inc.* 66
---------
INVESTMENT BANKING & BROKERAGE (0.0%)
10,910 Raymond James Financial, Inc. 785
---------
LIFE & HEALTH INSURANCE (0.0%)
8,270 American Equity Investment Life Holding Co. 172
---------
MULTI-LINE INSURANCE (0.0%)
2,420 American Financial Group, Inc. 199
---------
PROPERTY & CASUALTY INSURANCE (0.6%)
52,950 Allstate Corp. 3,702
4,610 AMERISAFE, Inc. 293
35,820 Chubb Ltd. 4,585
3,190 Hanover Insurance Group, Inc. 276
16,730 Old Republic International Corp. 299
84,300 Progressive Corp. 2,807
9,100 Selective Insurance Group, Inc. 374
5,010 W.R. Berkley Corp. 310
---------
12,646
---------
================================================================================
14 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
REGIONAL BANKS (0.7%)
95,690 Fifth Third Bancorp(a) $ 2,490
418,150 KeyCorp 7,238
15,150 PacWest Bancorp 777
31,450 PNC Financial Services Group, Inc. 3,477
9,500 Prosperity Bancshares, Inc. 628
49,230 TCF Financial Corp. 854
10,180 Wintrust Financial Corp. 670
---------
16,134
---------
REINSURANCE (0.1%)
1,270 Alleghany Corp.* 721
3,640 Everest Re Group Ltd. 766
2,970 Reinsurance Group of America, Inc. 363
---------
1,850
---------
SPECIALIZED FINANCE (0.0%)
9,000 CME Group, Inc.(a) 1,016
---------
THRIFTS & MORTGAGE FINANCE (0.0%)
19,190 Astoria Financial Corp. 314
12,590 Washington Federal, Inc. 408
---------
722
---------
Total Financials 73,790
---------
HEALTH CARE (2.8%)
------------------
BIOTECHNOLOGY (0.6%)
117,190 AbbVie, Inc. 7,125
9,150 Amgen, Inc.(a) 1,319
2,500 Biogen, Inc.* 735
44,950 Gilead Sciences, Inc. 3,313
1,170 Ligand Pharmaceuticals, Inc.* 122
2,890 United Therapeutics Corp.* 363
---------
12,977
---------
HEALTH CARE DISTRIBUTORS (0.1%)
12,660 McKesson Corp. 1,820
7,540 Owens & Minor, Inc. 256
---------
2,076
---------
HEALTH CARE EQUIPMENT (0.5%)
74,540 Hologic, Inc.* 2,853
9,090 Masimo Corp.* 563
103,630 Medtronic plc 7,566
---------
10,982
---------
================================================================================
PORTFOLIO OF INVESTMENTS | 15
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
HEALTH CARE FACILITIES (0.0%)
39,480 Select Medical Holdings Corp.* $ 480
5,060 Surgical Care Affiliates, Inc.* 213
---------
693
---------
HEALTH CARE SERVICES (0.1%)
6,430 AMN Healthcare Services, Inc.* 214
3,520 Chemed Corp. 525
6,130 MEDNAX, Inc.* 401
---------
1,140
---------
HEALTH CARE SUPPLIES (0.0%)
6,050 Anika Therapeutics, Inc.* 282
---------
LIFE SCIENCES TOOLS & SERVICES (0.3%)
4,970 Cambrex Corp.* 249
6,950 Charles River Laboratories International, Inc.* 494
17,190 Luminex Corp.* 349
42,000 Thermo Fisher Scientific, Inc. 5,885
---------
6,977
---------
MANAGED HEALTH CARE (0.3%)
46,850 UnitedHealth Group, Inc. 7,417
---------
PHARMACEUTICALS (0.9%)
2,350 Allergan plc* 457
67,290 Johnson & Johnson 7,489
84,750 Merck & Co., Inc. 5,186
223,432 Pfizer, Inc. 7,181
---------
20,313
---------
Total Health Care 62,857
---------
INDUSTRIALS (2.5%)
AEROSPACE & DEFENSE (0.7%)
22,800 Boeing Co. 3,433
2,290 Huntington Ingalls Industries, Inc. 409
2,000 Lockheed Martin Corp.(a) 531
4,040 Moog, Inc. "A"* 282
89,550 Spirit AeroSystems Holdings, Inc. "A"* 5,216
3,090 Teledyne Technologies, Inc.* 386
48,150 United Technologies Corp.(a) 5,187
---------
15,444
---------
AIR FREIGHT & LOGISTICS (0.3%)
26,400 FedEx Corp.(a) 5,060
21,200 United Parcel Service, Inc. "B" 2,457
---------
7,517
---------
================================================================================
16 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
AIRLINES (0.3%)
29,160 JetBlue Airways Corp.* $ 586
71,550 Southwest Airlines Co. 3,335
25,800 United Continental Holdings, Inc.* 1,779
---------
5,700
---------
BUILDING PRODUCTS (0.1%)
12,540 A.O. Smith Corp. 610
37,250 Masco Corp. 1,179
2,480 Universal Forest Products, Inc. 246
---------
2,035
---------
COMMERCIAL PRINTING (0.0%)
5,590 Deluxe Corp. 378
3,470 LSC Communications, Inc. 72
9,253 R.R Donnelley & Sons Co. 161
---------
611
---------
CONSTRUCTION & ENGINEERING (0.1%)
60,180 AECOM* 2,187
---------
CONSTRUCTION MACHINERY & HEAVY TRUCKS (0.1%)
8,510 Greenbrier Companies, Inc. 330
7,360 Trinity Industries, Inc. 204
28,600 Wabtec Corp. 2,422
---------
2,956
---------
DIVERSIFIED SUPPORT SERVICES (0.0%)
1,780 UniFirst Corp. 252
---------
ELECTRICAL COMPONENTS & EQUIPMENT (0.1%)
17,200 Eaton Corp. plc 1,144
4,520 EnerSys 360
---------
1,504
---------
ENVIRONMENTAL & FACILITIES SERVICES (0.0%)
7,410 ABM Industries, Inc. 326
---------
HEAVY ELECTRICAL EQUIPMENT (0.0%)
4,050 AZZ, Inc. 264
---------
HUMAN RESOURCE & EMPLOYMENT SERVICES (0.0%)
5,960 ManpowerGroup, Inc. 509
---------
INDUSTRIAL CONGLOMERATES (0.7%)
37,200 Carlisle Companies, Inc. 4,173
276,809 General Electric Co. 8,515
18,600 Honeywell International, Inc.(a) 2,119
---------
14,807
---------
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
INDUSTRIAL MACHINERY (0.1%)
5,150 Barnes Group, Inc. $ 238
3,550 Crane Co. 261
6,990 Mueller Industries, Inc. 266
3,940 Nordson Corp. 420
---------
1,185
---------
MARINE (0.0%)
9,580 Matson, Inc. 360
---------
TRADING COMPANIES & DISTRIBUTORS (0.0%)
4,280 Applied Industrial Technologies, Inc. 256
4,520 GATX Corp. 247
---------
503
---------
Total Industrials 56,160
---------
INFORMATION TECHNOLOGY (4.6%)
-----------------------------
APPLICATION SOFTWARE (0.1%)
5,620 Ebix, Inc. 335
3,000 MicroStrategy, Inc. "A"* 582
12,720 Synopsys, Inc.* 769
---------
1,686
---------
COMMUNICATIONS EQUIPMENT (0.5%)
343,117 Cisco Systems, Inc. 10,232
3,600 Plantronics, Inc. 186
---------
10,418
---------
DATA PROCESSING & OUTSOURCED SERVICES (0.6%)
8,730 Broadridge Financial Solutions, Inc. 565
14,060 Convergys Corp. 364
3,880 CSG Systems International, Inc. 173
2,720 DST Systems, Inc. 281
8,700 Jack Henry & Associates, Inc. 752
26,550 MasterCard, Inc. "A" 2,713
8,410 Sykes Enterprises, Inc.* 237
121,500 Visa, Inc. "A" 9,394
---------
14,479
---------
ELECTRONIC COMPONENTS (0.0%)
5,390 Belden, Inc. 398
2,380 Littelfuse, Inc. 347
---------
745
---------
================================================================================
18 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS (0.0%)
8,360 Keysight Technologies, Inc.* $ 308
---------
ELECTRONIC MANUFACTURING SERVICES (0.0%)
5,660 Methode Electronics, Inc. 209
6,030 Plexus Corp.* 308
---------
517
---------
INTERNET SOFTWARE & SERVICES (0.8%)
18,110 Alphabet, Inc. "A"* 14,051
39,100 Facebook, Inc. "A"* 4,630
2,580 J2 Global, Inc. 190
---------
18,871
---------
SEMICONDUCTOR EQUIPMENT (0.3%)
69,900 Applied Materials, Inc.(a) 2,251
4,260 Cabot Microelectronics Corp. 254
28,300 Lam Research Corp. 3,000
5,420 MKS Instruments, Inc. 312
6,790 Tessera Technologies, Inc. 269
---------
6,086
---------
SEMICONDUCTORS (0.4%)
25,870 Intel Corp. 898
56,280 Maxim Integrated Products, Inc. 2,210
37,000 QUALCOMM, Inc. 2,521
32,900 Texas Instruments, Inc. 2,432
---------
8,061
---------
SYSTEMS SOFTWARE (0.9%)
230,830 Microsoft Corp. 13,910
187,950 Oracle Corp. 7,554
---------
21,464
---------
TECHNOLOGY DISTRIBUTORS (0.1%)
6,670 Arrow Electronics, Inc.* 456
10,820 Ingram Micro, Inc. "A" 405
2,910 SYNNEX Corp. 340
2,240 Tech Data Corp.* 190
---------
1,391
---------
TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (0.9%)
113,490 Apple, Inc. 12,543
63,550 Hewlett Packard Enterprise Co. 1,512
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
250,000 HP, Inc. $ 3,850
32,150 Western Digital Corp. 2,047
---------
19,952
---------
Total Information Technology 103,978
---------
MATERIALS (0.5%)
----------------
DIVERSIFIED CHEMICALS (0.2%)
67,900 Dow Chemical Co.(a) 3,783
---------
DIVERSIFIED METALS & MINING (0.0%)
43,000 Freeport-McMoRan, Inc.* 660
---------
METAL & GLASS CONTAINERS (0.0%)
3,320 AptarGroup, Inc. 243
---------
PAPER PACKAGING (0.1%)
3,770 Bemis Co., Inc. 189
5,260 Packaging Corp. of America 446
4,790 Sonoco Products Co. 259
---------
894
---------
PAPER PRODUCTS (0.0%)
19,860 KapStone Paper & Packaging Corp. 406
---------
SPECIALTY CHEMICALS (0.1%)
8,200 Ecolab, Inc.(a) 957
3,890 Innospec, Inc. 256
19,180 RPM International, Inc. 1,015
4,280 Stepan Co. 347
4,250 Valspar Corp. 434
---------
3,009
---------
STEEL (0.1%)
7,680 Reliance Steel & Aluminum Co. 623
7,720 Worthington Industries, Inc. 434
---------
1,057
---------
Total Materials 10,052
---------
TELECOMMUNICATION SERVICES (0.5%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (0.5%)
192,100 AT&T, Inc.(a) 7,421
10,510 Consolidated Communications Holdings, Inc. 300
59,955 Verizon Communications, Inc.(a) 2,992
---------
10,713
---------
Total Telecommunication Services 10,713
---------
================================================================================
20 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
UTILITIES (0.7%)
----------------
ELECTRIC UTILITIES (0.6%)
11,570 ALLETE, Inc. $ 715
55,500 American Electric Power Co., Inc. 3,277
50,250 Duke Energy Corp.(a) 3,707
49,900 Edison International 3,432
19,300 NextEra Energy, Inc. 2,205
35,750 PPL Corp.(a) 1,196
---------
14,532
---------
GAS UTILITIES (0.0%)
3,110 Spire, Inc. 201
7,820 UGI Corp. 350
---------
551
---------
MULTI-UTILITIES (0.1%)
6,770 Avista Corp. 274
11,000 NorthWestern Corp. 617
8,000 Sempra Energy 798
---------
1,689
---------
Total Utilities 16,772
---------
Total Common Stocks (cost: $381,838) 449,009
---------
PREFERRED STOCKS (1.3%)
CONSUMER STAPLES (0.4%)
-----------------------
AGRICULTURAL PRODUCTS (0.4%)
90,000 Dairy Farmers of America, Inc., 7.88%, cumulative redeemable, perpetual(b) 9,380
---------
ENERGY (0.3%)
-------------
OIL & GAS EXPLORATION & PRODUCTION (0.2%)
8,600 Chesapeake Energy Corp., 5.75%, perpetual*(b) 4,644
---------
OIL & GAS STORAGE & TRANSPORTATION (0.1%)
2,000 Kinder Morgan G.P., Inc., 4.81%, cumulative redeemable(b) 1,793
---------
Total Energy 6,437
---------
FINANCIALS (0.4%)
-----------------
LIFE & HEALTH INSURANCE (0.4%)
381,253 Delphi Financial Group, Inc., 7.38%, cumulative redeemable 8,435
---------
REINSURANCE (0.0%)
3,000 American Overseas Group Ltd., 7.50%, non-cumulative*(c),(d) 600
---------
Total Financials 9,035
---------
================================================================================
PORTFOLIO OF INVESTMENTS | 21
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES (0.2%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (0.2%)
200,000 Qwest Corp., 6.50% $ 4,755
---------
Total Preferred Stocks (cost: $34,082) 29,607
---------
EXCHANGE-TRADED FUNDS (3.7%)
17,200 SPDR S&P 500 ETF Trust 3,790
276,400 Vanguard Mid-Cap ETF 36,308
149,900 Vanguard Small-Cap Value ETF 17,748
229,590 Vanguard Total Stock Market ETF(a) 26,123
---------
Total Exchange-Traded Funds (cost: $73,340) 83,969
---------
Total U.S. Equity Securities (cost: $489,260) 562,585
---------
INTERNATIONAL EQUITY SECURITIES (26.6%)
COMMON STOCKS (0.7%)
CONSUMER DISCRETIONARY (0.3%)
-----------------------------
AUTO PARTS & EQUIPMENT (0.3%)
39,150 Delphi Automotive plc 2,506
109,100 Magna International, Inc. 4,413
---------
6,919
---------
Total Consumer Discretionary 6,919
---------
ENERGY (0.1%)
-------------
INTEGRATED OIL & GAS (0.1%)
30,750 TOTAL S.A. ADR 1,466
---------
FINANCIALS (0.1%)
-----------------
PROPERTY & CASUALTY INSURANCE (0.1%)
94,700 XL Group Ltd. 3,421
---------
INFORMATION TECHNOLOGY (0.1%)
-----------------------------
SEMICONDUCTORS (0.1%)
7,800 Broadcom Ltd. 1,330
11,200 NXP Semiconductors N.V.* 1,110
---------
2,440
---------
Total Information Technology 2,440
---------
TELECOMMUNICATION SERVICES (0.1%)
---------------------------------
WIRELESS TELECOMMUNICATION SERVICES (0.1%)
100,900 Vodafone Group plc ADR 2,466
---------
Total Common Stocks (cost: $17,344) 16,712
---------
================================================================================
22 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
EXCHANGE-TRADED FUNDS (25.9%)
2,389,075 iShares Core MSCI EAFE ETF $ 126,286
1,412,786 iShares Core MSCI Emerging Markets ETF 61,131
2,434,900 iShares Currency Hedged MSCI EAFE ETF 61,907
468,200 iShares Edge MSCI Min Vol EAFE ETF 29,038
263,500 iShares Edge MSCI Min Vol Emerging Markets ETF 13,233
465,600 iShares MSCI Pacific ex Japan ETF 19,113
350,100 PowerShares FTSE RAFI Developed Markets ex-U.S. Portfolio 12,814
1,116,600 PowerShares FTSE RAFI Emerging Markets Portfolio 20,233
100,000 Schwab Fundamental Emerging Markets Large Co. Index ETF 2,401
1,751,700 Schwab Fundamental International Large Co. Index ETF 43,547
107,983 SPDR S&P Emerging Markets SmallCap ETF 4,446
375,430 Vanguard FTSE All-World ex-US ETF(a) 16,410
2,804,400 Vanguard FTSE Developed Markets ETF 100,846
953,870 Vanguard FTSE Emerging Markets ETF(a) 34,549
383,000 Vanguard FTSE Europe ETF 17,584
182,288 WisdomTree Emerging Markets SmallCap Dividend Fund 7,142
693,900 WisdomTree India Earnings Fund 14,045
---------
Total Exchange-Traded Funds (cost: $585,643) 584,725
---------
Total International Equity Securities (cost: $602,987) 601,437
---------
PRECIOUS METALS AND COMMODITY-RELATED
SECURITIES (2.1%)
GOLD (0.4%)
AFRICAN GOLD COMPANIES (0.0%)
30,000 AngloGold Ashanti Ltd. ADR* 328
74,000 Gold Fields Ltd. ADR 227
---------
555
---------
AUSTRALIAN GOLD COMPANIES (0.0%)
25,000 Newcrest Mining Ltd.(e) 355
---------
EUROPEAN GOLD COMPANIES (0.0%)
6,700 Randgold Resources Ltd. ADR 482
---------
NORTH AMERICAN GOLD COMPANIES (0.4%)
12,200 Agnico-Eagle Mines Ltd. 501
80,395 Alamos Gold, Inc. "A" 512
35,351 AuRico Metals, Inc.* 26
165,000 B2Gold Corp.* 399
23,000 Barrick Gold Corp. 345
88,000 Centerra Gold, Inc. 455
227,400 Dundee Precious Metals, Inc.* 347
151,000 Eldorado Gold Corp.* 414
================================================================================
PORTFOLIO OF INVESTMENTS | 23
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
36,000 Goldcorp, Inc. $ 475
196,721 Hycroft Mining Corp.*(c),(d) 197
120,000 Kinross Gold Corp.* 395
110,000 New Gold, Inc.* 394
44,200 Newmont Mining Corp. 1,434
161,400 Primero Mining Corp.* 142
8,800 Royal Gold, Inc. 613
77,884 SEMAFO, Inc.* 237
45,000 Tahoe Resources, Inc. 432
113,000 Yamana Gold, Inc. 338
---------
7,656
---------
SOUTH AMERICAN GOLD COMPANIES (0.0%)
44,000 Compania de Minas Buenaventura S.A. ADR 491
---------
Total Gold (cost: $18,058) 9,539
---------
SILVER (0.1%)
25,000 Pan American Silver Corp. 421
25,000 Silver Wheaton Corp. 456
---------
Total Silver (cost: $748) 877
---------
EXCHANGE-TRADED FUNDS (1.6%)
224,000 First Trust Global Tactical Commodity Strategy Fund* 4,576
297,334 iShares Silver Trust* 4,656
256,100 PowerShares DB Commodity Index Tracking Fund* 3,895
471,000 United States Commodity Index Fund* 19,622
191,620 VanEck Vectors Gold Miners ETF(a) 3,992
---------
Total Exchange-Traded Funds (cost: $41,837) 36,741
---------
Total Precious Metals and Commodity-Related Securities (cost: $60,643) 47,157
---------
GLOBAL REAL ESTATE EQUITY SECURITIES (1.1%)
COMMON STOCKS (0.6%)
REAL ESTATE SERVICES (0.0%)
4,840 Jones Lang LaSalle, Inc. 490
---------
REITs - DIVERSIFIED (0.0%)
4,520 PS Business Parks, Inc. 505
---------
REITs - HEALTH CARE (0.0%)
26,700 Medical Properties Trust, Inc. 318
---------
================================================================================
24 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
REITs - HOTEL & RESORT (0.0%)
13,110 Hospitality Properties Trust $ 380
35,070 Summit Hotel Properties, Inc. 499
---------
879
---------
REITs - INDUSTRIAL (0.0%)
6,800 EastGroup Properties, Inc. 464
---------
REITs - MORTGAGE (0.3%)
316,010 Annaly Capital Management, Inc. 3,230
26,190 Capstead Mortgage Corp. 271
237,300 Two Harbors Investment Corp. 2,057
---------
5,558
---------
REITs - OFFICE (0.1%)
5,600 Boston Properties, Inc.(a) 694
16,720 Corporate Office Properties Trust 479
7,250 Highwoods Properties, Inc. 348
5,750 Kilroy Realty Corp. 416
---------
1,937
---------
REITs - RETAIL (0.1%)
7,800 Simon Property Group, Inc.(a) 1,401
20,600 Urstadt Biddle Properties, Inc. "A" 467
---------
1,868
---------
REITs - SPECIALIZED (0.1%)
7,500 Lamar Advertising Co. "A" 497
3,100 Public Storage 649
---------
1,146
---------
Total Common Stocks (cost: $13,410) 13,165
---------
PREFERRED STOCKS (0.1%)
REITs - MORTGAGE (0.1%)
60,000 Arbor Realty Trust, Inc., 7.38% (cost: $1,500) 1,525
---------
EXCHANGE-TRADED FUNDS (0.4%)
95,700 Vanguard REIT ETF (cost: $7,600) 7,693
---------
Total Global Real Estate Equity Securities (cost: $22,510) 22,383
---------
================================================================================
PORTFOLIO OF INVESTMENTS | 25
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
BONDS (41.3%)
CORPORATE OBLIGATIONS (8.3%)
CONSUMER STAPLES (0.1%)
-----------------------
FOOD RETAIL (0.1%)
$ 2,100 BI-LO, LLC & BI-LO Finance Corp.(b) 9.25% 2/15/2019 $ 1,680
---------
ENERGY (0.9%)
-------------
OIL & GAS DRILLING (0.0%)
3,683 Schahin II Finance Co. SPV Ltd.(b),(f) 5.88 9/25/2023 497
---------
OIL & GAS STORAGE & TRANSPORTATION (0.9%)
1,300 Enbridge Energy Partners, LP 7.38 10/15/2045 1,591
13,030 Energy Transfer Partners, LP 3.90(g) 11/01/2066 10,033
7,980 Enterprise Products Operating, LLC 7.00(g) 6/01/2067 6,783
2,352 Southern Union Co. 3.90(g) 11/01/2066 1,793
---------
20,200
---------
Total Energy 20,697
---------
FINANCIALS (5.7%)
-----------------
ASSET MANAGEMENT & CUSTODY BANKS (0.5%)
2,600 Ares Capital Corp. 3.63 1/19/2022 2,538
9,200 Prospect Capital Corp. 5.00 7/15/2019 9,274
---------
11,812
---------
LIFE & HEALTH INSURANCE (1.2%)
9,342 Lincoln National Corp. 3.26(g) 5/17/2066 7,462
1,000 Lincoln National Corp. 6.05(g) 4/20/2067 772
7,800 Prudential Financial, Inc. 5.63 6/15/2043 8,102
2,135 Prudential Financial, Inc. 5.20 3/15/2044 2,130
10,935 StanCorp Financial Group, Inc. 6.90(g) 6/01/2067 8,732
---------
27,198
---------
MULTI-LINE INSURANCE (0.8%)
9,955 Glen Meadow Pass-Through Trust(b) 6.51(g) 2/12/2067 7,665
10,510 Nationwide Mutual Insurance Co.(b) 3.14(g) 12/15/2024 10,369
---------
18,034
---------
MULTI-SECTOR HOLDINGS (0.2%)
5,325 BNSF Funding Trust I 6.61 12/15/2055 6,130
---------
PROPERTY & CASUALTY INSURANCE (1.8%)
7,800 Allstate Corp. 5.75 8/15/2053 8,195
10,000 AmTrust Financial Services, Inc. 6.13 8/15/2023 10,174
11,050 HSB Group, Inc. 1.79(g) 7/15/2027 8,264
================================================================================
26 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 8,715 Oil Insurance Ltd.(b) 3.82%(g) -(h) $ 6,972
6,500 Travelers Companies, Inc. 6.25(g) 3/15/2067 6,467
---------
40,072
---------
REGIONAL BANKS (1.0%)
1,000 Allfirst Preferred Capital Trust 2.38(g) 7/15/2029 886
2,000 Compass Bank 6.40 10/01/2017 2,066
2,200 Compass Bank 3.88 4/10/2025 2,089
8,000 Cullen/Frost Capital Trust II 2.39(g) 3/01/2034 6,931
4,000 First Maryland Capital Trust I 1.88(g) 1/15/2027 3,555
2,000 Huntington Capital Trust II "B" 1.48(g) 6/15/2028 1,647
5,039 Manufacturers & Traders Trust Co. 5.63(g) 12/01/2021 4,947
---------
22,121
---------
REINSURANCE (0.2%)
4,000 Alterra USA Holdings Ltd.(b) 7.20 4/14/2017 4,065
---------
Total Financials 129,432
---------
HEALTH CARE (0.2%)
------------------
HEALTH CARE FACILITIES (0.2%)
2,300 Community Health Systems, Inc. 6.88 2/01/2022 1,545
2,500 HCA, Inc. 4.50 2/15/2027 2,363
---------
3,908
---------
Total Health Care 3,908
---------
INDUSTRIALS (0.1%)
------------------
AIRLINES (0.0%)
588 America West Airlines, Inc. Pass-Through Trust (INS) 7.93 7/02/2020 625
---------
ELECTRICAL COMPONENTS & EQUIPMENT (0.1%)
800 Artesyn Embedded Technologies, Inc.(b) 9.75 10/15/2020 717
---------
Total Industrials 1,342
---------
REAL ESTATE (0.1%)
------------------
REAL ESTATE DEVELOPMENT (0.1%)
1,000 Crescent Communities, LLC(b) 8.88 10/15/2021 995
---------
REITs - HEALTH CARE (0.0%)
1,000 Care Capital Properties, LP(b) 5.13 8/15/2026 964
---------
Total Real Estate 1,959
---------
UTILITIES (1.2%)
----------------
ELECTRIC UTILITIES (0.8%)
6,085 NextEra Energy Capital Holdings, Inc. 2.91(g) 10/01/2066 5,203
7,000 NextEra Energy Capital Holdings, Inc. 6.65 6/15/2067 6,177
================================================================================
PORTFOLIO OF INVESTMENTS | 27
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 500 NextEra Energy Capital Holdings, Inc. 7.30% 9/01/2067 $ 499
7,400 PPL Capital Funding, Inc. 6.70(g) 3/30/2067 6,530
---------
18,409
---------
MULTI-UTILITIES (0.4%)
10,500 WEC Energy Group, Inc. 6.25(g) 5/15/2067 9,188
---------
Total Utilities 27,597
---------
Total Corporate Obligations (cost: $186,141) 186,615
---------
CONVERTIBLE SECURITIES (0.1%)
MATERIALS (0.1%)
----------------
GOLD (0.1%)
782 Hycroft Mining Corp.(i) (cost: $756) 15.00 10/22/2020 1,232
---------
EURODOLLAR AND YANKEE OBLIGATIONS (0.9%)
ENERGY (0.4%)
-------------
OIL & GAS STORAGE & TRANSPORTATION (0.4%)
9,650 TransCanada PipeLines Ltd. 6.35(g) 5/15/2067 7,575
1,400 TransCanada Trust 5.63 5/20/2075 1,408
---------
8,983
---------
Total Energy 8,983
---------
FINANCIALS (0.3%)
-----------------
PROPERTY & CASUALTY INSURANCE (0.3%)
5,650 QBE Capital Funding III Ltd.(b) 7.25 5/24/2041 6,264
---------
MATERIALS (0.2%)
-----------------
GOLD (0.2%)
5,000 Newcrest Finance Property Ltd.(b) 4.45 11/15/2021 5,178
---------
UTILITIES (0.0%)
----------------
ELECTRIC UTILITIES (0.0%)
1,000 AusNet Electricity Services Proprietary Ltd. (INS)(b) 7.25 12/01/2016 1,000
---------
Total Eurodollar and Yankee Obligations (cost: $21,806) 21,425
---------
ASSET-BACKED SECURITIES (0.3%)
FINANCIALS (0.3%)
-----------------
ASSET-BACKED FINANCING (0.3%)
1,600 Navient Student Loan Trust 2.08(g) 8/25/2050 1,382
3,000 SLC Student Loan Trust 1.33(g) 7/15/2036 2,678
================================================================================
28 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 2,544 SLM Student Loan Trust 1.10%(g) 1/25/2041 $ 2,175
1,005 SLM Student Loan Trust 1.43(g) 10/25/2065 886
---------
7,121
---------
Total Financials 7,121
---------
Total Asset-Backed Securities (cost: $6,717) 7,121
---------
COLLATERALIZED MORTGAGE OBLIGATIONS (0.1%)
FINANCIALS (0.1%)
-----------------
976 Sequoia Mortgage Trust 1.46(g) 9/20/2033 869
879 Wells Fargo Mortgage Backed Securities Trust 3.00(g) 4/25/2035 833
---------
Total Financials 1,702
---------
Total Collateralized Mortgage Obligations (cost: $1,785) 1,702
---------
COMMERCIAL MORTGAGE SECURITIES (3.6%)
FINANCIALS (3.6%)
-----------------
COMMERCIAL MORTGAGE-BACKED SECURITIES (3.4%)
10,000 Banc of America Commercial Mortgage, Inc. 6.00 7/10/2044 7,720
1,048 Banc of America Commercial Mortgage, Inc. 5.85 5/10/2045 1,047
3,500 Banc of America Commercial Mortgage, Inc. 6.48 2/10/2051 3,492
3,000 Bear Stearns Commercial Mortgage Securities, Inc.(b) 5.66 9/11/2041 2,924
1,000 Citigroup Commercial Mortgage Trust 6.00 12/10/2049 700
10,000 Commercial Mortgage Loan Trust 5.95 7/10/2038 9,229
5,637 Commercial Mortgage Loan Trust 6.30 12/10/2049 3,586
1,350 Commercial Mortgage Trust 5.38 12/10/2046 1,340
2,000 Commercial Mortgage Trust(b) 5.54 12/11/2049 2,013
16,400 Credit Suisse Commercial Mortgage
Pass-Through Trust 0.74 2/15/2040 16,253
6,900 FREMF Mortgage Trust(b) 3.00 8/25/2045 7,047
1,350 GE Capital Commercial Mortgage Corp. 5.00 11/10/2045 1,292
2,030 GE Capital Commercial Mortgage Corp. 5.61 12/10/2049 2,021
578 GMAC Commercial Mortgage Securities, Inc. 4.97 12/10/2041 588
1,000 GMAC Commercial Mortgage Securities, Inc. 4.98 12/10/2041 1,017
744 J.P. Morgan Chase Commercial
Mortgage Securities Corp. 5.72 12/15/2044 743
3,675 J.P. Morgan Chase Commercial
Mortgage Securities Corp. 6.11 4/17/2045 2,898
5,000 J.P. Morgan Chase Commercial
Mortgage Securities Corp. 5.37 5/15/2047 4,998
697 Merrill Lynch Mortgage Trust 5.78 7/12/2038 696
3,000 ML-CFC Commercial Mortgage Trust 5.42 8/12/2048 3,008
================================================================================
PORTFOLIO OF INVESTMENTS | 29
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 3,000 ML-CFC Commercial Mortgage Trust 6.07% 8/12/2049 $ 3,002
1,000 Morgan Stanley Capital I Trust 5.59 3/12/2044 913
---------
76,527
---------
INTEREST-ONLY COMMERCIAL MORTGAGE-BACKED SECURITIES (0.2%)
25,856 CSAIL Commercial Mortgage Trust(c) 1.00 1/15/2049 2,962
21,648 UBS Commercial Mortgage Trust(b),(c) 2.27 5/10/2045 1,966
---------
4,928
---------
Total Financials 81,455
---------
Total Commercial Mortgage Securities (cost: $83,423) 81,455
---------
U.S. GOVERNMENT AGENCY ISSUES (4.9%)(j)
COMMERCIAL MORTGAGE-BACKED SECURITIES (1.5%)
3,750 Fannie Mae(+) 2.15 1/25/2023 3,703
14,000 Freddie Mac(+) 3.00 12/25/2025 14,283
8,000 Freddie Mac(+) 3.51 4/25/2030 8,297
8,400 Freddie Mac(+) 3.33 5/25/2025 8,800
---------
35,083
---------
MORTGAGE-BACKED PASS-THROUGH SECURITIES (3.4%)
14,704 Freddie Mac(+) 3.00 4/01/2046 14,656
34,987 Freddie Mac(+) 3.00 6/01/2046 34,873
4,914 Freddie Mac(+) 3.00 8/01/2046 4,897
21,412 Freddie Mac(+) 3.50 4/01/2046 21,996
9 Government National Mortgage Assn. I 6.50 4/15/2024 10
1 Government National Mortgage Assn. I 7.50 3/15/2017 1
---------
76,433
---------
Total U.S. Government Agency Issues (cost: $113,650) 111,516
---------
U.S. TREASURY SECURITIES (11.3%)
BONDS (6.5%)
72,700 3.13%, 8/15/2044 74,253
11,520 3.18%, 8/15/2044 (STRIPS Principal)(k) 4,893
13,000 3.00%, 11/15/2044 12,957
55,500 3.00%, 5/15/2045 55,230
---------
147,333
---------
NOTES (4.8%)
39,000 1.13%, 2/28/2021(o) 37,995
19,000 1.63%, 4/30/2023 18,421
1,000 2.38%, 8/15/2024 1,008
================================================================================
30 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
(000) SECURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 5,000 2.25%, 11/15/2025 $ 4,957
48,000 1.63%, 2/15/2026 45,047
---------
107,428
---------
Total U.S. Treasury Securities (cost: $255,917) 254,761
---------
------------------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES
------------------------------------------------------------------------------------------------------------------
EXCHANGE-TRADED FUNDS (11.8%)
189,540 iShares 20+ Year Treasury Bond ETF(a) 22,790
248,600 iShares Core U.S. Aggregate Bond ETF(a) 26,908
356,400 iShares iBoxx $High Yield Corporate Bond ETF 30,526
846,400 PowerShares Fundamental High Yield Corporate Bond Portfolio 15,726
554,000 Vanguard Mortgage-Backed Securities ETF 29,174
1,549,500 Vanguard Short-Term Corporate Bond ETF 123,061
234,500 Vanguard Total Bond Market ETF 18,969
---------
Total Exchange-Traded Funds (cost: $271,126) 267,154
---------
Total Bonds (cost: $941,321) 932,981
---------
------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON
(000) RATE MATURITY
------------------------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS (4.0%)
COMMERCIAL PAPER (0.7%)
ENERGY (0.2%)
-------------
OIL & GAS REFINING & MARKETING (0.2%)
$ 6,000 Koch Resources, LLC(b),(l) 0.47% 12/06/2016 5,999
---------
FINANCIALS (0.5%)
-----------------
FINANCIAL EXCHANGES & DATA (0.5%)
5,000 Intercontinental Exchange, Inc.(b),(l) 0.50 12/28/2016 4,998
6,000 Intercontinental Exchange, Inc.(b),(l) 0.44 12/08/2016 6,000
---------
10,998
---------
Total Financials 10,998
---------
Total Commercial Paper 16,997
---------
================================================================================
PORTFOLIO OF INVESTMENTS | 31
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (3.3%)
73,970,794 State Street Institutional Treasury Money
Market Fund Premier Class, 0.25%(a),(m) $ 73,971
----------
Total Money Market Instruments (cost: $90,968) 90,968
----------
TOTAL INVESTMENTS (COST: $2,207,689) $2,257,511
==========
------------------------------------------------------------------------------------------------------------------
UNREALIZED
APPRECIATION/
NUMBER OF EXPIRATION CONTRACT (DEPRECIATION)
CONTRACTS DATE VALUE (000) (000)
------------------------------------------------------------------------------------------------------------------
FUTURES(n)
LONG FUTURES
EQUITY CONTRACTS
811 E-mini S&P 500 12/16/2016 $ 89,161 $ 3,022
103 Mini MSCI EAFE 12/16/2016 8,421 (356)
409 Mini MSCI Emerging Markets Index 12/16/2016 17,648 (602)
-------- ----------
115,230 2,064
-------- ----------
$115,230 $ 2,064
-------- ----------
TOTAL LONG FUTURES
SHORT FUTURES
INTEREST RATE CONTRACTS
(315) U.S. Treasury Bond 3/22/2017 $(47,653) $ (219)
-------- ----------
EQUITY CONTRACTS
(169) Russell 2000 Mini 12/16/2016 (22,347) (396)
-------- ----------
TOTAL SHORT FUTURES $(70,000) $ (615)
-------- ----------
TOTAL FUTURES $ 45,230 $ 1,449
======== ==========
================================================================================
32 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
------------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------------------------------------------------------------------------------------------------------------------
U.S. Equity Securities:
Common Stocks $ 449,009 $ - $ - $ 449,009
Preferred Stocks - 29,007 600 29,607
Exchange-Traded Funds 83,969 - - 83,969
International Equity Securities:
Common Stocks 16,712 - - 16,712
Exchange-Traded Funds 584,725 - - 584,725
Precious Metals and Commodity-
Related Securities:
Common Stocks 9,864 355 197 10,416
Exchange-Traded Funds 36,741 - - 36,741
Global Real Estate Equity Securities:
Common Stocks 13,165 - - 13,165
Preferred Stocks - 1,525 - 1,525
Exchange-Traded Funds 7,693 - - 7,693
Bonds:
Corporate Obligations - 186,615 - 186,615
Convertible Securities - 1,232 - 1,232
Eurodollar and Yankee Obligations - 21,425 - 21,425
Asset-Backed Securities - 7,121 - 7,121
Collateralized Mortgage Obligations - 1,702 - 1,702
Commercial Mortgage Securities - 81,455 - 81,455
U.S. Government Agency Issues - 111,516 - 111,516
U.S. Treasury Securities 249,868 4,893 - 254,761
Exchange-Traded Funds 267,154 - - 267,154
Money Market Instruments:
Commercial Paper - 16,997 - 16,997
Government & U.S. Treasury
Money Market Funds 73,971 - - 73,971
Futures(1) 3,022 - - 3,022
------------------------------------------------------------------------------------------------------------------
Total $1,795,893 $ 463,843 $ 797 $2,260,533
------------------------------------------------------------------------------------------------------------------
LIABILITIES LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------------------------------------------------------------------------------------------------------------------
Futures(1) $ (1,573) $ - $ - $ (1,573)
------------------------------------------------------------------------------------------------------------------
(1)Futures are valued at the unrealized appreciation/(depreciation) on the
investment.
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
================================================================================
PORTFOLIO OF INVESTMENTS | 33
================================================================================
------------------------------------------------------------------------------------------------------------------
RECONCILIATION OF LEVEL 3 INVESTMENTS
------------------------------------------------------------------------------------------------------------------
COMMERCIAL
COMMON PREFERRED CORPORATE MORTGAGE
STOCKS STOCKS OBLIGATIONS SECURITIES
------------------------------------------------------------------------------------------------------------------
Balance as of May 31, 2016 $148 $ 750 $ 7,818 $ 130
Purchases - - - -
Sales - - - -
Transfers into Level 3 - - - -
Transfers out of Level 3 - - (7,818) -
Net realized gain (loss) on investments - - (2,500) (2,150)
Change in net unrealized appreciation/
(depreciation) of investments 49 (150) 2,500 2,020
------------------------------------------------------------------------------------------------------------------
Balance as of November 30, 2016 $197 $ 600 $ - $ -
------------------------------------------------------------------------------------------------------------------
FAIR VALUE LEVEL TRANSFERS
--------------------------
For the period of June 1, 2016, through November 30, 2016, the table below
shows the transfers between Level 1, Level 2, and Level 3. The Fund's policy is
to recognize any transfers in and transfers out as of the beginning of the
reporting period in which the event or circumstance that caused the transfer
occurred.
TRANSFERS INTO TRANSFERS INTO TRANSFERS INTO
(OUT OF) (OUT OF) (OUT OF)
ASSETS ($ IN 000s) LEVEL 1 LEVEL 2 LEVEL 3
------------------------------------------------------------------------------------------------------------------
Common Stocks(I) $(910) $ 910 $ -
Corporate Obligations(II) $ - $7,818 $(7,818)
------------------------------------------------------------------------------------------------------------------
Total $(910) $8,728 $(7,818)
------------------------------------------------------------------------------------------------------------------
(I)Transferred from Level 1 to Level 2 due to an assessment of events at the
end of the current reporting period, these securities had adjustments to their
foreign market closing prices to reflect changes in value that occurred after
the close of foreign markets and prior to the close of the U.S. securities
markets.
(II)Transferred from Level 3 to Level 2 due to availability of significant
observable inputs.
================================================================================
34 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
November 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 28.5% of net assets at November 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 CATEGORIES AND DEFINITIONS
EURODOLLAR AND YANKEE OBLIGATIONS - Eurodollar obligations are U.S.
dollar-denominated instruments that are issued outside the U.S. capital
markets by foreign corporations and financial institutions and by foreign
branches of U.S. corporations and financial institutions. Yankee obligations
are dollar-denominated instruments that are issued by foreign issuers in the
U.S. capital markets.
ASSET-BACKED AND COMMERCIAL MORTGAGE-BACKED SECURITIES - Asset-backed
securities represent a participation in, or are secured by and payable from,
a stream of payments generated by particular assets. Commercial
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 35
================================================================================
mortgage-backed securities reflect an interest in, and are secured by,
mortgage loans on commercial real property. These securities represent
ownership in a pool of loans and are divided into pieces (tranches) with
varying maturities. The stated final maturity of such securities represents
the date the final principal payment will be made for the last outstanding
loans in the pool. The weighted average life is the average time for
principal to be repaid, which is calculated by assuming prepayment rates of
the underlying loans. The weighted average life is likely to be
substantially shorter than the stated final maturity as a result of
scheduled principal payments and unscheduled principal prepayments. Stated
interest rates on commercial mortgage-backed securities may change slightly
over time as underlying mortgages pay down.
COLLATERALIZED MORTGAGE OBLIGATIONS (CMOs) - Collateralized mortgage
obligations are debt obligations of a legal entity that are fully
collateralized by a portfolio of mortgages or mortgage-related securities.
CMOs are issued in multiple classes (tranches), with specific adjustable or
fixed interest rates, varying maturities, and must be fully retired no later
than its final distribution date. The cash flow from the underlying
mortgages is used to pay off each tranche separately. CMOs are designed to
provide investors with more predictable maturities than regular mortgage
securities, but such maturities can be difficult to predict because of the
effect of prepayments.
INTEREST-ONLY COMMERCIAL MORTGAGE-BACKED SECURITIES (CMBS IOs) - Represent
the right to receive only the interest payments on an underlying pool of
commercial mortgage loans. The purchase yield reflects an anticipated yield
based upon interest rates at the time of purchase and the estimated timing
and amount of future cash flows. Coupon rates after purchase vary from
period to period. The principal amount represents the notional amount of the
underlying pool on which current interest is calculated. CMBS IOs are backed
by loans that have various forms of prepayment protection, which include
lock-out provisions, yield maintenance provisions, and prepayment penalties.
This serves to moderate their prepayment risk. CMBS IOs are subject to
default-related prepayments that may have a negative impact on yield.
================================================================================
36 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
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.
REIT Real estate investment trust
STRIPS Separate trading of registered interest and principal of
securities
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 AMBAC Assurance 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.
o SPECIFIC NOTES
(a) The security, or a portion thereof, is segregated to cover the value of
open futures contracts at November 30, 2016.
(b) Restricted security that is not registered under the Securities Act of
1933. A resale of this security in the United States may occur in an
exempt transaction to a qualified institutional buyer as defined by
Rule 144A, and as such has been deemed liquid by USAA Asset Management
Company (the Manager) under liquidity guidelines approved by USAA
Mutual Funds Trust's Board of Trustees (the Board), unless otherwise
noted as illiquid.
(c) Security deemed illiquid by the Manager, under liquidity guidelines
approved by the Board. The aggregate market value of these
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 37
================================================================================
securities at November 30, 2016, was $5,725,000, which represented
0.3% of the Fund's net assets.
(d) Security was fair valued at November 30, 2016, by the Manager in
accordance with valuation procedures approved by the Board. The total
value of all such securities was $797,000, which represented less than
0.1% of the Fund's net assets.
(e) Securities with a value of $355,000, which represented less than 0.1%
of the Fund's net assets, were classified as Level 2 at November 30,
2016, due to the prices being adjusted to take into account significant
market movements following the close of local trading.
(f) At November 30, 2016, the issuer was in default with respect to
interest and/or principal payments.
(g) Variable-rate or floating-rate security - interest rate is adjusted
periodically. The interest rate disclosed represents the rate at
November 30, 2016.
(h) Security is perpetual and has no final maturity date but may be
subject to calls at various dates in the future.
(i) 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.
(j) U.S. government agency issues - Mortgage-backed securities issued by
certain U.S. Government Sponsored Enterprises (GSEs) such as the
Government National Mortgage Association (GNMA or Ginnie Mae) and
certain other U.S. government guaranteed securities are supported by
the full faith and credit of the U.S. government. Securities issued by
other GSEs, such as Freddie Mac (Federal Home Loan Mortgage Corporation
or FHLMC) and Fannie Mae (Federal National Mortgage Association or
FNMA), indicated with a "+", are supported only by the right of the GSE
to borrow from the U.S. Treasury, the discretionary authority of the
U.S. government to purchase the GSEs' obligations, or only by the
credit of the issuing agency, instrumentality, or corporation, and are
================================================================================
38 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
neither issued nor guaranteed by the U.S. Treasury. In September of
2008, the U.S. Treasury placed Fannie Mae and Freddie Mac under
conservatorship and appointed the Federal Housing Finance Agency
(FHFA) to act as conservator and oversee their daily operations. In
addition, the U.S. Treasury entered into purchase agreements with
Fannie Mae and Freddie Mac to provide them with capital in exchange for
senior preferred stock. While these arrangements are intended to ensure
that Fannie Mae and Freddie Mac can continue to meet their obligations,
it is possible that actions by the U.S. Treasury, FHFA, or others could
adversely impact the value of the Fund's investments in securities
issued by Fannie Mae and Freddie Mac.
(k) Zero-coupon security. Rate represents the effective yield at the date
of purchase.
(l) Commercial paper issued in reliance on the "private placement"
exemption from registration afforded by Section 4(a)(2) of the
Securities Act of 1933, as amended (Section 4(2) Commercial Paper).
Unless this commercial paper is subsequently registered, a resale of
this commercial paper in the United States must be effected in a
transaction exempt from registration under the Securities Act of 1933.
Section 4(2) commercial paper is normally resold to other investors
through or with the assistance of the issuer or an investment dealer
who makes a market in this security, and as such has been deemed liquid
by the Manager under liquidity guidelines approved by the Board, unless
otherwise noted as illiquid.
(m) Rate represents the money market fund annualized seven-day yield at
November 30, 2016.
(n) The contract value of futures purchased and/or sold as a percentage of
net assets is 2.0%.
(o) Security and cash with a value of $5,638,000 are segregated as
collateral for initial margin requirements on open futures contracts.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 39
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
November 30, 2016 (unaudited)
--------------------------------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $2,207,689) $2,257,511
Cash 3,700
Cash denominated in foreign currencies (identified cost of $106) 98
Receivables:
Capital shares sold 1,117
Dividends and interest 6,238
Securities sold 12,606
Variation margin on futures contracts 1,455
----------
Total assets 2,282,725
----------
LIABILITIES
Payables:
Securities purchased 22,853
Capital shares redeemed 879
Accrued management fees 1,208
Accrued transfer agent's fees 75
Other accrued expenses and payables 292
----------
Total liabilities 25,307
----------
Net assets applicable to capital shares outstanding $2,257,418
==========
NET ASSETS CONSIST OF:
Paid-in capital $2,182,151
Accumulated undistributed net investment income 36,204
Accumulated net realized loss on investments and futures transactions (12,181)
Net unrealized appreciation of investments and futures contracts 51,271
Net unrealized depreciation of foreign currency translations (27)
----------
Net assets applicable to capital shares outstanding $2,257,418
==========
Capital shares outstanding, no par value 91,895
==========
Net asset value, redemption price, and offering price per share $ 24.57
==========
See accompanying notes to financial statements.
================================================================================
40 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended November 30, 2016 (unaudited)
--------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $247) $ 20,398
Interest 13,115
----------
Total income 33,513
----------
EXPENSES
Management fees 7,890
Administration and servicing fees 1,732
Transfer agent's fees 2,425
Custody and accounting fees 4
Postage 149
Shareholder reporting fees 76
Trustees' fees 15
Registration fees 27
Professional fees 100
Other 19
----------
Total expenses 12,437
----------
NET INVESTMENT INCOME 21,076
----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
FOREIGN CURRENCY, AND FUTURES CONTRACTS
Net realized gain (loss) on:
Unaffiliated transactions 26,371
Affiliated transactions (Note 7) 281
Foreign currency transactions (1)
Futures transactions 5,639
Change in net unrealized appreciation/(depreciation) of:
Investments (8,477)
Foreign currency translations (9)
Futures contracts 1,284
----------
Net realized and unrealized gain 25,088
----------
Increase in net assets resulting from operations $ 46,164
==========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 41
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended November 30, 2016 (unaudited), and year ended May 31,
2016
--------------------------------------------------------------------------------------------------------
11/30/2016 5/31/2016
--------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 21,076 $ 50,584
Net realized gain (loss) on investments 26,652 (10,648)
Net realized gain on long-term capital gain distributions
from other investment companies - 664
Net realized loss on foreign currency transactions (1) (424)
Net realized gain on options - 92
Net realized gain (loss) on futures transactions 5,639 (658)
Change in net unrealized appreciation/(depreciation) of:
Investments (8,477) (184,974)
Foreign currency translations (9) 65
Options - 608
Futures contracts 1,284 2
-----------------------------
Increase (decrease) in net assets resulting from operations 46,164 (144,689)
-----------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income - (53,188)
Net realized gains - (11,037)
-----------------------------
Distributions to shareholders - (64,225)
-----------------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 90,612 223,863
Reinvested dividends - 63,588
Cost of shares redeemed (158,120) (326,323)
-----------------------------
Decrease in net assets from capital share transactions (67,508) (38,872)
-----------------------------
Net decrease in net assets (21,344) (247,786)
NET ASSETS
Beginning of period 2,278,762 2,526,548
-----------------------------
End of period $2,257,418 $2,278,762
=============================
Accumulated undistributed net investment income:
End of period $ 36,204 $ 15,128
=============================
CHANGE IN SHARES OUTSTANDING
Shares sold 3,674 9,224
Shares issued for dividends reinvested - 2,648
Shares redeemed (6,406) (13,437)
-----------------------------
Decrease in shares outstanding (2,732) (1,565)
=============================
See accompanying notes to financial statements.
================================================================================
42 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
November 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 Cornerstone Moderately
Aggressive Fund (the Fund), which is classified as diversified under the 1940
Act. The Fund's investment objective is to seek capital appreciation with a
secondary focus on current income.
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 | 43
================================================================================
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 events that
would materially affect the value of the Fund's foreign
================================================================================
44 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
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. 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 45
================================================================================
7. Futures are valued at the settlement price at the close of market on
the principal exchange on which they are traded or, in the absence of
any transactions that day, the settlement price on the prior trading
date if it is within the spread between the closing bid and asked
prices closest to the last reported sale price.
8. Options are valued by a pricing service at the National Best Bid/Offer
(NBBO) composite price, which is derived from the best available bid
and asked prices in all participating options exchanges determined to
most closely reflect market value of the options at the time of
computation of the Fund's NAV.
9. Forward foreign currency contracts are valued on a daily basis using
forward foreign currency exchange rates obtained from an independent
pricing service and are categorized in Level 2 of the fair value
hierarchy.
10. 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.
================================================================================
46 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would
be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The
three-level valuation hierarchy disclosed in the Portfolio of Investments is
based upon the transparency of inputs to the valuation of an asset or
liability as of the measurement date. The three levels are defined as
follows:
Level 1 - inputs to the valuation methodology are quoted prices (unadjusted)
in active markets for identical securities.
Level 2 - inputs to the valuation methodology are other significant
observable inputs, including quoted prices for similar securities, inputs
that are observable for the securities, either directly or indirectly, and
market-corroborated inputs such as market indexes.
Level 3 - inputs to the valuation methodology are unobservable and
significant to the fair value measurement, including the Manager's own
assumptions in determining the fair value.
The inputs or methodologies used for valuing securities are not necessarily
an indication of the risks associated with investing in those securities.
The valuation of securities falling in the Level 3 category are primarily
supported by discounted prior tender offer, or quoted prices obtained from
broker-dealers participating in the market for these 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. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - The Fund may buy, sell,
and enter into certain types of derivatives, including, but not limited to
futures contracts, options, options on futures contracts, and forward
currency contracts, under circumstances in which such instruments are
================================================================================
NOTES TO FINANCIAL STATEMENTS | 47
================================================================================
expected by the portfolio manager to aid in achieving the Fund's investment
objective. The Fund also may use derivatives in circumstances where the
portfolio manager believes they offer an economical means of gaining
exposure to a particular asset class or securities market or to keep cash on
hand to meet shareholder redemptions or other needs while maintaining
exposure to the market. With exchange-listed futures contracts and options,
counterparty credit risk to the Fund is limited to the exchange's
clearinghouse which, as counterparty to all exchange-traded futures
contracts and options, guarantees the transactions against default from the
actual counterparty to the transaction. The Fund's derivative agreements
held at November 30, 2016, did not include master netting provisions.
FUTURES CONTRACTS - The Fund is subject to equity price risk, interest rate
risk, and foreign currency exchange rate risk in the normal course of
pursuing its investment objectives. The Fund may use futures contracts to
gain exposure to, or hedge against, changes in the value of equities,
interest rates, or foreign currencies. A futures contract represents a
commitment for the future purchase or sale of an asset at a specified price
on a specified date. Upon entering into such contracts, the Fund is required
to deposit with the broker in either cash or securities an initial margin in
an amount equal to a certain percentage of the contract amount. Subsequent
payments (variation margin) are made or received by the Fund each day,
depending on the daily fluctuations in the value of the contract, and are
recorded for financial statement purposes as unrealized gains or losses.
When the contract is closed, the Fund records a realized gain or loss equal
to the difference between the value of the contract at the time it was
opened and the value at the time it was closed. Upon entering into such
contracts, the Fund bears the risk of interest or exchange rates or
securities prices moving unexpectedly in an unfavorable direction, in which
case, the Fund may not achieve the anticipated benefits of the futures
contracts.
================================================================================
48 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
FAIR VALUES OF DERIVATIVE INSTRUMENTS AS OF NOVEMBER 30, 2016*
(IN THOUSANDS)
ASSET DERIVATIVES LIABILITY DERIVATIVES
-------------------------------------------------------------------------------------------------------
STATEMENT OF STATEMENT OF
DERIVATIVES NOT ASSETS AND ASSETS AND
ACCOUNTED FOR AS LIABILITIES LIABILITIES
HEDGING INSTRUMENTS LOCATION FAIR VALUE LOCATION FAIR VALUE
-------------------------------------------------------------------------------------------------------
Interest rate contracts $ - Net unrealized $ 219**
appreciation of
investments and
futures contracts
-------------------------------------------------------------------------------------------------------
Equity contracts Net unrealized 3,022** Net unrealized 1,354**
appreciation of appreciation of
investments and investments and
futures contracts futures contracts
-------------------------------------------------------------------------------------------------------
Total $3,022 $1,573
-------------------------------------------------------------------------------------------------------
* For open derivative instruments as of November 30, 2016, see the Portfolio
of Investments, which also is indicative of activity for the six-month period
ended November 30, 2016.
** Includes cumulative appreciation/(depreciation) of futures as reported on
the Portfolio of Investments. Only current day's variation margin is
reported within the Statement of Assets and Liabilities.
THE EFFECT OF DERIVATIVE INSTRUMENTS ON THE STATEMENT OF OPERATIONS FOR THE
SIX-MONTH PERIOD ENDED NOVEMBER 30, 2016 (IN THOUSANDS)
CHANGE IN
UNREALIZED
DERIVATIVES NOT APPRECIATION/
ACCOUNTED FOR AS STATEMENT OF REALIZED GAIN (LOSS) (DEPRECIATION)
HEDGING INSTRUMENTS OPERATIONS LOCATION ON DERIVATIVES ON DERIVATIVES
-------------------------------------------------------------------------------------------------------
Interest rate contracts Net realized gain (loss) $3,926 $(221)
on Futures transactions /
Change in net unrealized
appreciation/(depreciation)
of Futures contracts
-------------------------------------------------------------------------------------------------------
Equity contracts Net realized gain (loss) 1,713 1,505
on Futures transactions /
Change in net unrealized
appreciation/(depreciation)
of Futures contracts
-------------------------------------------------------------------------------------------------------
Total $5,639 $1,284
-------------------------------------------------------------------------------------------------------
================================================================================
NOTES TO FINANCIAL STATEMENTS | 49
================================================================================
D. FEDERAL TAXES - The Fund's policy is to comply with the requirements of
the Internal Revenue Code of 1986, as amended, applicable to regulated
investment companies and to distribute substantially all of its taxable
income and net capital gains, if any, to its shareholders. Therefore, no
federal income tax provision is required.
E. FOREIGN TAXATION - Foreign income and capital gains on some foreign
securities may be subject to foreign taxes, which are reflected as a
reduction to such income and realized gains. The Fund records a liability
based on unrealized gains to provide for potential foreign taxes payable
upon the sale of these securities. Foreign taxes have been provided for in
accordance with the Fund's understanding of the applicable countries'
prevailing tax rules and rates.
F. INVESTMENTS IN SECURITIES - Securities transactions are accounted for on
the date the securities are purchased or sold (trade date). Gains or losses
from sales of investment securities are computed on the identified cost
basis. Dividend income, less foreign taxes, if any, is recorded on the
ex-dividend date. If the ex-dividend date has passed, certain dividends from
foreign securities are recorded upon notification. Interest income is
recorded daily on the accrual basis. Premiums and discounts are amortized
over the life of the respective securities, using the effective yield method
for long-term securities and the straight-line method for short-term
securities.
G. 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
================================================================================
50 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss
from investments.
Separately, net realized foreign currency gains/losses may arise from sales
of foreign currency, currency gains/losses realized between the trade and
settlement dates on security transactions, and from the difference between
amounts of dividends, interest, and foreign withholding taxes recorded on
the Fund's books and the U.S. dollar equivalent of the amounts received. At
the end of the Fund's fiscal year, net realized foreign currency
gains/losses are reclassified from accumulated net realized gains/losses to
accumulated undistributed net investment income on the Statement of Assets
and Liabilities, as such amounts are treated as ordinary income/loss for
federal income tax purposes. Net unrealized foreign currency exchange
gains/losses arise from changes in the value of assets and liabilities,
other than investments in securities, resulting from changes in the exchange
rate.
H. 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.
I. 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 November 30, 2016, there were no custodian and other bank credits.
J. INDEMNIFICATIONS - Under the Trust's organizational documents, its
officers and trustees are indemnified against certain liabilities arising
out of the
================================================================================
NOTES TO FINANCIAL STATEMENTS | 51
================================================================================
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.
K. 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 with other USAA Funds 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 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 November 30, 2016, the Fund paid CAPCO facility
fees of $7,000, which represents 3.2% of the total fees paid to
================================================================================
52 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
CAPCO by the USAA Funds. The Fund had no borrowings under this agreement during
the six-month period ended November 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 May 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 tax.
At May 31, 2016, the Fund had no capital loss carryforwards, for federal income
tax purposes.
For the six-month period ended November 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 November 30, 2016, were
$719,849,000 and $738,164,000, respectively.
As of November 30, 2016, the cost of securities, including short-term
securities, for federal income tax purposes, was approximately the same as
their cost reported in the financial statements.
Gross unrealized appreciation and depreciation of investments as of November
30, 2016, were $125,137,000 and $75,315,000, respectively, resulting in net
unrealized appreciation of $49,822,000.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 53
================================================================================
(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 of the Fund's assets,
subject to the authority of and supervision by the Board. The Manager is
authorized to select (with approval of the Board and without shareholder
approval) one or more subadvisers to manage the day-to-day investment of a
portion of the Fund's assets. For the six-month period ended November 30,
2016, the Fund had 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 0.65% of the Fund's average net assets.
Prior to October 1, 2016, the base investment management fee was 0.70% of
the Fund's average net assets.
The performance adjustment is calculated monthly by comparing the Fund's
performance over the performance period to that of the Lipper Index. The
Lipper Index tracks the total return performance of funds within the Lipper
category consisting of funds that allocate their investments across various
asset classes, including both domestic and foreign stocks, bonds, and money
market instruments with a focus on total return, and which have at least 25%
of their portfolio invested in securities traded outside of the United
States. The performance period for the Fund consists of the current month
plus the previous 35 months. The following table is utilized to determine
the extent of the performance adjustment:
OVER/UNDER PERFORMANCE
RELATIVE TO INDEX ANNUAL ADJUSTMENT RATE
(IN BASIS POINTS)(1) (IN BASIS POINTS)(1)
-------------------------------------------------------------------
+/- 100 to 400 +/- 4
+/- 401 to 700 +/- 5
+/- 701 and greater +/- 6
(1) Based on the difference between average annual performance of the Fund
and its relevant index, rounded to the nearest basis point. Average net
assets are calculated over a rolling 36-month period.
================================================================================
54 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
The annual performance adjustment rate is multiplied by the average net
assets of the Fund 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, the Fund will pay a positive
performance fee adjustment for a performance period whenever the Fund
outperforms the Lipper Index over that period, even if the Fund had overall
negative returns during the performance period.
For the six-month period ended November 30, 2016, the Fund incurred total
management fees, paid or payable to the Manager, of $7,890,000. For the
six-month period ended November 30, 2016, the Fund 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 the Fund's average net assets. For the six-month period ended
November 30, 2016, the Fund incurred administration and servicing fees, paid
or payable to the Manager, of $1,732,000.
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 November 30, 2016, the Fund reimbursed the
Manager $31,000 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 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 55
================================================================================
servicing of accounts that are held with such intermediaries. For the six-
month period ended November 30, 2016, the Fund incurred transfer agent's
fees, paid or payable to SAS, of $2,425,000.
D. UNDERWRITING SERVICES - USAA Investment Management Company provides
exclusive underwriting and distribution of the Fund's shares on a continuing
best-efforts basis and receives no fee or other compensation for these
services.
(6) TRANSACTIONS WITH AFFILIATES
The 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 November 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) TO
SELLER PURCHASER PURCHASER SELLER
-----------------------------------------------------------------------------------------------
Cornerstone Moderately Cornerstone Aggressive
Aggressive $ 403,000 $ 43,000
Cornerstone Moderately Target Managed Allocation
Aggressive 3,820,000 238,000
Cornerstone Moderately Cornerstone Moderately
Conservative Aggressive 97,000 (2,000)
Cornerstone Aggressive Cornerstone Moderately
Aggressive 770,000 42,000
================================================================================
56 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
(8) UPCOMING REGULATORY MATTERS
In October 2016, the U.S. Securities and Exchange Commission (SEC) adopted
final rules intended to modernize the reporting and disclosure of information
by registered investment companies. In part, the final rules amend Regulation
S-X to require standardized, enhanced disclosure about derivatives in
investment company financial statements. The Manager is currently evaluating
the impact these rules and amendments will have on the financial statements and
related disclosures. The compliance date for the amendments to Regulation S-X
is August 1, 2017, with other staggered compliance dates extending through
December 2018.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 57
================================================================================
(9) FINANCIAL HIGHLIGHTS
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
NOVEMBER 30, YEAR ENDED MAY 31,
-------------------------------------------------------------------------------------------
2016 2016 2015 2014 2013 2012
-------------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 24.08 $ 26.27 $ 26.02 $ 24.17 $ 21.48 $ 24.05
-------------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .23 .55 .56 .62 .61 .65
Net realized and
unrealized gain (loss) .26 (2.06) .33 1.83 2.69 (2.58)
--------------------------------------------------------------------------------------------
Total from investment
operations .49 (1.51) .89 2.45 3.30 (1.93)
--------------------------------------------------------------------------------------------
Less distributions from:
Net investment income - (.56) (.64) (.60) (.61) (.64)
Realized capital gains - (.12) - - - -
--------------------------------------------------------------------------------------------
Total distributions - (.68) (.64) (.60) (.61) (.64)
--------------------------------------------------------------------------------------------
Net asset value at
end of period $ 24.57 $ 24.08 $ 26.27 $ 26.02 $ 24.17 $ 21.48
===========================================================================================
Total return (%)* 2.03 (5.73) 3.47 10.24 15.49 (7.96)
Net assets at end of
period (000) $2,257,418 $2,278,762 $2,526,548 $2,491,487 $2,294,760 $2,030,805
Ratios to average
net assets:**
Expenses (%)(a) 1.08(c) 1.13 1.16 1.18(b) 1.22 1.27
Expenses, excluding
reimbursements (%)(a) 1.08(c) 1.13 1.16 1.18 1.22 1.27
Net investment income (%) 1.83(c) 2.18 2.14 2.46 2.54 2.87
Portfolio turnover (%) 33 87(d) 62 57 81 77(d)
* 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 November 30, 2016, average net assets
were $2,301,075,000.
(a) Reflects total annual operating expenses of the Fund before reductions
of any expenses paid indirectly. The Fund's expenses paid indirectly
decreased the expense ratios as follows:
- - - (.00%)(+) (.00%)(+) (.00%)(+)
(+) Represents less than 0.01% of average net assets.
(b) Prior to October 1, 2013, the Manager voluntarily agreed to limit the
annual expenses of the Fund to 1.28% of the Fund's average net assets.
(c) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(d) Reflects increased/decreased trading activity due to changes in
subadviser(s) and asset allocation strategies.
================================================================================
58 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
EXPENSE EXAMPLE
November 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 June 1, 2016, through
November 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 | 59
================================================================================
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 JUNE 1, 2016 -
JUNE 1, 2016 NOVEMBER 30, 2016 NOVEMBER 30, 2016
-------------------------------------------------------------
Actual $1,000.00 $1,020.30** $5.47**
Hypothetical
(5% return before expenses) 1,000.00 1,019.65** 5.47**
* Expenses are equal to the Fund's annualized expense ratio of 1.08%, 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 2.03% for the six-month period of June 1,
2016, through November 30, 2016.
** The Fund's annualized expense ratio of 1.08% above reflects a decrease in
management fees from 0.70% to 0.65%, effective October 1, 2016. Had this
decrease been in effect for the entire six-month period of June 1, 2016,
through November 30, 2016, the Fund's expense ratio would have been 1.04%,
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 JUNE 1, 2016 -
JUNE 1, 2016 NOVEMBER 30, 2016 NOVEMBER 30, 2016
-------------------------------------------------------------
Actual $1,000.00 $1,020.30 $5.27
Hypothetical
(5% return before expenses) 1,000.00 1,019.85 5.27
================================================================================
60 | USAA CORNERSTONE MODERATELY AGGRESSIVE 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] [LOGO OF RECYCLE PAPER]
USAA We know what it means to serve.(R) 10%
=============================================================================
27800-0117 (C)2017, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA PRECIOUS METALS AND MINERALS FUND]
==============================================================
SEMIANNUAL REPORT
USAA PRECIOUS METALS AND MINERALS FUND
FUND SHARES o INSTITUTIONAL SHARES o ADVISER SHARES
NOVEMBER 30, 2016
==============================================================
================================================================================
================================================================================
PRESIDENT'S MESSAGE
"AS THE NEW YEAR BEGINS, WHY NOT MAKE
A RESOLUTION TO PUT YOUR FINANCIAL HOUSE [PHOTO OF BROOKS ENGLEHARDT]
IN ORDER?"
--------------------------------------------------------------------------------
JANUARY 2017
Financial markets are unpredictable. Many factors can confound those who try to
predict the direction of the markets based on economic or political factors. In
other words, it's easy to get it wrong. And, even if one correctly forecasts
what will happen in the macroeconomic environment, predicting how the markets
will respond is another matter altogether.
Consider the response to the Presidential election. Stocks rose on Monday and
Tuesday (Election Day) at the prospect of a Hillary Clinton victory--virtually
a "sure thing," according to some media pundits. U.S. Treasury securities and
other segments of the bond market sold off as investors likely assumed a
continuation of current economic policy under another Democratic administration.
But these trends reversed on Tuesday evening when it became clear that Donald J.
Trump would be elected the 45th President of the United States. Asian and
European equity markets dropped and U.S. stock index futures plunged. The
decline in stock index futures suggested that U.S. stocks might fall when
trading began on Wednesday, however the opposite happened. Stock prices rose and
then rallied strongly, with major stock indexes hitting one record high after
another through the end of November 2016. U.S. Treasury prices fell, driving up
yields on longer-maturity U.S. Treasuries. (Yields move in the opposite
direction of prices.)
Few market participants would have forecasted such a scenario. But with
hindsight, we may be able to understand some of the reasons why the markets
behaved the way they did.
U.S. equity investors appeared to like President-elect Trump's promises of lower
tax rates, less regulation, and more fiscal stimulus through infrastructure
spending. Other explanations may lie overseas, such as complications relating to
the United Kingdom's decision to exit from the European Union ("Brexit") and
continued slow economic growth in China--uncertainties that may have
================================================================================
================================================================================
increased the attractiveness of U.S. stocks. As for bond investors, they may
have been worried about an increase in interest rates if economic growth picks
up under a Trump Administration. Higher growth rates typically correspond with
rising inflation, which in turn could prompt the Federal Reserve (the Fed) to
accelerate the pace of interest rate increases.
What actually happens, however, is yet to be seen. No one knows, except in the
most general terms, what President-elect Trump's plans and priorities will be or
how they could affect economic growth in 2017 and beyond. By extension, it is
also too early to forecast how inflation might be affected and how the Fed could
respond.
At USAA Investments, we are long-term, fundamental investors, who seek to look
at the full market cycle rather than current geopolitical events. We believe
measures such as assessing a company's intrinsic value compared to its current
price tend to be more effective at forecasting potential stock returns over
time. In selecting bonds, our analysts take a bottom-up approach to evaluating
each security individually, building portfolios on a bond-by-bond basis.
It is important to remember market conditions are always fluctuating and time
horizon matters. We believe that it is important to stay focused on your
long-term objectives, using an investment plan that is based on your personal
time horizon and risk tolerance. If you are uneasy about market risk in general
or have concerns about too much exposure to specific asset classes, please call
USAA to speak with an advisor. As the new year begins, why not make a resolution
to put your financial house in order?
Thank you for allowing us to help you in your efforts to achieve your financial
goals. At USAA Investments, we are committed to providing you with our best
advice, top-notch service, and a variety of mutual funds. On behalf of everyone
here, I wish you a happy and healthy 2017.
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 6
FINANCIAL INFORMATION
Portfolio of Investments 14
Notes to Portfolio of Investments 18
Financial Statements 20
Notes to Financial Statements 23
EXPENSE EXAMPLE 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)2017, USAA. All rights reserved.
200996-0117
================================================================================
================================================================================
FUND OBJECTIVE
THE USAA PRECIOUS METALS AND MINERALS FUND (THE FUND) SEEKS LONG-TERM CAPITAL
APPRECIATION AND TO PROTECT THE PURCHASING POWER OF YOUR CAPITAL AGAINST
INFLATION.
--------------------------------------------------------------------------------
TYPES OF INVESTMENTS
The Fund normally invests at least 80% of its assets in equity securities of
domestic and foreign companies (including those located in emerging markets)
principally engaged in the exploration, mining, or processing of gold and other
precious metals and minerals, such as platinum, silver, and diamonds. This 80%
policy may be changed upon at least 60 days' written notice to shareholders.
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
DAN DENBOW, CFA [PHOTO OF DAN DENBOW]
USAA Asset Management Company
--------------------------------------------------------------------------------
o PLEASE REVIEW THE PERFORMANCE OF GOLD AND GOLD STOCKS OVER THE REPORTING
PERIOD.
The price of gold ended lower for the reporting period ended November 30,
2016. Gold opened the reporting period at $1,215 an ounce and reached a
high of $1,366 on July 8, 2016. However, the price of the metal began to
decrease as the summer progressed, and dropped notably in October 2016. The
weakness could be attributed in part to concerns over the potential for the
U.S. dollar to strengthen in the wake of the late June 2016 United Kingdom
vote to exit the European Union and the Federal Reserve's (the Fed) efforts
toward normalizing interest rates. Gold would see another downward turn
following the U.S. presidential election, as U.S. Treasury rates moved
higher on speculation over the impact of a new Administration's policies on
growth and inflation. Higher U.S. interest rates would tend to support a
stronger U.S. dollar, which is generally a bearish development for gold.
Gold ended the reporting period at $1,173 an ounce, or approximately 3.5%
lower. Silver prices, by contrast, rose 3.3% for the reporting period,
while platinum prices declined 6.8%.
Shares of mining stocks were negatively impacted by the weakening in gold
prices, as reflected in the more than 7% decline of the NYSE Arca Gold
Miners Index. Shares for junior miners, as represented by the MVIS Global
Junior Miners Index, outperformed their larger counterparts and
================================================================================
2 | USAA PRECIOUS METALS AND MINERALS FUND
================================================================================
actually experienced modest gains in the aggregate, largely due to greater
exposure to silver on the part of index constituents.
o HOW DID THE USAA PRECIOUS METALS AND MINERALS FUND (THE FUND) PERFORM DURING
THE REPORTING PERIOD?
The Fund has three share classes: Fund Shares, Institutional Shares, and
Adviser Shares. For the six-month period ended November 30, 2016, the Fund
Shares, Institutional Shares, and Adviser Shares had a total return of
-8.42%, -8.23%, and -8.41%, respectively. This compares to a total
return of 6.01% for the S&P 500(R) Index, -7.38% for the NYSE Arca Gold
Miners (GDM) Index, and -5.50% for the Lipper Precious Metals Equity
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 PLEASE DISCUSS THE PRINCIPAL FACTORS IN THE FUND'S PERFORMANCE FOR THE
REPORTING PERIOD.
At the end of the reporting period, the Fund held 87.5% of assets in gold
stocks. During a period which saw junior mining companies outperform, the
Fund's tilt toward higher-quality, less-leveraged miners acted as a modest
constraint on returns relative to the benchmark.
In terms of specific company weightings, the leading detractor from
performance was the Fund's position in Eldorado Gold Corp. (Eldorado),
which operates a portfolio of wide-spread assets and saw its shares suffer
on concerns around political risk. Specifically, the company struggled to
realize the value of its mining assets in China given the operating
conditions there, while deployment of an asset in Greece was delayed by the
government's failure to issue the necessary approvals. We expect
Refer to page 8 for benchmark definitions.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
================================================================================
MANAGER'S COMMENTARY ON THE FUND | 3
================================================================================
Eldorado's shares to recover as the company was able to disentangle itself
from its assets in China and the outlook is for its Greece mine to
ultimately go into production mode. Another leading detractor was Platinum
Group Metals Ltd., a newer South African miner which experienced delays in
reaching the production stage and was forced to seek additional capital in
order to complete the development of its main asset. We expect that
pressure on the company's shares will ease now that production has begun,
and also believe the market has not fully recognized the value of a more
recent discovery by the company. A position in Primero Mining Corp., a
Canada-based company with mines in Canada and Mexico, was also a leading
detractor. The company's shares lagged on concerns over an acquisition of a
gold mine in Canada, which it has not been able to operate profitably and
which has diluted management's ability to focus on its principal asset in
Mexico.
On the positive side, contributions were led by a position in Mexican
miner Fresnillo plc. The company is the world's largest producer of silver
from ore, and it has seen its results boosted by the strengthening in the
metal's price. Another leading contributor was Royal Gold Inc., whose
shares benefited as a financially distressed mine in which a royalty
interest was purchased, putting the royalty stream on a firmer footing. A
position in Perseus Mining Ltd., performed well during the reporting
period, as the company's principal asset in Ghana experienced improved
operating results and a new Ivory Coast project showed signs of promise.
The Fund will typically have modest exposure to silver and platinum
stocks. For some time, we have maintained somewhat higher than average
silver exposure, having initially added to this weighting on the back of
weaker share prices for silver miners. More recently, we have trimmed this
exposure on relative value concerns and as we have seen opportunities
emerge among gold miners. At the end of the reporting period, the Fund's
weighting to silver was approximately 10%, down from around 14% at the end
of November 2015. We have maintained only nominal exposure to platinum
mining stocks, as the challenging
================================================================================
4 | USAA PRECIOUS METALS AND MINERALS FUND
================================================================================
labor environment in South Africa has led to concerns about production
costs for platinum. At the end of the reporting period the Fund held just
1.3% in platinum miners.
Gold prices continue to be impacted by expectations around the pace of the
Fed's interest rate increases, as well as the outlook for continued
stimulative policies from other leading central banks. Developments in
Europe also carry the potential to impact investor appetites for gold, as
spreading populist movements create heightened uncertainty around the
status of the Eurozone. Supply factors are favorable for gold, as capital
expenditures and exploration and production activity by miners have been
quiet.
Thank you for your continued confidence and investment in the Fund.
The USAA Precious Metals and Minerals Fund may be subject to stock market
risk and is non-diversified which means that it may invest a greater
percentage of its assets in a single issuer. Individual stocks will
fluctuate in response to the activities of individual companies, general
market, and economic conditions domestically and abroad. When redeemed or
sold, they may be worth more or less than the original cost. o The USAA
Precious Metals and Minerals Fund is subject to additional risks, such as
currency fluctuation, market illiquidity, political instability, and
increased price volatility. It may be more volatile than a fund that
diversifies across many industries and companies.
================================================================================
MANAGER'S COMMENTARY ON THE FUND | 5
================================================================================
INVESTMENT OVERVIEW
USAA PRECIOUS METALS AND MINERALS FUND SHARES (FUND SHARES)
(Ticker Symbol: USAGX)
--------------------------------------------------------------------------------
11/30/16 5/31/16
--------------------------------------------------------------------------------
Net Assets $570.0 Million $647.1 Million
Net Asset Value Per Share $12.73 $13.90
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 11/30/16
--------------------------------------------------------------------------------
5/31/16-11/30/16* 1 YEAR 5 YEARS 10 YEARS
-8.42% 46.83% -18.29% -3.07%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/16
--------------------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS
46.26% -15.81% -2.90%
--------------------------------------------------------------------------------
EXPENSE RATIO AS OF 5/31/16**
--------------------------------------------------------------------------------
1.34%
(Includes acquired fund fees and expenses of 0.01%)
HIGH DOUBLE-DIGIT RETURNS ARE ATTRIBUTABLE, IN PART, TO UNUSUALLY FAVORABLE
MARKET CONDITIONS AND MAY NOT BE REPEATED OR CONSISTENTLY ACHIEVED IN THE
FUTURE.
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 October 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 PRECIOUS METALS AND MINERALS FUND
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
LIPPER PRECIOUS USAA PRECIOUS METALS NYSE ARCA GOLD
METALS EQUITY AND MINERALS MINERS (GDM)
S&P 500 INDEX FUNDS INDEX FUND SHARES INDEX
11/30/06 $10,000.00 $10,000.00 $10,000.00 $10,000.00
12/31/06 10,140.28 9,785.43 9,790.00 9,559.17
01/31/07 10,293.63 9,723.88 9,871.00 9,483.60
02/28/07 10,092.30 9,914.45 10,072.00 9,591.54
03/31/07 10,205.18 10,010.14 10,103.00 9,469.12
04/30/07 10,657.22 10,194.52 10,107.00 9,521.14
05/31/07 11,029.11 10,246.37 10,170.00 9,413.95
06/30/07 10,845.88 10,107.71 10,005.00 9,107.72
07/31/07 10,509.60 10,364.99 10,177.00 9,629.85
08/31/07 10,667.14 9,772.24 9,797.00 9,029.04
09/30/07 11,066.08 11,834.00 11,851.00 10,853.74
10/31/07 11,242.11 13,309.78 13,522.00 12,149.39
11/30/07 10,772.11 12,012.43 12,109.00 11,145.20
12/31/07 10,697.38 12,182.07 12,499.00 11,239.02
01/31/08 10,055.74 13,020.26 13,602.00 12,278.37
02/29/08 9,729.07 14,134.94 14,786.00 13,000.27
03/31/08 9,687.06 12,866.56 13,564.00 11,722.80
04/30/08 10,158.85 12,148.31 12,695.00 10,684.91
05/31/08 10,290.43 12,968.19 13,652.00 11,318.47
06/30/08 9,422.91 13,196.91 14,156.00 11,870.70
07/31/08 9,343.70 11,616.34 12,607.00 10,677.81
08/31/08 9,478.85 10,270.26 11,169.00 9,223.82
09/30/08 8,634.22 9,003.30 9,859.00 8,284.37
10/31/08 7,184.12 5,578.03 5,842.00 5,119.00
11/30/08 6,668.63 6,562.97 7,214.00 6,533.53
12/31/08 6,739.58 8,211.96 9,427.00 8,275.75
01/31/09 6,171.53 8,230.44 9,330.00 8,373.81
02/28/09 5,514.40 8,206.88 9,388.00 8,171.16
03/31/09 5,997.43 9,203.23 10,651.00 9,094.15
04/30/09 6,571.44 8,672.87 9,915.00 8,098.16
05/31/09 6,939.00 11,266.04 13,071.00 10,885.66
06/30/09 6,952.77 10,001.44 11,356.00 9,309.42
07/31/09 7,478.65 10,692.48 12,207.00 9,798.80
08/31/09 7,748.67 10,787.89 12,295.00 9,730.44
09/30/09 8,037.81 12,127.49 13,860.00 11,150.21
10/31/09 7,888.49 11,733.39 13,381.00 10,463.52
11/30/09 8,361.67 13,905.86 15,952.00 12,578.21
12/31/09 8,523.18 13,131.22 15,311.00 11,417.91
01/31/10 8,216.57 11,886.46 13,784.00 10,073.68
02/28/10 8,471.09 12,716.66 14,748.00 10,876.01
03/31/10 8,982.28 13,244.11 15,158.00 10,976.76
04/30/10 9,124.09 14,673.14 17,058.00 12,542.16
05/31/10 8,395.53 14,177.61 16,604.00 12,325.40
06/30/10 7,956.03 14,533.23 16,973.00 12,901.32
07/31/10 8,513.46 14,228.82 16,455.00 11,990.35
08/31/10 8,129.13 15,564.88 18,121.00 13,303.85
09/30/10 8,854.61 16,811.03 19,463.00 13,922.38
10/31/10 9,191.52 17,461.47 19,661.00 14,226.01
11/30/10 9,192.70 18,112.26 20,409.00 14,797.95
12/31/10 9,807.06 19,055.22 21,424.00 15,385.65
01/31/11 10,039.50 16,934.39 18,692.00 13,509.22
02/28/11 10,383.44 18,505.78 20,240.00 14,992.98
03/31/11 10,387.57 18,691.79 20,445.00 15,083.28
04/30/11 10,695.20 19,514.30 21,634.00 15,605.08
05/31/11 10,574.14 18,368.85 20,255.00 14,578.68
06/30/11 10,397.88 17,415.18 19,496.00 13,716.52
07/31/11 10,186.44 18,273.20 20,415.00 14,292.63
08/31/11 9,633.09 19,382.73 22,073.00 15,773.90
09/30/11 8,955.90 16,297.43 19,031.00 13,861.79
10/31/11 9,934.72 17,634.76 20,070.00 14,790.64
11/30/11 9,912.76 17,714.28 20,105.00 15,186.19
12/31/11 10,014.16 15,377.70 17,243.00 13,005.00
01/31/12 10,462.95 17,196.03 19,209.00 14,269.08
02/29/12 10,915.39 16,901.65 18,702.00 13,998.51
03/31/12 11,274.60 15,096.34 16,842.00 12,535.25
04/30/12 11,203.83 14,339.72 16,028.00 11,732.15
05/31/12 10,530.48 12,863.54 14,374.00 11,086.13
06/30/12 10,964.35 13,071.41 14,619.00 11,352.24
07/31/12 11,116.64 12,832.80 14,112.00 10,870.24
08/31/12 11,367.02 14,089.42 15,571.00 12,168.37
09/30/12 11,660.76 15,881.52 17,705.00 13,629.98
10/31/12 11,445.45 15,519.94 17,299.00 13,434.20
11/30/12 11,511.85 14,214.65 15,616.00 12,091.60
12/31/12 11,616.77 13,855.66 15,198.00 11,904.06
01/31/13 12,218.47 12,839.61 13,861.00 10,686.03
02/28/13 12,384.33 11,493.32 12,280.00 9,622.48
03/31/13 12,848.78 11,475.22 12,399.00 9,751.07
04/30/13 13,096.34 9,538.86 10,083.00 7,814.41
05/31/13 13,402.68 9,159.04 9,454.00 7,610.40
06/30/13 13,222.70 7,592.30 7,874.00 6,312.44
07/31/13 13,895.53 8,439.82 8,870.00 6,956.49
08/31/13 13,493.09 9,073.82 9,612.00 7,255.14
09/30/13 13,916.23 8,330.38 8,729.00 6,480.29
10/31/13 14,555.92 8,336.14 8,752.00 6,496.65
11/30/13 14,999.50 7,427.40 7,709.00 5,745.63
12/31/13 15,379.23 7,226.78 7,399.00 5,522.91
01/31/14 14,847.51 7,889.29 8,131.00 6,119.03
02/28/14 15,526.69 8,802.27 9,220.00 6,759.92
03/31/14 15,657.20 8,114.25 8,454.00 6,177.39
04/30/14 15,772.94 8,329.75 8,692.00 6,321.28
05/31/14 16,143.20 7,864.39 8,012.00 5,878.15
06/30/14 16,476.68 9,223.65 9,612.00 6,920.32
07/31/14 16,249.45 9,021.04 9,356.00 6,803.50
08/31/14 16,899.51 9,175.20 9,680.00 7,002.26
09/30/14 16,662.51 7,515.07 7,802.00 5,617.60
10/31/14 17,069.50 6,284.19 6,429.00 4,586.43
11/30/14 17,528.58 6,586.26 6,758.00 4,858.15
12/31/14 17,484.42 6,620.54 6,787.00 4,876.76
01/31/15 16,959.55 7,447.21 7,793.00 5,869.44
02/28/15 17,934.24 7,222.69 7,454.00 5,624.08
03/31/15 17,650.62 6,361.38 6,511.00 4,849.31
04/30/15 17,819.95 6,939.68 7,189.00 5,347.42
05/31/15 18,049.10 6,849.80 7,051.00 5,194.60
06/30/15 17,699.71 6,347.45 6,499.00 4,708.93
07/31/15 18,070.54 5,190.17 5,102.00 3,655.23
08/31/15 16,980.27 5,321.14 5,274.00 3,731.56
09/30/15 16,560.12 5,135.73 5,090.00 3,647.14
10/31/15 17,957.03 5,501.74 5,493.00 3,983.85
11/30/15 18,010.43 5,042.78 4,987.00 3,645.82
12/31/15 17,726.38 5,061.09 4,987.00 3,679.39
01/31/16 16,846.72 5,110.42 4,987.00 3,802.64
02/29/16 16,823.99 6,568.09 6,557.00 5,175.93
03/31/16 17,965.30 6,990.95 6,994.00 5,383.73
04/30/16 18,034.95 8,858.54 8,955.00 6,895.42
05/31/16 18,358.82 7,904.76 7,995.00 6,073.00
06/30/16 18,406.39 9,612.54 9,685.00 7,456.00
07/31/16 19,085.01 10,528.08 10,525.00 8,206.12
08/31/16 19,111.81 9,044.73 8,932.00 6,873.53
09/30/16 19,115.42 9,451.22 9,375.00 7,134.28
10/31/16 18,766.73 8,757.73 8,593.00 6,613.80
11/30/16 19,461.75 7,469.83 7,322.00 5,627.96
[END CHART]
Data from 11/30/06 through 11/30/16.
See next page for benchmark definitions.
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 Precious Metals Equity Funds Index reflects the fees and
expenses of the underlying funds included in the index.
================================================================================
INVESTMENT OVERVIEW | 7
================================================================================
The graph on page 7 illustrates the comparison of a $10,000 hypothetical
investment in the USAA Precious Metals and Minerals Fund Shares to the following
benchmarks:
o The unmanaged S&P 500 Index represents the weighted average performance
of a group of 500 widely held, publicly traded stocks.
o The unmanaged Lipper Precious Metals Equity Funds Index tracks the total
return performance of the 10 largest funds within the Lipper Precious
Metals Equity Funds category.
o The NYSE Arca Gold Miners (GDM) Index is a modified market capitalization
weighted index comprised of publicly traded companies involved primarily in
the mining for gold and silver.
================================================================================
8 | USAA PRECIOUS METALS AND MINERALS FUND
================================================================================
USAA PRECIOUS METALS AND MINERALS FUND INSTITUTIONAL SHARES
(INSTITUTIONAL SHARES) (Ticker Symbol: UIPMX)
--------------------------------------------------------------------------------
11/30/16 5/31/16
--------------------------------------------------------------------------------
Net Assets $9.6 Million $14.1 Million
Net Asset Value Per Share $12.83 $13.98
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 11/30/16
--------------------------------------------------------------------------------
5/31/16-11/30/16* 1 YEAR 5 YEARS SINCE INCEPTION 8/01/08
-8.23% 47.30% -18.10% -5.67%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/16
--------------------------------------------------------------------------------
1 YEAR 5 YEARS SINCE INCEPTION 8/01/08
46.55% -15.61% -5.66%
--------------------------------------------------------------------------------
EXPENSE RATIO AS OF 5/31/16**
--------------------------------------------------------------------------------
1.00%
(Includes acquired fund fees and expenses of 0.01%)
HIGH DOUBLE-DIGIT RETURNS ARE ATTRIBUTABLE, IN PART, TO UNUSUALLY FAVORABLE
MARKET CONDITIONS AND MAY NOT BE REPEATED OR CONSISTENTLY ACHIEVED IN THE
FUTURE.
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 October 1, 2016, and is
calculated as a percentage of average net assets. The 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.
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).
================================================================================
INVESTMENT OVERVIEW | 9
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
USAA PRECIOUS
METALS AND
LIPPER PRECIOUS MINERALS FUND NYSE ARCA GOLD
METALS EQUITY INSTITUTIONAL MINERS (GDM)
S&P 500 INDEX FUNDS INDEX SHARES INDEX
07/31/08 $10,000.00 $10,000.00 $10,000.00 $10,000.00
08/31/08 10,144.65 8,841.22 9,185.00 8,638.30
09/30/08 9,240.68 7,750.54 8,107.00 7,758.49
10/31/08 7,688.73 4,801.88 4,804.00 4,794.05
11/30/08 7,137.03 5,649.77 5,932.00 6,118.79
12/31/08 7,212.97 7,069.32 7,756.00 7,750.42
01/31/09 6,605.01 7,085.23 7,676.00 7,842.25
02/28/09 5,901.73 7,064.94 7,727.00 7,652.47
03/31/09 6,418.69 7,922.66 8,769.00 8,516.86
04/30/09 7,033.02 7,466.10 8,168.00 7,584.09
05/31/09 7,426.40 9,698.44 10,766.00 10,194.65
06/30/09 7,441.13 8,609.80 9,360.00 8,718.47
07/31/09 8,003.95 9,204.69 10,063.00 9,176.78
08/31/09 8,292.93 9,286.83 10,136.00 9,112.76
09/30/09 8,602.38 10,440.02 11,430.00 10,442.41
10/31/09 8,442.58 10,100.77 11,036.00 9,799.31
11/30/09 8,948.99 11,970.94 13,161.00 11,779.76
12/31/09 9,121.85 11,304.09 12,631.00 10,693.11
01/31/10 8,793.70 10,232.54 11,376.00 9,434.21
02/28/10 9,066.10 10,947.22 12,175.00 10,185.61
03/31/10 9,613.20 11,401.28 12,516.00 10,279.97
04/30/10 9,764.97 12,631.46 14,090.00 11,746.00
05/31/10 8,985.23 12,204.89 13,719.00 11,543.00
06/30/10 8,514.87 12,511.02 14,027.00 12,082.36
07/31/10 9,111.44 12,248.97 13,604.00 11,229.21
08/31/10 8,700.12 13,399.13 14,982.00 12,459.34
09/30/10 9,476.55 14,471.88 16,095.00 13,038.60
10/31/10 9,837.13 15,031.81 16,263.00 13,322.96
11/30/10 9,838.39 15,592.06 16,886.00 13,858.59
12/31/10 10,495.91 16,403.81 17,730.00 14,408.99
01/31/11 10,744.67 14,578.08 15,469.00 12,651.67
02/28/11 11,112.78 15,930.81 16,757.00 14,041.24
03/31/11 11,117.20 16,090.94 16,930.00 14,125.81
04/30/11 11,446.44 16,799.01 17,916.00 14,614.49
05/31/11 11,316.87 15,812.95 16,781.00 13,653.24
06/30/11 11,128.23 14,991.97 16,154.00 12,845.81
07/31/11 10,901.94 15,730.60 16,922.00 13,385.35
08/31/11 10,309.72 16,685.74 18,300.00 14,772.59
09/30/11 9,584.96 14,029.74 15,779.00 12,981.86
10/31/11 10,632.53 15,180.99 16,641.00 13,851.75
11/30/11 10,609.03 15,249.45 16,674.00 14,222.19
12/31/11 10,717.55 13,237.99 14,300.00 12,179.45
01/31/12 11,197.87 14,803.31 15,933.00 13,363.30
02/29/12 11,682.08 14,549.90 15,517.00 13,109.90
03/31/12 12,066.53 12,995.78 13,977.00 11,739.52
04/30/12 11,990.79 12,344.44 13,303.00 10,987.41
05/31/12 11,270.14 11,073.66 11,933.00 10,382.40
06/30/12 11,734.49 11,252.61 12,136.00 10,631.62
07/31/12 11,897.47 11,047.20 11,721.00 10,180.21
08/31/12 12,165.44 12,128.97 12,934.00 11,395.94
09/30/12 12,479.81 13,671.71 14,710.00 12,764.76
10/31/12 12,249.38 13,360.44 14,374.00 12,581.41
11/30/12 12,320.44 12,236.78 12,976.00 11,324.04
12/31/12 12,432.74 11,927.74 12,634.00 11,148.40
01/31/13 13,076.69 11,053.06 11,518.00 10,007.70
02/28/13 13,254.21 9,894.10 10,209.00 9,011.66
03/31/13 13,751.28 9,878.52 10,308.00 9,132.08
04/30/13 14,016.22 8,211.59 8,385.00 7,318.36
05/31/13 14,344.09 7,884.62 7,865.00 7,127.30
06/30/13 14,151.46 6,535.88 6,551.00 5,911.74
07/31/13 14,871.55 7,265.47 7,377.00 6,514.90
08/31/13 14,440.85 7,811.26 7,996.00 6,794.59
09/30/13 14,893.70 7,171.26 7,264.00 6,068.93
10/31/13 15,578.33 7,176.22 7,283.00 6,084.25
11/30/13 16,053.07 6,393.92 6,420.00 5,380.91
12/31/13 16,459.47 6,221.22 6,163.00 5,172.32
01/31/14 15,890.40 6,791.55 6,775.00 5,730.60
02/28/14 16,617.28 7,577.49 7,680.00 6,330.81
03/31/14 16,756.96 6,985.20 7,044.00 5,785.26
04/30/14 16,880.83 7,170.72 7,242.00 5,920.01
05/31/14 17,277.09 6,770.11 6,676.00 5,505.01
06/30/14 17,633.99 7,940.24 8,019.00 6,481.02
07/31/14 17,390.80 7,765.82 7,802.00 6,371.62
08/31/14 18,086.53 7,898.53 8,071.00 6,557.77
09/30/14 17,832.89 6,469.40 6,507.00 5,261.00
10/31/14 18,268.46 5,409.78 5,366.00 4,295.29
11/30/14 18,759.78 5,669.82 5,640.00 4,549.76
12/31/14 18,712.53 5,699.33 5,667.00 4,567.19
01/31/15 18,150.79 6,410.98 6,505.00 5,496.85
02/28/15 19,193.94 6,217.70 6,227.00 5,267.07
03/31/15 18,890.40 5,476.23 5,442.00 4,541.48
04/30/15 19,071.62 5,974.07 6,007.00 5,007.97
05/31/15 19,316.86 5,896.69 5,897.00 4,864.85
06/30/15 18,942.93 5,464.24 5,432.00 4,410.01
07/31/15 19,339.80 4,467.99 4,268.00 3,423.20
08/31/15 18,172.96 4,580.74 4,412.00 3,494.69
09/30/15 17,723.30 4,421.12 4,258.00 3,415.62
10/31/15 19,218.33 4,736.21 4,599.00 3,730.96
11/30/15 19,275.48 4,341.11 4,172.00 3,414.38
12/31/15 18,971.47 4,356.87 4,177.00 3,445.83
01/31/16 18,030.03 4,399.33 4,177.00 3,561.25
02/29/16 18,005.70 5,654.18 5,499.00 4,847.37
03/31/16 19,227.17 6,018.20 5,868.00 5,041.98
04/30/16 19,301.71 7,625.93 7,506.00 6,457.71
05/31/16 19,648.34 6,804.86 6,697.00 5,687.49
06/30/16 19,699.25 8,275.02 8,115.00 6,982.70
07/31/16 20,425.54 9,063.16 8,819.00 7,685.21
08/31/16 20,454.21 7,786.21 7,487.00 6,437.21
09/30/16 20,458.08 8,136.14 7,861.00 6,681.40
10/31/16 20,084.90 7,539.15 7,209.00 6,193.96
11/30/16 20,828.74 6,430.45 6,146.00 5,270.71
[END CHART]
Data from 7/31/08 through 11/30/16.*
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Precious Metals and Minerals Fund Institutional Shares to the Fund's
benchmarks listed above (see page 8 for benchmark definitions).
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 Precious Metals Equity Funds Index reflects the fees and
expenses of the underlying funds included in the index.
*The performance of the S&P 500 Index, the Lipper Precious Metals Equity Funds
Index, and the NYSE Arca Gold Miners (GDM) Index is calculated from the end of
the month, July 31, 2008, while the inception date of the Institutional Shares
is August 1, 2008. There may be a slight variation of performance numbers
because of this difference.
================================================================================
10 | USAA PRECIOUS METALS AND MINERALS FUND
================================================================================
USAA PRECIOUS METALS AND MINERALS FUND ADVISER SHARES (ADVISER SHARES)
(Ticker Symbol: UPMMX)
--------------------------------------------------------------------------------
11/30/16 5/31/16
--------------------------------------------------------------------------------
Net Assets $17.4 Million $16.9 Million
Net Asset Value Per Share $12.63 $13.79
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 11/30/16
--------------------------------------------------------------------------------
5/31/16-11/30/16* 1 YEAR 5 YEARS SINCE INCEPTION 8/01/10
-8.41% 46.86% -18.42% -12.14%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/16
--------------------------------------------------------------------------------
1 YEAR 5 YEARS SINCE INCEPTION 8/01/10
46.20% -15.94% -12.05%
--------------------------------------------------------------------------------
EXPENSE RATIO AS OF 5/31/16**
--------------------------------------------------------------------------------
1.38%
(Includes acquired fund fees and expenses of 0.01%)
HIGH DOUBLE-DIGIT RETURNS ARE ATTRIBUTABLE, IN PART, TO UNUSUALLY FAVORABLE
MARKET CONDITIONS AND MAY NOT BE REPEATED OR CONSISTENTLY ACHIEVED IN THE
FUTURE.
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 October 1, 2016, and is
calculated as a percentage of average net assets. The 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.
================================================================================
INVESTMENT OVERVIEW | 11
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
USAA PRECIOUS
LIPPER PRECIOUS NYSE ARCA GOLD METALS AND
METALS EQUITY MINERS (GDM) MINERALS FUND
S&P 500 INDEX FUNDS INDEX INDEX ADVISER SHARES
07/31/10 $10,000.00 $10,000.00 $10,000.00 $10,000.00
08/31/10 9,548.56 10,938.98 11,095.47 11,031.00
09/30/10 10,400.72 11,814.77 11,611.32 11,845.00
10/31/10 10,796.45 12,271.90 11,864.55 11,963.00
11/30/10 10,797.84 12,729.28 12,341.55 12,416.00
12/31/10 11,519.47 13,391.99 12,831.70 13,028.00
01/31/11 11,792.50 11,901.47 11,266.75 11,366.00
02/28/11 12,196.50 13,005.84 12,504.21 12,302.00
03/31/11 12,201.36 13,136.57 12,579.52 12,424.00
04/30/11 12,562.70 13,714.63 13,014.71 13,144.00
05/31/11 12,420.50 12,909.61 12,158.68 12,302.00
06/30/11 12,213.46 12,239.37 11,439.64 11,837.00
07/31/11 11,965.10 12,842.39 11,920.11 12,393.00
08/31/11 11,315.13 13,622.16 13,155.50 13,396.00
09/30/11 10,519.69 11,453.82 11,560.79 11,548.00
10/31/11 11,669.42 12,393.69 12,335.46 12,177.00
11/30/11 11,643.64 12,449.58 12,665.35 12,193.00
12/31/11 11,762.74 10,807.43 10,846.22 10,451.00
01/31/12 12,289.89 12,085.35 11,900.47 11,641.00
02/29/12 12,821.33 11,878.47 11,674.82 11,332.00
03/31/12 13,243.27 10,609.69 10,454.45 10,200.00
04/30/12 13,160.15 10,077.94 9,784.66 9,706.00
05/31/12 12,369.21 9,040.48 9,245.88 8,703.00
06/30/12 12,878.85 9,186.57 9,467.82 8,848.00
07/31/12 13,057.72 9,018.88 9,065.83 8,540.00
08/31/12 13,351.82 9,902.03 10,148.47 9,421.00
09/30/12 13,696.85 11,161.52 11,367.46 10,709.00
10/31/12 13,443.95 10,907.40 11,204.18 10,461.00
11/30/12 13,521.94 9,990.04 10,084.44 9,441.00
12/31/12 13,645.19 9,737.75 9,928.03 9,190.00
01/31/13 14,351.94 9,023.66 8,912.20 8,377.00
02/28/13 14,546.77 8,077.50 8,025.19 7,422.00
03/31/13 15,092.32 8,064.78 8,132.43 7,488.00
04/30/13 15,383.10 6,703.90 6,517.25 6,092.00
05/31/13 15,742.94 6,436.96 6,347.10 5,710.00
06/30/13 15,531.53 5,335.87 5,264.61 4,755.00
07/31/13 16,321.84 5,931.50 5,801.74 5,355.00
08/31/13 15,849.13 6,377.08 6,050.82 5,799.00
09/30/13 16,346.15 5,854.58 5,404.59 5,265.00
10/31/13 17,097.55 5,858.63 5,418.23 5,279.00
11/30/13 17,618.58 5,219.97 4,791.88 4,652.00
12/31/13 18,064.61 5,078.97 4,606.13 4,463.00
01/31/14 17,440.04 5,544.59 5,103.30 4,904.00
02/28/14 18,237.82 6,186.23 5,637.80 5,562.00
03/31/14 18,391.12 5,702.69 5,151.97 5,100.00
04/30/14 18,527.07 5,854.14 5,271.97 5,241.00
05/31/14 18,961.97 5,527.08 4,902.40 4,828.00
06/30/14 19,353.68 6,482.37 5,771.57 5,796.00
07/31/14 19,086.78 6,339.98 5,674.15 5,641.00
08/31/14 19,850.34 6,448.32 5,839.92 5,834.00
09/30/14 19,571.97 5,281.59 4,685.10 4,700.00
10/31/14 20,050.02 4,416.52 3,825.10 3,873.00
11/30/14 20,589.26 4,628.81 4,051.72 4,070.00
12/31/14 20,537.39 4,652.91 4,067.24 4,089.00
01/31/15 19,920.87 5,233.89 4,895.14 4,693.00
02/28/15 21,065.76 5,076.10 4,690.51 4,490.00
03/31/15 20,732.61 4,470.77 4,044.35 3,922.00
04/30/15 20,931.50 4,877.20 4,459.77 4,330.00
05/31/15 21,200.67 4,814.03 4,332.32 4,246.00
06/30/15 20,790.26 4,460.98 3,927.26 3,911.00
07/31/15 21,225.85 3,647.65 3,048.48 3,074.00
08/31/15 19,945.21 3,739.69 3,112.14 3,175.00
09/30/15 19,451.70 3,609.38 3,041.73 3,063.00
10/31/15 21,092.53 3,866.62 3,322.55 3,304.00
11/30/15 21,155.25 3,544.06 3,040.63 3,001.00
12/31/15 20,821.59 3,556.93 3,068.63 3,001.00
01/31/16 19,788.34 3,591.60 3,171.42 3,001.00
02/29/16 19,761.64 4,616.05 4,316.75 3,946.00
03/31/16 21,102.23 4,913.23 4,490.06 4,211.00
04/30/16 21,184.04 6,225.78 5,750.81 5,391.00
05/31/16 21,564.47 5,555.46 5,064.90 4,811.00
06/30/16 21,620.34 6,755.69 6,218.34 5,830.00
07/31/16 22,417.46 7,399.12 6,843.94 6,336.00
08/31/16 22,448.93 6,356.63 5,732.55 5,377.00
09/30/16 22,453.18 6,642.31 5,950.02 5,642.00
10/31/16 22,043.60 6,154.92 5,515.94 5,171.00
11/30/16 22,859.99 5,249.79 4,693.75 4,407.00
[END CHART]
Data from 7/31/10 through 11/30/16.*
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Precious Metals and Minerals Fund Adviser Shares to the Fund's benchmarks
listed above (see page 8 for benchmark definitions).
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 Precious Metals Equity Funds Index reflects the fees and
expenses of the underlying funds included in the index.
*The performance of the S&P 500 Index, the Lipper Precious Metals Equity Funds
Index, and the NYSE Arca Gold Miners (GDM) 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.
================================================================================
12 | USAA PRECIOUS METALS AND MINERALS FUND
================================================================================
o TOP 10 EQUITY HOLDINGS - 11/30/16 o
(% of Net Assets)
Royal Gold, Inc. .......................................................... 4.9%
Newmont Mining Corp. ...................................................... 4.8%
Randgold Resources Ltd. ADR ............................................... 4.6%
Agnico-Eagle Mines Ltd. ................................................... 4.5%
Goldcorp, Inc. ............................................................ 4.4%
Newcrest Mining Ltd. ...................................................... 4.1%
Silver Wheaton Corp. ...................................................... 3.7%
Centerra Gold, Inc. ....................................................... 3.5%
Eldorado Gold Corp. ....................................................... 3.5%
Compania de Minas Buenaventura S.A. ADR ................................... 3.4%
o ASSET ALLOCATION - 11/30/16 o
[PIE CHART OF ASSET ALLOCATION]
GOLD 87.5%
SILVER 10.0%
MONEY MARKET INSTRUMENTS 1.7%
PLATINUM GROUP METALS 1.3%
[END CHART]
Percentages are of the net assets of the Fund and may not equal 100%.
You will find a complete list of securities that the Fund owns on pages 14-17.
================================================================================
INVESTMENT OVERVIEW | 13
================================================================================
PORTFOLIO OF INVESTMENTS
November 30, 2016 (unaudited)
-------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (98.8%)
COMMON STOCKS (98.8%)
GOLD (87.5%)
AFRICAN GOLD COMPANIES (4.3%)
900,000 AngloGold Ashanti Ltd. ADR* $ 9,846
403,000 Endeavour Mining Corp.* 6,069
3,200,000 Gold Fields Ltd. ADR 9,824
8,566,400 Great Basin Gold Ltd.*(a) -
6,500,000 Great Basin Gold Ltd.*(a),(b),(c) -
--------
25,739
--------
AUSTRALIAN GOLD COMPANIES (15.7%)
8,200,000 Doray Minerals Ltd.*(d) 2,991
7,063,636 Kingsgate Consolidated Ltd.* 1,278
6,289,968 Metals X Ltd.*(d) 2,950
1,700,000 Newcrest Mining Ltd.(d) 24,135
2,400,000 Northern Star Resources Ltd.(d) 6,252
7,900,000 OceanaGold Corp. 21,936
23,595,000 Perseus Mining Ltd.* 9,836
13,500,000 Ramelius Resources Ltd.*(d) 4,890
7,200,574 Saracen Mineral Holdings Ltd.*(d) 4,977
7,200,000 St. Barbara Ltd.*(d) 11,561
3,144,984 Westgold Resources Ltd.*(a) 2,909
--------
93,715
--------
EUROPEAN GOLD COMPANIES (6.9%)
8,500,000 Centamin plc 13,794
381,100 Randgold Resources Ltd. ADR 27,394
--------
41,188
--------
NORTH AMERICAN GOLD COMPANIES (57.2%)
660,000 Agnico-Eagle Mines Ltd. 27,093
8,161,500 Alacer Gold Corp.* 14,946
3,000,000 Alamos Gold, Inc. "A" 19,095
3,287,600 Asanko Gold, Inc.* 11,527
3,044,572 AuRico Metals, Inc.* 2,221
240,000 Axmin, Inc.*(b) 8
1,700,000 B2Gold Corp.* 4,113
================================================================================
14 | USAA PRECIOUS METALS AND MINERALS FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------------
900,000 Barrick Gold Corp. $ 13,518
4,072,700 Centerra Gold, Inc. 21,041
400,000 Detour Gold Corp.* 5,098
5,344,600 Dundee Precious Metals, Inc.* 8,156
7,562,000 Eldorado Gold Corp.* 20,720
2,000,000 Goldcorp, Inc. 26,380
1,800,000 Golden Star Resources Ltd.* 1,593
1,751,200 Guyana Goldfields, Inc.* 7,170
1,100,000 IAMGOLD Corp.* 4,037
3,900,000 Kinross Gold Corp.* 12,831
850,000 Kirkland Lake Gold, Inc.* 4,720
1,333,200 Klondex Mines Ltd.* 6,451
8,427,000 Mandalay Resources Corp. 4,203
5,757,622 Nautilus Minerals, Inc.*(b),(c) 772
2,000,000 New Gold, Inc.* 7,160
875,000 Newmont Mining Corp. 28,385
375,000 Northern Star Mining Corp.*(a),(b) -
535,700 Osisko Gold Royalties Ltd. 5,248
1,052,830 Pretium Resources, Inc.* 9,202
3,738,500 Primero Mining Corp.* 3,284
420,000 Royal Gold, Inc. 29,249
5,200,000 SEMAFO, Inc.* 15,833
1,600,000 Tahoe Resources, Inc. 15,377
420,000 Torex Gold Resources, Inc.* 6,291
1,900,000 Yamana Gold, Inc. 5,681
--------
341,403
--------
SOUTH AMERICAN GOLD COMPANIES (3.4%)
1,800,000 Compania de Minas Buenaventura S.A. ADR 20,106
--------
Total Gold (cost: $787,330) 522,151
--------
PLATINUM GROUP METALS (1.3%)
5,200,000 Platinum Group Metals Ltd.* (cost: $14,833) 8,060
--------
SILVER (10.0%)
750,000 Fresnillo plc(d) 11,220
696,000 MAG Silver Corp.* 8,632
1,050,000 Pan American Silver Corp. 17,693
1,200,000 Silver Wheaton Corp. 21,876
--------
Total Silver (cost: $58,540) 59,421
--------
Total Common Stocks (cost: $860,703) 589,632
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 15
================================================================================
-------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------------
WARRANTS (0.0%)
GOLD (0.0%)
NORTH AMERICAN GOLD COMPANIES (0.0%)
632,000 Primero Mining Corp.* (cost: $101) $ 67
--------
Total Equity Securities (cost: $860,804) 589,699
--------
MONEY MARKET INSTRUMENTS (1.7%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (1.7%)
10,391,932 State Street Institutional Treasury Money Market Fund Premier Class, 0.25%(e) 10,392
--------
Total Money Market Instruments (cost: $10,392) 10,392
--------
TOTAL INVESTMENTS (COST: $871,196) $600,091
========
-------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
-------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
-------------------------------------------------------------------------------------------------------------
Equity Securities:
Common Stocks $517,747 $71,885 $- $589,632
Warrants 67 - - 67
Money Market Instruments:
Government & U.S. Treasury
Money Market Funds 10,392 - - 10,392
-------------------------------------------------------------------------------------------------------------
Total $528,206 $71,885 $- $600,091
-------------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
-------------------------------------------------------------------------------------------------------------
RECONCILIATION OF LEVEL 3 INVESTMENTS
-------------------------------------------------------------------------------------------------------------
COMMON STOCKS
-------------------------------------------------------------------------------------------------------------
Balance as of May 31, 2016 $ 1,174
Purchases -
Sales -
Transfers into Level 3 -
Transfers out of Level 3 (1,174)
Net realized gain (loss) on investments -
Change in net unrealized appreciation/(depreciation) of investments -
-------------------------------------------------------------------------------------------------------------
Balance as of November 30, 2016 $ -
-------------------------------------------------------------------------------------------------------------
================================================================================
16 | USAA PRECIOUS METALS AND MINERALS FUND
================================================================================
FAIR VALUE LEVEL TRANSFERS
--------------------------
For the period of June 1, 2016, through November 30, 2016, the table below shows
the transfers between Level 1, Level 2, and Level 3. The Fund's policy is to
recognize any transfers in and transfers out as of the beginning of the
reporting period in which the event or circumstance that caused the transfer
occurred.
TRANSFERS INTO TRANSFERS INTO TRANSFERS INTO
(OUT OF) (OUT OF) (OUT OF)
ASSETS ($ IN 000s) LEVEL 1 LEVEL 2 LEVEL 3
-------------------------------------------------------------------------------------------------------------
Common Stocks(I),(II) $(63,947) $65,121 $(1,174)
-------------------------------------------------------------------------------------------------------------
(I) Transferred from Level 1 to Level 2 due to an assessment of events at
the end of the current reporting period, these securities had adjustments
to their foreign market closing prices to reflect changes in value that
occurred after the close of foreign markets and prior to the close of the
U.S. securities markets.
(II) Transferred from Level 3 to Level 1 due to the availability of significant
observable valuation inputs once the securities began actively trading.
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
November 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 83.8% of net assets at
November 30, 2016.
o CATEGORIES AND DEFINITIONS
WARRANTS - Entitle the holder to buy a proportionate amount of common
stock at a specified price for a stated period.
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) Security was fair valued at November 30, 2016, by USAA Asset
Management Company (the Manager) in accordance with valuation
procedures approved by USAA Mutual Funds Trust's Board of Trustees (the
Board). The total value of all such securities was $2,909,000, which
represented 0.5% of the Fund's net assets.
================================================================================
18 | USAA PRECIOUS METALS AND MINERALS FUND
================================================================================
(b) Security deemed illiquid by the Manager, under liquidity
guidelines approved by the Board. The aggregate market value of these
securities at November 30, 2016, was $780,000, which represented 0.1%
of the Fund's net assets.
(c) Restricted security that is not registered under the Securities
Act of 1933.
(d) Securities with a value of $68,976,000, which represented 11.6% of
the Fund's net assets, were classified as Level 2 at November 30, 2016,
due to the prices being adjusted to take into account significant
market movements following the close of local trading.
(e) Rate represents the money market fund annualized seven-day yield
at November 30, 2016.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 19
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
November 30, 2016 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $871,196) $ 600,091
Cash denominated in foreign currencies (identified cost of $1,770) 1,752
Receivables:
Capital shares sold 275
Dividends and interest 3,802
Securities sold 1,143
----------
Total assets 607,063
----------
LIABILITIES
Payables:
Securities purchased 7,966
Capital shares redeemed 367
Unrealized depreciation on foreign currency contracts held, at value 1
Accrued management fees 373
Accrued transfer agent's fees 58
Other accrued expenses and payables 1,296
----------
Total liabilities 10,061
----------
Net assets applicable to capital shares outstanding $ 597,002
==========
NET ASSETS CONSIST OF:
Paid-in capital $1,467,132
Accumulated undistributed net investment loss (24,439)
Accumulated net realized loss on investments (573,413)
Net unrealized depreciation of investments (271,105)
Net unrealized depreciation of foreign currency translations (1,173)
----------
Net assets applicable to capital shares outstanding $ 597,002
==========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $570,033/44,766 capital shares
outstanding, no par value) $ 12.73
==========
Institutional Shares (net assets of $9,602/749 capital
shares outstanding, no par value) $ 12.82
==========
Adviser Shares (net assets of $17,367/1,375 capital shares
outstanding, no par value) $ 12.63
==========
See accompanying notes to financial statements.
================================================================================
20 | USAA PRECIOUS METALS AND MINERALS FUND
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended November 30, 2016 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $161) $ 5,342
Interest 63
---------
Total income 5,405
---------
EXPENSES
Management fees 2,733
Administration and servicing fees:
Fund Shares 551
Institutional Shares 7
Adviser Shares 17
Transfer agent's fees:
Fund Shares 969
Institutional Shares 7
Adviser Shares 3
Distribution and service fees (Note 6D):
Adviser Shares 27
Custody and accounting fees:
Fund Shares 56
Institutional Shares 1
Adviser Shares 2
Postage:
Fund Shares 44
Adviser Shares 1
Shareholder reporting fees:
Fund Shares 21
Trustees' fees 15
Registration fees:
Fund Shares 25
Institutional Shares 13
Adviser Shares 7
Professional fees 53
Other 9
---------
Total expenses 4,561
---------
NET INVESTMENT INCOME 844
---------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY
Net realized gain (loss) on:
Investments (29,022)
Foreign currency transactions 9
Change in net unrealized appreciation/(depreciation) of:
Investments (21,688)
Foreign currency translations (241)
---------
Net realized and unrealized loss (50,942)
---------
Decrease in net assets resulting from operations $ (50,098)
=========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 21
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended November 30, 2016 (unaudited), and year ended
May 31, 2016
---------------------------------------------------------------------------------------------------
11/30/2016 5/31/2016
---------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income (loss) $ 844 $ (1,490)
Net realized loss on investments (29,022) (358,969)
Payment from USAA Asset Management Company for loss
realized on disposal of investments in violation of restrictions - 52
Net realized gain on foreign currency transactions 9 23
Change in net unrealized appreciation/(depreciation) of:
Investments (21,688) 421,095
Foreign currency translations (241) (929)
----------------------
Increase (decrease) in net assets resulting from operations (50,098) 59,782
----------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Fund Shares - -
Institutional Shares - -
Adviser Shares - -
----------------------
Distributions to shareholders - -
----------------------
NET DECREASE IN NET ASSETS FROM CAPITAL SHARE
TRANSACTIONS (NOTE 5)
Fund Shares (29,514) (3,482)
Institutional Shares (4,541) (128,077)
Adviser Shares 3,079 2,436
----------------------
Total net decrease in net assets from capital share
transactions (30,976) (129,123)
----------------------
Capital contribution from USAA Transfer Agency
Company (Note 6C):
Institutional Shares 13 -
----------------------
Net decrease in net assets (81,061) (69,341)
NET ASSETS
Beginning of period 678,063 747,404
----------------------
End of period $597,002 $ 678,063
======================
Accumulated undistributed net investment loss:
End of period $(24,439) $ (25,283)
======================
See accompanying notes to financial statements.
================================================================================
22 | USAA PRECIOUS METALS AND MINERALS FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
November 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 Precious Metals and Minerals Fund
(the Fund), which is classified as nondiversified under the 1940 Act. The Fund's
investment objective is to seek long-term capital appreciation and to protect
the purchasing power of shareholders' capital against inflation.
The Fund concentrates its investments in equity securities of domestic and
foreign companies engaged in the exploration, mining, or processing of gold and
other precious metals and minerals, such as platinum, silver, and diamonds. As
such, the Fund may be exposed to more risk than portfolios with a broader
industry diversification. As a nondiversified fund, the Fund may invest a
greater percentage of its assets in a single issuer. Because a relatively high
percentage of the Fund's total assets may be invested in the securities of a
single issuer or a limited number of issuers, the securities of the Fund may be
more sensitive to changes in the market value of a single issuer, a limited
number of issuers, or large companies generally. Such a focused investment
strategy may increase the volatility of the Fund's investment results because
this Fund may be more susceptible to risk associated with a single economic,
political, or regulatory event than a diversified fund.
The Fund consists of three classes of shares: Precious Metals and Minerals Fund
Shares (Fund Shares), Precious Metals and Minerals Fund
================================================================================
NOTES TO FINANCIAL STATEMENTS | 23
================================================================================
Institutional Shares (Institutional Shares), and Precious Metals and Minerals
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 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). The Adviser Shares permit investors to purchase
shares through financial intermediaries, including banks, broker-dealers,
insurance companies, investment advisers, plan sponsors, and financial
professionals that provide various administrative and distribution services.
A. SECURITY VALUATION - The Trust's Board of Trustees (the Board) has
established the Valuation Committee (the Committee), and subject to Board
oversight, the Committee administers and oversees the Fund's 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
================================================================================
24 | USAA PRECIOUS METALS AND MINERALS FUND
================================================================================
regarding application of the pricing and fair valuation policies and
procedures during the preceding quarter.
The Committee meets as often as necessary to make pricing and fair value
determinations. In addition, the Committee holds regular monthly meetings
to review prior actions taken by the Committee and USAA Asset Management
Company (the Manager), an affiliate of the Fund. Among other things, these
monthly meetings include a review and analysis of 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 25
================================================================================
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.
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.
================================================================================
26 | USAA PRECIOUS METALS AND MINERALS FUND
================================================================================
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. Level 2
securities include equity securities that are valued using market inputs
and other observable factors deemed by the Manager to appropriately
reflect fair value.
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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 27
================================================================================
income and net capital gains, if any, to its shareholders. Therefore, no
federal income tax provision is required.
D. FOREIGN TAXATION - Foreign income and capital gains on some foreign
securities may be subject to foreign taxes, which are reflected as a
reduction to such income and realized gains. The Fund records a liability
based on unrealized gains to provide for potential foreign taxes payable
upon the sale of these securities. Foreign taxes have been provided for in
accordance with the Fund's understanding of the applicable countries'
prevailing tax rules and rates.
E. INVESTMENTS IN SECURITIES - Securities transactions are accounted for on
the date the securities are purchased or sold (trade date). Gains or losses
from sales of investment securities are computed on the identified cost
basis. Dividend income, less foreign taxes, if any, is recorded on the ex-
dividend date. If the ex-dividend date has passed, certain dividends from
foreign securities are recorded upon notification. Interest income is
recorded daily on the accrual basis. Premiums and discounts on short-term
securities are amortized on a straight-line basis over the life of the
respective securities.
F. FOREIGN CURRENCY TRANSLATIONS - The Fund's assets may be invested in the
securities of foreign issuers and may be traded in foreign currency. Since
the Fund's accounting records are maintained in U.S. dollars, foreign
currency amounts are translated into U.S. dollars on the following bases:
1. Purchases and sales of securities, income, and expenses at the
exchange rate obtained from an independent pricing service on the
respective dates of such transactions.
2. Market value of securities, other assets, and liabilities at the
exchange rate obtained from an independent pricing service on a daily
basis.
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held.
Such fluctuations are included with the net realized and unrealized gain or
loss from investments.
================================================================================
28 | USAA PRECIOUS METALS AND MINERALS FUND
================================================================================
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 November 30, 2016, there were no custodian
and other bank credits.
H. REDEMPTION FEES - Adviser Shares 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
November 30, 2016, the Adviser Shares charged redemption fees of $3,000.
I. 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 | 29
================================================================================
J. 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 with other USAA Funds 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 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 November 30, 2016, the Fund paid CAPCO facility
fees of $2,000, which represents 1.1% 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 November 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 May 31, 2017, in
accordance with applicable federal tax law.
================================================================================
30 | USAA PRECIOUS METALS AND MINERALS FUND
================================================================================
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 tax.
At May 31, 2016, the Fund had net capital loss carryforwards of $544,339,000,
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 $ 15,316,000
Long-Term 529,023,000
------------
Total $544,339,000
============
For the six-month period ended November 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 November 30, 2016, were
$64,166,000 and $66,492,000, respectively.
As of November 30, 2016, the cost of securities, including short-term
securities, for federal income tax purposes, was approximately the same as their
cost reported in the financial statements.
Gross unrealized appreciation and depreciation of investments as of November 30,
2016, were $87,709,000 and $358,814,000, respectively, resulting in net
unrealized depreciation of $271,105,000.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 31
================================================================================
(5) CAPITAL SHARE TRANSACTIONS
At November 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 YEAR ENDED
ENDED NOVEMBER 30, 2016 MAY 31, 2016
---------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------
FUND SHARES:
Shares sold 4,101 $ 65,854 9,859 $ 104,119
Shares issued from
reinvested dividends -** -** -** -**
Shares redeemed (5,889) (95,368) (9,955) (107,601)
--------------------------------------------------
Net decrease from capital
share transactions (1,788) $(29,514) (96) $ (3,482)
==================================================
INSTITUTIONAL SHARES:
Shares sold 109 $ 1,763 3,002 $ 29,044
Shares issued from
reinvested dividends - - - -
Shares redeemed (365) (6,304) (15,094) (157,121)
--------------------------------------------------
Net decrease from capital
share transactions (256) $ (4,541) (12,092) $(128,077)
==================================================
ADVISER SHARES:
Shares sold 472 $ 7,929 798 $ 8,826
Shares issued from
reinvested dividends - - - -
Shares redeemed* (320) (4,850) (588) (6,390)
--------------------------------------------------
Net increase from capital
share transactions 152 $ 3,079 210 $ 2,436
==================================================
* Net of redemption fees, if any.
** Represents less than 500 shares or $500.
================================================================================
32 | USAA PRECIOUS METALS AND MINERALS FUND
================================================================================
(6) TRANSACTIONS WITH MANAGER
A. MANAGEMENT FEES - The Manager provides investment management services
to the Fund pursuant to an Advisory Agreement. Under this agreement, the
Manager is responsible for managing the business and affairs of the Fund,
and for directly managing the day-to-day investment of the Fund's assets,
subject to the authority of and supervision by the Board. The Manager is
authorized to select (with approval of the Board and without shareholder
approval) one or more subadvisers to manage the day-to-day investment of a
portion of the Fund's assets. For the six-month period ended November 30,
2016, the Fund had 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 0.75% 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 Precious Metals Equity Funds
Index. The Lipper Precious Metals Equity Funds Index tracks the total
return performance of the funds within the Lipper Precious Metals Equity
Funds category. 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)
------------------------------------------------------------------
+/- 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 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 33
================================================================================
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 Precious Metals Equity Funds Index over that period,
even if the class had overall negative returns during the performance
period.
For the six-month period ended November 30, 2016, the Fund incurred total
management fees, paid or payable to the Manager, of $2,733,000, which
included a performance adjustment for the Fund Shares, Institutional
Shares, and Adviser Shares of $(129,000), $(24,000), and $(3,000),
respectively. For the Fund Shares, Institutional Shares, and Adviser
Shares, the performance adjustments were (0.04)%, (0.36)%, 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 of the Fund Shares and Adviser Shares, and
0.10% of average net assets of the Institutional Shares. For the six-month
period ended November 30, 2016, the Fund Shares, Institutional Shares, and
Adviser Shares incurred administration and servicing fees, paid or payable
to the Manager, of $551,000, $7,000, and $17,000, 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 November 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.
================================================================================
34 | USAA PRECIOUS METALS AND MINERALS 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 $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 November 30, 2016, the Fund Shares,
Institutional Shares, and Adviser Shares incurred transfer agent's fees,
paid or payable to SAS, of $969,000, $7,000, and $3,000, respectively.
Additionally, the Institutional Shares recorded a capital contribution from
SAS of $13,000 at November 30, 2016, for adjustments related to corrections
to certain shareholder transactions.
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 November
30, 2016, the Adviser Shares incurred distribution and service (12b-1) fees
of $27,000.
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 Fund offers its Institutional Shares for investment by other USAA funds and
is one of 20 USAA mutual funds in which the affiliated USAA
================================================================================
NOTES TO FINANCIAL STATEMENTS | 35
================================================================================
fund-of-funds invest. The USAA fund-of-funds do not invest in the underlying
funds for the purpose of exercising management or control. As of November 30,
2016, the USAA fund-of-funds owned the following percentages of the total
outstanding shares of the Fund:
AFFILIATED USAA FUND OWNERSHIP %
--------------------------------------------------------------------------------
Cornerstone Conservative 0.1
Cornerstone Equity 0.2
Target Retirement Income 0.1
Target Retirement 2020 0.1
Target Retirement 2030 0.4
Target Retirement 2040 0.4
Target Retirement 2050 0.2
Target Retirement 2060 0.0*
* Represents less than 0.1%
The Manager is indirectly wholly owned by United Services Automobile Association
(USAA), a large, diversified financial services institution. At November 30,
2016, USAA and its affiliates owned 130,000 Adviser Shares, which represents
9.5% of the Adviser Shares outstanding and 0.3% of the Fund's outstanding
shares.
Certain trustees and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Fund.
(8) UPCOMING REGULATORY MATTERS
In October 2016, the U.S. Securities and Exchange Commission (SEC) adopted final
rules intended to modernize the reporting and disclosure of information by
registered investment companies. In part, the final rules amend Regulation S-X
to require standardized, enhanced disclosure about derivatives in investment
company financial statements. The Manager is currently evaluating the impact
these rules and amendments will have on the financial statements and related
disclosures. The compliance date for the amendments to Regulation S-X is August
1, 2017, with other staggered compliance dates extending through December 2018.
================================================================================
36 | USAA PRECIOUS METALS AND MINERALS FUND
================================================================================
(9) FINANCIAL HIGHLIGHTS - FUND SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
NOVEMBER 30, YEAR ENDED MAY 31,
----------------------------------------------------------------------------------------------
2016 2016 2015 2014 2013 2012
----------------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 13.90 $ 12.29 $ 14.12 $ 16.69 $ 25.80 $ 40.55
----------------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment
income (loss) (.02) .08 (.06)(a) (.02)(a) (.00)(a),(b) (.07)(a)
Net realized and
unrealized gain (loss) (1.15) 1.53(c) (1.61)(a) (2.53)(a) (8.67)(a) (10.76)(a)
----------------------------------------------------------------------------------------------
Total from investment
operations (1.17) 1.61 (1.67)(a) (2.55)(a) (8.67)(a) (10.83)(a)
----------------------------------------------------------------------------------------------
Less distributions from:
Net investment income - - (.16) (.02) - (.08)
Realized capital gains - - - - (.44) (3.84)
----------------------------------------------------------------------------------------------
Total distributions - - (.16) (.02) (.44) (3.92)
----------------------------------------------------------------------------------------------
Net asset value at
end of period $ 12.73 $ 13.90 $ 12.29 $ 14.12 $ 16.69 $ 25.80
==============================================================================================
Total return (%)* (8.42) 13.10(c) (11.77) (15.26) (34.23) (29.04)
Net assets at end
of period (000) $570,033 $647,140 $573,456 $710,487 $841,841 $1,577,939
Ratios to average
net assets:**
Expenses (%)(d) 1.19(e) 1.33 1.25 1.24 1.18 1.17
Net investment
income (loss) (%) .22(e) (.31) (.46) (.13) (.01) (.21)
Portfolio turnover (%) 9 17 8 10 15 20
* 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 November 30, 2016, average net assets were
$732,473,000.
(a) Calculated using average shares.
(b) Represents less than $0.01 per share.
(c) During the year ended May 31, 2016, the Manager reimbursed the Fund
Shares $50,000 for a loss incurred from the sale of a security that
exceeded the amount allowed to be held of that type of security under the
Fund's investment restrictions. The effect of this reimbursement on the
Fund Shares' net realized loss and total return was less than $0.01/0.01%
per share.
(d) Reflects total annual operating expenses of the Fund Shares before
reductions of any expenses paid indirectly. The Fund Shares' expenses paid
indirectly decreased the expense ratios as follows:
- - - (.00%)(+) (.00%)(+) (.00%)(+)
(+) Represents less than 0.01% of average net assets.
(e) Annualized. The ratio is not necessarily indicative of 12 months of operations.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 37
================================================================================
(9) FINANCIAL HIGHLIGHTS (CONTINUED) - INSTITUTIONAL SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
NOVEMBER 30, YEAR ENDED MAY 31,
--------------------------------------------------------------------------------------------
2016 2016 2015 2014 2013 2012
--------------------------------------------------------------------------------------------
Net asset value at
beginning of period $13.98 $ 12.34 $ 14.17 $ 16.77 $ 25.87 $ 40.67
-----------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment
income (loss)(a) .04 .01 (.03) .02 .06 .02
Net realized and
unrealized gain (loss)(a) (1.20) 1.63(b) (1.60) (2.56) (8.72) (10.81)
-----------------------------------------------------------------------------------------
Total from investment
operations(a) (1.16) 1.64 (1.63) (2.54) (8.66) (10.79)
-----------------------------------------------------------------------------------------
Less distributions from:
Net investment income - - (.20) (.06) - (.17)
Realized capital gains - - - - (.44) (3.84)
-----------------------------------------------------------------------------------------
Total distributions - - (.20) (.06) (.44) (4.01)
-----------------------------------------------------------------------------------------
Net asset value at
end of period $12.82 $ 13.98 $ 12.34 $ 14.17 $ 16.77 $ 25.87
=========================================================================================
Total return (%)* (8.30) 13.29(b) (11.46) (15.11) (34.10) (28.89)
Net assets at
end of period (000) $9,602 $14,050 $161,591 $183,768 $317,818 $145,782
Ratios to average
net assets:**
Expenses (%)(c) .83(d) .99 .99 1.00 .99 .97
Net investment
income (loss) (%) .51(d) .13 (.20) .11 .27 .05
Portfolio turnover (%) 9 17 8 10 15 20
* 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 November 30, 2016, average net assets were
$13,218,000.
(a) Calculated using average shares. For the six-month period ended
November 30, 2016, average shares were 825,000.
(b) During the year ended May 31, 2016, the Manager reimbursed the
Institutional Shares $1,000 for a loss incurred from the sale of a security
that exceeded the amount allowed to be held of that type of security under
the Fund's investment restrictions. The effect of this reimbursement on the
Institutional Shares' net realized loss and total return was less than
$0.01/0.01% per share.
(c) Reflects total annual operating expenses of the Institutional Shares
before reductions of any expenses paid indirectly. The Institutional
Shares' expenses paid indirectly decreased the expense ratios as follows:
- - - (.00%)(+) (.00%)(+) (.00%)(+)
(+) Represents less than 0.01% of average net assets.
(d) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
38 | USAA PRECIOUS METALS AND MINERALS FUND
================================================================================
(9) FINANCIAL HIGHLIGHTS (CONTINUED) - ADVISER SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
NOVEMBER 30, YEAR ENDED MAY 31,
------------------------------------------------------------------------------------------
2016 2016 2015 2014 2013 2012
------------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 13.79 $ 12.20 $ 14.01 $ 16.57 $ 25.68 $ 40.48
------------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment loss (.07) (.04)(a) (.08)(a) (.05)(a) (.06)(a) (.13)(a)
Net realized and
unrealized gain (loss) (1.09) 1.63(a),(b) (1.58)(a) (2.51)(a) (8.61)(a) (10.78)(a)
------------------------------------------------------------------------------------------
Total from investment
operations (1.16) 1.59(a) (1.66)(a) (2.56)(a) (8.67)(a) (10.91)(a)
------------------------------------------------------------------------------------------
Less distributions from:
Net investment income - - (.15) .00(c) - (.06)
Realized capital gains - - - - (.44) (3.84)
------------------------------------------------------------------------------------------
- - (.15) .00(c) (.44) (3.90)
------------------------------------------------------------------------------------------
Redemption fees added
to beneficial interests .00(c) .00(c) .00(c) .00(c) .00(c) .01
------------------------------------------------------------------------------------------
Net asset value at
end of period $ 12.63 $ 13.79 $ 12.20 $ 14.01 $ 16.57 $ 25.68
==========================================================================================
Total return (%)* (8.41) 13.03(b) (11.83) (15.45) (34.39) (29.26)
Net assets at
end of period (000) $17,367 $16,873 $12,357 $15,727 $11,052 $11,904
Ratios to average
net assets:**
Expenses (%)(d) 1.27(e) 1.37 1.39(f) 1.40 1.45 1.45
Expenses, excluding
reimbursements (%)(d) 1.27(e) 1.37 1.39 1.40 1.49 1.55
Net investment
income (loss) (%) .17(e) (.36) (.60) (.31) (.23) (.39)
Portfolio turnover (%) 9 17 8 10 15 20
* 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 November 30, 2016, average net assets
were $21,850,000.
(a) Calculated using average shares.
(b) During the year ended May 31, 2016, the Manager reimbursed the Adviser
Shares $1,000 for a loss incurred from the sale of a security that exceeded
the amount allowed to be held of that type of security under the Fund's
investment restrictions. The effect of this reimbursement on the
Institutional Shares' net realized loss and total return was less than
$0.01/0.01% per share.
(c) Represents less than $0.01 per share.
(d) Reflects total annual operating expenses of the Adviser Shares before
reductions of any expenses paid indirectly. The Adviser Shares' expenses
paid indirectly decreased the expense ratios as follows:
- - - (.00%)(+) (.00%)(+) (.00%)(+)
(+) Represents less than 0.01% of average net assets.
(e) Annualized. The ratio is not necessarily indicative of 12 months of operations.
(f) Prior to October 1, 2014, the Manager voluntarily agreed to limit the
annual expenses of the Adviser Shares to 1.45% of the Adviser Shares'
average net assets.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 39
================================================================================
EXPENSE EXAMPLE
November 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 June 1, 2016, through
November 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
================================================================================
40 | USAA PRECIOUS METALS AND MINERALS 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 JUNE 1, 2016 -
JUNE 1, 2016 NOVEMBER 30, 2016 NOVEMBER 30, 2016
--------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $ 915.80 $5.72
Hypothetical
(5% return before expenses) 1,000.00 1,019.10 6.02
INSTITUTIONAL SHARES
Actual 1,000.00 917.00 3.99
Hypothetical
(5% return before expenses) 1,000.00 1,020.91 4.20
ADVISER SHARES
Actual 1,000.00 915.90 6.10
Hypothetical
(5% return before expenses) 1,000.00 1,018.70 6.43
*Expenses are equal to the annualized expense ratio of 1.19% for Fund Shares,
0.83% for Institutional Shares, and 1.27% 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 (8.42)% for Fund Shares, (8.30)% for Institutional
Shares, and (8.41)% for Adviser Shares for the six-month period of June 1,
2016, through November 30, 2016.
================================================================================
EXPENSE EXAMPLE | 41
================================================================================
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] [LOGO OF RECYCLE PAPER]
USAA We know what it means to serve.(R) 10%
=============================================================================
23408-0117 (C)2017, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA INTERNATIONAL FUND]
==============================================================
SEMIANNUAL REPORT
USAA INTERNATIONAL FUND
FUND SHARES o INSTITUTIONAL SHARES o ADVISER SHARES
NOVEMBER 30, 2016
==============================================================
================================================================================
================================================================================
PRESIDENT'S MESSAGE
"AS THE NEW YEAR BEGINS, WHY NOT MAKE
A RESOLUTION TO PUT YOUR FINANCIAL HOUSE [PHOTO OF BROOKS ENGLEHARDT]
IN ORDER?"
--------------------------------------------------------------------------------
JANUARY 2017
Financial markets are unpredictable. Many factors can confound those who try to
predict the direction of the markets based on economic or political factors. In
other words, it's easy to get it wrong. And, even if one correctly forecasts
what will happen in the macroeconomic environment, predicting how the markets
will respond is another matter altogether.
Consider the response to the Presidential election. Stocks rose on Monday and
Tuesday (Election Day) at the prospect of a Hillary Clinton victory--virtually
a "sure thing," according to some media pundits. U.S. Treasury securities and
other segments of the bond market sold off as investors likely assumed a
continuation of current economic policy under another Democratic administration.
But these trends reversed on Tuesday evening when it became clear that Donald J.
Trump would be elected the 45th President of the United States. Asian and
European equity markets dropped and U.S. stock index futures plunged. The
decline in stock index futures suggested that U.S. stocks might fall when
trading began on Wednesday, however the opposite happened. Stock prices rose and
then rallied strongly, with major stock indexes hitting one record high after
another through the end of November 2016. U.S. Treasury prices fell, driving up
yields on longer-maturity U.S. Treasuries. (Yields move in the opposite
direction of prices.)
Few market participants would have forecasted such a scenario. But with
hindsight, we may be able to understand some of the reasons why the markets
behaved the way they did.
U.S. equity investors appeared to like President-elect Trump's promises of lower
tax rates, less regulation, and more fiscal stimulus through infrastructure
spending. Other explanations may lie overseas, such as complications relating to
the United Kingdom's decision to exit from the European Union ("Brexit") and
continued slow economic growth in China--uncertainties that may have
================================================================================
================================================================================
increased the attractiveness of U.S. stocks. As for bond investors, they may
have been worried about an increase in interest rates if economic growth picks
up under a Trump Administration. Higher growth rates typically correspond with
rising inflation, which in turn could prompt the Federal Reserve (the Fed) to
accelerate the pace of interest rate increases.
What actually happens, however, is yet to be seen. No one knows, except in the
most general terms, what President-elect Trump's plans and priorities will be or
how they could affect economic growth in 2017 and beyond. By extension, it is
also too early to forecast how inflation might be affected and how the Fed could
respond.
At USAA Investments, we are long-term, fundamental investors, who seek to look
at the full market cycle rather than current geopolitical events. We believe
measures such as assessing a company's intrinsic value compared to its current
price tend to be more effective at forecasting potential stock returns over
time. In selecting bonds, our analysts take a bottom-up approach to evaluating
each security individually, building portfolios on a bond-by-bond basis.
It is important to remember market conditions are always fluctuating and time
horizon matters. We believe that it is important to stay focused on your
long-term objectives, using an investment plan that is based on your personal
time horizon and risk tolerance. If you are uneasy about market risk in general
or have concerns about too much exposure to specific asset classes, please call
USAA to speak with an advisor. As the new year begins, why not make a resolution
to put your financial house in order?
Thank you for allowing us to help you in your efforts to achieve your financial
goals. At USAA Investments, we are committed to providing you with our best
advice, top-notch service, and a variety of mutual funds. On behalf of everyone
here, I wish you a happy and healthy 2017.
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 8
FINANCIAL INFORMATION
Portfolio of Investments 16
Notes to Portfolio of Investments 39
Financial Statements 41
Notes to Financial Statements 45
EXPENSE EXAMPLE 63
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE
RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY
USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN
PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS
ABOUT THE FUND.
(C)2017, USAA. All rights reserved.
200995-0117
================================================================================
================================================================================
FUND OBJECTIVE
THE USAA INTERNATIONAL FUND (THE FUND) SEEKS CAPITAL APPRECIATION.
--------------------------------------------------------------------------------
TYPES OF INVESTMENTS
The Fund normally invests at least 80% of its assets in equity securities of
foreign (including emerging markets) companies. The "equity securities" in which
the Fund principally invests are common stocks, depositary receipts, preferred
stocks, securities convertible into common stocks, and securities that carry the
right to buy common stocks, including rights and warrants.
The Fund will normally invest its assets in investments that are tied
economically to a number of countries throughout the world. However, the Fund
may invest a large percentage of its assets in securities of issuers in a single
country, a small number of countries, or a particular geographic region. The
Fund may invest in companies of any size, including mid- and small-cap
companies. Investments are selected primarily based on fundamental analysis of
individual issuers and their potential in light of their financial condition,
and market, economic, political, and regulatory conditions. Factors considered
may include analysis of an issuer's earnings, cash flows, competitive position,
and management ability. Quantitative models that systematically evaluate an
issuer's valuation, price and earnings momentum, earnings quality, and other
factors also may be considered.
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
MFS Investment Management Lazard Asset Management
MARCUS L. SMITH PAUL MOGHTADER, CFA
DANIEL LING TARAS IVANENKO, CFA
FILIPE M.G. BENZINHO CIPRIAN MARIN
CRAIG SCHOLL, CFA
Wellington Management Company LLP SUSANNE WILLUMSEN
JAMES H. SHAKIN, CFA
ANDREW M. CORRY, CFA
--------------------------------------------------------------------------------
o PLEASE REVIEW MARKET CONDITIONS DURING THE REPORTING PERIOD.
Results for world equity markets over the reporting period ended November
30, 2016 varied by region, reflecting macroeconomic and geopolitical
developments. U.S. equities led performance among developed markets, as the
U.S. economy continued to deliver moderate growth. In addition, the U.S.
market rallied in the immediate wake of the U.S. presidential election,
which removed an element of uncertainty about economic policy for the
country going forward. Returns for equities in other developed markets
generally trailed those for U.S. stocks by a wide margin. Japanese stocks
led overseas developed markets on the back of that government's
extraordinary fiscal and monetary stimulus efforts. However, European
equities lagged notably and were in negative territory. The region's
underperformance was driven in large part by the United Kingdom's (U.K.)
"Brexit" vote in late June 2016 to exit the European Union along with
concerns over a broader trend toward populism and nationalism among European
nations. In addition, European markets were pressured by weak economic
growth and concerns over the stability of the banking system. By contrast,
emerging-market stocks provided strong returns over the reporting period,
outstripping those seen in developed markets. Emerging market returns were
supported by a
================================================================================
2 | USAA INTERNATIONAL FUND
================================================================================
stabilization in commodity prices and signs of improved economic growth in
Russia and China.
For the reporting period, U.S. stocks finished higher as gauged by the 6.01%
return for the S&P 500(R) Index. Developed market international stocks
finished modestly lower as reflected in the -1.25% return for the MSCI EAFE
Index, while the MSCI Emerging Markets Index experienced a positive return
of 8.42% for the reporting period.
o HOW DID THE USAA INTERNATIONAL FUND (THE FUND) PERFORM DURING THE REPORTING
PERIOD?
The Fund has three share classes: Fund Shares, Institutional Shares, and
Adviser Shares. For the reporting period ended November 30, 2016, the Fund
Shares, Institutional Shares, and Adviser Shares had a total return of
0.64%, 0.68%, and 0.53%, respectively. This compares to returns of -0.26%
for the Lipper International Funds Index and -1.25% for the MSCI EAFE Index.
USAA Asset Management Company (the Manager) is the Fund's investment
adviser. As the investment adviser, USAA Asset Management Company employs
dedicated resources to support the research, selection, and monitoring of
the Fund's subadvisers. MFS Investment Management (MFS), Wellington
Management Company LLP (Wellington Management) and Lazard Asset Management
(Lazard) are the subadvisers to the Fund. The subadvisers provide day-to-day
discretionary management for the Fund's assets.
o WHAT WERE THE PRINCIPAL FACTORS IN LAZARD'S PERFORMANCE RELATIVE TO THE
INDEX?
Stock selection was favorable as the Lazard portfolio outperformed the MSCI
EAFE Index in nine out of eleven sectors. Information
Refer to page 9 for benchmark definitions.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
You will find a complete list of securities that the Fund owns on pages
16-38.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 3
================================================================================
technology and materials holdings were particularly strong, providing nearly
half of the excess return. The industrials sector was the only sector where
the portfolio underperformed to a significant extent. Geographically,
holdings in Israel, Norway, and Sweden were the largest positive
contributors, while Australia and Hong Kong positions detracted from
relative return.
Stocks which provided the greatest contribution to Lazard's returns in the
reporting period included Subsea 7 S.A., the Norwegian deep sea energy
engineering and construction. The company has been able to maintain its
margins through the volatile reporting period in energy prices and continues
to build out its order flow. Melrose Industries plc, the U.K. domiciled
metal fabricator, rose in the reporting period as well. The company acquired
Nortek, a U.S. manufacturer of air management equipment used in security,
home automation and power and energy management. The acquisition is expected
to be accretive to earnings in 2017 with significant synergies. Showa Denko
K.K., a Japanese specialty chemical firm, recovered fully from its sell-off
in the first quarter of 2016 as it enjoys strong demand for its Li-on
Battery materials and high-purity gases.
Detractors for the reporting period included Berendsen plc (Berendsen), the
U.K.-based commercial supplier of work wear. Profits have disappointed, as
the company has had to deal with cost issues to maintain service levels.
Lazard expects the operational side of Berendsen's business to be corrected
in early 2017 and continues to hold the stock. Dart Group plc, the
U.K.-based airline tour operator, sold off after the Brexit vote and
continues to slump with the Brexit uncertainty and a weak pound. Lazard sold
the position. U.K. real estate developer Bellway plc sold off as the outcome
of the Brexit vote raised fears about the potential erosion of London's
position as the financial center of Europe. Lazard believes the stock became
oversold and maintained the position.
The performance of Lazard's model stabilized during the reporting period and
delivered positive discrimination, with value metrics being particularly
effective. Sentiment and growth measures were less consistent through the
================================================================================
4 | USAA INTERNATIONAL FUND
================================================================================
reporting period as investor risk sentiment has shifted almost monthly,
while financial quality measures were negative.
In Lazard's view, while the markets have navigated the period after the
Brexit vote far better than expected, the medium-term ramifications could
pose a significant challenge for Europe and the U.K. With the results of the
December 2016 constitutional reform vote in Italy and the 2017 general
elections scheduled to occur in France, Germany and, likely, Spain, politics
have the potential to undermine risk assets in the near term.
O WHAT WERE THE PRINCIPAL FACTORS IN MFS'S PERFORMANCE RELATIVE TO THE INDEX?
An overweight position in the technology sector contributed to performance
relative to the MSCI EAFE Index, highlighted by holdings of semiconductor
manufacturer Taiwan Semiconductor Manufacturing Co. Ltd. ADR. An underweight
position in the utilities and telecommunication services sector also aided
relative returns. Strong stock selection in the transportation sector
boosted relative performance, most notably a position in the Canadian
National Railway Co. Elsewhere, an underweight position in pharmaceutical
company Novo Nordisk A/S "B" (Denmark) and holdings in apparel company
Global Brands Group Holding Ltd. (Hong Kong), integrated energy company
Suncor Energy, Inc. (Canada) and fast food restaurant company Yum! Brands,
Inc., bolstered relative returns. Additionally, overweight positions in
financial services firm ING Groep N.V. (Netherlands), the world's largest
luxury goods company LVMH Moet Hennessy Louis Vuitton SE (France) and
automotive component manufacturer Denso Corp. (Japan), also supported
relative performance. Finally, while investment decisions are driven by
individual company fundamentals, the MFS portfolio's relative currency
exposure contributed to relative performance.
On the downside, weak stock selection in the basic materials sector
detracted from relative results, in particular, a lack of exposure to mining
company BHP Billiton (U.K.). Overweight positions in the consumer staples
and leisure sectors also detracted from relative results.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 5
================================================================================
Within the consumer staples sector, overweight positions in household
products manufacturer Reckitt Benckiser Group plc (U.K.) and food processing
company DANONE S.A. (France) dampened relative returns. Within the leisure
sector an overweight position in entertainment company Sky plc (U.K.)
weighed on relative performance. Stocks in other sectors that held back
relative results included an underweight position in banking and financial
services company HSBC Holdings plc (U.K.). Additionally, overweight
positions in medical products and equipment manufacturer Terumo Corp.
(Japan), pharmaceutical and diagnostic company Roche Holding AG
(Switzerland) and television advertising and broadcasting services provider
ProSiebenSat.1 Media AG (Germany) detracted from relative performance, as
did not owning shares in global energy and petrochemicals company Royal
Dutch Shell plc "B" (U.K.) and car maker Toyota Motor Corp. (Japan).
At the end of the reporting period, the MFS portfolio's largest overweight
versus the benchmark was the consumer staples sector, where MFS continues to
view companies as having more durable business models, greater geographical
diversification, and less earnings volatility than the overall market. The
financial services sector remains MFS' largest underweight, on the view that
most developed market commercial banks and insurance companies cannot grow
faster than global gross domestic product through a full economic cycle. MFS
will continue to focus on company fundamentals and valuations rather than
macroeconomic forecasts, while seeking to take advantage of relative
valuation shifts in the market.
O WHAT WERE THE PRINCIPAL FACTORS IN WELLINGTON MANAGEMENT'S PERFORMANCE
RELATIVE TO THE INDEX?
Security selection was the main driver of strong relative performance,
largely due to positive selection in information technology, financials,
energy, consumer discretionary, and health care sectors. Marginally
offsetting these positive contributions to relative performance was weak
selection in the materials sector. Sector allocation, a fallout of
Wellington Management's stock selection process, also contributed to
relative performance during the reporting period. The portfolio managed by
================================================================================
6 | USAA INTERNATIONAL FUND
================================================================================
Wellington Management benefitted from underweight allocations to the
poor-performing consumer staples and health care sectors, and an overweight
allocation to the strong-performing materials sector.
Top individual contributors to relative performance during the reporting
period included Japanese software and services provider Fujitsu Ltd., Swiss
developer and manufacturer of semiconductors STMicroelectronics N.V., and
Petroleo Brasileiro, S.A., a Brazilian energy company that produces,
refines, and transports natural gas. Top individual detractors from relative
performance included Spanish bank Banco Popular Espanol, U.K.-based
distributer of specialty building products SIG plc, and J Sainsbury plc, a
U.K. operator of supermarkets and convenience stores.
At the end of the reporting period, the Wellington Management portion of the
Fund had overweight allocations to the information technology, energy,
financials, and materials sectors. Leading underweight allocations were to
consumer staples, health care, and real estate.
Thank you for allowing us to help you manage your investments.
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 United
States. 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.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 7
================================================================================
INVESTMENT OVERVIEW
USAA INTERNATIONAL FUND SHARES (FUND SHARES)
(Ticker Symbol: USIFX)
--------------------------------------------------------------------------------
11/30/16 5/31/16
--------------------------------------------------------------------------------
Net Assets $1.4 Billion $1.4 Billion
Net Asset Value Per Share $26.57 $26.40
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 11/30/16
--------------------------------------------------------------------------------
5/31/16-11/30/16* 1 YEAR 5 YEARS 10 YEARS
0.64% -2.27% 5.97% 2.65%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/16
--------------------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS
1.75% 6.95% 2.61%
--------------------------------------------------------------------------------
EXPENSE RATIO AS OF 5/31/16**
--------------------------------------------------------------------------------
1.13%
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 October 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.
================================================================================
8 | USAA INTERNATIONAL FUND
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
USAA INTERNATIONAL LIPPER INTERNATIONAL MSCI EAFE
FUND SHARES FUNDS INDEX INDEX
11/30/06 $10,000.00 $10,000.00 $10,000.00
12/31/06 10,281.00 10,318.65 10,313.93
01/31/07 10,502.00 10,412.92 10,383.72
02/28/07 10,453.00 10,398.25 10,467.50
03/31/07 10,639.00 10,701.32 10,734.32
04/30/07 11,005.00 11,136.97 11,211.05
05/31/07 11,176.00 11,466.44 11,407.76
06/30/07 11,188.00 11,502.81 11,421.69
07/31/07 10,921.00 11,348.09 11,253.48
08/31/07 10,974.00 11,235.44 11,077.62
09/30/07 11,393.00 11,907.23 11,670.27
10/31/07 11,721.00 12,495.94 12,128.81
11/30/07 11,412.00 11,978.19 11,729.97
12/31/07 11,189.00 11,788.60 11,465.96
01/31/08 10,382.00 10,790.64 10,406.75
02/29/08 10,500.00 10,808.25 10,555.85
03/31/08 10,606.00 10,677.80 10,444.78
04/30/08 11,083.00 11,288.24 11,011.70
05/31/08 11,320.00 11,457.28 11,118.93
06/30/08 10,362.00 10,474.40 10,209.54
07/31/08 10,072.00 10,110.30 9,881.86
08/31/08 9,734.00 9,703.43 9,481.41
09/30/08 8,730.00 8,425.13 8,110.49
10/31/08 7,209.00 6,651.14 6,473.93
11/30/08 6,659.00 6,218.56 6,124.01
12/31/08 7,245.00 6,645.88 6,492.20
01/31/09 6,429.00 5,969.50 5,855.10
02/28/09 5,847.00 5,421.74 5,254.41
03/31/09 6,297.00 5,824.35 5,587.41
04/30/09 6,845.00 6,545.41 6,302.83
05/31/09 7,661.00 7,432.58 7,048.49
06/30/09 7,542.00 7,317.66 7,008.40
07/31/09 8,375.00 8,054.34 7,648.28
08/31/09 8,656.00 8,345.71 8,064.03
09/30/09 9,119.00 8,766.45 8,372.78
10/31/09 8,966.00 8,525.66 8,268.16
11/30/09 9,348.00 8,836.95 8,433.70
12/31/09 9,595.00 8,991.58 8,555.17
01/31/10 9,101.00 8,557.27 8,178.25
02/28/10 9,101.00 8,602.59 8,122.18
03/31/10 9,668.00 9,161.05 8,629.20
04/30/10 9,509.00 9,056.33 8,473.06
05/31/10 8,461.00 8,118.21 7,498.13
06/30/10 8,461.00 8,012.49 7,423.36
07/31/10 9,247.00 8,741.68 8,127.30
08/31/10 8,903.00 8,447.67 7,874.97
09/30/10 9,822.00 9,292.45 8,646.61
10/31/10 10,230.00 9,632.31 8,958.99
11/30/10 9,775.00 9,279.76 8,527.66
12/31/10 10,542.00 9,983.60 9,218.20
01/31/11 10,650.00 10,129.32 9,435.72
02/28/11 10,927.00 10,414.68 9,746.84
03/31/11 10,862.00 10,312.16 9,528.39
04/30/11 11,677.00 10,857.32 10,097.94
05/31/11 11,396.00 10,541.35 9,799.60
06/30/11 11,253.00 10,356.49 9,676.90
07/31/11 11,084.00 10,167.06 9,523.01
08/31/11 10,087.00 9,269.12 8,663.18
09/30/11 8,968.00 8,184.49 7,837.69
10/31/11 9,991.00 9,017.18 8,593.40
11/30/11 9,722.00 8,760.76 8,176.52
12/31/11 9,508.00 8,537.71 8,099.00
01/31/12 10,093.00 9,106.78 8,531.05
02/29/12 10,647.00 9,614.61 9,020.54
03/31/12 10,836.00 9,610.03 8,978.62
04/30/12 10,669.00 9,446.68 8,802.88
05/31/12 9,495.00 8,470.30 7,792.20
06/30/12 10,080.00 8,949.70 8,338.52
07/31/12 10,132.00 9,038.48 8,433.08
08/31/12 10,383.00 9,298.90 8,659.56
09/30/12 10,704.00 9,583.66 8,915.72
10/31/12 10,814.00 9,650.20 8,989.92
11/30/12 11,100.00 9,860.11 9,207.17
12/31/12 11,606.00 10,219.99 9,501.51
01/31/13 11,993.00 10,638.78 10,002.69
02/28/13 11,927.00 10,508.26 9,907.81
03/31/13 11,962.00 10,613.77 9,989.16
04/30/13 12,216.00 11,004.67 10,509.66
05/31/13 12,149.00 10,898.85 10,255.87
06/30/13 11,775.00 10,554.55 9,891.50
07/31/13 12,448.00 11,136.36 10,413.47
08/31/13 12,176.00 10,937.36 10,275.72
09/30/13 12,982.00 11,683.56 11,035.38
10/31/13 13,303.00 12,055.35 11,406.43
11/30/13 13,494.00 12,172.14 11,493.78
12/31/13 13,698.00 12,389.23 11,665.76
01/31/14 12,917.00 11,845.14 11,196.03
02/28/14 13,648.00 12,496.60 11,818.44
03/31/14 13,536.00 12,441.84 11,743.12
04/30/14 13,788.00 12,570.49 11,912.87
05/31/14 14,030.00 12,781.26 12,106.35
06/30/14 14,070.00 12,905.62 12,223.08
07/31/14 13,657.00 12,582.40 11,983.24
08/31/14 13,761.00 12,661.46 11,964.81
09/30/14 13,410.00 12,197.57 11,504.87
10/31/14 13,249.00 12,127.29 11,337.83
11/30/14 13,568.00 12,284.49 11,492.04
12/31/14 13,001.00 11,864.62 11,093.94
01/31/15 13,149.00 11,929.06 11,148.17
02/28/15 13,927.00 12,595.51 11,814.62
03/31/15 13,779.00 12,466.02 11,635.14
04/30/15 14,339.00 12,916.66 12,110.19
05/31/15 14,307.00 12,942.25 12,048.21
06/30/15 13,881.00 12,606.47 11,706.84
07/31/15 14,140.00 12,688.75 11,949.91
08/31/15 13,098.00 11,812.37 11,070.84
09/30/15 12,635.00 11,287.85 10,508.71
10/31/15 13,404.00 12,046.53 11,330.17
11/30/15 13,297.00 11,943.23 11,153.91
12/31/15 13,073.00 11,705.92 11,003.62
01/31/16 12,256.00 11,004.04 10,207.90
02/29/16 11,919.00 10,786.45 10,020.89
03/31/16 12,711.00 11,520.60 10,672.92
04/30/16 12,912.00 11,740.08 10,981.91
05/31/16 12,912.00 11,713.62 10,882.15
06/30/16 12,491.00 11,407.01 10,516.86
07/31/16 13,151.00 11,895.73 11,049.87
08/31/16 13,269.00 12,007.55 11,057.71
09/30/16 13,435.00 12,164.19 11,193.55
10/31/16 13,259.00 11,918.50 10,964.59
11/30/16 12,995.00 11,683.41 10,746.22
[END CHART]
Data from 11/30/06 through 11/30/16.
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA International Fund Shares to the following benchmarks:
o The unmanaged Lipper International Funds Index tracks the total return
performance of funds within the Lipper International Funds category.
o The unmanaged MSCI EAFE Index reflects the movements of stock markets in
Europe, Australasia, and the Far East by representing a broad selection of
domestically listed companies within each market.
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
the Lipper International Funds Index reflects the fees and expenses of the
underlying funds included in the composite.
================================================================================
INVESTMENT OVERVIEW | 9
================================================================================
USAA INTERNATIONAL FUND INSTITUTIONAL SHARES (INSTITUTIONAL SHARES)
(Ticker Symbol: UIIFX)
--------------------------------------------------------------------------------
11/30/16 5/31/16
--------------------------------------------------------------------------------
Net Assets $2.0 Billion $2.0 Billion
Net Asset Value Per Share $26.52 $26.34
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 11/30/16
--------------------------------------------------------------------------------
5/31/16-11/30/16* 1 YEAR 5 YEARS SINCE INCEPTION 8/01/08
0.68% -2.13% 6.14% 3.53%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/16
--------------------------------------------------------------------------------
1 YEAR 5 YEARS SINCE INCEPTION 8/01/08
1.90% 7.11% 3.79%
--------------------------------------------------------------------------------
EXPENSE RATIO AS OF 5/31/16**
--------------------------------------------------------------------------------
1.00%
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 October 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.
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).
================================================================================
10 | USAA INTERNATIONAL FUND
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
USAA INTERNATIONAL
FUND INSTITUTIONAL LIPPER INTERNATIONAL MSCI EAFE
SHARES FUNDS INDEX INDEX
07/31/08 $10,000.00 $10,000.00 $10,000.00
08/31/08 9,823.05 9,597.57 9,594.76
09/30/08 8,810.70 8,333.22 8,207.46
10/31/08 7,275.72 6,578.58 6,551.33
11/30/08 6,720.16 6,150.72 6,197.23
12/31/08 7,311.08 6,573.37 6,569.82
01/31/09 6,494.44 5,904.38 5,925.10
02/28/09 5,909.89 5,362.59 5,317.23
03/31/09 6,369.79 5,760.81 5,654.21
04/30/09 6,924.25 6,474.00 6,378.18
05/31/09 7,753.78 7,351.49 7,132.76
06/30/09 7,633.44 7,237.83 7,092.19
07/31/09 8,480.16 7,966.47 7,739.72
08/31/09 8,763.84 8,254.66 8,160.43
09/30/09 9,240.93 8,670.81 8,472.88
10/31/09 9,086.19 8,432.65 8,367.01
11/30/09 9,477.32 8,740.54 8,534.53
12/31/09 9,730.40 8,893.49 8,657.45
01/31/10 9,229.06 8,463.92 8,276.03
02/28/10 9,233.42 8,508.74 8,219.29
03/31/10 9,813.23 9,061.11 8,732.36
04/30/10 9,651.93 8,957.53 8,574.36
05/31/10 8,592.57 8,029.65 7,604.46
06/30/10 8,596.93 7,925.08 7,512.11
07/31/10 9,399.08 8,646.32 8,224.47
08/31/10 9,050.32 8,355.51 7,969.11
09/30/10 9,987.61 9,191.07 8,749.98
10/31/10 10,406.13 9,527.22 9,066.10
11/30/10 9,948.38 9,178.53 8,629.62
12/31/10 10,725.11 9,874.69 9,328.41
01/31/11 10,839.87 10,018.81 9,548.53
02/28/11 11,126.75 10,301.06 9,863.36
03/31/11 11,060.55 10,199.66 9,642.31
04/30/11 11,890.31 10,738.87 10,218.67
05/31/11 11,612.25 10,426.35 9,916.76
06/30/11 11,466.60 10,243.50 9,792.59
07/31/11 11,298.89 10,056.14 9,636.86
08/31/11 10,283.75 9,168.00 8,766.75
09/30/11 9,145.04 8,095.20 7,931.39
10/31/11 10,191.06 8,918.81 8,696.14
11/30/11 9,913.01 8,665.19 8,274.27
12/31/11 9,699.46 8,444.57 8,195.83
01/31/12 10,296.70 9,007.43 8,633.04
02/29/12 10,866.99 9,509.72 9,128.38
03/31/12 11,055.59 9,505.19 9,085.97
04/30/12 10,889.44 9,343.62 8,908.12
05/31/12 9,694.97 8,377.89 7,885.35
06/30/12 10,292.21 8,852.07 8,438.21
07/31/12 10,350.58 8,939.88 8,533.91
08/31/12 10,606.54 9,197.45 8,763.09
09/30/12 10,934.35 9,479.11 9,022.31
10/31/12 11,046.61 9,544.92 9,097.40
11/30/12 11,342.98 9,752.54 9,317.24
12/31/12 11,860.98 10,108.50 9,615.10
01/31/13 12,262.74 10,522.72 10,122.28
02/28/13 12,194.26 10,393.62 10,026.26
03/31/13 12,235.35 10,497.98 10,110.34
04/30/13 12,495.58 10,884.62 10,635.30
05/31/13 12,427.10 10,779.95 10,378.49
06/30/13 12,043.60 10,439.40 10,009.75
07/31/13 12,737.55 11,014.87 10,537.96
08/31/13 12,463.62 10,818.04 10,398.57
09/30/13 13,285.40 11,556.10 11,167.31
10/31/13 13,618.67 11,923.83 11,542.80
11/30/13 13,810.42 12,039.35 11,631.19
12/31/13 14,025.60 12,254.07 11,805.23
01/31/14 13,223.34 11,715.92 11,329.88
02/28/14 13,979.49 12,360.27 11,959.74
03/31/14 13,864.22 12,306.10 11,883.51
04/30/14 14,122.42 12,433.36 12,055.30
05/31/14 14,371.39 12,641.83 12,251.08
06/30/14 14,412.89 12,764.83 12,369.21
07/31/14 13,993.32 12,445.13 12,126.12
08/31/14 14,099.37 12,523.34 12,107.46
09/30/14 13,744.35 12,064.50 11,642.42
10/31/14 13,582.97 11,994.99 11,473.37
11/30/14 13,905.72 12,150.48 11,629.43
12/31/14 13,327.16 11,735.19 11,226.57
01/31/15 13,484.28 11,798.92 11,281.45
02/28/15 14,279.44 12,458.10 11,955.87
03/31/15 14,131.84 12,330.02 11,774.25
04/30/15 14,707.96 12,775.75 12,254.98
05/31/15 14,674.64 12,801.06 12,192.25
06/30/15 14,241.35 12,468.94 11,846.80
07/31/15 14,507.99 12,550.33 12,092.78
08/31/15 13,441.43 11,683.51 11,203.20
09/30/15 12,965.29 11,164.70 10,634.35
10/31/15 13,755.68 11,915.11 11,465.63
11/30/15 13,646.18 11,812.93 11,287.26
12/31/15 13,420.00 11,578.21 11,135.17
01/31/16 12,579.00 10,883.99 10,329.94
02/29/16 12,237.00 10,668.78 10,140.69
03/31/16 13,053.00 11,394.92 10,800.52
04/30/16 13,259.00 11,612.00 11,113.21
05/31/16 13,264.00 11,585.84 11,012.25
06/30/16 12,831.00 11,282.57 10,642.60
07/31/16 13,511.00 11,765.95 11,181.97
08/31/16 13,632.00 11,876.56 11,189.91
09/30/16 13,808.00 12,031.49 11,327.37
10/31/16 13,627.00 11,788.48 11,095.67
11/30/16 13,355.00 11,555.95 10,874.69
[END CHART]
Data from 7/31/08 through 11/30/16.*
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA International Fund Institutional Shares to the Fund's benchmarks listed
above (see page 9 for benchmark definitions).
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
the Lipper International Funds Index reflects the fees and expenses of the
underlying funds included in the composite.
*The performance of the Lipper International Funds Index and the MSCI EAFE Index
is calculated from the end of the month, July 31, 2008, while the inception date
of the Institutional Shares is August 1, 2008. There may be a slight variation
of performance numbers because of this difference.
================================================================================
INVESTMENT OVERVIEW | 11
================================================================================
USAA INTERNATIONAL FUND ADVISER SHARES (ADVISER SHARES)
(Ticker Symbol: UAIFX)
--------------------------------------------------------------------------------
11/30/16 5/31/16
--------------------------------------------------------------------------------
Net Assets $6.4 Million $6.4 Million
Net Asset Value Per Share $26.45 $26.31
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 11/30/16
--------------------------------------------------------------------------------
5/31/16-11/30/16* 1 YEAR 5 YEARS SINCE INCEPTION 8/01/10
0.53% -2.45% 5.67% 4.71%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/16
--------------------------------------------------------------------------------
1 YEAR 5 YEARS SINCE INCEPTION 8/01/10
1.51% 6.63% 5.02%
--------------------------------------------------------------------------------
EXPENSE RATIOS AS OF 5/31/16**
--------------------------------------------------------------------------------
BEFORE REIMBURSEMENT 1.46% AFTER REIMBURSEMENT 1.35%
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 October 1, 2016, and
are calculated as a percentage of average net assets. USAA Asset Management
Company (the Manager) has agreed, through September 30, 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 1.35% 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 September 30, 2017. If
the total annual operating expense ratio of the Adviser Shares is lower than
1.35%, 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.
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.
================================================================================
12 | USAA INTERNATIONAL FUND
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
USAA INTERNATIONAL
FUND ADVISER LIPPER INTERNATIONAL MSCI EAFE
SHARES FUNDS INDEX INDEX
07/31/10 $10,000.00 $10,000.00 $10,000.00
08/31/10 9,345.96 9,663.67 9,689.52
09/30/10 10,311.23 10,630.04 10,638.96
10/31/10 10,735.23 11,018.82 11,023.33
11/30/10 10,257.10 10,615.53 10,492.61
12/31/10 11,055.63 11,420.69 11,342.26
01/31/11 11,164.83 11,587.38 11,609.90
02/28/11 11,456.00 11,913.82 11,992.70
03/31/11 11,383.21 11,796.54 11,723.92
04/30/11 12,229.44 12,420.17 12,424.71
05/31/11 11,933.72 12,058.72 12,057.62
06/30/11 11,783.58 11,847.24 11,906.65
07/31/11 11,597.04 11,630.55 11,717.31
08/31/11 10,555.17 10,603.36 10,659.35
09/30/11 9,381.37 9,362.60 9,643.65
10/31/11 10,445.98 10,315.16 10,573.50
11/30/11 10,159.35 10,021.82 10,060.55
12/31/11 9,936.22 9,766.67 9,965.17
01/31/12 10,543.43 10,417.66 10,496.77
02/29/12 11,123.04 10,998.58 11,099.05
03/31/12 11,311.65 10,993.34 11,047.48
04/30/12 11,136.85 10,806.48 10,831.24
05/31/12 9,908.62 9,689.55 9,587.68
06/30/12 10,515.83 10,237.97 10,259.88
07/31/12 10,571.03 10,339.53 10,376.24
08/31/12 10,824.04 10,637.43 10,654.90
09/30/12 11,155.25 10,963.18 10,970.09
10/31/12 11,265.65 11,039.29 11,061.38
11/30/12 11,560.05 11,279.42 11,328.69
12/31/12 12,085.40 11,691.11 11,690.85
01/31/13 12,485.46 12,170.17 12,307.51
02/28/13 12,411.03 12,020.87 12,190.77
03/31/13 12,448.24 12,141.56 12,293.00
04/30/13 12,708.74 12,588.74 12,931.29
05/31/13 12,634.32 12,467.68 12,619.03
06/30/13 12,238.91 12,073.82 12,170.70
07/31/13 12,936.68 12,739.38 12,812.94
08/31/13 12,652.92 12,511.73 12,643.45
09/30/13 13,485.60 13,365.34 13,578.15
10/31/13 13,815.88 13,790.65 14,034.70
11/30/13 14,001.95 13,924.25 14,142.18
12/31/13 14,210.96 14,172.60 14,353.79
01/31/14 13,397.84 13,550.18 13,775.82
02/28/14 14,154.88 14,295.41 14,541.65
03/31/14 14,038.05 14,232.77 14,448.96
04/30/14 14,299.75 14,379.95 14,657.84
05/31/14 14,547.42 14,621.06 14,895.89
06/30/14 14,584.81 14,763.32 15,039.52
07/31/14 14,150.21 14,393.57 14,743.95
08/31/14 14,253.02 14,484.01 14,721.27
09/30/14 13,883.84 13,953.34 14,155.83
10/31/14 13,715.61 13,872.95 13,950.29
11/30/14 14,038.05 14,052.78 14,140.04
12/31/14 13,452.91 13,572.47 13,650.21
01/31/15 13,601.85 13,646.18 13,716.94
02/28/15 14,404.22 14,408.56 14,536.95
03/31/15 14,250.47 14,260.44 14,316.11
04/30/15 14,827.03 14,775.94 14,900.63
05/31/15 14,783.77 14,805.21 14,824.35
06/30/15 14,341.76 14,421.10 14,404.33
07/31/15 14,606.01 14,515.23 14,703.41
08/31/15 13,524.98 13,512.70 13,621.78
09/30/15 13,044.52 12,912.67 12,930.13
10/31/15 13,832.47 13,780.56 13,940.87
11/30/15 13,721.95 13,662.39 13,723.99
12/31/15 13,492.00 13,390.92 13,539.07
01/31/16 12,641.00 12,588.01 12,560.00
02/29/16 12,297.00 12,339.11 12,329.90
03/31/16 13,107.00 13,178.93 13,132.18
04/30/16 13,314.00 13,430.00 13,512.37
05/31/16 13,314.00 13,399.74 13,389.62
06/30/16 12,874.00 13,048.99 12,940.16
07/31/16 13,557.00 13,608.05 13,595.98
08/31/16 13,674.00 13,735.98 13,605.63
09/30/16 13,841.00 13,915.16 13,772.77
10/31/16 13,659.00 13,634.10 13,491.05
11/30/16 13,385.00 13,365.17 13,222.36
[END CHART]
Data from 7/31/10 through 11/30/16.*
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA International Fund Adviser Shares to the Fund's benchmarks listed above
(see page 9 for benchmark definitions).
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
the Lipper International Funds Index reflects the fees and expenses of the
underlying funds included in the composite.
*The performance of the MSCI EAFE Index and the Lipper International 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.
================================================================================
INVESTMENT OVERVIEW | 13
================================================================================
o TOP 10 INDUSTRIES - 11/30/16 o
(% of Net Assets)
Pharmaceuticals .......................................................... 7.4%
Diversified Banks ........................................................ 7.4%
Packaged Foods & Meat .................................................... 4.0%
Integrated Oil & Gas ..................................................... 3.5%
Restaurants .............................................................. 3.0%
Auto Parts & Equipment ................................................... 2.7%
Life & Health Insurance .................................................. 2.7%
Apparel, Accessories & Luxury Goods ...................................... 2.6%
Electrical Components & Equipment ........................................ 2.4%
Distillers & Vintners .................................................... 2.4%
o TOP 10 EQUITY HOLDINGS - 11/30/16 o
(% of Net Assets)
Nestle S.A. .............................................................. 2.2%
Bayer AG ................................................................. 1.9%
WPP plc .................................................................. 1.8%
Roche Holding AG ......................................................... 1.8%
UBS Group AG ............................................................. 1.8%
Hoya Corp. ............................................................... 1.8%
AIA Group Ltd. ........................................................... 1.6%
Compass Group plc ........................................................ 1.6%
ING Groep N.V. ........................................................... 1.5%
Taiwan Semiconductor Manufacturing Co. Ltd. ADR .......................... 1.5%
You will find a complete list of securities that the Fund owns on pages 16-38.
================================================================================
14 | USAA INTERNATIONAL FUND
================================================================================
o COUNTRY ALLOCATION - 11/30/16 o
[PIE CHART OF COUNTRY ALLOCATION]
JAPAN 20.4%
UNITED KINGDOM 13.8%
FRANCE 11.9%
SWITZERLAND 9.8%
GERMANY 8.1%
NETHERLANDS 5.0%
CANADA 3.7%
OTHER* 26.5%
[END CHART]
*Includes countries with less than 3% of portfolio and money market instruments.
Percentages are of the net assets of the Fund and may not equal 100%.
================================================================================
INVESTMENT OVERVIEW | 15
================================================================================
PORTFOLIO OF INVESTMENTS
November 30, 2016 (unaudited)
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (98.0%)
COMMON STOCKS (97.8%)
CONSUMER DISCRETIONARY (16.2%)
------------------------------
ADVERTISING (1.9%)
54,900 Gendai Agency, Inc.(a) $ 260
247,090 UBM plc(a) 2,203
2,862,695 WPP plc(a) 61,213
----------
63,676
----------
APPAREL RETAIL (1.0%)
966,638 Hennes & Mauritz AB "B"(a) 27,996
153,400 Honeys Co. Ltd.(a) 1,603
288,378 KappAhl AB(a) 1,378
32,830 Nishimatsuya Chain Co. Ltd.(a) 427
72,800 PAL Group Holdings Co. Ltd.(a) 1,904
----------
33,308
----------
APPAREL, ACCESSORIES & LUXURY GOODS (2.6%)
87,938,800 Global Brands Group Holding Ltd.*(a) 13,702
13,059 Hermes International(a) 5,382
21,254,800 Li & Fung Ltd.(a) 9,303
283,227 Luxottica Group S.p.A.(a) 14,758
237,046 LVMH Moet Hennessy Louis Vuitton SE(a) 43,047
838,000 Sanyo Shokai Ltd.(a) 1,172
----------
87,364
----------
AUTO PARTS & EQUIPMENT (2.7%)
283,200 Ahresty Corp.(a) 2,634
252,500 Aisan Industry Co. Ltd.(a) 2,088
117,897 CIE Automotive S.A.(a) 2,191
139,663 Delphi Automotive plc 8,938
938,900 Denso Corp.(a) 41,731
132,500 Exedy Corp.(a) 3,702
54,700 G-Tekt Corp.(a) 1,017
29,468 Grammer AG(a) 1,463
59,300 Imasen Electric Industrial Co. Ltd.(a) 490
50,300 Kasai Kogyo Co. Ltd.(a) 564
232,100 Keihin Corp.(a) 3,856
================================================================================
16 | USAA INTERNATIONAL FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
768,621 Kongsberg Automotive ASA*(a) $ 520
213,700 Nissin Kogyo Co. Ltd.(a) 3,188
208,600 NOK Corp.(a) 4,214
134,300 Press Kogyo Co. Ltd.(a) 597
353,970 Showa Corp.(a) 2,152
296,200 Sumitomo Riko Co. Ltd.(a) 2,679
249,800 Tokai Rika Co. Ltd.(a) 5,024
182,700 Toyoda Gosei Co. Ltd.(a) 4,038
1,746,000 Xinyi Glass Holdings Ltd.(a) 1,300
----------
92,386
----------
AUTOMOBILE MANUFACTURERS (0.5%)
289,900 Honda Motor Co. Ltd.(a) 8,599
935,180 Mitsubishi Motors Corp.(a) 4,397
29,260 Renault S.A.(a) 2,305
----------
15,301
----------
AUTOMOTIVE RETAIL (0.0%)
507,583 Lookers plc(a) 668
----------
BROADCASTING (0.6%)
107,095 M6-Metropole Television S.A.(a) 1,826
373,314 ProSiebenSat.1 Media AG(a) 12,819
1,842,011 Southern Cross Media Group(a) 1,831
321,263 Television Francaise 1 S.A.(a) 2,941
144,600 Tokyo Broadcasting System, Inc.(a) 2,305
----------
21,722
----------
CABLE & SATELLITE (0.9%)
174,420 NOS SGPS S.A.(a) 989
383,500 SKY Perfect JSAT Holdings, Inc.(a) 1,856
2,647,879 Sky plc(a) 25,875
----------
28,720
----------
CASINOS & GAMING (0.3%)
515,909 888 Holdings plc(a) 1,356
11,389 Evolution Gaming Group AB(a),(b) 326
273,431 GVC Holdings plc*(a) 2,229
125,301 International Game Technology plc 3,230
105,083 Unibet Group plc SDR(a) 902
471,663 William Hill plc(a) 1,775
8,747 ZEAL Network SE(a) 318
----------
10,136
----------
COMPUTER & ELECTRONICS RETAIL (0.3%)
574,300 EDION Corp.(a) 5,537
279,333 JB Hi-Fi Ltd.(a) 5,705
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
201,288 Vita Group Ltd.(a) $ 431
----------
11,673
----------
CONSUMER ELECTRONICS (0.5%)
300,100 Alpine Electronics, Inc.(a) 3,969
91,300 Foster Electric Co. Ltd.(a) 1,724
286,910 Funai Electric Co. Ltd.(a) 2,396
294,600 Nikon Corp.(a) 4,381
1,700,500 Pioneer Corp.*(a) 3,565
----------
16,035
----------
DEPARTMENT STORES (0.2%)
2,475,919 Debenhams plc(a) 1,715
711,473 Marks & Spencer Group plc(a) 2,916
5,208,000 New World Department Store China Ltd.*(a) 728
----------
5,359
----------
DISTRIBUTORS (0.0%)
69,400 Canon Sales Co. Inc.(a) 1,107
----------
EDUCATION SERVICES (0.2%)
114,300 Benesse Holdings Inc.(a) 3,062
693,453 Navitas Ltd.(a) 2,645
----------
5,707
----------
FOOTWEAR (0.1%)
8,212,000 Daphne International Holdings Ltd.*(a) 920
602,661 Geox SpA(a) 1,188
----------
2,108
----------
HOME IMPROVEMENT RETAIL (0.0%)
64,100 DCM Holdings Co., Ltd.(a) 583
----------
HOMEBUILDING (0.3%)
128,276 Bellway plc(a) 3,914
95,306 Bonava AB "B"*(a) 1,242
414,980 Crest Nicholson Holdings plc(a) 2,269
329,900 Haseko Corp.(a) 3,473
133,800 Meiwa Estate Co. Ltd.(a) 761
----------
11,659
----------
HOTELS, RESORTS & CRUISE LINES (0.0%)
144,291 Scandic Hotels Group AB*(a),(b) 1,134
----------
HOUSEHOLD APPLIANCES (0.1%)
69,600 SodaStream International Ltd.* 2,535
----------
INTERNET RETAIL (0.0%)
760,670 Qliro Group AB*(a) 777
----------
================================================================================
18 | USAA INTERNATIONAL FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
LEISURE FACILITIES (0.1%)
376,100 Tokyo Dome Corp.(a) $ 3,923
----------
LEISURE PRODUCTS (0.0%)
8,334 Trigano S.A.(a) 623
----------
MOVIES & ENTERTAINMENT (0.2%)
113,000 Avex Group Holdings, Inc.(a) 1,583
530,700 Cineworld Group plc(a) 3,607
833,985 Entertainment One Ltd.(a) 2,289
----------
7,479
----------
PUBLISHING (0.3%)
45,600 Proto Corp.(a) 522
684,189 Reed Elsevier N.V.(a) 11,021
----------
11,543
----------
RESTAURANTS (3.0%)
3,101,678 Compass Group plc(a) 53,102
299,000 Fairwood Holdings Ltd.(a) 1,308
328,963 SSP Group plc(a) 1,523
937,037 Yum China Holdings, Inc.* 26,349
327,308 Yum! Brands, Inc. 20,748
----------
103,030
----------
SPECIALIZED CONSUMER SERVICES (0.0%)
59,800 Studio Alice Co. Ltd.(a) 1,213
----------
SPECIALTY STORES (0.3%)
1,259,155 JD Sports Fashion plc(a) 5,241
126,469 WH Smith plc(a) 2,384
148,400 Xebio Holdings Co. Ltd.(a) 2,313
----------
9,938
----------
TEXTILES (0.1%)
3,529,000 Unitika Ltd.*(a) 2,670
----------
Total Consumer Discretionary 552,377
----------
CONSUMER STAPLES (12.6%)
------------------------
BREWERS (1.0%)
2,761,639 Ambev S.A. ADR 13,781
158,860 Carlsberg A/S "B"(a) 13,471
77,943 Heineken N.V.(a) 5,828
----------
33,080
----------
DISTILLERS & VINTNERS (2.4%)
1,298,850 Diageo plc(a) 32,527
450,951 Pernod Ricard S.A.(a) 47,240
----------
79,767
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
DRUG RETAIL (0.1%)
146,300 Cawachi Ltd.(a) $ 3,476
34,100 Nihon Chouzai Co. Ltd.(a) 1,334
----------
4,810
----------
FOOD DISTRIBUTORS (0.0%)
142,000 Yokohama Reito Co. Ltd.(a) 1,300
----------
FOOD RETAIL (0.7%)
27,100 Heiwado Co. Ltd.(a) 543
1,489,319 J Sainsbury plc(a) 4,300
62,765 Kesko Oyj "B"(a) 3,091
291,347 Loblaw Companies Ltd. 15,137
389,030 Super Sol Ltd.(a) 1,456
----------
24,527
----------
HOUSEHOLD PRODUCTS (1.4%)
128,000 Lion Corp.(a) 2,099
554,708 Reckitt Benckiser Group plc(a) 46,847
----------
48,946
----------
HYPERMARKETS & SUPER CENTERS (0.1%)
126,881 Metro AG(a) 3,789
----------
PACKAGED FOODS & MEAT (4.0%)
255,080 Austevoll Seafood ASA(a) 2,400
2,960 Bell AG(a) 1,200
673,352 DANONE S.A.(a) 42,288
2,716,200 Japfa Ltd.(a) 1,693
91,514 La Doria S.p.A.(a) 712
24,872 Leroy Seafood Group ASA(a) 1,377
148,000 Marudai Food Co. Ltd.(a) 613
49,600 Mitsui Sugar Co. Ltd.(a) 1,036
24,200 Morinaga & Co. Ltd.(a) 957
1,115,466 Nestle S.A.(a) 75,045
60,500 Nichirei Corp.(a) 1,231
404,000 Nisshin Oillio Group Ltd.(a) 1,719
424,000 Prima Meat Packers Ltd.(a) 1,485
53,459 Salmar ASA(a) 1,675
8,489 Schouw & Co.(a) 566
49,700 Starzen Co. Ltd.(a) 2,058
----------
136,055
----------
PERSONAL PRODUCTS (1.9%)
159,700 Aderans Co. Ltd.(a) 1,022
472,286 Beiersdorf AG(a) 38,615
1,440,900 Best World International Ltd.(a) 1,346
================================================================================
20 | USAA INTERNATIONAL FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
125,072 L'Oreal S.A.(a) $ 21,312
34,057 Oriflame Holding AG(a) 867
----------
63,162
----------
SOFT DRINKS (0.1%)
453,979 Britvic plc(a) 3,246
----------
TOBACCO (0.9%)
882,600 Japan Tobacco, Inc.(a) 30,713
----------
Total Consumer Staples 429,395
----------
ENERGY (4.2%)
-------------
COAL & CONSUMABLE FUELS (0.1%)
1,276,847 Whitehaven Coal Ltd.*(a) 2,599
----------
INTEGRATED OIL & GAS (3.5%)
2,139,343 BP plc(a) 12,411
1,917,790 ENI S.p.A.(a) 26,777
1,025,606 Gazprom PAO ADR 4,759
118,414 Lukoil PJSC ADR 5,827
359,194 Petroleo Brasileiro S.A. ADR* 3,905
418,590 Royal Dutch Shell plc "B"(a) 11,170
141,928 Statoil ASA(a) 2,468
1,117,982 Suncor Energy, Inc. 35,604
700,600 Surgutneftegas ADR(a) 3,179
155,500 Surgutneftegaz ADR 716
251,312 Total S.A.(a) 12,029
----------
118,845
----------
OIL & GAS EQUIPMENT & SERVICES (0.3%)
74,715 Ocean Yield ASA(a) 603
210,942 Petrofac Ltd.(a) 2,103
519,670 Subsea 7 S.A.*(a) 6,123
----------
8,829
----------
OIL & GAS EXPLORATION & PRODUCTION (0.3%)
168,321 Det Norske Oljeselskap ASA(a) 2,752
313,200 INPEX Corp.(a) 3,089
140,900 Japan Petroleum Exploration Co. Ltd.(a) 2,970
193,300 Painted Pony Petroleum Ltd.* 1,369
12,880 Petro Rio S.A.* 63
----------
10,243
----------
OIL & GAS REFINING & MARKETING (0.0%)
228,100 Fuji Oil Co., Ltd.*(a) 653
31,700 Idemitsu Kosan Co. Ltd.(a) 728
----------
1,381
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 21
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
OIL & GAS STORAGE & TRANSPORTATION (0.0%)
40,522 Euronav N.V.(a) $ 301
----------
Total Energy 142,198
----------
FINANCIALS (15.6%)
------------------
ASSET MANAGEMENT & CUSTODY BANKS (1.1%)
86,468 AURELIUS Equity Opportunities SE & Co. KGaA(a) 4,992
14,888 Banca Generali S.p.A.(a) 313
26,462 Deutsche Beteiligungs AG(a) 864
589,702 Julius Baer Group Ltd.*(a) 26,060
246,086 Magellan Financial Group Ltd.(a) 4,155
482,100 Uranium Participation Corp.* 1,296
----------
37,680
----------
CONSUMER FINANCE (0.2%)
152,058 Arrow Global Group plc(a) 556
307,242 Credit Corp. Group Ltd. Common Stock(a) 4,033
70,131 Provident Financial plc(a) 2,556
----------
7,145
----------
DIVERSIFIED BANKS (6.7%)
361,020 Aldermore Group plc*(a) 961
930,644 Allahabad Bank Ltd.*(a) 943
753,326 Alpha Bank AE*(a) 1,522
710,622 Banca Popolare dell'Emilia Romagna SC(a) 2,835
667,865 Banco BPI, S.A.*(a) 797
2,804,967 Banco Popular Espanol S.A.(a) 2,446
7,300,202 Barclays plc(a) 19,703
36,268 BGEO Group plc(a) 1,342
137,322 BNP Paribas S.A.(a) 7,973
1,395,434 CaixaBank S.A.(a) 4,057
440,991 Canara Bank Ltd.*(a) 2,052
936,498 Corporation Bank*(a) 639
244,400 Dah Sing Financial Holdings Ltd.(a) 1,636
3,088,600 DBS Group Holdings Ltd.(a) 37,718
1,754,337 HSBC Holdings plc(a) 13,943
3,887,081 ING Groep N.V.(a) 52,746
132,339 KB Financial Group, Inc.(a) 4,806
364,158 KBC Groep N.V.(a) 21,837
1,592,300 Mitsubishi UFJ Financial Group, Inc.(a) 9,534
3,353,900 Mizuho Financial Group, Inc.(a) 6,053
203,345 Norwegian Finance Holding ASA*(a) 1,914
229,200 Sberbank of Russia ADR 2,311
69,435 Shinhan Financial Group Co. Ltd.(a) 2,623
245,728 Skandiabanken ASA*(a),(b) 1,994
================================================================================
22 | USAA INTERNATIONAL FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
160,972 Societe Generale S.A.(a) $ 6,903
652,048 Standard Chartered plc*(a) 5,227
228,400 Sumitomo Mitsui Financial Group, Inc.(a) 8,605
74,590 Sumitomo Mitsui Trust Holdings, Inc.(a) 2,783
1,036,940 UniCredit S.p.A.(a) 2,220
----------
228,123
----------
DIVERSIFIED CAPITAL MARKETS (1.8%)
3,773,208 UBS Group AG(a) 60,011
----------
INVESTMENT BANKING & BROKERAGE (0.1%)
120,500 Aizawa Securities Co. Ltd.(a) 674
114,165 IG Group Holdings plc(a) 1,201
172,972 Tullett Prebon plc(a) 962
----------
2,837
----------
LIFE & HEALTH INSURANCE (2.7%)
8,901,800 AIA Group Ltd.(a) 54,206
305,700 Dai-Ichi Life Insurance Co., Ltd.(a) 5,068
332,473 Delta Lloyd N.V.(a) 1,914
748,739 Prudential plc(a) 14,467
317,305 Societa Cattolica di Assicurazioni(a) 1,786
696,548 Storebrand ASA*(a) 3,650
558,500 T&D Holdings, Inc.(a) 7,172
154,661 TONGYANO Life Insurance Co. Ltd.(a) 1,706
38,796 Wuestenrot & Wuerttembergische AG(a) 738
----------
90,707
----------
MULTI-LINE INSURANCE (1.2%)
146,781 Ageas(a) 5,478
402,538 Assicurazioni Generali S.p.A.(a) 5,080
83,926 Protector Forsikring ASA(a) 705
196,070 Topdanmark A/S*(a) 4,968
97,810 Zurich Insurance Group AG*(a) 25,566
----------
41,797
----------
MULTI-SECTOR HOLDINGS (0.1%)
21,521 Corporacion Financiera Alba S.A.(a) 915
3,342,000 First Pacific Co. Ltd.(a) 2,356
----------
3,271
----------
PROPERTY & CASUALTY INSURANCE (0.2%)
163,261 ALM. Brand A/S(a) 1,221
384,802 Coface S.A.*(a) 2,261
506,462 Hastings Group Holdings Ltd.(a) 1,361
----------
4,843
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 23
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
REGIONAL BANKS (0.3%)
27,800 Bank of Nagoya Ltd.(a) $ 953
1,000,200 FIDEA Holdings Co. Ltd.(a) 1,702
162,000 Miyazaki Bank Ltd.(a) 522
353,000 Oita Bank Ltd.(a) 1,276
142,960 Sparebank 1 SR-Bank ASA(a) 938
2,052 St. Galler Kantonalbank "A"(a) 782
428,000 Tochigi Bank Ltd.(a) 1,900
414,300 Tomony Holdings, Inc.(a) 2,190
301,000 Yamanashi Chuo Bank Ltd.(a) 1,355
----------
11,618
----------
SPECIALIZED FINANCE (0.5%)
1,590,547 Element Financial Corp. 13,262
26,100 Fuyo General Lease Co. Ltd.(a) 1,251
585,300 Japan Securities Finance Co.(a) 2,847
23,400 Ricoh Leasing Co. Ltd.(a) 725
----------
18,085
----------
THRIFTS & MORTGAGE FINANCE (0.7%)
51,126 Deutsche Pfandbriefbank AG(a) 530
1,255,255 Housing Development Finance Corp. Ltd.(a) 23,262
340,246 OneSavings Bank plc(a) 1,341
----------
25,133
----------
Total Financials 531,250
----------
HEALTH CARE (11.3%)
-------------------
BIOTECHNOLOGY (0.1%)
12,673 Advanced Accelerator Applications S.A. ADR* 371
346,215 Sinovac Biotech Ltd.* 2,115
40,933 Swedish Orphan Biovitrum AB*(a) 433
----------
2,919
----------
HEALTH CARE DISTRIBUTORS (0.1%)
1,842,237 Sigma Pharmaceuticals Ltd.(a) 1,672
13,900 Suzuken Co. Ltd.(a) 422
39,100 Toho Holdings Co. Ltd.(a) 762
81,200 Vital KSK Holdings Inc.(a) 691
----------
3,547
----------
HEALTH CARE EQUIPMENT (1.5%)
127,489 CellaVision AB(a) 1,116
43,137 El.En. S.p.A(a) 963
41,524 Ion Beam Applications(a) 1,784
33,478 Sonova Holding AG(a) 4,038
================================================================================
24 | USAA INTERNATIONAL FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
1,172,200 Terumo Corp.(a) $ 41,916
----------
49,817
----------
HEALTH CARE FACILITIES (0.2%)
92,646 Attendo AB(a),(b) 742
330,453 CVS Group plc(a) 4,403
59,415 Korian S.A.(a) 1,552
323,733 Spire Healthcare Group plc(a),(b) 1,433
----------
8,130
----------
HEALTH CARE SUPPLIES (1.8%)
224,573 Advanced Medical Solutions Group plc(a) 629
1,482,300 Hoya Corp.(a) 59,298
123,900 Nipro Corp.(a) 1,379
----------
61,306
----------
HEALTH CARE TECHNOLOGY (0.1%)
448,218 AGFA-Gevaert N.V.*(a) 2,052
20,405 NNIT A/S(a),(b) 580
----------
2,632
----------
LIFE SCIENCES TOOLS & SERVICES (0.1%)
99,800 CMIC Holdings Co. Ltd.(a) 1,328
89,500 EPS Holdings, Inc.(a) 1,063
----------
2,391
----------
PHARMACEUTICALS (7.4%)
3,693 Alk-Abello A/S(a) 453
165,873 Almirall S.A.(a) 2,442
161,487 AstraZeneca plc(a) 8,351
683,406 Bayer AG(a) 64,137
282,004 BTG plc*(a) 2,060
77,700 Daito Pharmaceutical Co. Ltd.(a) 1,359
94,133 Dechra Pharmaceuticals plc(a) 1,500
70,400 Eisai Co. Ltd.(a) 4,085
271,510 Faes Farma S.A.(a) 970
76,000 H. Lundbeck A/S*(a) 2,899
106,361 Ipsen S.A.(a) 7,209
27,000 Kissei Pharmaceutical Co. Ltd.(a) 642
64,800 Kyorin Co. Ltd.(a) 1,382
232,190 Merck KGaA(a) 23,249
568,009 Novartis AG(a) 39,089
665,448 Novo Nordisk A/S "B"(a) 22,467
63,184 Orion Oyj "B"(a) 2,681
31,041 Recordati S.p.A.(a) 844
274,173 Roche Holding AG(a) 60,967
================================================================================
PORTFOLIO OF INVESTMENTS | 25
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
153,500 Takeda Pharmaceutical Co. Ltd.(a) $ 6,361
----------
253,147
----------
Total Health Care 383,889
----------
INDUSTRIALS (14.4%)
-------------------
AEROSPACE & DEFENSE (1.0%)
110,302 MTU Aero Engines AG(a) 11,586
1,709,539 Rolls-Royce Holdings plc*(a) 14,446
133,473 Saab AB "B"(a) 4,943
19,996 Thales S.A.(a) 1,950
----------
32,925
----------
AGRICULTURAL & FARM MACHINERY (0.6%)
1,312,900 Kubota Corp.(a) 20,222
----------
AIR FREIGHT & LOGISTICS (0.2%)
50,288 Bpost S.A.(a) 1,126
1,227,758 PostNL N.V.*(a) 6,051
----------
7,177
----------
AIRLINES (0.3%)
714,585 Air France-KLM*(a) 3,840
1,207,436 Air New Zealand Ltd.(a) 1,846
409,976 Deutsche Lufthansa AG(a) 5,313
----------
10,999
----------
BUILDING PRODUCTS (0.9%)
357 Belimo Holding AG(a) 1,034
158,761 Compagnie de Saint-Gobain(a) 6,886
229,600 Daikin Industries Ltd.(a) 21,979
44,900 Sanko Metal Industrial Co. Ltd.(a) 1,196
105,600 Sankyo Tateyama, Inc.(a) 1,464
----------
32,559
----------
CONSTRUCTION & ENGINEERING (0.5%)
178,000 Kumagai Gumi Co. Ltd.(a) 464
1,247,277 MACA Ltd.(a) 1,425
527,636 Maire Tecnimont S.p.A.(a) 1,326
158,400 Matsui Construction Co. Ltd.(a) 1,559
95,306 NCC AB "B"(a) 2,273
132,800 Obayashi Road Corp.(a) 825
917,250 Raubex Group Ltd.(a) 1,499
134,700 Shinnihon Corp.(a) 1,156
262,400 Tokyu Construction Co. Ltd.(a) 2,183
1,025,000 Toyo Engineering Corp.(a) 2,901
42,793 Veidekke ASA(a) 608
----------
16,219
----------
================================================================================
26 | USAA INTERNATIONAL FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
CONSTRUCTION MACHINERY & HEAVY TRUCKS (0.3%)
168,196 Alstom S.A.*(a) $ 4,556
23,393 KION Group AG(a) 1,325
72,300 Kyokuto Kaihatsu Kogyo Co. Ltd.(a) 951
4,181,100 Yangzijiang Shipbuilding Holdings Ltd.(a) 2,384
----------
9,216
----------
DIVERSIFIED SUPPORT SERVICES (0.3%)
242,197 Berendsen plc(a) 2,678
364,601 Downer EDI Ltd.(a) 1,535
189,341 Intrum Justitia AB(a) 5,727
----------
9,940
----------
ELECTRICAL COMPONENTS & EQUIPMENT (2.4%)
221,900 Furukawa Electric Co. Ltd.(a) 6,876
350,000 Iwasaki Electric Co. Ltd.(a) 538
416,734 Legrand S.A.(a) 23,197
700,526 Schneider Electric SE(a) 46,533
196,100 Ushio, Inc.(a) 2,424
173,201 Zumtobel Group AG(a) 3,018
----------
82,586
----------
ENVIRONMENTAL & FACILITIES SERVICES (0.1%)
1,579,137 Rentokil Initial plc(a) 4,236
----------
HEAVY ELECTRICAL EQUIPMENT (0.2%)
220,258 Gamesa Corporacion Tecnologica S.A.(a) 4,574
1,021,100 Melrose Industries plc(a) 2,336
----------
6,910
----------
HIGHWAYS & RAILTRACKS (0.0%)
58,441 SIAS S.p.A(a) 475
----------
HUMAN RESOURCE & EMPLOYMENT SERVICES (1.4%)
55,818 Adecco Group AG(a) 3,431
64,700 en-japan, Inc.(a) 1,085
1,990,891 Hays plc(a) 3,448
763,300 Randstad Holding N.V.(a) 38,628
181,523 SThree plc(a) 628
----------
47,220
----------
INDUSTRIAL CONGLOMERATES (0.9%)
643,904 CIR S.p.A.(a) 661
22,963 Italmobiliare S.p.A.(a) 1,022
119,768 Koninklijke Philips N.V.(a) 3,434
130,795 Rheinmetall AG(a) 9,327
863,893 Smiths Group plc(a) 15,212
----------
29,656
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 27
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
INDUSTRIAL MACHINERY (1.6%)
389,708 Deutz AG(a) $ 2,128
142,700 FANUC Corp.(a) 24,517
3,933 Georg Fischer(a) 3,365
141,700 Hisaka Works Ltd.(a) 1,027
337,200 Hitachi Zosen Corp.(a) 1,808
315,600 Japan Steel Works Ltd.(a) 5,681
41,100 Kitz Corp.(a) 240
8,658 Komax Holding AG(a) 2,122
616,045 Morgan Advanced Materials plc(a) 2,172
210,000 Nippon Thompson Co. Ltd.(a) 807
78,900 Rheon Automatic Machinery Co. Ltd.(a) 625
531,000 Ryobi Ltd.(a) 2,159
25,086 Stabilus S.A.*(a) 1,244
840,000 Sumitomo Heavy Industries Ltd.(a) 5,182
778,000 Toshiba Machine Co. Ltd.(a) 2,963
----------
56,040
----------
MARINE (0.6%)
157,967 D/S Norden A/S*(a) 2,400
66,047 DFDS A/S(a) 2,721
72,774 Kuehne & Nagel International AG(a) 9,487
1,152,000 Mitsui O.S.K. Lines Ltd.(a) 3,041
15,958,000 Pacific Basin Shipping Ltd.*(a) 2,606
----------
20,255
----------
MARINE PORTS & SERVICES (0.1%)
86,947 Hamburger Hafen und Logistik AG(a) 1,520
223,000 Sumitomo Warehouse Co. Ltd.(a) 1,165
----------
2,685
----------
OFFICE SERVICES & SUPPLIES (0.2%)
300,100 KOKUYO Co. Ltd.(a) 3,541
235,533 Moleskine S.p.A.(a) 599
111,400 Okamura Corp.(a) 961
169,200 Relia, Inc.(a) 1,651
----------
6,752
----------
RAILROADS (1.3%)
663,213 Canadian National Railway Co. 44,323
30,944 Go-Ahead Group plc(a) 805
----------
45,128
----------
RESEARCH & CONSULTING SERVICES (0.6%)
186,154 Bureau Veritas S.A.(a) 3,504
785,416 Experian plc(a) 14,813
================================================================================
28 | USAA INTERNATIONAL FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
74,985 WS Atkins plc(a) $ 1,316
----------
19,633
----------
TRADING COMPANIES & DISTRIBUTORS (0.7%)
35,977 B&B Tools AB "B"(a) 724
368,700 BOC Aviation Ltd.(a) 1,859
74,343 Cramo Oyj(a) 1,859
82,953 Diploma plc(a) 975
130,500 Fly Leasing Ltd. ADR* 1,804
331,000 Hanwa Co. Ltd.(a) 2,184
81,400 Inabata & Co. Ltd.(a) 879
2,053,000 Kanematsu Corp.(a) 3,443
127,989 Kloeckner & Co. SE*(a) 1,348
146,000 Kuroda Electric Co. Ltd.(a) 2,970
38,095 Ramirent Oyj(a) 271
272,430 Rexel S.A.(a) 4,199
2,202,052 SIG plc(a) 2,459
----------
24,974
----------
TRUCKING (0.2%)
417,287 FirstGroup plc*(a) 531
33,100 Hamakyorex Co. Ltd.(a) 595
686,548 National Express Group plc(a) 3,056
346,328 Nobina AB(a),(b) 2,173
----------
6,355
----------
Total Industrials 492,162
----------
INFORMATION TECHNOLOGY (11.4%)
------------------------------
APPLICATION SOFTWARE (2.0%)
201,712 Dassault Systemes S.A.(a) 15,397
409,095 Hansen Technologies Ltd.(a) 1,319
22,326 Industrial & Financial Systems AB "B"(c) 960
597,129 SAP SE(a) 49,980
21,394 Temenos Group AG(a) 1,478
----------
69,134
----------
COMMUNICATIONS EQUIPMENT (0.2%)
926,372 LM Ericsson Telephone Co. "B" ADR(a) 4,748
17,169 Silicom Ltd. 675
262,739 Telit Communications PLC Common Stock Gbp.01(a) 879
----------
6,302
----------
DATA PROCESSING & OUTSOURCED SERVICES (1.0%)
736,740 Amadeus IT Group S.A.(a) 33,338
231,027 Paysafe Group plc*(a) 1,122
----------
34,460
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 29
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
ELECTRONIC COMPONENTS (1.3%)
371,600 CMK Corp.*(a) $ 1,985
52,200 Dai-Ichi Seiko Co. Ltd.(a) 635
357,000 Hosiden Corp.(a) 2,979
764,900 Japan Display, Inc.*(a) 1,804
523,700 Kyocera Corp.(a) 25,378
402,700 Nichicon Corp.(a) 3,572
1,167,000 Nippon Chemi-Con Corp.(a) 2,423
198,100 Sumida Corp.(a) 1,816
189,490 Taiyo Yuden Co., Ltd.(a) 2,117
163,000 Tamura Corp.(a) 642
----------
43,351
----------
ELECTRONIC EQUIPMENT & INSTRUMENTS (0.4%)
482,700 Citizen Holdings Co. Ltd.(a) 3,008
54,046 Datalogic S.p.A.(a) 951
103,059 Kudelski S.A.(a) 1,728
283,945 Mycronic AB(a) 2,939
156,600 Orbotech Ltd.* 4,959
----------
13,585
----------
ELECTRONIC MANUFACTURING SERVICES (0.2%)
2,264,003 Hon Hai Precision Industry Co. Ltd.(a) 5,786
----------
HOME ENTERTAINMENT SOFTWARE (0.3%)
203,600 GungHo Online Entertainment, Inc.(a) 458
5,918,000 IGG, Inc.(a) 4,621
14,950 Nintendo Co. Ltd.(a) 3,669
37,080 UbiSoft Entertainment S.A.*(a) 1,290
----------
10,038
----------
INTERNET SOFTWARE & SERVICES (0.9%)
185,393 Alibaba Group Holding Ltd. ADR* 17,431
11,600 Criteo S.A. ADR* 479
90,300 DeNA Co. Ltd.(a) 2,780
605,800 Gree, Inc.(a) 3,253
81,000 Internet Initiative Japan, Inc.(a) 1,170
15,900 Mixi, Inc.(a) 557
455,730 Moneysupermarket.com Group plc(a) 1,510
81,100 Wix.com Ltd.* 4,014
----------
31,194
----------
IT CONSULTING & OTHER SERVICES (1.4%)
32,443 Alten S.A.(a) 2,223
353,338 Appen Ltd.(a) 662
106,616 Computacenter plc(a) 978
15,891 Devoteam S.A.(a) 880
================================================================================
30 | USAA INTERNATIONAL FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
1,292,000 Fujitsu Ltd.(a) $ 7,804
20,520 GFT Technologies SE(a) 413
60,500 Ines Corp.(a) 635
417,500 Net One Systems Co. Ltd.(a) 2,842
165,100 Nihon Unisys Ltd.(a) 2,037
158,831 Softcat plc(a) 599
27,857 Sopra Steria Group(a) 2,791
721,113 Tata Consultancy Services Ltd.(a) 23,936
31,100 TIS, Inc.(a) 658
----------
46,458
----------
SEMICONDUCTOR EQUIPMENT (0.2%)
114,800 Mimasu Semiconductor Industry Co. Ltd.(a) 1,400
22,600 NuFlare Technology, Inc.(a) 1,083
170,200 Shinkawa Ltd.*(a) 1,025
124,800 Tokyo Seimitsu Co. Ltd.(a) 3,579
----------
7,087
----------
SEMICONDUCTORS (2.3%)
353,079 Kontron AG*(a) 1,060
314,800 MediaTek, Inc.(a) 2,188
21,076 Melexis NV(a) 1,320
99,800 Miraial Co. Ltd.(a) 801
97,100 ROHM Co. Ltd.(a) 5,435
1,132,900 Shinko Electric Industries Co. Ltd.(a) 7,118
739,236 Soitec*(a) 783
496,880 STMicroelectronics N.V.(a) 5,078
1,711,518 Taiwan Semiconductor Manufacturing Co. Ltd. ADR 50,815
226,274 Tower Semiconductor Ltd.*(a) 4,067
----------
78,665
----------
SYSTEMS SOFTWARE (0.7%)
26,200 Alpha Systems, Inc.(a) 404
263,386 Check Point Software Technologies Ltd.* 21,684
80,600 Computer Engineering & Consulting Ltd.(a) 1,343
60,300 Fuji Soft, Inc.(a) 1,426
----------
24,857
----------
TECHNOLOGY DISTRIBUTORS (0.0%)
300,000 Daiwabo Holdings Co. Ltd.(a) 796
42,400 UKC Holdings Corp.(a) 785
----------
1,581
----------
TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (0.5%)
186,000 Canon, Inc.(a) 5,341
1,367,464 Compal Electronics, Inc. GDR(c) 3,894
================================================================================
PORTFOLIO OF INVESTMENTS | 31
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
76,600 Japan Digital Laboratory Co. Ltd(a) $ 1,613
180,400 MCJ Co. Ltd.(a) 1,605
79,300 Melco Holdings, Inc.(a) 2,044
252,000 Toshiba Tec Corp.*(a) 1,257
----------
15,754
----------
Total Information Technology 388,252
----------
MATERIALS (8.0%)
----------------
ALUMINUM (0.0%)
255,600 Nippon Light Metal Holdings Co. Ltd.(a) 576
----------
COMMODITY CHEMICALS (0.5%)
33,276 Lenzing AG(a) 4,244
230,000 Mitsui Chemicals, Inc.(a) 1,088
921,767 Orica Ltd.(a) 11,539
----------
16,871
----------
CONSTRUCTION MATERIALS (0.4%)
256,476 Buzzi Unicem S.p.A(a) 5,447
130,492 LafargeHolcim Ltd.(a) 6,957
43,012 Vicat S.A.(a) 2,490
----------
14,894
----------
DIVERSIFIED CHEMICALS (0.3%)
60,000 Mitsubishi Gas Chemical Co. Inc.(a) 925
515,300 Showa Denko K.K.(a) 7,089
991,000 UBE Industries Ltd.(a) 2,098
----------
10,112
----------
DIVERSIFIED METALS & MINING (1.0%)
320,300 Anglo American plc*(a) 4,813
1,317,500 Ivanhoe Mines Ltd. "A"* 2,315
14,504,000 NetMind Financial Holdings Ltd.*(a) 119
147,500 Northern Dynasty Minerals Ltd.* 175
647,000 Pacific Metals Co. Ltd.*(a) 2,193
582,631 Rio Tinto plc(a) 21,965
988,036 Western Areas Ltd.*(a) 2,214
----------
33,794
----------
GOLD (0.6%)
178,300 Barrick Gold Corp. 2,674
1,243,924 Centamin plc(a) 2,026
483,300 Centerra Gold, Inc. 2,497
762,558 Eldorado Gold Corp.* 2,089
62,529,000 G-Resources Group Ltd.(a) 1,185
605,367 Kinross Gold Corp.* 1,992
================================================================================
32 | USAA INTERNATIONAL FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
168,928 Northern Star Resources Ltd.(a) $ 440
1,993,454 Ramelius Resources Ltd.*(a) 722
506,419 Regis Resources Ltd.(a) 1,051
5,017,354 Resolute Mining Ltd.(a) 4,503
----------
19,179
----------
INDUSTRIAL GASES (2.1%)
468,452 Air Liquide S.A.(a) 47,890
133,478 Linde AG(a) 22,223
----------
70,113
----------
METAL & GLASS CONTAINERS (0.2%)
332,211 Pact Group Holdings Ltd.(a) 1,599
252,028 RPC Group plc(a) 3,390
14,688 Vidrala SA(a) 741
----------
5,730
----------
PAPER PACKAGING (0.1%)
3,592,000 AMVIG Holdings Ltd.(a) 1,282
82,476 BillerudKorsnas AB(a) 1,366
----------
2,648
----------
PAPER PRODUCTS (0.1%)
220,900 Nippon Paper Industries Co. Ltd.(a) 3,871
59,638 SEMAPA - Sociedade de Investimento e Gestao SGPS S.A.(a) 768
----------
4,639
----------
PRECIOUS METALS & MINERALS (0.1%)
107,304 Anglo American Platinum Ltd.*(a) 2,206
656,942 Impala Platinum Holdings Ltd.*(a) 2,063
235,029 Lonmin plc*(a) 439
----------
4,708
----------
SPECIALTY CHEMICALS (1.9%)
559,759 Akzo Nobel N.V.(a) 34,772
85,370 Borregaard ASA(a) 865
40,395 H&R GmbH & Co. KGaA*(a) 665
356,500 JSR Corp.(a) 5,214
5,419 Looser Holding AG* 559
39,000 Sanyo Chemical Industries Ltd.(a) 1,676
213,100 Shin-Etsu Chemical Co. Ltd.(a) 16,190
240 Sika AG(a) 1,164
197,000 Sumitomo Bakelite Co. Ltd.(a) 1,079
217,000 Tokuyama Corp.*(a) 850
----------
63,034
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 33
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
STEEL (0.7%)
436,001 Bluescope Steel Ltd.(a) $ 2,929
131,900 Chubu Steel Plate Co. Ltd.(a) 705
433,746 Evraz plc*(a) 1,297
84,900 Godo Steel Ltd.(a) 1,610
49,249 Hill & Smith Holdings plc(a) 755
52,900 Kobe Steel Ltd.*(a) 509
178,300 Kyoei Steel Ltd.(a) 3,285
4,100 Nakayama Steel Works Ltd.* 25
181,800 Neturen Co. Ltd.(a) 1,464
94,234 Salzgitter AG(a) 3,076
402,800 Tokyo Steel Manufacturing Co. Ltd.(a) 2,952
28,000 Topy Industries Ltd.(a) 720
101,850 Yamato Kogyo Co. Ltd.(a) 2,986
101,100 Yodogawa Steel Works Ltd.(a) 2,836
----------
25,149
----------
Total Materials 271,447
----------
REAL ESTATE (1.8%)
------------------
DIVERSIFIED REAL ESTATE ACTIVITIES (0.7%)
7,026 Allreal Holding AG(a) 1,023
75,786 Dic Asset AG(a) 683
561,000 Great Eagle Holdings Ltd.(a) 2,491
211,700 Heiwa Real Estate Co. Ltd.(a) 3,067
136,100 Leopalace21 Corp.(a) 748
67,100 Mugen Estate Co., Ltd.(a) 436
315,300 Nomura Real Estate Holdings, Inc.(a) 5,184
140,253 Patrizia Immobilien AG*(a) 2,298
98,000 Raysum Co., Ltd.(a) 668
55,400 Sun Frontier Fudousan Co. Ltd.(a) 483
787,200 Tokyu Fudosan Holdings Corp.(a) 4,584
----------
21,665
----------
REAL ESTATE DEVELOPMENT (0.2%)
31,799 ADLER Real Estate AG*(a) 457
17,800 Goldcrest Co. Ltd.(a) 342
330,200 Tosei Corp.(a) 2,426
3,809,800 Yanlord Land Group Ltd.(a) 3,680
----------
6,905
----------
REAL ESTATE OPERATING COMPANIES (0.5%)
28,275 Buwog AG(a) 657
148,412 CA Immobilien Anlagen AG(a) 2,706
101,904 Castellum AB(a) 1,341
================================================================================
34 | USAA INTERNATIONAL FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
112,400 Daibiru Corp.(a) $ 1,015
80,219 Dios Fastigheter AB(a) 526
205,846 Gazit Globe Ltd.(a) 1,864
112,271 Grand City Properties S.A.(a) 1,869
231,337 Hemfosa Fastigheter AB(a) 2,121
590,504 Sponda OYJ(a) 2,537
19,900 Unizo Holdings Co. Ltd.(a) 577
240,510 WCM Beteiligungs-und & Grundbesitz AG*(a) 655
37,160 Wihlborgs Fastigheter AB(a) 674
----------
16,542
----------
REAL ESTATE SERVICES (0.1%)
182,748 Savills plc(a) 1,530
112,800 Sumitomo Real Estate Sales(a) 2,787
----------
4,317
----------
REITs - DIVERSIFIED (0.0%)
16,020 ICADE(a) 1,107
----------
REITs - HEALTH CARE (0.1%)
25,695 Aedifica REIT(a) 1,894
----------
REITs - INDUSTRIAL (0.0%)
6,789 Warehouses De Pauw SCA(a) 583
----------
REITs - OFFICE (0.0%)
578,100 Frasers Commercial Trust(a) 514
----------
REITs - RESIDENTIAL (0.0%)
489,232 Irish Residential Properties REIT plc(a) 602
----------
REITs - RETAIL (0.1%)
51,249 Eurocommercial Properties N.V.(a) 1,834
1,037,234 Immobiliare Grande Distribuzione SIIQ S.p.A.(a) 693
2,404,300 Lippo Malls Indonesia Retail REIT Trust(a) 637
348,207 NewRiver REIT plc(a) 1,459
----------
4,623
----------
REITs - SPECIALIZED (0.1%)
985,001 National Storage REIT(a) 1,102
299,329 Safestore Holdings plc(a) 1,280
----------
2,382
----------
Total Real Estate 61,134
----------
TELECOMMUNICATION SERVICES (1.0%)
---------------------------------
ALTERNATIVE CARRIERS (0.0%)
170,820 Inmarsat plc(a) 1,515
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 35
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (0.8%)
448,438 Hellenic Telecommunications Organization S.A.(a) $ 4,073
202,196 KT Corp.(a) 5,165
1,882,030 Magyar Telekom Telecommunications plc(a) 3,140
3,860,150 Singapore Telecommunications Ltd.(a) 10,146
158,500 Telefonica Brasil S.A. 2,116
412,666 Telefonica S.A.(a) 3,435
----------
28,075
----------
WIRELESS TELECOMMUNICATION SERVICES (0.2%)
115,971 Freenet AG(a) 2,962
164,586 Orange Belgium S.A.*(a) 3,419
----------
6,381
----------
Total Telecommunication Services 35,971
----------
UTILITIES (1.3%)
----------------
ELECTRIC UTILITIES (0.2%)
26,781 BKW AG(a) 1,210
294,000 Companhia Paranaense de Energia-Copel 2,517
475,896 Infratil Ltd.(a) 943
122,700 Okinawa Electric Power Co., Inc.(a) 2,512
----------
7,182
----------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS (0.1%)
1,285,202 NTPC Ltd.(a) 3,059
----------
MULTI-UTILITIES (1.0%)
70,268 ACEA S.p.A.(a) 757
457,727 E.ON SE(a) 3,005
2,054,343 Engie(a) 25,311
1,832,395 Iren S.p.A.(a) 2,736
167,924 RWE AG*(a) 2,111
----------
33,920
----------
RENEWABLE ELECTRICITY (0.0%)
91,858 Capital Stage AG(a) 617
----------
Total Utilities 44,778
----------
Total Common Stocks (cost: $2,856,548) 3,332,853
----------
PREFERRED STOCKS (0.1%)
MATERIALS (0.1%)
----------------
CONSTRUCTION MATERIALS (0.1%)
168,482 Buzzi Unicem S.p.A.(a) (cost: $1,774) 1,874
----------
================================================================================
36 | USAA INTERNATIONAL FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
EXCHANGE-TRADED FUNDS (0.1%)
59,335 iShares Core MSCI EAFE ETF (cost: $3,197) $ 3,137
----------
RIGHTS (0.0%)
FINANCIALS (0.0%)
-----------------
DIVERSIFIED BANKS (0.0%)
1,395,434 CaixaBank S.A.* 58
----------
INDUSTRIALS (0.0%)
-----------------
AEROSPACE & DEFENSE (0.0%)
78,613,310 Rolls Royce Holdings plc "C "*(c) 98
----------
Total Rights (cost: $156) 156
----------
Total Equity Securities (cost: $2,861,675) 3,338,020
----------
--------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON
(000) RATE MATURITY
--------------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS (1.2%)
COMMERCIAL PAPER (0.7%)
FINANCIALS (0.7%)
-----------------
DIVERSIFIED BANKS (0.7%)
$ 23,623 GE Capital Treasury, LLC 0.35% 12/01/2016 23,623
----------
--------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES
--------------------------------------------------------------------------------------------------------
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (0.5%)
17,956,357 State Street Institutional Treasury Money Market Fund Premier Class, 0.25%(d) 17,956
----------
Total Money Market Instruments (cost: $41,579) 41,579
----------
TOTAL INVESTMENTS (COST: $2,903,254) $3,379,599
==========
================================================================================
PORTFOLIO OF INVESTMENTS | 37
================================================================================
--------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
--------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
--------------------------------------------------------------------------------------------------------
Equity Securities:
Common Stocks $327,647 $3,004,246 $960 $3,332,853
Preferred Stocks 1,874 - - 1,874
Exchange-Traded Funds 3,137 - - 3,137
Rights 58 98 - 156
Money Market Instruments:
Commercial Paper - 23,623 - 23,623
Government & U.S. Treasury
Money Market Funds 17,956 - - 17,956
--------------------------------------------------------------------------------------------------------
Total $350,672 $3,027,967 $960 $3,379,599
--------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
--------------------------------------------------------------------------------------------------------
RECONCILIATION OF LEVEL 3 INVESTMENTS
--------------------------------------------------------------------------------------------------------
COMMON STOCKS
--------------------------------------------------------------------------------------------------------
Balance as of May 31, 2016 $ -
Purchases -
Sales -
Transfers into Level 3 971
Transfers out of Level 3 -
Net realized gain (loss) on investments -
Change in net unrealized appreciation/(depreciation) of investments (11)
--------------------------------------------------------------------------------------------------------
Balance as of November 30, 2016 $960
--------------------------------------------------------------------------------------------------------
FAIR VALUE LEVEL TRANSFERS
--------------------------
For the period of June 1, 2016, through November 30, 2016, the table below shows
the transfers between Level 1, Level 2, and Level 3. The Fund's policy is to
recognize any transfers in and transfers out as of the beginning of the
reporting period in which the event or circumstance that caused the transfer
occurred.
TRANSFERS INTO TRANSFERS INTO TRANSFERS INTO
(OUT OF) (OUT OF) (OUT OF)
ASSETS ($ IN 000s) LEVEL 1 LEVEL 2 LEVEL 3
--------------------------------------------------------------------------------------------------------
Common Stocks(I),(II) $(2,790,444) $2,789,473 $971
--------------------------------------------------------------------------------------------------------
(I)Transferred from Level 1 to Level 2 due to an assessment of events at the end
of the current reporting period, these securities had adjustments to their
foreign market closing prices to reflect changes in value that occurred after
the close of foreign markets and prior to the close of the U.S. securities
markets.
(II)Transferred from Level 1 to Level 3 due to the unavailability of observable
inputs.
================================================================================
38 | USAA INTERNATIONAL FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
November 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.
The Fund may rely on certain Securities and Exchange Commission (SEC)
exemptive orders or rules that permit funds meeting various conditions to
invest in an exchange-traded fund (ETF) in amounts exceeding limits set
forth in the Investment Company Act of 1940, as amended, that would
otherwise be applicable.
o CATEGORIES AND DEFINITIONS
RIGHTS - Enable the holder to buy a specified number of shares of new issues
of a common stock before it is offered to the public.
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.
GDR Global depositary receipts are receipts issued by a U.S. or foreign
bank evidencing ownership of foreign shares. Dividends are paid in
U.S. dollars.
REIT Real estate investment trust
SDR Swedish depositary receipts
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 39
================================================================================
o SPECIFIC NOTES
(a) Securities with a value of $3,004,414,000, which represented 88.2% of
the Fund's net assets, were classified as Level 2 at November 30, 2016,
due to the prices being adjusted to take into account significant market
movements following the close of local trading.
(b) Restricted security that is not registered under the Securities Act of
1933. A resale of this security in the United States may occur in an
exempt transaction to a qualified institutional buyer as defined by Rule
144A, and as such has been deemed liquid by USAA Asset Management
Company (the Manager) under liquidity guidelines approved by USAA Mutual
Funds Trust's Board of Trustees (the Board), unless otherwise noted as
illiquid.
(c) Security was fair valued at November 30, 2016, by the Manager in
accordance with valuation procedures approved by the Board. The total
value of all such securities was $4,952,000, which represented 0.1% of
the Fund's net assets.
(d) Rate represents the money market fund annualized seven-day yield at
November 30, 2016.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
40 | USAA INTERNATIONAL FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES (IN THOUSANDS)
November 30, 2016 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $2,903,254) $3,379,599
Cash denominated in foreign currencies (identified cost of $5,303) 5,265
Receivables:
Capital shares sold 16,981
USAA Asset Management Company (Note 6D) 1
Dividends and interest 9,081
Securities sold 8,169
----------
Total assets 3,419,096
----------
LIABILITIES
Payables:
Securities purchased 9,292
Capital shares redeemed 1,061
Unrealized depreciation on foreign currency contracts held, at value 2
Accrued management fees 2,099
Accrued transfer agent's fees 59
Other accrued expenses and payables 407
----------
Total liabilities 12,920
----------
Net assets applicable to capital shares outstanding $3,406,176
==========
NET ASSETS CONSIST OF:
Paid-in capital $2,949,101
Accumulated undistributed net investment income 47,454
Accumulated net realized loss on investments (66,029)
Net unrealized appreciation of investments 476,345
Net unrealized depreciation of foreign currency translations (695)
----------
Net assets applicable to capital shares outstanding $3,406,176
==========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $1,412,489/53,159 capital shares
outstanding, no par value) $ 26.57
==========
Institutional Shares (net assets of $1,987,274/74,927 capital shares
outstanding, no par value) $ 26.52
==========
Adviser Shares (net assets of $6,413/243 capital shares outstanding,
no par value) $ 26.45
==========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 41
================================================================================
STATEMENT OF OPERATIONS (IN THOUSANDS)
Six-month period ended November 30, 2016 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $2,986) $31,259
Interest 56
-------
Total income 31,315
-------
EXPENSES
Management fees 12,932
Administration and servicing fees:
Fund Shares 1,079
Institutional Shares 1,002
Adviser Shares 5
Transfer agent's fees:
Fund Shares 1,129
Institutional Shares 1,002
Distribution and service fees (Note 6F):
Adviser Shares 8
Custody and accounting fees:
Fund Shares 176
Institutional Shares 251
Adviser Shares 1
Postage:
Fund Shares 73
Institutional Shares 28
Shareholder reporting fees:
Fund Shares 35
Institutional Shares 4
Trustees' fees 15
Registration fees:
Fund Shares 30
Institutional Shares 19
Adviser Shares 9
Professional fees 113
Other 25
-------
Total expenses 17,936
Expenses reimbursed:
Adviser Shares (5)
-------
Net expenses 17,931
-------
NET INVESTMENT INCOME 13,384
-------
================================================================================
42 | USAA INTERNATIONAL FUND
================================================================================
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY
Net realized gain (loss) on:
Investments (net of foreign taxes withheld of $2) 9,244
Foreign currency transactions (312)
Change in net unrealized appreciation/(depreciation) of:
Investments 3,132
Foreign currency translations (481)
-------
Net realized and unrealized gain 11,583
-------
Increase in net assets resulting from operations $24,967
=======
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 43
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended November 30, 2016 (unaudited), and year ended
May 31, 2016
--------------------------------------------------------------------------------------------------------
11/30/2016 5/31/2016
--------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 13,384 $ 50,255
Net realized gain (loss) on investments 9,244 (35,821)
Net realized loss on foreign currency transactions (312) (1,388)
Net realized loss on futures transactions - (71)
Change in net unrealized appreciation/(depreciation) of:
Investments 3,132 (355,898)
Foreign currency translations (481) 170
----------------------------
Increase (decrease) in net assets resulting from operations 24,967 (342,753)
----------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares - (24,704)
Institutional Shares - (20,957)
Adviser Shares - (69)
----------------------------
Total distributions of net investment income - (45,730)
----------------------------
Net realized gains:
Fund Shares - (73,981)
Institutional Shares - (58,193)
Adviser Shares - (277)
----------------------------
Total distributions of net realized gains - (132,451)
----------------------------
Distributions to shareholders - (178,181)
----------------------------
NET INCREASE (DECREASE) IN NET ASSETS FROM
CAPITAL SHARE TRANSACTIONS (NOTE 5)
Fund Shares (27,575) (210,382)
Institutional Shares (24,612) 462,715
Adviser Shares 18 (31)
----------------------------
Total net increase (decrease) in net assets from
capital share transactions (52,169) 252,302
----------------------------
Net decrease in net assets (27,202) (268,632)
NET ASSETS
Beginning of period 3,433,378 3,702,010
----------------------------
End of period $3,406,176 $3,433,378
============================
Accumulated undistributed net investment income:
End of period $ 47,454 $ 34,070
============================
See accompanying notes to financial statements.
================================================================================
44 | USAA INTERNATIONAL FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
November 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 International Fund (the Fund), which
is classified as diversified under the 1940 Act. The Fund's investment objective
is to seek capital appreciation.
The Fund consists of three classes of shares: International Fund Shares (Fund
Shares), International Fund Institutional Shares (Institutional Shares), and
International 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 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). The Adviser
================================================================================
NOTES TO FINANCIAL STATEMENTS | 45
================================================================================
Shares permit investors to purchase shares through financial intermediaries,
including banks, broker-dealers, insurance companies, investment advisers, plan
sponsors, and financial professionals that provide various administrative and
distribution services.
A. SECURITY VALUATION - The Trust's Board of Trustees (the Board) has
established the Valuation Committee (the Committee), and subject to Board
oversight, the Committee administers and oversees the Fund's 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
================================================================================
46 | USAA INTERNATIONAL FUND
================================================================================
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 and the Fund's subadviser(s)
will monitor for events that would materially affect the value of the
Fund's foreign securities. The Fund's subadviser(s) have agreed to
notify the Manager of significant events they identify that would
materially affect the value of the Fund's foreign securities. If the
Manager determines that a particular event would materially affect the
value of the Fund's foreign securities, then 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 47
================================================================================
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. Futures are valued at the settlement price at the close of market on
the principal exchange on which they are traded or, in the absence of
any transactions that day, the settlement price on the prior trading
date if it is within the spread between the closing bid and asked prices
closest to the last reported sale price.
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. Level 2
securities include equity securities that are valued using market inputs
and other observable factors deemed by the Manager to appropriately
reflect fair value.
================================================================================
48 | USAA INTERNATIONAL FUND
================================================================================
B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would
be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The
three-level valuation hierarchy disclosed in the Portfolio of Investments is
based upon the transparency of inputs to the valuation of an asset or
liability as of the measurement date. The three levels are defined as
follows:
Level 1 - inputs to the valuation methodology are quoted prices (unadjusted)
in active markets for identical securities.
Level 2 - inputs to the valuation methodology are other significant
observable inputs, including quoted prices for similar securities, inputs
that are observable for the securities, either directly or indirectly, and
market-corroborated inputs such as market indexes.
Level 3 - inputs to the valuation methodology are unobservable and
significant to the fair value measurement, including the Manager's own
assumptions in determining the fair value.
The inputs or methodologies used for valuing securities are not necessarily
an indication of the risks associated with investing in those securities.
The valuation of securities falling in the Level 3 category are primarily
supported by the acquisition price. 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. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - The Fund may buy, sell,
and enter into certain types of derivatives, including, but not limited to
futures contracts, options, and options on futures contracts, under
circumstances in which such instruments are expected by the portfolio
manager to aid in achieving the Fund's investment objective. The Fund also
may use derivatives in circumstances where the portfolio manager believes
they offer an economical means of gaining exposure to a particular asset
class or securities market or to keep cash on hand to meet shareholder
redemptions or other needs while maintaining exposure to the market.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 49
================================================================================
With exchange-listed futures contracts and options, counterparty credit risk
to the Fund is limited to the exchange's clearinghouse which, as
counterparty to all exchange-traded futures contracts and options,
guarantees the transactions against default from the actual counterparty to
the transaction. The Fund's derivative agreements held at November 30, 2016,
did not include master netting provisions.
D. FEDERAL TAXES - The Fund's policy is to comply with the requirements of
the Internal Revenue Code of 1986, as amended, applicable to regulated
investment companies and to distribute substantially all of its taxable
income and net capital gains, if any, to its shareholders. Therefore, no
federal income tax provision is required.
E. FOREIGN TAXATION - Foreign income and capital gains on some foreign
securities may be subject to foreign taxes, which are reflected as a
reduction to such income and realized gains. The Fund records a liability
based on unrealized gains to provide for potential foreign taxes payable
upon the sale of these securities. Foreign taxes have been provided for in
accordance with the Fund's understanding of the applicable countries'
prevailing tax rules and rates.
F. INVESTMENTS IN SECURITIES - Securities transactions are accounted for on
the date the securities are purchased or sold (trade date). Gains or losses
from sales of investment securities are computed on the identified cost
basis. Dividend income, less foreign taxes, if any, is recorded on the ex-
dividend date. If the ex-dividend date has passed, certain dividends from
foreign securities are recorded upon notification. Interest income is
recorded daily on the accrual basis. Premiums and discounts on short-term
securities are amortized on a straight-line basis over the life of the
respective securities.
G. 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.
================================================================================
50 | USAA INTERNATIONAL FUND
================================================================================
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.
H. EXPENSES PAID INDIRECTLY - A portion of the brokerage commissions that
the Fund pays may be recaptured as a credit that is tracked and used by the
custodian to directly reduce expenses paid by the Fund. In addition, 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 November 30, 2016, brokerage
commission recapture credits reduced the expenses of the Fund Shares,
Institutional Shares, and Adviser Shares each by less than $500. For the
six-month period ended November 30, 2016, there were no custodian and other
bank credits.
I. REDEMPTION FEES - Adviser Shares 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 51
================================================================================
ended November 30, 2016, the Adviser Shares charged redemption fees of less
than $500.
J. 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.
K. 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 with other USAA Funds 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 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.
================================================================================
52 | USAA INTERNATIONAL FUND
================================================================================
For the six-month period ended November 30, 2016, the Fund paid CAPCO facility
fees of $11,000, which represents 4.7% 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 November 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 May 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 tax.
At May 31, 2016, the Fund had no capital loss carryforwards, for federal income
tax purposes.
For the six-month period ended November 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 November 30, 2016, were
$684,715,000 and $727,027,000, respectively.
As of November 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 November 30,
2016, were $692,474,000 and $216,129,000, respectively, resulting in net
unrealized appreciation of $476,345,000.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 53
================================================================================
(5) CAPITAL SHARE TRANSACTIONS
At November 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 YEAR ENDED
NOVEMBER 30, 2016 MAY 31, 2016
--------------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------
FUND SHARES:
Shares sold 3,625 $ 96,610 10,260 $ 283,916
Shares issued from reinvested dividends -* 1 3,602 97,298
Shares redeemed (4,656) (124,186) (23,072) (591,596)
---------------------------------------------------
Net decrease from capital share transactions (1,031) $ (27,575) (9,210) $(210,382)
===================================================
INSTITUTIONAL SHARES:
Shares sold 5,066 $ 134,643 29,576 $ 741,544
Shares issued from reinvested dividends - - 2,937 79,129
Shares redeemed (5,939) (159,255) (13,038) (357,958)
---------------------------------------------------
Net increase (decrease) from capital share
transactions (873) $ (24,612) 19,475 $ 462,715
===================================================
ADVISER SHARES:
Shares sold 1 $ 18 1 $ 24
Shares issued from reinvested dividends - - -* 3
Shares redeemed** -* -* (2) (58)
---------------------------------------------------
Net increase (decrease) from capital share
transactions 1 $ 18 (1) $ (31)
===================================================
*Represents less than 500 shares or $500.
**Net of redemption fees, if any.
================================================================================
54 | USAA INTERNATIONAL FUND
================================================================================
(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.
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.
The Manager monitors each subadviser's performance through quantitative and
qualitative analysis and periodically reports to the Board as to whether
each subadviser's agreement should be renewed, terminated, or modified. The
Manager is also responsible for determining the asset allocation for the
subadviser(s). The allocation for each subadviser could range from 0% to
100% of the Fund's assets, and the Manager could change the allocations
without shareholder approval.
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 0.75% 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 International Funds Index. The Lipper
International Funds Index tracks the total return performance of the 30
largest funds in the Lipper International Funds category. 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)
--------------------------------------------------------------------
+/- 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 55
================================================================================
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 International Funds Index over that period, even if
the class had overall negative returns during the performance period.
For the six-month period ended November 30, 2016, the Fund incurred total
management fees, paid or payable to the Manager, of $12,932,000. For the
six-month period ended November 30, 2016, none of the share classes incurred
any performance adjustment.
B. SUBADVISORY ARRANGEMENT(s) - The Manager entered into Investment
Subadvisory Agreements with Lazard Asset Management (Lazard), MFS Investment
Management (MFS), and Wellington Management Company LLP (Wellington
Management) under which Lazard, MFS, and Wellington Management each direct
the investment and reinvestment of a portion of the Fund's assets (as
allocated from time to time by the Manager).
The Manager (not the Fund) pays Lazard a subadvisory fee in the annual
amount of 0.50% for assets up to $100 million, 0.45% for assets over $100
million up to $250 million, 0.40% for assets over $250 million up to $600
million, and 0.375% for assets over $600 million on the portion of the
Fund's average net assets that Lazard manages. For the six-month period
ended November 30, 2016, the Manager incurred subadvisory fees with respect
to the Fund, paid or payable to Lazard, of $1,210,000.
The Manager (not the Fund) pays MFS a subadvisory fee based on the aggregate
average net assets in the USAA International Fund and the USAA World Growth
Fund combined, in an annual amount of 0.33% on the first $2 billion of
assets, 0.30% of assets over $2 billion and up to
================================================================================
56 | USAA INTERNATIONAL FUND
================================================================================
$3 billion, and 0.25% on assets over $3 billion on the portion of the Fund's
average net assets that MFS manages. For the six-month period ended November
30, 2016, the Manager incurred subadvisory fees with respect to the Fund,
paid or payable to MFS, of $3,521,000.
The Manager (not the Fund) pays Wellington Management a subadvisory fee in
the annual amount of 0.45% on the first $700 million and 0.425% on assets
over $700 million of the portion of the Fund's average net assets that
Wellington Management manages. For the six-month period ended November 30,
2016, the Manager incurred subadvisory fees with respect to the Fund, paid
or payable to Wellington Management, of $1,369,000.
C. 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 Adviser Shares, and
0.10% of average net assets of the Institutional Shares. For the six-month
period ended November 30, 2016, the Fund Shares, Institutional Shares, and
Adviser Shares incurred administration and servicing fees, paid or payable
to the Manager, of $1,079,000, $1,002,000, 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 November 30, 2016, the Fund reimbursed the
Manager $47,000 for these compliance and legal services. These expenses are
included in the professional fees on the Fund's Statement of Operations.
D. EXPENSE LIMITATION - The Manager agreed, through September 30, 2017, to
limit the total annual operating expenses of the Adviser Shares to 1.35% 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 57
================================================================================
September 30, 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 November 30, 2016, the Adviser Shares incurred reimbursable
expenses of $5,000, of which $1,000 was a receivable from the Manager.
E. 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 $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 November 30, 2016, the Fund Shares, Institutional
Shares, and Adviser Shares incurred transfer agent's fees, paid or payable
to SAS, of $1,129,000, $1,002,000, and less than $500, respectively.
F. 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 November 30, 2016, the Adviser Shares
incurred distribution and service (12b-1) fees of $8,000.
G. 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.
================================================================================
58 | USAA INTERNATIONAL FUND
================================================================================
(7) TRANSACTIONS WITH AFFILIATES
The Fund offers its Institutional 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 underlying funds for the
purpose of exercising management or control. As of November 30, 2016, the USAA
fund-of-funds owned the following percentages of the total outstanding shares of
the Fund:
AFFILIATED USAA FUND OWNERSHIP %
--------------------------------------------------------------------------------
Cornerstone Conservative 0.3
Cornerstone Equity 0.9
Target Retirement Income 0.6
Target Retirement 2020 1.7
Target Retirement 2030 4.5
Target Retirement 2040 5.9
Target Retirement 2050 3.4
Target Retirement 2060 0.2
The Manager is indirectly wholly owned by United Services Automobile Association
(USAA), a large, diversified financial services institution. At November 30,
2016, USAA and its affiliates owned 240,000 Adviser Shares, which represents
98.9 of the Adviser Shares outstanding and 0.2% of the Fund's outstanding
shares.
Certain trustees and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Fund.
(8) UPCOMING REGULATORY MATTERS
In October 2016, the U.S. Securities and Exchange Commission (SEC) adopted final
rules intended to modernize the reporting and disclosure of information by
registered investment companies. In part, the final rules amend Regulation S-X
to require standardized, enhanced disclosure about derivatives in investment
company financial statements. The Manager is currently evaluating the impact
these rules and amendments will have on the financial statements and related
disclosures. The compliance date for the amendments to Regulation S-X is August
1, 2017, with other staggered compliance dates extending through December 2018.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 59
================================================================================
(9) FINANCIAL HIGHLIGHTS - FUND SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
NOVEMBER 30, YEAR ENDED MAY 31,
---------------------------------------------------------------------------------
2016 2016 2015 2014 2013 2012
---------------------------------------------------------------------------------
Net asset value at
beginning of period $ 26.40 $ 30.90 $ 31.25 $ 27.29 $ 21.59 $ 26.30
---------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .10 .35(a) .38 .34(a) .32(a) .35
Net realized and
unrealized gain (loss) .07 (3.34)(a) .16 3.86(a) 5.71(a) (4.76)
---------------------------------------------------------------------------------
Total from investment
operations .17 (2.99)(a) .54 4.20(a) 6.03(a) (4.41)
---------------------------------------------------------------------------------
Less distributions from:
Net investment income - (.37) (.50) (.24) (.33) (.30)
Realized capital gains - (1.14) (.39) - - -
---------------------------------------------------------------------------------
Total distributions - (1.51) (.89) (.24) (.33) (.30)
---------------------------------------------------------------------------------
Net asset value at
end of period $ 26.57 $ 26.40 $ 30.90 $ 31.25 $ 27.29 $ 21.59
=================================================================================
Total return (%)* .64 (9.75) 1.97 15.44 28.01 (16.71)
Net assets at
end of period (000) $1,412,489 $1,430,667 $1,958,773 $1,836,335 $1,509,000 $1,587,445
Ratios to average
net assets:**
Expenses (%)(b) 1.11(c) 1.13 1.12 1.16 1.21 1.21
Net investment
income (%) .71(c) 1.27 1.42 1.16 1.27 1.56
Portfolio turnover (%) 20 62(d) 17 14 20 17
* 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 November 30, 2016, average net assets were
$1,433,045,000.
(a) Calculated using average shares.
(b) Reflects total annual operating expenses of the Fund before reductions of
any expenses paid indirectly. The Fund's expenses paid indirectly decreased
the expense ratios as follows:
(.00%)(+) (.00%)(+) - (.00%)(+) (.00%)(+) (.00%)(+)
(+) Represents less than 0.01% of average net assets.
(c) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(d) Reflects increased trading activity due to changes in subadviser(s) and
asset allocation strategies.
================================================================================
60 | USAA INTERNATIONAL FUND
================================================================================
(9) FINANCIAL HIGHLIGHTS (CONTINUED) - INSTITUTIONAL SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
NOVEMBER 30, YEAR ENDED MAY 31,
---------------------------------------------------------------------------------
2016 2016 2015 2014 2013 2012
---------------------------------------------------------------------------------
Net asset value at
beginning of period $ 26.34 $ 30.82 $ 31.17 $ 27.23 $ 21.59 $ 26.32
---------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .11 .47(a) .46 .38 .42(a) .45
Net realized and
unrealized gain (loss) .07 (3.42)(a) .12 3.85 5.65(a) (4.82)
---------------------------------------------------------------------------------
Total from investment
operations .18 (2.95)(a) .58 4.23 6.07(a) (4.37)
---------------------------------------------------------------------------------
Less distributions from:
Net investment income - (.39) (.54) (.29) (.43) (.36)
Realized capital gains - (1.14) (.39) - - -
---------------------------------------------------------------------------------
Total distributions - (1.53) (.93) (.29) (.43) (.36)
---------------------------------------------------------------------------------
Net asset value at
end of period $ 26.52 $ 26.34 $ 30.82 $ 31.17 $ 27.23 $ 21.59
=================================================================================
Total return (%)* .68 (9.61) 2.11 15.60 28.23 (16.54)
$1,987,274 $1,996,349 $1,735,756 $1,720,967 $1,235,652 $443,089
Ratios to average
net assets:**
Expenses (%)(b) .99(c) 1.00 .99 1.01 1.02 .99
Net investment
income (%) .83(c) 1.74 1.53 1.33 1.65 1.94
Portfolio turnover (%) 20 62(d) 17 14 20 17
* 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 November 30, 2016, average net assets were
$1,996,269,000.
(a) Calculated using average shares.
(b) Reflects total annual operating expenses of the Institutional Shares before
reductions of any expenses paid indirectly. The Institutional Shares'
expenses paid indirectly decreased the expense ratios as follows:
(.00%)(+) (.00%)(+) - (.00%)(+) (.00%)(+) (.00%)(+)
(+) Represents less than 0.01% of average net assets.
(c) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(d) Reflects increased trading activity due to changes in subadviser(s) and
asset allocation strategies.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 61
================================================================================
(9) FINANCIAL HIGHLIGHTS (CONTINUED) - ADVISER SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
NOVEMBER 30, YEAR ENDED MAY 31,
------------------------------------------------------------------------------
2016 2016 2015 2014 2013 2012
------------------------------------------------------------------------------
Net asset value at
beginning of period $26.31 $30.77 $31.13 $27.17 $21.54 $ 26.24
-----------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .06 .31 .32 .25 .23 .28
Net realized and
unrealized gain (loss) .08 (3.35) .12 3.84 5.69 (4.75)
-----------------------------------------------------------------------------
Total from investment
operations .14 (3.04) .44 4.09 5.92 (4.47)
-----------------------------------------------------------------------------
Less distributions from:
Net investment income - (.28) (.41) (.13) (.29) (.23)
Realized capital gains - (1.14) (.39) - - -
-----------------------------------------------------------------------------
Total distributions - (1.42) (.80) (.13) (.29) (.23)
-----------------------------------------------------------------------------
Redemption fees added
to beneficial interests .00(f) .00(f) - - - -
-----------------------------------------------------------------------------
Net asset value at
end of period $26.45 $26.31 $30.77 $31.13 $27.17 $ 21.54
=============================================================================
Total return (%)* .53 (9.94) 1.62 15.10 27.56 (17.00)
Net assets at
end of period (000) $6,413 $6,362 $7,481 $7,698 $6,641 $ 5,223
Ratios to average
net assets:**
Expenses (%)(c) 1.34(d) 1.37(b) 1.44(a) 1.46 1.55 1.55
Expenses, excluding
reimbursements (%)(c) 1.48(d) 1.46 1.51 1.46 1.68 1.76
Net investment income (%) .47(d) 1.14 1.07 .85 .97 1.20
Portfolio turnover (%) 20 62(e) 17 14 20 17
* 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 November 30, 2016, average net assets were
$6,440,000.
(a) Prior to October 1, 2014, the Manager voluntarily agreed to reimburse the
Adviser Shares for expenses in excess of 1.55% of their annual average net
assets.
(b) Prior to October 1, 2015, the Manager voluntarily agreed to reimburse the
Adviser Shares for expenses in excess of 1.40% of their annual average net
assets.
(c) Reflects total annual operating expenses of the Adviser Shares before
reductions of any expenses paid indirectly. The Adviser Shares' expenses
paid indirectly decreased the expense ratios as follows:
(.00%)(+) (.00%)(+) - (.00%)(+) (.00%)(+) (.00%)(+)
(+) Represents less than 0.01% of average net assets.
(d) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(e) Reflects increased trading activity due to changes in subadviser(s) and
asset allocation strategies.
(f) Represents less than $0.01 per share.
================================================================================
62 | USAA INTERNATIONAL FUND
================================================================================
EXPENSE EXAMPLE
November 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 June 1, 2016, through
November 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 JUNE 1, 2016 -
JUNE 1, 2016 NOVEMBER 30, 2016 NOVEMBER 30, 2016
-------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $1,006.40 $5.58
Hypothetical
(5% return before expenses) 1,000.00 1,019.50 5.62
INSTITUTIONAL SHARES
Actual 1,000.00 1,006.80 4.98
Hypothetical
(5% return before expenses) 1,000.00 1,020.10 5.01
ADVISER SHARES
Actual 1,000.00 1,005.30 6.74
Hypothetical
(5% return before expenses) 1,000.00 1,018.35 6.78
*Expenses are equal to the annualized expense ratio of 1.11% for Fund Shares,
0.99% for Institutional Shares, and 1.34% 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 0.64% for Fund Shares, 0.68% for Institutional Shares,
and 0.53% for Adviser Shares for the six-month period of June 1, 2016, through
November 30, 2016.
================================================================================
64 | USAA INTERNATIONAL 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
ADMINISTRATOR AND 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] [LOGO OF RECYCLE PAPER]
USAA We know what it means to serve.(R) 10%
=============================================================================
23410-0117 (C)2017, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA WORLD GROWTH FUND]
==============================================================
SEMIANNUAL REPORT
USAA WORLD GROWTH FUND
FUND SHARES o INSTITUTIONAL SHARES o ADVISER SHARES
NOVEMBER 30, 2016
==============================================================
================================================================================
================================================================================
PRESIDENT'S MESSAGE
"AS THE NEW YEAR BEGINS, WHY NOT MAKE
A RESOLUTION TO PUT YOUR FINANCIAL HOUSE [PHOTO OF BROOKS ENGLEHARDT]
IN ORDER?"
--------------------------------------------------------------------------------
JANUARY 2017
Financial markets are unpredictable. Many factors can confound those who try to
predict the direction of the markets based on economic or political factors. In
other words, it's easy to get it wrong. And, even if one correctly forecasts
what will happen in the macroeconomic environment, predicting how the markets
will respond is another matter altogether.
Consider the response to the Presidential election. Stocks rose on Monday and
Tuesday (Election Day) at the prospect of a Hillary Clinton victory--virtually a
"sure thing," according to some media pundits. U.S. Treasury securities and
other segments of the bond market sold off as investors likely assumed a
continuation of current economic policy under another Democratic administration.
But these trends reversed on Tuesday evening when it became clear that Donald J.
Trump would be elected the 45(th) President of the United States. Asian and
European equity markets dropped and U.S. stock index futures plunged. The
decline in stock index futures suggested that U.S. stocks might fall when
trading began on Wednesday, however the opposite happened. Stock prices rose and
then rallied strongly, with major stock indexes hitting one record high after
another through the end of November 2016. U.S. Treasury prices fell, driving up
yields on longer-maturity U.S. Treasuries. (Yields move in the opposite
direction of prices.)
Few market participants would have forecasted such a scenario. But with
hindsight, we may be able to understand some of the reasons why the markets
behaved the way they did.
U.S. equity investors appeared to like President-elect Trump's promises of lower
tax rates, less regulation, and more fiscal stimulus through infrastructure
spending. Other explanations may lie overseas, such as complications relating to
the United Kingdom's decision to exit from the European Union ("Brexit") and
continued slow economic growth in China--uncertainties that may have
================================================================================
================================================================================
increased the attractiveness of U.S. stocks. As for bond investors, they may
have been worried about an increase in interest rates if economic growth picks
up under a Trump Administration. Higher growth rates typically correspond with
rising inflation, which in turn could prompt the Federal Reserve (the Fed) to
accelerate the pace of interest rate increases.
What actually happens, however, is yet to be seen. No one knows, except in the
most general terms, what President-elect Trump's plans and priorities will be or
how they could affect economic growth in 2017 and beyond. By extension, it is
also too early to forecast how inflation might be affected and how the Fed could
respond.
At USAA Investments, we are long-term, fundamental investors, who seek to look
at the full market cycle rather than current geopolitical events. We believe
measures such as assessing a company's intrinsic value compared to its current
price tend to be more effective at forecasting potential stock returns over
time. In selecting bonds, our analysts take a bottom-up approach to evaluating
each security individually, building portfolios on a bond-by-bond basis.
It is important to remember market conditions are always fluctuating and time
horizon matters. We believe that it is important to stay focused on your
long-term objectives, using an investment plan that is based on your personal
time horizon and risk tolerance. If you are uneasy about market risk in general
or have concerns about too much exposure to specific asset classes, please call
USAA to speak with an advisor. As the new year begins, why not make a resolution
to put your financial house in order?
Thank you for allowing us to help you in your efforts to achieve your financial
goals. At USAA Investments, we are committed to providing you with our best
advice, top-notch service, and a variety of mutual funds. On behalf of everyone
here, I wish you a happy and healthy 2017.
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 14
Notes to Portfolio of Investments 21
Financial Statements 22
Notes to Financial Statements 26
EXPENSE EXAMPLE 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)2017, USAA. All rights reserved.
200998-0117
================================================================================
================================================================================
FUND OBJECTIVE
THE USAA WORLD GROWTH FUND (THE FUND) SEEKS CAPITAL APPRECIATION.
--------------------------------------------------------------------------------
TYPES OF INVESTMENTS
The Fund's principal investment strategy is to invest its assets primarily in
equity securities of both foreign (including emerging markets) and domestic
issuers. The "equity securities" in which the Fund principally invests are
common stocks, depositary receipts, preferred stocks, securities convertible
into common stocks, and securities that carry the right to buy common stocks,
including rights and warrants.
While the Fund may invest in companies of any size, it generally focuses on
companies with large market capitalizations. The Fund may invest a large
percentage of its assets in securities of issuers in a single country, a small
number of countries, or a particular geographic region. Investments are selected
primarily based on fundamental analysis of individual issuers and their
potential in light of their financial condition, market, economic, political,
and regulatory conditions. Factors considered may include analysis of an
issuer's earnings, cash flows, competitive position, and management ability.
Quantitative models that systematically evaluate an issuer's valuation, price
and earnings momentum, earnings quality, and other factors also may be
considered.
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
--------------------------------------------------------------------------------
MFS Investment Management
DAVID R. MANNHEIM ROGER MORLEY
RYAN P. MCALLISTER*
--------------------------------------------------------------------------------
o PLEASE REVIEW MARKET CONDITIONS DURING THE REPORTING PERIOD.
Results for world equity markets over the reporting period ended November
30, 2016 varied by region, reflecting macroeconomic and geopolitical
developments. U.S. equities led performance among developed markets, as
the U.S. economy continued to deliver moderate growth. In addition, the
U.S. market rallied in the immediate wake of the U.S. presidential
election, which removed an element of uncertainty about economic policy for
the country going forward. Returns for equities in other developed markets
generally trailed those for U.S. stocks by a wide margin. Japanese stocks
led overseas developed markets on the back of that government's
extraordinary fiscal and monetary stimulus efforts. However, European
equities lagged notably and were in negative territory. The region's
underperformance was driven in large part by the United Kingdom's (U.K.)
"Brexit" vote in late June 2016 to exit the European Union along with
concerns over a broader trend toward populism and nationalism among
European nations. In addition, European markets were pressured by weak
economic growth and concerns over the stability of the banking system. By
contrast, emerging-market stocks provided strong returns over the reporting
period, outstripping those seen in developed markets. Emerging market
returns were supported by a stabilization in commodity prices and signs of
improved economic growth in Russia and China.
*Effective September 1, 2016, Ryan P. McAllister began co-managing the Fund.
================================================================================
2 | USAA WORLD GROWTH FUND
================================================================================
For the reporting period, U.S. stocks finished higher as gauged by the
6.01% return for the S&P 500(R) Index. Developed market international stocks
finished modestly lower as reflected in the -1.25% return for the MSCI EAFE
Index, while the MSCI Emerging Markets Index experienced a positive return
of 8.42% for the reporting period.
o HOW DID THE USAA WORLD GROWTH FUND (THE FUND) PERFORM DURING THE REPORTING
PERIOD?
The Fund has three share classes: Fund Shares, Institutional Shares, and
Adviser Shares. For the reporting period ended November 30, 2016, the Fund
Shares, Institutional Shares, and Adviser Shares had a total return of
0.77%, 0.85% and 0.66%, respectively. This compares to returns of 4.22% for
the Lipper Global Funds Index and 3.15% for the MSCI World Index.
USAA Asset Management Company (the Manager) is the Fund's investment
adviser. As the investment adviser, USAA Asset Management Company employs
dedicated resources to support the research, selection, and monitoring of
the Fund's subadviser. MFS Investment Management (MFS) is the subadviser to
the Fund. The subadviser provides day-to-day discretionary management for
the Fund's assets.
o WHAT FACTORS DROVE THE FUND'S PERFORMANCE RELATIVE TO THE INDEX?
During the reporting period, positive contributions to relative performance
included an underweight position in the utilities and telecommunications
services sector. Strong stock selection in the retail sector also bolstered
relative results, highlighted by an overweight position in LVMH Moet
Hennessy Louis Vuitton SE (France), the world's largest luxury goods
company. Strong stock selection in the transportation sector helped relative
returns as well, in particular, overweight positions in the Canadian
Refer to page 7 for benchmark definitions.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
You will find a complete list of securities that the Fund owns on pages
14-20.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 3
================================================================================
National Railway Co., and ground delivery service company United Parcel
Service, Inc. "B". Elsewhere, overweight positions in media company Time
Warner, Inc. and financial services firms State Street Corp., the Goldman
Sachs Group, Inc., and the Bank of New York Mellon Corp., boosted relative
performance. Additionally, holdings in semiconductor and electronics
manufacturer Samsung Electronics Co. Ltd. (South Korea), semiconductor
manufacturer Microchip Technology, Inc., and a lack of exposure to
pharmaceutical company Novo Nordisk A/S (Denmark) supported relative
returns.
Conversely, the largest detractors from relative performance included the
combination of an overweight position and weak stock selection in the
consumer staples sector relative to the MSCI World Index. Within this
sector, overweight positions in household products manufacturer Reckitt
Benckiser Group plc (U.K.), pulp and paper manufacturer and consumer goods
company Svenska Cellulosa AB "B" (Sweden), beauty products manufacturer
Coty, Inc. "A", global food company Nestle S.A. (Switzerland), brewer
Heineken N.V. (Netherlands), and food & beverage company DANONE S.A.
(France) held back relative returns. Weak stock selection in the basic
materials sector and an underweight position in the technology sector also
hampered relative results. An overweight position in the health care sector
further weakened relative returns, in particular, above-benchmark positions
in orthopedic reconstructive products manufacturer Zimmer Biomet Holdings,
Inc., and life sciences supply company Thermo Fisher Scientific, Inc.
Elsewhere, overweight positions in entertainment and communications company
Sky plc (U.K.) and hotel and restaurant operator Whitbread plc (U.K.) also
dampened performance. Finally, the Fund's relative currency exposure, which
is a byproduct of stock selection decisions, detracted from performance as
well.
MFS continues to favor global consumer staples and luxury goods companies
with strong brands and diverse geographical footprints, and also has
significant exposure to media companies which MFS views as attractively
valued. In health care, MFS is invested primarily in medical technology and
life sciences companies with growth opportunities driven
================================================================================
4 | USAA WORLD GROWTH FUND
================================================================================
by long-term demographic trends and distinctive product advantages. By
contrast, MFS has avoided integrated energy companies, which face declining
reserves and rising costs. MFS has also avoided metals & mining companies
given their sensitivity to commodity prices. The Fund does not own any
telecommunication or electric power companies as MFS believes their
potential returns and growth rates remain relatively low. Similarly, MFS
has not found many companies in fast-changing technology industries that
meet their sustainable growth and reasonable valuation criteria.
MFS will continue to focus on company fundamentals and valuations rather
than macroeconomic forecasts, while seeking to take advantage of relative
valuation shifts in the market.
Thank you for allowing us to help you manage your investments.
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.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 5
================================================================================
INVESTMENT OVERVIEW
USAA WORLD GROWTH FUND SHARES (FUND SHARES)
(Ticker Symbol: USAWX)
--------------------------------------------------------------------------------
11/30/16 5/31/16
--------------------------------------------------------------------------------
Net Assets $1.1 Billion $1.2 Billion
Net Asset Value Per Share $27.41 $27.20
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 11/30/16
--------------------------------------------------------------------------------
5/31/16-11/30/16* 1 YEAR 5 YEARS 10 YEARS
0.77% 1.89% 10.70% 5.74%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/16
--------------------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS
7.09% 11.49% 5.77%
--------------------------------------------------------------------------------
EXPENSE RATIO AS OF 5/31/16**
--------------------------------------------------------------------------------
1.17%
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 October 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 WORLD GROWTH FUND
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
USAA WORLD
GROWTH FUND MSCI WORLD LIPPER GLOBAL
SHARES INDEX FUNDS INDEX
11/30/06 $10,000.00 $10,000.00 $10,000.00
12/31/06 10,185.00 10,203.31 10,218.29
01/31/07 10,389.00 10,323.76 10,375.83
02/28/07 10,272.00 10,270.04 10,271.20
03/31/07 10,384.00 10,458.04 10,477.86
04/30/07 10,823.00 10,919.26 10,878.54
05/31/07 11,007.00 11,225.21 11,214.52
06/30/07 10,956.00 11,138.63 11,198.20
07/31/07 10,726.00 10,891.95 10,971.66
08/31/07 10,787.00 10,883.68 10,953.19
09/30/07 11,221.00 11,401.26 11,399.77
10/31/07 11,486.00 11,750.95 11,788.32
11/30/07 11,282.00 11,270.63 11,269.50
12/31/07 11,134.00 11,125.22 11,166.08
01/31/08 10,366.00 10,275.04 10,378.59
02/29/08 10,383.00 10,215.57 10,285.97
03/31/08 10,542.00 10,117.65 10,221.69
04/30/08 10,865.00 10,649.41 10,669.19
05/31/08 11,041.00 10,811.80 10,816.71
06/30/08 10,109.00 9,949.48 9,922.19
07/31/08 9,966.00 9,706.37 9,690.90
08/31/08 9,846.00 9,570.03 9,584.35
09/30/08 8,985.00 8,431.79 8,571.05
10/31/08 7,532.00 6,833.11 7,030.94
11/30/08 7,006.00 6,390.81 6,559.67
12/31/08 7,349.00 6,595.85 6,836.40
01/31/09 6,617.00 6,018.02 6,324.37
02/28/09 5,977.00 5,402.02 5,785.70
03/31/09 6,469.00 5,809.38 6,169.67
04/30/09 7,091.00 6,461.07 6,751.17
05/31/09 7,686.00 7,046.49 7,361.07
06/30/09 7,709.00 7,014.69 7,346.52
07/31/09 8,463.00 7,608.82 7,959.98
08/31/09 8,726.00 7,922.72 8,276.41
09/30/09 9,143.00 8,238.51 8,578.54
10/31/09 8,971.00 8,091.93 8,401.95
11/30/09 9,423.00 8,422.59 8,728.87
12/31/09 9,653.00 8,573.84 8,959.94
01/31/10 9,246.00 8,219.47 8,619.89
02/28/10 9,366.00 8,335.34 8,740.01
03/31/10 9,942.00 8,851.55 9,250.34
04/30/10 9,919.00 8,852.79 9,286.06
05/31/10 8,912.00 8,004.80 8,425.19
06/30/10 8,699.00 7,730.35 8,173.38
07/31/10 9,430.00 8,357.07 8,820.75
08/31/10 9,010.00 8,045.06 8,482.45
09/30/10 9,919.00 8,795.23 9,313.49
10/31/10 10,345.00 9,123.07 9,686.23
11/30/10 10,103.00 8,926.11 9,490.63
12/31/10 10,830.00 9,582.40 10,159.58
01/31/11 10,905.00 9,798.89 10,303.53
02/28/11 11,247.00 10,141.98 10,633.34
03/31/11 11,200.00 10,041.96 10,654.90
04/30/11 11,913.00 10,468.57 11,053.71
05/31/11 11,820.00 10,251.39 10,815.70
06/30/11 11,664.00 10,089.22 10,610.20
07/31/11 11,409.00 9,906.28 10,370.35
08/31/11 10,552.00 9,208.31 9,536.91
09/30/11 9,561.00 8,412.98 8,557.40
10/31/11 10,673.00 9,283.19 9,448.90
11/30/11 10,511.00 9,056.54 9,279.75
12/31/11 10,359.00 9,051.51 9,147.81
01/31/12 10,932.00 9,505.74 9,731.47
02/29/12 11,510.00 9,970.08 10,214.37
03/31/12 11,844.00 10,098.26 10,280.90
04/30/12 11,750.00 9,983.59 10,099.85
05/31/12 10,762.00 9,121.77 9,197.72
06/30/12 11,218.00 9,586.57 9,607.15
07/31/12 11,393.00 9,709.81 9,740.99
08/31/12 11,756.00 9,955.97 9,911.57
09/30/12 12,048.00 10,229.49 10,165.65
10/31/12 12,066.00 10,160.37 10,157.33
11/30/12 12,434.00 10,290.47 10,271.96
12/31/12 12,784.00 10,484.00 10,603.23
01/31/13 13,510.00 11,018.05 11,129.17
02/28/13 13,628.00 11,036.24 11,105.91
03/31/13 13,917.00 11,294.74 11,358.74
04/30/13 14,117.00 11,650.42 11,682.00
05/31/13 14,306.00 11,654.83 11,757.39
06/30/13 13,964.00 11,367.65 11,498.41
07/31/13 14,767.00 11,966.10 12,079.54
08/31/13 14,336.00 11,711.41 11,826.66
09/30/13 15,121.00 12,297.13 12,419.88
10/31/13 15,593.00 12,778.48 12,853.81
11/30/13 15,918.00 13,005.57 13,093.74
12/31/13 16,330.00 13,280.76 13,330.60
01/31/14 15,544.00 12,788.87 12,879.80
02/28/14 16,481.00 13,429.09 13,509.01
03/31/14 16,420.00 13,448.53 13,563.25
04/30/14 16,523.00 13,586.33 13,628.74
05/31/14 16,916.00 13,853.64 13,903.89
06/30/14 17,079.00 14,101.47 14,145.15
07/31/14 16,583.00 13,876.42 13,842.90
08/31/14 16,873.00 14,182.19 14,159.55
09/30/14 16,420.00 13,797.27 13,727.23
10/31/14 16,620.00 13,886.53 13,819.20
11/30/14 17,200.00 14,164.82 14,088.15
12/31/14 16,936.00 13,936.41 13,845.19
01/31/15 16,670.00 13,683.89 13,670.24
02/28/15 17,612.00 14,485.61 14,424.72
03/31/15 17,450.00 14,258.86 14,268.49
04/30/15 17,673.00 14,593.27 14,561.26
05/31/15 17,779.00 14,643.54 14,643.62
06/30/15 17,407.00 14,303.04 14,341.46
07/31/15 17,810.00 14,559.78 14,491.39
08/31/15 16,521.00 13,596.29 13,550.33
09/30/15 16,062.00 13,094.80 13,048.61
10/31/15 17,289.00 14,132.49 13,981.84
11/30/15 17,147.00 14,062.17 13,981.21
12/31/15 16,661.00 13,814.99 13,685.27
01/31/16 15,960.00 12,988.52 12,818.40
02/29/16 15,883.00 12,891.86 12,637.49
03/31/16 16,999.00 13,766.68 13,547.33
04/30/16 17,362.00 13,984.52 13,762.05
05/31/16 17,336.00 14,063.07 13,853.94
06/30/16 17,094.00 13,905.48 13,640.61
07/31/16 17,821.00 14,492.97 14,240.34
08/31/16 17,993.00 14,505.01 14,327.53
09/30/16 17,948.00 14,582.06 14,437.72
10/31/16 17,496.00 14,299.86 14,214.96
11/30/16 17,470.00 14,505.48 14,439.20
[END OF CHART]
Data from 11/30/06 through 11/30/16.
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA World Growth Fund Shares to the following benchmarks:
o The unmanaged MSCI World Index reflects the movements of world stock
markets by representing a broad selection of domestically listed companies
within each market.
o The unmanaged Lipper Global Funds Index tracks the total return performance
of funds within the Lipper Global 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 Global Funds Index reflects the fees and expenses of the
underlying funds included in the index.
================================================================================
INVESTMENT OVERVIEW | 7
================================================================================
USAA WORLD GROWTH FUND INSTITUTIONAL SHARES (INSTITUTIONAL SHARES)
(Ticker Symbol: UIWGX)
--------------------------------------------------------------------------------
11/30/16 5/31/16
--------------------------------------------------------------------------------
Net Assets $6.0 Million $5.2 Million
Net Asset Value Per Share $27.37 $27.14
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 11/30/16
--------------------------------------------------------------------------------
5/31/16-11/30/16* 1 YEAR SINCE INCEPTION 8/07/15
0.85% 1.97% -1.61%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/16
--------------------------------------------------------------------------------
1 YEAR SINCE INCEPTION 8/07/15
7.16% -0.02%
--------------------------------------------------------------------------------
EXPENSE RATIOS AS OF 5/31/16**
--------------------------------------------------------------------------------
BEFORE REIMBURSEMENT 1.54% AFTER REIMBURSEMENT 1.10%
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 are reported in the Fund's prospectus dated October 1,
2016, and are based on estimated expenses for the current fiscal year. USAA
Asset Management Company (the Manager) has agreed, through September 30, 2017,
to make payments or waive management, administration, and other fees 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. If the total annual operating
expense ratio of the Institutional Shares is lower than 1.10%, the Institutional
Shares will operate at that lower expense ratio. 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 September 30, 2017. These estimated 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 WORLD GROWTH FUND
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
USAA WORLD GROWTH
LIPPER GLOBAL MSCI WORLD FUND INSTITUTIONAL
FUNDS INDEX INDEX SHARES
07/31/15 $10,000.00 $10,000.00 $10,000.00
08/31/15 9,350.60 9,338.25 9,247.00
09/30/15 9,004.38 8,993.82 8,994.00
10/31/15 9,648.38 9,706.53 9,677.00
11/30/15 9,647.94 9,658.23 9,601.00
12/31/15 9,443.72 9,488.46 9,329.00
01/31/16 8,845.52 8,920.83 8,939.00
02/29/16 8,720.68 8,854.43 8,892.00
03/31/16 9,348.54 9,455.28 9,518.00
04/30/16 9,496.71 9,604.90 9,722.00
05/31/16 9,560.11 9,658.84 9,708.00
06/30/16 9,412.91 9,550.61 9,576.00
07/31/16 9,826.76 9,954.11 9,983.00
08/31/16 9,886.92 9,962.39 10,080.00
09/30/16 9,962.96 10,015.30 10,055.00
10/31/16 9,809.24 9,821.48 9,805.00
11/30/16 9,963.98 9,962.70 9,790.00
[END OF CHART]
Data from 7/31/15 through 11/30/16.*
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA World Growth Fund Institutional Shares to the Fund's benchmarks listed
above (see page 7 for benchmark definitions).
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 Global Funds Index reflects the fees and expenses of the
underlying funds included in the index.
*The performance of the MSCI World Index and the Lipper Global Funds Index is
calculated from the end of the month, July 31, 2015, while the Institutional
Shares' inception date is August 7, 2015. There may be a slight variation of
performance numbers because of this difference.
================================================================================
INVESTMENT OVERVIEW | 9
================================================================================
USAA WORLD GROWTH FUND ADVISER SHARES (ADVISER SHARES)
(Ticker Symbol: USWGX)
-------------------------------------------------------------------------------------------
11/30/16 5/31/16
-------------------------------------------------------------------------------------------
Net Assets $16.5 Million $16.6 Million
Net Asset Value Per Share $27.31 $27.13
-------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 11/30/16
-------------------------------------------------------------------------------------------
5/31/16-11/30/16* 1 YEAR 5 YEARS SINCE INCEPTION 8/01/10
0.66% 1.67% 10.43% 9.52%
-------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/16
-------------------------------------------------------------------------------------------
1 YEAR 5 YEAR SINCE INCEPTION 8/01/10
6.81% 11.22% 9.74%
-------------------------------------------------------------------------------------------
EXPENSE RATIO AS OF 5/31/16**
-------------------------------------------------------------------------------------------
1.42%
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 October 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.
================================================================================
10 | USAA WORLD GROWTH FUND
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
USAA WORLD GROWTH
FUND ADVISER MSCI WORLD LIPPER GLOBAL
SHARES INDEX FUNDS INDEX
07/31/10 $10,000.00 $10,000.00 $10,000.00
08/31/10 9,321.00 9,626.65 9,616.47
09/30/10 10,256.00 10,524.29 10,558.61
10/31/10 10,697.00 10,916.59 10,981.18
11/30/10 10,447.00 10,680.91 10,759.44
12/31/10 11,191.00 11,466.23 11,517.82
01/31/11 11,262.00 11,725.27 11,681.02
02/28/11 11,616.00 12,135.80 12,054.91
03/31/11 11,568.00 12,016.12 12,079.35
04/30/11 12,298.00 12,526.60 12,531.49
05/31/11 12,196.00 12,266.73 12,261.66
06/30/11 12,029.00 12,072.67 12,028.69
07/31/11 11,765.00 11,853.77 11,756.77
08/31/11 10,879.00 11,018.59 10,811.90
09/30/11 9,855.00 10,066.91 9,701.45
10/31/11 10,999.00 11,108.19 10,712.13
11/30/11 10,831.00 10,836.98 10,520.36
12/31/11 10,669.00 10,830.96 10,370.79
01/31/12 11,260.00 11,374.49 11,032.48
02/29/12 11,850.00 11,930.12 11,579.93
03/31/12 12,188.00 12,083.50 11,655.36
04/30/12 12,092.00 11,946.28 11,450.10
05/31/12 11,073.00 10,915.03 10,427.37
06/30/12 11,543.00 11,471.21 10,891.53
07/31/12 11,718.00 11,618.68 11,043.27
08/31/12 12,085.00 11,913.23 11,236.65
09/30/12 12,387.00 12,240.53 11,524.70
10/31/12 12,399.00 12,157.81 11,515.27
11/30/12 12,773.00 12,313.49 11,645.22
12/31/12 13,127.00 12,545.06 12,020.78
01/31/13 13,867.00 13,184.10 12,617.04
02/28/13 13,983.00 13,205.87 12,590.67
03/31/13 14,274.00 13,516.17 12,877.30
04/30/13 14,480.00 13,940.80 13,243.78
05/31/13 14,668.00 13,946.07 13,329.25
06/30/13 14,316.00 13,602.43 13,035.64
07/31/13 15,136.00 14,318.54 13,694.46
08/31/13 14,687.00 14,013.77 13,407.78
09/30/13 15,488.00 14,714.64 14,080.30
10/31/13 15,973.00 15,290.62 14,572.24
11/30/13 16,307.00 15,562.36 14,844.25
12/31/13 16,719.00 15,891.65 15,112.78
01/31/14 15,918.00 15,303.05 14,601.71
02/28/14 16,874.00 16,069.14 15,315.03
03/31/14 16,812.00 16,092.39 15,376.53
04/30/14 16,917.00 16,257.29 15,450.78
05/31/14 17,321.00 16,577.15 15,762.71
06/30/14 17,482.00 16,873.70 16,036.22
07/31/14 16,973.00 16,604.19 15,693.57
08/31/14 17,259.00 16,970.07 16,052.54
09/30/14 16,799.00 16,509.70 15,562.43
10/31/14 16,998.00 16,616.50 15,666.70
11/30/14 17,588.00 16,949.51 15,971.60
12/31/14 17,321.00 16,676.19 15,696.17
01/31/15 17,041.00 16,374.03 15,497.82
02/28/15 18,001.00 17,333.36 16,353.16
03/31/15 17,829.00 17,062.03 16,176.06
04/30/15 18,058.00 17,462.18 16,507.96
05/31/15 18,160.00 17,522.33 16,601.34
06/30/15 17,778.00 17,114.90 16,258.78
07/31/15 18,186.00 17,422.11 16,428.76
08/31/15 16,863.00 16,269.21 15,361.88
09/30/15 16,392.00 15,669.13 14,793.08
10/31/15 17,639.00 16,910.82 15,851.08
11/30/15 17,492.00 16,826.67 15,850.37
12/31/15 16,996.00 16,530.91 15,514.86
01/31/16 16,280.00 15,541.96 14,532.09
02/29/16 16,188.00 15,426.29 14,327.00
03/31/16 17,328.00 16,473.10 15,358.48
04/30/16 17,693.00 16,733.76 15,601.91
05/31/16 17,667.00 16,827.75 15,706.08
06/30/16 17,413.00 16,639.19 15,464.23
07/31/16 18,148.00 17,342.17 16,144.14
08/31/16 18,324.00 17,356.58 16,242.98
09/30/16 18,272.00 17,448.78 16,367.91
10/31/16 17,810.00 17,111.09 16,115.36
11/30/16 17,784.00 17,357.13 16,369.58
[END OF CHART]
Data from 7/31/10 through 11/30/16.*
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA World Growth Fund Adviser Shares to the Fund's benchmarks listed above (see
page 7 for benchmark definitions).
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 Global Funds Index reflects the fees and expenses of the
underlying funds included in the index.
*The performance of the MSCI World Index and Lipper Global Funds Index is
calculated from the end of the month of 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.
================================================================================
INVESTMENT OVERVIEW | 11
================================================================================
o TOP 10 INDUSTRIES - 11/30/16 o
(% of Net Assets)
Health Care Equipment ................................................... 7.9%
Asset Management & Custody Banks ........................................ 5.7%
Packaged Foods & Meat ................................................... 5.3%
Pharmaceuticals ......................................................... 5.1%
Household Products ...................................................... 4.9%
Movies & Entertainment .................................................. 4.9%
Industrial Conglomerates ................................................ 4.1%
Life Sciences Tools & Services .......................................... 3.5%
Apparel, Accessories & Luxury Goods ..................................... 3.4%
Distillers & Vintners ................................................... 3.4%
o TOP 10 EQUITY HOLDINGS - 11/30/16 o
(% of Net Assets)
Thermo Fisher Scientific, Inc. .......................................... 2.7%
Time Warner, Inc. ....................................................... 2.7%
Honeywell International, Inc. ........................................... 2.4%
Accenture plc "A" ....................................................... 2.4%
Nestle S.A. ............................................................. 2.3%
Bayer AG ................................................................ 2.3%
Walt Disney Co. ......................................................... 2.2%
State Street Corp. ...................................................... 2.2%
Reckitt Benckiser Group plc ............................................. 2.1%
Visa, Inc. "A" .......................................................... 2.1%
You will find a complete list of securities that the Fund owns on pages 14-20.
================================================================================
12 | USAA WORLD GROWTH FUND
================================================================================
o COUNTRY ALLOCATION - 11/30/16 o
[PIE CHART OF COUNTRY ALLOCATION]
UNITED STATES 56.5%
UNITED KINGDOM 9.1%
SWITZERLAND 8.5%
FRANCE 7.5%
GERMANY 6.4%
OTHER* 11.8%
[END OF CHART]
*Includes countries with less than 3% of portfolio and money market instruments.
Percentages are of the net assets of the Fund and may not equal 100%.
================================================================================
INVESTMENT OVERVIEW | 13
================================================================================
PORTFOLIO OF INVESTMENTS
November 30, 2016 (unaudited)
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (99.4%)
COMMON STOCKS (99.4%)
CONSUMER DISCRETIONARY (17.8%)
-----------------------------
ADVERTISING (2.5%)
141,494 Omnicom Group, Inc. $ 12,301
816,232 WPP plc(a) 17,454
---------
29,755
---------
APPAREL RETAIL (0.6%)
209,000 Urban Outfitters, Inc.* 6,604
---------
APPAREL, ACCESSORIES & LUXURY GOODS (3.4%)
361,391 Burberry Group plc(a) 6,448
164,499 Compagnie Financiere Richemont S.A.(a) 10,751
5,879 Hermes International(a) 2,423
113,630 LVMH Moet Hennessy Louis Vuitton SE(a) 20,635
---------
40,257
---------
AUTO PARTS & EQUIPMENT (0.6%)
104,563 Delphi Automotive plc 6,692
---------
AUTOMOTIVE RETAIL (0.8%)
11,850 AutoZone, Inc.* 9,281
---------
CABLE & SATELLITE (1.3%)
29,019 Charter Communications, Inc. "A"* 7,989
774,072 Sky plc(a) 7,564
---------
15,553
---------
CASINOS & GAMING (0.5%)
586,400 Sands China Ltd.(a) 2,881
23,863 Wynn Resorts Ltd. 2,434
---------
5,315
---------
HOTELS, RESORTS & CRUISE LINES (0.4%)
52,675 Marriott International, Inc. "A" 4,150
---------
MOTORCYCLE MANUFACTURERS (0.6%)
116,547 Harley-Davidson, Inc. 7,097
---------
================================================================================
14 | USAA WORLD GROWTH FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
MOVIES & ENTERTAINMENT (4.9%)
340,514 Time Warner, Inc. $ 31,266
261,995 Walt Disney Co. 25,969
---------
57,235
---------
RESTAURANTS (1.6%)
725,208 Compass Group plc(a) 12,416
147,845 Whitbread plc(a) 6,393
---------
18,809
---------
SPECIALTY STORES (0.6%)
283,079 Sally Beauty Holdings, Inc.* 7,414
---------
Total Consumer Discretionary 208,162
---------
CONSUMER STAPLES (17.0%)
-----------------------
BREWERS (2.2%)
1,038,829 Ambev S.A. 5,268
112,785 Carlsberg A/S "B"(a) 9,564
139,850 Heineken N.V.(a) 10,457
---------
25,289
---------
DISTILLERS & VINTNERS (3.4%)
831,453 Diageo plc(a) 20,822
179,151 Pernod Ricard S.A.(a) 18,767
---------
39,589
---------
HOUSEHOLD PRODUCTS (4.9%)
222,673 Colgate-Palmolive Co. 14,525
293,952 Reckitt Benckiser Group plc(a) 24,825
701,608 Svenska Cellulosa AB "B"(a) 18,714
---------
58,064
---------
PACKAGED FOODS & MEAT (5.3%)
289,109 DANONE S.A.(a) 18,157
223,093 Kellogg Co. 16,063
408,486 Nestle S.A.(a) 27,481
---------
61,701
---------
PERSONAL PRODUCTS (1.2%)
758,807 Coty, Inc. "A"* 14,197
---------
Total Consumer Staples 198,840
---------
================================================================================
PORTFOLIO OF INVESTMENTS | 15
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
ENERGY (1.3%)
-------------
OIL & GAS EQUIPMENT & SERVICES (1.3%)
111,565 National Oilwell Varco, Inc. $ 4,168
132,062 Schlumberger Ltd. 11,100
---------
15,268
---------
Total Energy 15,268
---------
FINANCIALS (12.4%)
-----------------
ASSET MANAGEMENT & CUSTODY BANKS (5.7%)
476,885 Bank of New York Mellon Corp. 22,614
290,842 Franklin Resources, Inc. 11,418
147,690 Julius Baer Group Ltd.*(a) 6,527
328,041 State Street Corp. 25,850
---------
66,409
---------
CONSUMER FINANCE (1.4%)
227,530 American Express Co. 16,391
---------
DIVERSIFIED BANKS (1.4%)
168,933 Erste Group Bank AG*(a) 4,698
763,243 Grupo Financiero Banorte S.A. "O" 3,660
526,700 Kasikornbank Public Co. Ltd.(a) 2,505
51,654 Komercni Banka A/S(a) 1,709
548,153 Standard Chartered plc*(a) 4,394
---------
16,966
---------
DIVERSIFIED CAPITAL MARKETS (1.5%)
1,108,165 UBS Group AG(a) 17,625
---------
INVESTMENT BANKING & BROKERAGE (1.5%)
79,223 Goldman Sachs Group, Inc. 17,373
---------
REINSURANCE (0.4%)
48,826 Swiss Re AG(a) 4,484
---------
SPECIALIZED FINANCE (0.5%)
73,339 Deutsche Boerse AG*(a) 5,923
---------
Total Financials 145,171
---------
HEALTH CARE (18.6%)
------------------
HEALTH CARE EQUIPMENT (7.9%)
306,923 Medtronic plc 22,408
49,839 Sonova Holding AG(a) 6,012
247,989 St. Jude Medical, Inc. 19,641
202,615 Stryker Corp. 23,029
212,123 Zimmer Biomet Holdings, Inc. 21,607
---------
92,697
---------
================================================================================
16 | USAA WORLD GROWTH FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
HEALTH CARE SUPPLIES (2.1%)
71,271 Cooper Companies, Inc. $ 11,723
95,873 DENTSPLY SIRONA, Inc. 5,578
171,200 Hoya Corp.(a) 6,849
---------
24,150
---------
LIFE SCIENCES TOOLS & SERVICES (3.5%)
223,172 Thermo Fisher Scientific, Inc. 31,269
73,203 Waters Corp.* 9,851
---------
41,120
---------
PHARMACEUTICALS (5.1%)
290,417 Bayer AG(a) 27,255
44,418 Johnson & Johnson 4,944
100,515 Merck KGaA(a) 10,064
81,791 Roche Holding AG(a) 18,188
---------
60,451
---------
Total Health Care 218,418
---------
INDUSTRIALS (15.3%)
------------------
AEROSPACE & DEFENSE (1.9%)
83,214 MTU Aero Engines AG(a) 8,741
124,193 United Technologies Corp. 13,378
---------
22,119
---------
AGRICULTURAL & FARM MACHINERY (0.6%)
460,000 Kubota Corp.(a) 7,085
---------
AIR FREIGHT & LOGISTICS (1.7%)
174,184 United Parcel Service, Inc. "B" 20,191
---------
AIRPORT SERVICES (0.5%)
40,767 Aena S.A.(a) 5,396
---------
ELECTRICAL COMPONENTS & EQUIPMENT (1.9%)
169,337 Legrand S.A.(a) 9,426
200,051 Schneider Electric SE(a) 13,289
---------
22,715
---------
HUMAN RESOURCE & EMPLOYMENT SERVICES (0.8%)
146,738 Adecco Group AG(a) 9,021
---------
INDUSTRIAL CONGLOMERATES (4.1%)
115,757 3M Co. 19,880
252,758 Honeywell International, Inc. 28,799
---------
48,679
---------
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
RAILROADS (2.6%)
313,896 Canadian National Railway Co. $ 20,978
89,010 Union Pacific Corp. 9,019
---------
29,997
---------
TRADING COMPANIES & DISTRIBUTORS (1.2%)
77,022 Brenntag AG(a) 4,036
65,233 NOW, Inc.* 1,405
37,528 W.W. Grainger, Inc. 8,653
---------
14,094
---------
Total Industrials 179,297
---------
INFORMATION TECHNOLOGY (11.8%)
-----------------------------
COMMUNICATIONS EQUIPMENT (0.7%)
282,283 Cisco Systems, Inc. 8,418
---------
DATA PROCESSING & OUTSOURCED SERVICES (2.6%)
153,782 PayPal Holdings, Inc.* 6,040
314,031 Visa, Inc. "A" 24,281
---------
30,321
---------
ELECTRONIC COMPONENTS (0.7%)
116,840 Amphenol Corp. "A" 7,975
---------
INTERNET SOFTWARE & SERVICES (0.7%)
296,394 eBay, Inc.* 8,243
---------
IT CONSULTING & OTHER SERVICES (3.1%)
234,967 Accenture plc "A" 28,062
143,383 Cognizant Technology Solutions Corp. "A"* 7,898
---------
35,960
---------
SEMICONDUCTORS (0.6%)
117,705 Microchip Technology, Inc. 7,790
---------
SYSTEMS SOFTWARE (2.6%)
127,925 Check Point Software Technologies Ltd.* 10,532
513,468 Oracle Corp. 20,636
---------
31,168
---------
TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (0.8%)
6,093 Samsung Electronics Co. Ltd.(a) 9,015
---------
Total Information Technology 138,890
---------
MATERIALS (5.2%)
---------------
FERTILIZERS & AGRICULTURAL CHEMICALS (1.0%)
110,973 Monsanto Co. 11,398
---------
================================================================================
18 | USAA WORLD GROWTH FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
INDUSTRIAL GASES (2.8%)
50,742 Air Liquide S.A.(a) $ 5,188
102,086 Linde AG(a) 16,996
86,509 Praxair, Inc. 10,407
---------
32,591
---------
SPECIALTY CHEMICALS (1.4%)
208,030 Akzo Nobel N.V.(a) 12,922
30,531 International Flavors & Fragrances, Inc. 3,696
---------
16,618
---------
Total Materials 60,607
---------
Total Common Stocks 1,164,653
---------
Total Equity Securities (cost: $804,953) 1,164,653
---------
--------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON
(000) RATE MATURITY
--------------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS (0.4%)
DISCOUNT NOTES (0.4%)
U.S. GOVERNMENT (0.4%)
---------------------
$ 4,608 Federal Home Loan Bank 0.1% 12/01/2016 4,608
---------
---------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES
---------------------------------------------------------------------------------------------------------
GOVERNMENT & U.S. TREASURY MONEY
MARKET FUNDS (0.0%)
41,068 State Street Institutional Treasury Money Market Fund
Premier Class, 0.25%(b) 41
----------
Total Money Market Instruments (cost: $4,649) 4,649
----------
TOTAL INVESTMENTS (COST: $809,602) $1,169,302
==========
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
-------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
-------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
-------------------------------------------------------------------------------------------------------------
Equity Securities:
Common Stocks $711,553 $453,100 $- $1,164,653
Money Market Instruments:
Discount Notes - 4,608 - 4,608
Government & U.S. Treasury
Money Market Funds 41 - - 41
-------------------------------------------------------------------------------------------------------------
Total $711,594 $457,708 $- $1,169,302
-------------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
FAIR VALUE LEVEL TRANSFERS
--------------------------
For the period of June 1, 2016, through November 30, 2016, the table below shows
the transfers between Level 1, Level 2, and Level 3. The Fund's policy is to
recognize any transfers in and transfers out as of the beginning of the
reporting period in which the event or circumstance that caused the transfer
occurred.
TRANSFERS INTO TRANSFERS INTO TRANSFERS INTO
(OUT OF) (OUT OF) (OUT OF)
ASSETS ($ IN 000s) LEVEL 1 LEVEL 2 LEVEL 3
------------------------------------------------------------------------------------------------------------
Common Stocks(I) $(459,270) $459,270 $-
------------------------------------------------------------------------------------------------------------
(I) Transferred from Level 1 to Level 2 due to an assessment of events at the
end of the current reporting period, these securities had adjustments to their
foreign market closing prices to reflect changes in value that occurred after
the close of foreign markets and prior to the close of the U.S. securities
markets.
================================================================================
20 | USAA WORLD GROWTH FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
November 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 42.7% of net assets at
November 30, 2016.
o SPECIFIC NOTES
(a) Securities with a value of $453,100,000, which represented 38.7% of the
Fund's net assets, were classified as Level 2 at November 30, 2016, due
to the prices being adjusted to take into account significant market
movements following the close of local trading.
(b) Rate represents the money market fund annualized seven-day yield at
November 30, 2016.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 21
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
November 30, 2016 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $809,602) $1,169,302
Cash denominated in foreign currencies (identified cost of $564) 550
Receivables:
Capital shares sold 544
USAA Asset Management Company (Note 6D) 1
Dividends and interest 2,066
Securities sold 645
----------
Total assets 1,173,108
----------
LIABILITIES
Payables:
Securities purchased 561
Capital shares redeemed 356
Unrealized depreciation on foreign currency contracts held, at value 1
Accrued management fees 723
Accrued transfer agent's fees 61
Other accrued expenses and payables 214
----------
Total liabilities 1,916
----------
Net assets applicable to capital shares outstanding $1,171,192
==========
NET ASSETS CONSIST OF:
Paid-in capital $ 777,972
Accumulated undistributed net investment income 8,157
Accumulated net realized gain on investments 25,444
Net unrealized appreciation of investments 359,700
Net unrealized depreciation of foreign currency translations (81)
----------
Net assets applicable to capital shares outstanding $1,171,192
==========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $1,148,722/41,905 capital
shares outstanding, no par value) $ 27.41
==========
Institutional Shares (net assets of $5,989/219 capital
shares outstanding, no par value) $ 27.37
==========
Adviser Shares (net assets of $16,481/604 capital
shares outstanding, no par value) $ 27.31
==========
See accompanying notes to financial statements.
================================================================================
22 | USAA WORLD GROWTH FUND
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended November 30, 2016 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $233) $ 8,539
Interest 8
-------
Total income 8,547
-------
EXPENSES
Management fees 4,547
Administration and servicing fees:
Fund Shares 877
Institutional Shares 3
Adviser Shares 13
Transfer agent's fees:
Fund Shares 1,070
Institutional Shares 3
Adviser Shares 9
Distribution and service fees (Note 6F):
Adviser Shares 21
Custody and accounting fees:
Fund Shares 23
Postage:
Fund Shares 61
Adviser Shares 1
Shareholder reporting fees:
Fund Shares 29
Trustees' fees 15
Registration fees:
Fund Shares 24
Institutional Shares 14
Adviser Shares 8
Professional fees 82
Other 11
-------
Total expenses 6,811
-------
Expenses reimbursed:
Institutional Shares (12)
-------
Net expenses 6,799
-------
NET INVESTMENT INCOME 1,748
-------
================================================================================
FINANCIAL STATEMENTS | 23
================================================================================
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY
Net realized gain (loss) on:
Investments 10,636
Foreign currency transactions (106)
Change in net unrealized appreciation/(depreciation) of:
Investments (2,781)
Foreign currency translations (20)
-------
Net realized and unrealized gain 7,729
-------
Increase in net assets resulting from operations $ 9,477
=======
See accompanying notes to financial statements.
================================================================================
24 | USAA WORLD GROWTH FUND
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended November 30, 2016 (unaudited), and year ended May 31,
2016
-----------------------------------------------------------------------------------------------------
11/30/2016 5/31/2016
-----------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 1,748 $ 9,289
Net realized gain on investments 10,636 23,121
Net realized loss on foreign currency transactions (106) (120)
Change in net unrealized appreciation/(depreciation) of:
Investments (2,781) (64,830)
Foreign currency translations (20) 55
--------------------------------
Increase (decrease) in net assets resulting
from operations 9,477 (32,485)
--------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares - (8,171)
Institutional Shares* - (45)
Adviser Shares - (42)
--------------------------------
Total distributions of net investment income - (8,258)
--------------------------------
Net realized gains:
Fund Shares - (23,403)
Institutional Shares* - (97)
Adviser Shares - (353)
--------------------------------
Total distributions of net realized gains - (23,853)
--------------------------------
Distributions to shareholders - (32,111)
--------------------------------
NET INCREASE (DECREASE) IN NET ASSETS FROM
CAPITAL SHARE TRANSACTIONS (NOTE 5)
Fund Shares (17,747) 11,202
Institutional Shares* 716 5,505
Adviser Shares (210) (8,861)
--------------------------------
Total net increase (decrease) in net assets from capital
share transactions (17,241) 7,846
--------------------------------
Net decrease in net assets (7,764) (56,750)
NET ASSETS
Beginning of period 1,178,956 1,235,706
--------------------------------
End of period $1,171,192 $1,178,956
================================
Accumulated undistributed net investment income:
End of period $ 8,157 $ 6,409
================================
*Institutional Shares commenced operations on August 7, 2015.
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 25
================================================================================
NOTES TO FINANCIAL STATEMENTS
November 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 World Growth Fund (the Fund), which
is classified as diversified under the 1940 Act. The Fund's investment objective
is to seek capital appreciation.
The Fund consists of three classes of shares: World Growth Fund Shares (Fund
Shares), World Growth Fund Institutional Shares (Institutional Shares), and
World Growth 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 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,
================================================================================
26 | USAA WORLD GROWTH FUND
================================================================================
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). The
Adviser Shares permit investors to purchase shares through financial
intermediaries, including banks, broker-dealers, insurance companies, investment
advisers, plan sponsors, and financial professionals that provide various
administrative and distribution services.
A. SECURITY VALUATION - The Trust's Board of Trustees (the Board) has
established the Valuation Committee (the Committee), and subject to Board
oversight, the Committee administers and oversees the Fund's 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 27
================================================================================
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 and the Fund's subadviser(s)
will monitor for events that would materially affect the value of the
Fund's foreign securities. The Fund's subadviser(s) have agreed to
notify the Manager of significant events they identify that would
materially affect the value of the Fund's foreign securities. If the
Manager determines that a particular event would materially affect the
value of the Fund's foreign securities, then 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
================================================================================
28 | USAA WORLD GROWTH FUND
================================================================================
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
systems. General factors considered in determining the fair value of
securities include fundamental analytical data, the nature and duration
of any restrictions on disposition of the securities, evaluation of
credit quality, and an evaluation of the forces that influenced the
market in which the securities are purchased and sold.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 29
================================================================================
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. FOREIGN TAXATION - Foreign income and capital gains on some foreign
securities may be subject to foreign taxes, which are reflected as a
reduction to such income and realized gains. The Fund records a liability
based on unrealized gains to provide for potential foreign taxes payable
upon the sale of these securities. Foreign taxes have been provided for in
accordance with the Fund's understanding of the applicable countries'
prevailing tax rules and rates.
E. INVESTMENTS IN SECURITIES - Securities transactions are accounted for on
the date the securities are purchased or sold (trade date). Gains or losses
from
================================================================================
30 | USAA WORLD GROWTH FUND
================================================================================
sales of investment securities are computed on the identified cost basis.
Dividend income, less foreign taxes, if any, is recorded on the ex-dividend
date. If the ex-dividend date has passed, certain dividends from foreign
securities are recorded upon notification. Interest income is recorded
daily on the accrual basis. Premiums and discounts on short-term securities
are amortized on a straight-line basis over the life of the respective
securities.
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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 31
================================================================================
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 November 30, 2016, there were no custodian and other bank
credits.
H. REDEMPTION FEES - Adviser Shares 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
November 30, 2016, the Adviser Shares charged redemption fees of less than
$500.
I. 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.
J. 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 with other USAA Funds 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
================================================================================
32 | USAA WORLD GROWTH FUND
================================================================================
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 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 November 30, 2016, the Fund paid CAPCO facility
fees of $4,000, which represents 1.6% 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 November 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 May 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 tax.
At May 31, 2016, the Fund had no capital loss carryforwards, for federal income
tax purposes.
For the six-month period ended November 30, 2016, the Fund did not incur any
income tax, interest, or penalties, and has recorded no liability for net
================================================================================
NOTES TO FINANCIAL STATEMENTS | 33
================================================================================
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 November 30, 2016, were
$60,826,000 and $75,118,000, respectively.
As of November 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 November 30,
2016, were $388,720,000 and $29,020,000, respectively, resulting in net
unrealized appreciation of $359,700,000.
(5) CAPITAL SHARE TRANSACTIONS
At November 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
================================================================================
34 | USAA WORLD GROWTH FUND
================================================================================
legal entities that the Fund may approve from time to time. Capital share
transactions for all classes were as follows, in thousands:
SIX-MONTH PERIOD ENDED YEAR ENDED
NOVEMBER 30, 2016 MAY 31, 2016
--------------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------------------------------------------------
FUND SHARES:
Shares sold 2,411 $ 66,556 5,786 $ 155,150
Shares issued from reinvested dividends - - 1,176 31,173
Shares redeemed (3,054) (84,303) (6,553) (175,121)
--------------------------------------------------------
Net increase (decrease) from capital
share transactions (643) $(17,747) 409 $ 11,202
========================================================
INSTITUTIONAL SHARES
(COMMENCED ON AUGUST 7, 2015):
Shares sold 28 $ 780 195 $ 5,556
Shares issued from reinvested dividends - - - -
Shares redeemed (2) (64) (2) (51)
--------------------------------------------------------
Net increase from capital
share transactions 26 $ 716 193 $ 5,505
========================================================
ADVISER SHARES:
Shares sold 27 $ 736 66 $ 1,797
Shares issued from reinvested dividends - - 7 176
Shares redeemed* (34) (946) (401) (10,834)
--------------------------------------------------------
Net decrease from capital
share transactions (7) $ (210) (328) $ (8,861)
========================================================
*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. 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.
The Manager monitors each subadviser's performance through quantitative and
qualitative analysis, and periodically reports to the
================================================================================
NOTES TO FINANCIAL STATEMENTS | 35
================================================================================
Board as to whether each subadviser's agreement should be renewed,
terminated, or modified. The Manager is also responsible for determining
the asset allocation for the subadviser(s). The allocation for each
subadviser can range from 0% to 100% of the Fund's assets, and the Manager
can change the allocations without shareholder approval.
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 0.75% 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 Funds Index. The Lipper Global Funds
Index tracks the total return performance of the funds in the Lipper Global
Funds category. For the Fund Shares and Adviser Shares, the performance
period consists of the current month plus the previous 35 months. The
performance period for the Institutional Shares includes the performance of
the Fund Shares for periods prior to August 7, 2015. 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
================================================================================
36 | USAA WORLD GROWTH 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 Funds Index over that period, even if the
class had overall negative returns during the performance period.
For the six-month period ended November 30, 2016, the Fund incurred total
management fees, paid or payable to the Manager, of $4,547,000, which
included a performance adjustment for the Fund Shares, Institutional
Shares, and Adviser Shares of $74,000, less than $500, and $1,000,
respectively. For the Fund Shares, Institutional Shares, and Adviser
Shares, the performance adjustments were 0.01%, less than 0.01%, and 0.01%
respectively.
B. SUBADVISORY ARRANGEMENT(S) - The Manager entered into an Investment
Subadvisory Agreement with MFS Investment Management (MFS), under which MFS
directs the investment and reinvestment of the Fund's assets (as allocated
from time to time by the Manager).
The Manager (not the Fund) pays MFS a subadvisory fee based on the
aggregate average net assets in the USAA World Growth Fund and the USAA
International Fund combined, in an annual amount of 0.33% on the first $2
billion of assets, 0.30% of assets over $2 billion and up to $3 billion,
and 0.25% on assets over $3 billion. For the six-month period ended
November 30, 2016, the Manager incurred subadvisory fees with respect to
the Fund, paid or payable to MFS, of $1,847,000.
C. 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 Adviser Shares, and
0.10% of average net assets of the Institutional Shares. For the six-month
period ended November 30, 2016, the Fund Shares, Institutional Shares, and
Adviser Shares incurred administration and servicing fees, paid or payable
to the Manager, of $877,000, $3,000, and $13,000, respectively.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 37
================================================================================
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 November 30, 2016, the Fund reimbursed the
Manager $16,000 for these compliance and legal services. These expenses are
included in the professional fees on the Fund's Statement of Operations.
D. EXPENSE LIMITATION - The Manager agreed, through September 30, 2017, to
limit the total annual operating expenses of the Institutional Shares to
1.10% of its average net assets, excluding extraordinary expenses and
before reductions of any expenses paid indirectly, and to reimburse the
Institutional Shares for all expenses in excess of that amount. This
expense limitation arrangement may not be changed or terminated through
September 30, 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 November 30, 2016, the Institutional Shares incurred
reimbursable expenses of $12,000, of which $1,000 was receivable from the
Manager.
E. 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
$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 November 30,
2016, the Fund Shares, Institutional Shares, and Adviser Shares incurred
transfer agent's fees, paid or payable to SAS, of $1,070,000, $3,000, and
$9,000, respectively.
F. 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
================================================================================
38 | USAA WORLD GROWTH FUND
================================================================================
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 November
30, 2016, the Adviser Shares incurred distribution and service (12b-1) fees
of $21,000.
G. 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 November 30,
2016, USAA and its affiliates owned 173,000 Institutional Shares and 315,000
Adviser Shares, which represents 79.3% of the Institutional Shares outstanding,
52.2% of the Adviser Shares outstanding, and 1.1% of the Fund's total
outstanding shares.
Certain trustees and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Fund.
(8) UPCOMING REGULATORY MATTERS
In October 2016, the U.S. Securities and Exchange Commission (SEC) adopted final
rules intended to modernize the reporting and disclosure of information by
registered investment companies. In part, the final rules amend Regulation S-X
to require standardized, enhanced disclosure about derivatives in investment
company financial statements. The Manager is currently evaluating the impact
these rules and amendments will have on the financial statements and related
disclosures. The compliance date for the amendments to Regulation S-X is August
1, 2017, with other staggered compliance dates extending through December 2018.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 39
================================================================================
(9) FINANCIAL HIGHLIGHTS - FUND SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
NOVEMBER 30, YEAR ENDED MAY 31,
-------------------------------------------------------------------------------
2016 2016 2015 2014 2013 2012
-------------------------------------------------------------------------------
Net asset value at
beginning of period $ 27.20 $ 28.69 $ 28.00 $ 24.24 $ 18.41 $ 20.41
-------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .04 .21 .24 .20 .19 .17
Net realized and
unrealized gain (loss) .17 (.95) 1.16 4.19 5.85 (2.01)
-------------------------------------------------------------------------------
Total from investment
operations .21 (.74) 1.40 4.39 6.04 (1.84)
-------------------------------------------------------------------------------
Less distributions from:
Net investment income - (.19) (.28) (.19) (.20) (.16)
Realized capital gains - (.56) (.43) (.44) (.01) -
-------------------------------------------------------------------------------
Total distributions - (.75) (.71) (.63) (.21) (.16)
-------------------------------------------------------------------------------
Net asset value at
end of period $ 27.41 $ 27.20 $ 28.69 $ 28.00 $ 24.24 $ 18.41
===============================================================================
Total return (%)* .77 (2.49) 5.10 18.24 32.93 (8.95)
Net assets at end
of period (000) $1,148,722 $1,157,148 $1,208,909 $1,128,586 $879,178 $615,644
Ratios to average
net assets:**
Expenses (%)(a) 1.14(b) 1.17 1.17 1.19 1.25 1.30
Net investment
income (%) .30(b) .81 .91 .75 .93 .96
Portfolio turnover (%) 5 10 9 9 12 12
* 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 November 30, 2016, average net assets were
$1,166,229,000.
(a) Reflects total annual operating expenses of the Fund Shares before
reductions of any expenses paid indirectly. The Fund Shares' expenses paid
indirectly decreased the expense ratios as follows:
- - - (.00%)(+) (.00%)(+) (.00%)(+)
(+) Represents less than 0.01% of average net assets.
(b) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
40 | USAA WORLD GROWTH FUND
================================================================================
(9) FINANCIAL HIGHLIGHTS (CONTINUED) - INSTITUTIONAL SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED PERIOD ENDED
NOVEMBER 30, MAY 31,
------------------------------------------
2016 2016***
------------------------------------------
Net asset value at beginning of period $27.14 $28.83
-----------------------------------
Income (loss) from investment operations:
Net investment income .03 .24
Net realized and unrealized gain (loss) .20 (1.11)
-----------------------------------
Total from investment operations .23 (.87)
-----------------------------------
Less distributions from:
Net investment income - (.26)
Realized capital gains - (.56)
-----------------------------------
Total distributions - (.82)
-----------------------------------
Net asset value at end of period $27.37 $27.14
===================================
Total return (%)* .85 (2.92)
Net assets at end of period (000) $5,989 $5,228
Ratios to average net assets:**
Expenses (%)(a) 1.08 1.10
Expenses, excluding reimbursements (%)(a) 1.51 1.54
Net investment income (%)(a) .35 1.11
Portfolio turnover (%) 5 10
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended November 30, 2016, average net assets were
$5,472,000.
*** Institutional Shares commenced operations on August 7, 2015.
(a) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 41
================================================================================
(9) FINANCIAL HIGHLIGHTS (CONTINUED) - ADVISER SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
NOVEMBER 30, YEAR ENDED MAY 31,
---------------------------------------------------------------------------
2016 2016 2015 2014 2013 2012
---------------------------------------------------------------------------
Net asset value at
beginning of period $ 27.13 $ 28.55 $ 27.90 $ 24.17 $18.37 $20.38
-------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .01 .14 .19 .18 .13 .12
Net realized and
unrealized gain (loss) .17 (.93) 1.13 4.16 5.82 (2.01)
-------------------------------------------------------------------------
Total from investment
operations .18 (.79) 1.32 4.34 5.95 (1.89)
-------------------------------------------------------------------------
Less distributions from:
Net investment income - (.07) (.24) (.17) (.14) (.12)
Realized capital gains - (.56) (.43) (.44) (.01) -
-------------------------------------------------------------------------
- (.63) (.67) (.61) (.15) (.12)
-------------------------------------------------------------------------
Redemption fees added
to beneficial interests .00(b) .00(b) .00(b) - - -
-------------------------------------------------------------------------
Net asset value at
end of period $ 27.31 $ 27.13 $ 28.55 $ 27.90 $24.17 $18.37
=========================================================================
Total return (%)* .66 (2.72) 4.84 18.08 32.47 (9.26)
Net assets at end
of period (000) $16,481 $16,580 $26,797 $21,583 $8,490 $5,808
Ratios to average
net assets:**
Expenses (%)(a) 1.39(c) 1.42 1.38(d) 1.35 1.60 1.60
Expenses, excluding
reimbursements (%)(a) 1.39(c) 1.42 1.38 1.35 1.63 1.76
Net investment income (%) .04(c) .49 .72 .64 .59 .64
Portfolio turnover (%) 5 10 9 9 12 12
* 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 November 30, 2016, average net assets were
$16,663,000.
(a) Reflects total annual operating expenses of the Adviser Shares before
reductions of any expenses paid indirectly. The Adviser Shares' expenses
paid indirectly decreased the expense ratios as follows:
- - - (.00%)(+) (.00%)(+) (.00%)(+)
(+) Represents less than 0.01% of average net assets.
(b) Represents less than $0.01 per share.
(c) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(d) Prior to October 1, 2014, the Manager had voluntarily agreed to limit the
annual expenses of the Adviser Shares to 1.60% of the Adviser Shares' average
net assets.
================================================================================
42 | USAA WORLD GROWTH FUND
================================================================================
EXPENSE EXAMPLE
November 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 June 1, 2016, through
November 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 estimate the
================================================================================
EXPENSE EXAMPLE | 43
================================================================================
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 JUNE 1, 2016 -
JUNE 1, 2016 NOVEMBER 30, 2016 NOVEMBER 30, 2016
-----------------------------------------------------------
FUND SHARES
Actual $1,000.00 $1,007.70 $5.74
Hypothetical
(5% return before expenses) 1,000.00 1,019.35 5.77
INSTITUTIONAL SHARES
Actual 1,000.00 1,008.50 5.44
Hypothetical
(5% return before expenses) 1,000.00 1,019.65 5.47
ADVISER SHARES
Actual 1,000.00 1,006.60 6.99
Hypothetical
(5% return before expenses) 1,000.00 1,018.10 7.03
*Expenses are equal to the annualized expense ratio of 1.14% for Fund Shares,
1.08% for Institutional Shares, and 1.39% 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 0.77% for Fund Shares, 0.85% for Institutional Shares,
and 0.66% for Adviser Shares for the six-month period of June 1, 2016, through
November 30, 2016.
================================================================================
44 | USAA WORLD GROWTH 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 AGENTS 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] [LOGO OF RECYCLE PAPER]
USAA We know what it means to serve.(R) 10%
=============================================================================
23412-0117 (C)2017, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA GOVERNMENT SECURITIES FUND]
==============================================================
SEMIANNUAL REPORT
USAA GOVERNMENT SECURITIES FUND
FUND SHARES o INSTITUTIONAL SHARES o ADVISER SHARES
NOVEMBER 30, 2016
==============================================================
================================================================================
================================================================================
PRESIDENT'S MESSAGE
"AS THE NEW YEAR BEGINS, WHY NOT MAKE
A RESOLUTION TO PUT YOUR FINANCIAL HOUSE [PHOTO OF BROOKS ENGLEHARDT]
IN ORDER?"
--------------------------------------------------------------------------------
JANUARY 2017
Financial markets are unpredictable. Many factors can confound those who try to
predict the direction of the markets based on economic or political factors. In
other words, it's easy to get it wrong. And, even if one correctly forecasts
what will happen in the macroeconomic environment, predicting how the markets
will respond is another matter altogether.
Consider the response to the Presidential election. Stocks rose on Monday and
Tuesday (Election Day) at the prospect of a Hillary Clinton victory--virtually
a "sure thing," according to some media pundits. U.S. Treasury securities and
other segments of the bond market sold off as investors likely assumed a
continuation of current economic policy under another Democratic administration.
But these trends reversed on Tuesday evening when it became clear that Donald J.
Trump would be elected the 45th President of the United States. Asian and
European equity markets dropped and U.S. stock index futures plunged. The
decline in stock index futures suggested that U.S. stocks might fall when
trading began on Wednesday, however the opposite happened. Stock prices rose and
then rallied strongly, with major stock indexes hitting one record high after
another through the end of November 2016. U.S. Treasury prices fell, driving up
yields on longer-maturity U.S. Treasuries. (Yields move in the opposite
direction of prices.)
Few market participants would have forecasted such a scenario. But with
hindsight, we may be able to understand some of the reasons why the markets
behaved the way they did.
U.S. equity investors appeared to like President-elect Trump's promises of lower
tax rates, less regulation, and more fiscal stimulus through infrastructure
spending. Other explanations may lie overseas, such as complications relating to
the United Kingdom's decision to exit from the European Union ("Brexit") and
continued slow economic growth in China--uncertainties that may have
================================================================================
================================================================================
increased the attractiveness of U.S. stocks. As for bond investors, they may
have been worried about an increase in interest rates if economic growth picks
up under a Trump Administration. Higher growth rates typically correspond with
rising inflation, which in turn could prompt the Federal Reserve (the Fed) to
accelerate the pace of interest rate increases.
What actually happens, however, is yet to be seen. No one knows, except in the
most general terms, what President-elect Trump's plans and priorities will be or
how they could affect economic growth in 2017 and beyond. By extension, it is
also too early to forecast how inflation might be affected and how the Fed could
respond.
At USAA Investments, we are long-term, fundamental investors, who seek to look
at the full market cycle rather than current geopolitical events. We believe
measures such as assessing a company's intrinsic value compared to its current
price tend to be more effective at forecasting potential stock returns over
time. In selecting bonds, our analysts take a bottom-up approach to evaluating
each security individually, building portfolios on a bond-by-bond basis.
It is important to remember market conditions are always fluctuating and time
horizon matters. We believe that it is important to stay focused on your
long-term objectives, using an investment plan that is based on your personal
time horizon and risk tolerance. If you are uneasy about market risk in general
or have concerns about too much exposure to specific asset classes, please call
USAA to speak with an advisor. As the new year begins, why not make a resolution
to put your financial house in order?
Thank you for allowing us to help you in your efforts to achieve your financial
goals. At USAA Investments, we are committed to providing you with our best
advice, top-notch service, and a variety of mutual funds. On behalf of everyone
here, I wish you a happy and healthy 2017.
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 26
Notes to Financial Statements 29
EXPENSE EXAMPLE 45
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE
RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY
USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN
PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS
ABOUT THE FUND.
(C)2017, USAA. All rights reserved.
200986-0117
================================================================================
================================================================================
FUND OBJECTIVE
THE USAA GOVERNMENT SECURITIES FUND (THE FUND) PROVIDES INVESTORS A HIGH LEVEL
OF CURRENT INCOME CONSISTENT WITH PRESERVATION OF PRINCIPAL.
--------------------------------------------------------------------------------
TYPES OF INVESTMENTS
The Fund normally invests at least 80% of its assets in government securities,
including U.S. Treasury bills, notes, and bonds; Treasury Inflation Protected
Securities (TIPS); mortgage-backed securities (MBS) backed by the Government
National Mortgage Association (Ginnie Mae), the Federal National Mortgage
Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation
(Freddie Mac); U.S. government agency collateralized mortgage obligations;
securities issued by U.S. government agencies and instrumentalities; and
repurchase agreements collateralized by such investments. The securities issued
by U.S. government agencies and instrumentalities are supported by the credit of
the issuing agency, instrumentality or corporation (which are neither issued nor
guaranteed by the U.S. Treasury), including but not limited to Fannie Mae,
Freddie Mac, the Agricultural Mortgage Corporation (Farmer Mac), Federal Farm
Credit Bank, Federal Home Loan Bank, Private Export Funding Corp (Pefco), and
the Small Business Administration. The Fund has a target average maturity of
5-10 years. This 80% policy may be changed upon at least 60 days' written notice
to shareholders.
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 DONNA J. BAGGERLY] [PHOTO OF R. NEAL GRAVES]
DONNA J. BAGGERLY, CFA R. NEAL GRAVES, CFA, CPA
USAA Asset USAA Asset
Management Company Management Company
--------------------------------------------------------------------------------
o WHAT WERE THE MARKET CONDITIONS DURING THE REPORTING PERIOD?
For most of the reporting period, longer-term U.S. Treasury yields remained
near their lows of the 2016 calendar year. They fell during a broad flight
to safety after the United Kingdom's surprise vote to exit the European
Union, popularly known as "Brexit." After climbing higher by late July
2016, longer-term U.S. Treasury yields then remained rather range-bound in
advance of the Federal Reserve's (the Fed) September 2016 policy meeting.
They fell after the Fed decided to leave short-term interest rates
unchanged and to continue watching economic conditions both domestically
and internationally. From late September 2016 through early November 2016,
U.S. Treasury yields edged up on signals the Fed might increase interest
rates later in 2016. Market dynamics changed dramatically after Donald
Trump was elected president of the United States on November 8, 2016.
Yields surged higher, with the yield on the 10-year U.S. Treasury rising
just over 50 basis points in the final three weeks of the reporting period.
(A basis point is 1/100(th) of the percentage point.) The yield on a 10-year
U.S. Treasury, which began the reporting period at 1.85%, finished at
2.37%. The increase in yields reflected the market's belief that the
economy could improve at a faster pace than previously expected.
President-elect Trump has pledged to cut corporate taxes and decrease
regulation, which if combined with his proposal for increased
infrastructure spending, could potentially lead to stronger economic growth
and higher inflation.
Residential mortgage interest rates, which are generally tied to the
10-year U.S. Treasury yield, increased during the reporting period as a
whole. Until
================================================================================
2 | USAA GOVERNMENT SECURITIES FUND
================================================================================
early November 2016, they had stayed in a rather narrow range, though they
dipped slightly during the summer 2016. They increased considerably after
the U.S. presidential election. The interest rate on a 15-year mortgage
began the period at 2.89% and ended it at 3.25%. The interest rate on a
30-year mortgage started the reporting period at 3.64% and finished it at
4.03%. Because mortgage interest rates remained relatively stable and
subsequently increased, homeowners did not find it advantageous to
refinance their mortgages, increasing extension risk. Extension risk is
the risk that mortgage prepayments will decelerate, causing the average
life of a mortgage to lengthen--or, extend--and become more sensitive to
upward interest rate movement.
o HOW DID THE USAA GOVERNMENT SECURITIES FUND (THE FUND) PERFORM DURING THE
REPORTING PERIOD?
The Fund has three share classes: Fund Shares, Institutional Shares, and
Adviser Shares. For the reporting period ended November 30, 2016, the Fund
Shares, Institutional Shares, and Adviser Shares had a total return of
-0.71%, -0.68%, and -0.85%, respectively. This compares to a total return
of -0.81% for the Bloomberg Barclays U.S. Aggregate Government Intermediate
& Mortgage-Backed Securities Index* (the Index), and -1.16% for the Lipper
Intermediate U.S. Government 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.
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 indexes. Thus, the
Fund's benchmark is now called the Bloomberg Barclays U.S. Aggregate
Government Intermediate & Mortgage-Backed Securities Index.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 3
================================================================================
o HOW DID YOU MANAGE THE FUND DURING THE REPORTING PERIOD?
The Fund was positioned to perform well in a rising interest rate
environment and to mitigate its exposure to extension risk. As a result,
the portfolio owned more shorter-duration securities than longer-duration
securities during the reporting period. This added to performance as
interest rates increased and the prices of shorter-duration securities fell
less than the prices of longer-duration securities. The Fund also benefited
from its overweight in Ginnie Mae high-coupon mortgage-backed securities,
legacy investments that have shorter durations than the securities that
comprise the Index as well as little extension risk. In addition, the
portfolio's overweight in shorter-duration 15-year mortgage-backed
securities performed well. An underweight in longer-term U.S. Treasuries
was advantageous. The Fund was held back somewhat by its holdings of
longer-duration commercial mortgage-backed securities (CMBS) and municipal
bonds.
During the reporting period, we continued to diversify the Fund. We added
to the portfolio's holdings of CMBS, asset-backed securities, agency
debentures, and U.S. Treasuries, all of which tend to offer more stable
cash flows than mortgage-backed securities. At the same time, we continued
to reduce the Fund's position in Ginnie Mae mortgage-backed securities as
we sought to decrease the portfolio's exposure to prepayment risk and
extension risk.
Thank you for allowing us to help you manage your investments.
While the value of the USAA Government Securities Fund Shares,
Institutional Shares, and Adviser Shares are not guaranteed by the U.S.
government, the Fund endeavors to maintain low-to-moderate fluctuation of
share price.
Shares of the USAA Government Securities Fund are not individually backed
by the full faith and credit of the U.S. government. o Mortgage-backed
securities have prepayment, extension, credit, and interest rate risks.
Generally, when interest rates decline, prepayments accelerate beyond the
initial pricing assumptions and may cause the average life of the
securities to shorten. Also the market value may decline when interest
rates rise because prepayments decrease beyond the initial pricing
assumptions and may cause the average life of the securities to extend.
o As interest rates rise, existing bond prices generally fall; given the
historically low interest rate environment, risks associated with rising
interest rates may be heightened.
You will find a complete list of securities that the Fund owns on pages
16-22.
================================================================================
4 | USAA GOVERNMENT SECURITIES FUND
================================================================================
INVESTMENT OVERVIEW
USAA GOVERNMENT SECURITIES FUND SHARES (FUND SHARES)
(Ticker Symbol: USGNX)
--------------------------------------------------------------------------------
11/30/16 5/31/16
--------------------------------------------------------------------------------
Net Assets $419.4 Million $432.5 Million
Net Asset Value Per Share $9.83 $10.00
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 11/30/16
--------------------------------------------------------------------------------
5/31/16-11/30/16* 1 YEAR 5 YEARS 10 YEARS
-0.71% 1.24% 1.46% 3.67%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/16
--------------------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS
1.23% 1.30% 3.66%
--------------------------------------------------------------------------------
30-DAY SEC YIELD** AS OF 11/30/16 EXPENSE RATIO AS OF 5/31/16***
--------------------------------------------------------------------------------
2.10% 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 December 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.
================================================================================
INVESTMENT OVERVIEW | 5
================================================================================
AVERAGE ANNUAL COMPOUNDED RETURNS WITH REINVESTMENT OF DIVIDENDS - PERIODS ENDED
NOVEMBER 30, 2016
--------------------------------------------------------------------------------
TOTAL RETURN = DIVIDEND RETURN + PRICE CHANGE
--------------------------------------------------------------------------------
10 YEARS 3.67% = 3.40% + 0.27%
5 YEARS 1.46% = 2.56% + -1.10%
1 YEAR 1.24% = 2.05% + -0.81%
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 10-YEAR PERIOD
ENDED NOVEMBER 30, 2016
[CHART OF ANNUAL TOTAL RETURNS AND COMPOUNDED DIVIDEND RETURNS]
CHANGE IN
TOTAL RETURN DIVIDEND RETURN SHARE PRICE
11/30/2007 6.10% 4.95% 1.15%
11/30/2008 5.64% 4.71% 0.93%
11/30/2009 8.31% 4.32% 3.99%
11/30/2010 4.69% 3.80% 0.89%
11/30/2011 4.99% 3.62% 1.37%
11/30/2012 2.49% 2.97% -0.48%
11/30/2013 -1.20% 2.67% -3.87%
11/30/2014 3.77% 2.76% 1.01%
11/30/2015 1.07% 2.37% -1.30%
11/30/2016 1.24% 2.06% -0.81%
[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 GOVERNMENT SECURITIES FUND
================================================================================
o 12-MONTH DIVIDEND YIELD COMPARISON o
[CHART OF 12-MONTH DIVIDEND YIELD COMPARISON]
USAA GOVERNMENT LIPPER INTERMEDIATE
SECURITIES U.S. GOVERNMENT
FUND SHARES FUNDS INDEX AVERAGE
11/30/2007 4.66% 4.12%
11/30/2008 4.53% 3.88%
11/30/2009 4.01% 3.26%
11/30/2010 3.68% 2.58%
11/30/2011 3.48% 2.17%
11/30/2012 2.96% 1.82%
11/30/2013 2.78% 1.52%
11/30/2014 2.69% 1.71%
11/30/2015 2.40% 1.37%
11/30/2016 2.08% 1.49%
[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 11/30/07 through 11/30/16.
The Lipper Intermediate U.S. Government Funds Index Average is an average
performance level of all intermediate U.S. government funds, reported by Lipper
Inc., an independent organization that monitors the performance of mutual funds.
================================================================================
INVESTMENT OVERVIEW | 7
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
BLOOMBERG BARCLAYS
U.S. AGGREGATE
LIPPER INTERMEDIATE GOVERNMENT INTERMEDIATE USAA GOVERNMENT
U.S. GOVERNMENT & MORTGAGE-BACKED SECURITIES
FUNDS INDEX SECURITIES INDEX FUND SHARES
11/30/06 $10,000.00 $10,000.00 $10,000.00
12/31/06 9,946.70 9,967.68 9,989.00
01/31/07 9,942.44 9,971.59 9,983.00
02/28/07 10,079.71 10,095.50 10,107.00
03/31/07 10,094.38 10,121.95 10,116.00
04/30/07 10,141.64 10,169.46 10,165.00
05/31/07 10,053.25 10,111.18 10,109.00
06/30/07 10,031.03 10,093.06 10,054.00
07/31/07 10,145.55 10,185.13 10,126.00
08/31/07 10,278.83 10,314.92 10,246.00
09/30/07 10,352.97 10,390.52 10,305.00
10/31/07 10,429.16 10,477.79 10,401.00
11/30/07 10,685.04 10,689.50 10,610.00
12/31/07 10,678.05 10,721.32 10,671.00
01/31/08 10,930.10 10,941.57 10,801.00
02/29/08 10,985.28 10,991.09 10,856.00
03/31/08 11,007.81 11,055.26 10,895.00
04/30/08 10,939.03 11,001.39 10,881.00
05/31/08 10,817.40 10,926.62 10,812.00
06/30/08 10,847.23 10,940.08 10,818.00
07/31/08 10,832.05 10,954.61 10,814.00
08/31/08 10,928.02 11,069.98 10,913.00
09/30/08 10,920.33 11,141.39 10,984.00
10/31/08 10,806.33 11,074.26 10,846.00
11/30/08 11,226.59 11,486.49 11,205.00
12/31/08 11,546.92 11,706.84 11,386.00
01/31/09 11,418.49 11,657.36 11,392.00
02/28/09 11,548.22 11,687.08 11,468.00
03/31/09 11,628.95 11,850.95 11,636.00
04/30/09 11,532.51 11,831.91 11,653.00
05/31/09 11,621.34 11,827.24 11,680.00
06/30/09 11,527.66 11,820.97 11,685.00
07/31/09 11,581.70 11,897.43 11,796.00
08/31/09 11,867.10 11,975.14 11,879.00
09/30/09 11,929.61 12,058.22 11,940.00
10/31/09 12,028.77 12,117.77 12,014.00
11/30/09 12,137.65 12,269.88 12,137.00
12/31/09 11,921.89 12,072.93 12,009.00
01/31/10 12,116.56 12,231.87 12,137.00
02/28/10 12,138.90 12,267.91 12,161.00
03/31/10 12,144.09 12,234.62 12,173.00
04/30/10 12,284.77 12,314.89 12,251.00
05/31/10 12,411.02 12,456.86 12,398.00
06/30/10 12,614.09 12,609.12 12,511.00
07/31/10 12,724.53 12,710.03 12,625.00
08/31/10 12,919.04 12,790.98 12,627.00
09/30/10 12,943.42 12,785.24 12,593.00
10/31/10 12,982.91 12,869.72 12,717.00
11/30/10 12,899.48 12,819.15 12,706.00
12/31/10 12,700.26 12,695.33 12,660.00
01/31/11 12,706.19 12,717.42 12,671.00
02/28/11 12,707.67 12,717.58 12,711.00
03/31/11 12,714.69 12,731.91 12,725.00
04/30/11 12,861.34 12,864.38 12,865.00
05/31/11 13,039.34 13,007.67 13,004.00
06/30/11 13,006.01 13,009.12 13,018.00
07/31/11 13,207.98 13,154.17 13,118.00
08/31/11 13,473.06 13,342.62 13,270.00
09/30/11 13,599.21 13,371.01 13,271.00
10/31/11 13,550.61 13,358.83 13,291.00
11/30/11 13,587.34 13,393.34 13,339.00
12/31/11 13,709.77 13,475.28 13,414.00
01/31/12 13,804.34 13,537.65 13,433.00
02/29/12 13,756.14 13,513.18 13,429.00
03/31/12 13,675.07 13,484.23 13,448.00
04/30/12 13,842.90 13,590.13 13,520.00
05/31/12 13,999.49 13,658.74 13,556.00
06/30/12 13,978.95 13,656.56 13,565.00
07/31/12 14,113.77 13,750.62 13,662.00
08/31/12 14,128.35 13,761.22 13,672.00
09/30/12 14,131.13 13,773.23 13,701.00
10/31/12 14,114.94 13,750.86 13,667.00
11/30/12 14,160.75 13,767.64 13,674.00
12/31/12 14,118.38 13,762.66 13,677.00
01/31/13 14,034.24 13,702.85 13,625.00
02/28/13 14,101.61 13,754.67 13,670.00
03/31/13 14,107.62 13,770.69 13,674.00
04/30/13 14,199.92 13,836.90 13,718.00
05/31/13 13,975.19 13,664.86 13,510.00
06/30/13 13,777.55 13,545.46 13,391.00
07/31/13 13,770.94 13,548.70 13,341.00
08/31/13 13,696.78 13,497.95 13,321.00
09/30/13 13,821.14 13,637.80 13,444.00
10/31/13 13,890.81 13,707.69 13,517.00
11/30/13 13,859.52 13,665.96 13,509.00
12/31/13 13,749.86 13,580.81 13,445.00
01/31/14 13,931.13 13,738.38 13,614.00
02/28/14 13,969.31 13,775.50 13,673.00
03/31/14 13,929.36 13,725.96 13,620.00
04/30/14 14,009.10 13,810.93 13,705.00
05/31/14 14,115.94 13,936.59 13,806.00
06/30/14 14,117.29 13,943.83 13,822.00
07/31/14 14,084.41 13,887.00 13,769.00
08/31/14 14,179.75 13,992.73 13,883.00
09/30/14 14,133.15 13,956.60 13,857.00
10/31/14 14,225.10 14,071.55 13,946.00
11/30/14 14,312.41 14,152.20 14,015.00
12/31/14 14,310.84 14,142.33 14,003.00
01/31/15 14,579.94 14,319.30 14,144.00
02/28/15 14,431.74 14,241.68 14,118.00
03/31/15 14,508.67 14,306.62 14,188.00
04/30/15 14,481.89 14,302.26 14,175.00
05/31/15 14,455.51 14,304.73 14,189.00
06/30/15 14,350.41 14,224.85 14,119.00
07/31/15 14,442.78 14,296.75 14,148.00
08/31/15 14,435.78 14,306.53 14,145.00
09/30/15 14,537.99 14,402.71 14,228.00
10/31/15 14,506.55 14,382.12 14,198.00
11/30/15 14,464.40 14,347.49 14,165.00
12/31/15 14,426.62 14,330.58 14,136.00
01/31/16 14,671.45 14,538.96 14,301.00
02/29/16 14,758.33 14,602.77 14,383.00
03/31/16 14,806.64 14,637.52 14,409.00
04/30/16 14,803.87 14,646.16 14,434.00
05/31/16 14,793.72 14,643.53 14,444.00
06/30/16 15,032.49 14,810.30 14,584.00
07/31/16 15,061.65 14,827.17 14,607.00
08/31/16 15,003.12 14,798.91 14,588.00
09/30/16 15,033.23 14,831.31 14,629.00
10/31/16 14,935.93 14,775.09 14,564.00
11/30/16 14,622.16 14,524.58 14,341.00
[END CHART]
Data from 11/30/06 through 11/30/16.
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Government Securities Fund Shares to the following benchmarks:
o The unmanaged Lipper Intermediate U.S. Government Funds Index is considered
representative of intermediate U.S. government funds.
o The unmanaged Bloomberg Barclays U.S. Aggregate Government Intermediate &
Mortgage-Backed Securities Index consists of intermediate U.S. Treasury and
Agency unsecured notes and securities backed by pools of mortgages issued
by U.S. Government Agencies, GNMA, Fannie Mae, or Freddie Mac.
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 Intermediate U.S. Government Funds Index reflects the fees and
expenses of the underlying funds included in the index.
================================================================================
8 | USAA GOVERNMENT SECURITIES FUND
================================================================================
USAA GOVERNMENT SECURITIES FUND INSTITUTIONAL SHARES (INSTITUTIONAL SHARES)
(Ticker Symbol: UIGSX)
--------------------------------------------------------------------------------
11/30/16 5/31/16
--------------------------------------------------------------------------------
Net Assets (in Millions) $114.6 $106.7 Million
Net Asset Value Per Share $9.83 $10.00
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 11/30/16
--------------------------------------------------------------------------------
5/31/16-11/30/16* 1 YEAR SINCE INCEPTION 8/07/15
-0.68% 1.20% 1.29%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/16
--------------------------------------------------------------------------------
1 YEAR SINCE INCEPTION 8/07/15
1.30% 1.06%
--------------------------------------------------------------------------------
30-DAY SEC YIELD** AS OF 11/30/16 EXPENSE RATIO AS OF 5/31/16***
--------------------------------------------------------------------------------
2.16% 0.44%
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 December 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.
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).
================================================================================
INVESTMENT OVERVIEW | 9
================================================================================
o 12-MONTH DIVIDEND YIELD COMPARISON o
[CHART OF 12-MONTH DIVIDEND YIELD COMPARISON]
USAA GOVERNMENT LIPPER INTERMEDIATE
SECURITIES FUND U.S. GOVERNMENT
INSTITUTIONAL FUNDS INDEX
SHARES AVERAGE
11/30/16 2.14% 1.49%
[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 the period ending 11/30/16.
The Lipper Intermediate U.S. Government Funds Index Average is an average
performance level of all intermediate U.S. government funds, reported by Lipper
Inc., an independent organization that monitors the performance of mutual funds.
================================================================================
10 | USAA GOVERNMENT SECURITIES FUND
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
BLOOMBERG BARCLAYS
USAA GOVERNMENT U.S. AGGREGATE
SECURITIES FUND GOVERNMENT INTERMEDIATE LIPPER INTERMEDIATE
INSTITUTIONAL & MORTGAGE-BACKED U.S. GOVERNMENT
SHARES SECURITIES INDEX FUNDS INDEX
07/31/15 $10,000.00 $10,000.00 $10,000.00
08/31/15 10,024.00 10,006.84 9,995.16
09/30/15 10,083.00 10,074.12 10,065.92
10/31/15 10,062.00 10,059.71 10,044.16
11/30/15 10,049.00 10,035.49 10,014.97
12/31/15 10,019.00 10,023.66 9,988.81
01/31/16 10,146.00 10,169.42 10,158.33
02/29/16 10,195.00 10,214.05 10,218.49
03/31/16 10,224.00 10,238.35 10,251.94
04/30/16 10,232.00 10,244.40 10,250.02
05/31/16 10,239.00 10,242.56 10,242.99
06/30/16 10,349.00 10,359.21 10,408.31
07/31/16 10,367.00 10,371.01 10,428.50
08/31/16 10,343.00 10,351.24 10,387.97
09/30/16 10,373.00 10,373.90 10,408.82
10/31/16 10,327.00 10,334.58 10,341.45
11/30/16 10,169.00 10,159.35 10,124.20
[END CHART]
Data from 7/31/15 through 11/30/16.*
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Government Securities Fund Institutional Shares to the Fund's benchmarks
listed above (see page 8 for benchmark definitions).
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 Intermediate U.S. Government Funds Index reflects the fees and
expenses of the underlying funds included in the index.
*The performance of the Lipper Intermediate U.S. Government Funds Index and
Bloomberg Barclays U.S. Aggregate Government Intermediate & Mortgage-Backed
Securities 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.
================================================================================
INVESTMENT OVERVIEW | 11
================================================================================
USAA GOVERNMENT SECURITIES FUND ADVISER SHARES (ADVISER SHARES)
(Ticker Symbol: UAGNX)
--------------------------------------------------------------------------------
11/30/16 5/31/16
--------------------------------------------------------------------------------
Net Assets (in Millions) $5.1 Million $5.1 Million
Net Asset Value Per Share $9.83 $10.00
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 11/30/16
--------------------------------------------------------------------------------
5/31/16-11/30/16* 1 YEAR 5 YEARS SINCE INCEPTION 8/01/10
-0.85% 0.97% 1.10% 1.66%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/16
--------------------------------------------------------------------------------
1 YEAR 5 YEARS SINCE INCEPTION 8/01/10
1.06% 0.95% 1.60%
--------------------------------------------------------------------------------
30-DAY SEC YIELD** AS OF 11/30/16
--------------------------------------------------------------------------------
UNSUBSIDIZED 1.61% SUBSIDIZED 1.81%
--------------------------------------------------------------------------------
EXPENSE RATIOS AS OF 5/31/16***
--------------------------------------------------------------------------------
BEFORE REIMBURSEMENT 0.95% AFTER REIMBURSEMENT 0.75%
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.
*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 December 1, 2016, and
are calculated as a percentage of average net assets. USAA Asset Management
Company (the Manager) has agreed, through November 30, 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 0.75% 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 November 30, 2017. If
the total annual operating expense ratio of the Adviser Shares is lower than
0.75%, 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.
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.
================================================================================
12 | USAA GOVERNMENT SECURITIES FUND
================================================================================
o 12-MONTH DIVIDEND YIELD COMPARISON o
[CHART OF 12-MONTH DIVIDEND YIELD COMPARISON]
LIPPER INTERMEDIATE
USAA GOVERNMENT U.S. GOVERNMENT
SECURITIES FUND FUNDS INDEX
ADVISER SHARES AVERAGE
11/30/11 3.00% 2.17%
11/30/12 2.49% 1.82%
11/30/13 2.30% 1.52%
11/30/14 2.38% 1.71%
11/30/15 2.16% 1.37%
11/30/16 1.80% 1.49%
[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 11/30/11 through 11/30/16.
The Lipper Intermediate U.S. Government Funds Index Average is an average
performance level of all intermediate U.S. government funds, reported by Lipper
Inc., an independent organization that monitors the performance of mutual funds.
================================================================================
INVESTMENT OVERVIEW | 13
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
BLOOMBERG BARCLAYS
U.S. AGGREGATE
GOVERNMENT
LIPPER INTERMEDIATE INTERMEDIATE USAA GOVERNMENT
U.S. GOVERNMENT & MORTGAGE-BACKED SECURITIES FUND
FUNDS INDEX SECURITIES INDEX ADVISER SHARES
07/31/10 $10,000.00 $10,000.00 $10,000.00
08/31/10 10,152.86 10,063.69 10,006.00
09/30/10 10,172.02 10,059.17 9,975.00
10/31/10 10,203.06 10,125.65 10,060.00
11/30/10 10,137.50 10,085.86 10,057.00
12/31/10 9,980.93 9,988.44 10,007.00
01/31/11 9,985.59 10,005.82 10,011.00
02/28/11 9,986.75 10,005.94 10,049.00
03/31/11 9,992.27 10,017.22 10,056.00
04/30/11 10,107.52 10,121.45 10,153.00
05/31/11 10,247.41 10,234.18 10,258.00
06/30/11 10,221.22 10,235.32 10,275.00
07/31/11 10,379.94 10,349.44 10,350.00
08/31/11 10,588.26 10,497.72 10,466.00
09/30/11 10,687.40 10,520.05 10,452.00
10/31/11 10,649.21 10,510.47 10,474.00
11/30/11 10,678.07 10,537.62 10,507.00
12/31/11 10,774.29 10,602.09 10,562.00
01/31/12 10,848.61 10,651.16 10,562.00
02/29/12 10,810.73 10,631.91 10,565.00
03/31/12 10,747.02 10,609.13 10,576.00
04/30/12 10,878.91 10,692.45 10,628.00
05/31/12 11,001.98 10,746.43 10,652.00
06/30/12 10,985.83 10,744.72 10,644.00
07/31/12 11,091.78 10,818.72 10,716.00
08/31/12 11,103.25 10,827.06 10,730.00
09/30/12 11,105.42 10,836.50 10,748.00
10/31/12 11,092.71 10,818.90 10,707.00
11/30/12 11,128.71 10,832.11 10,708.00
12/31/12 11,095.41 10,828.19 10,716.00
01/31/13 11,029.28 10,781.13 10,672.00
02/28/13 11,082.23 10,821.91 10,702.00
03/31/13 11,086.95 10,834.51 10,691.00
04/30/13 11,159.49 10,886.60 10,721.00
05/31/13 10,982.88 10,751.25 10,553.00
06/30/13 10,827.55 10,657.30 10,467.00
07/31/13 10,822.36 10,659.85 10,424.00
08/31/13 10,764.08 10,619.93 10,403.00
09/30/13 10,861.81 10,729.96 10,497.00
10/31/13 10,916.56 10,784.94 10,549.00
11/30/13 10,891.98 10,752.11 10,539.00
12/31/13 10,805.79 10,685.12 10,475.00
01/31/14 10,948.25 10,809.09 10,614.00
02/28/14 10,978.25 10,838.30 10,658.00
03/31/14 10,946.86 10,799.32 10,605.00
04/30/14 11,009.52 10,866.17 10,671.00
05/31/14 11,093.49 10,965.04 10,745.00
06/30/14 11,094.55 10,970.74 10,754.00
07/31/14 11,068.71 10,926.02 10,720.00
08/31/14 11,143.63 11,009.21 10,794.00
09/30/14 11,107.01 10,980.78 10,782.00
10/31/14 11,179.27 11,071.22 10,848.00
11/30/14 11,247.89 11,134.67 10,890.00
12/31/14 11,246.66 11,126.91 10,878.00
01/31/15 11,458.14 11,266.15 10,986.00
02/28/15 11,341.68 11,205.08 10,974.00
03/31/15 11,402.13 11,256.17 11,026.00
04/30/15 11,381.09 11,252.74 11,013.00
05/31/15 11,360.36 11,254.69 11,022.00
06/30/15 11,277.76 11,191.84 10,954.00
07/31/15 11,350.35 11,248.40 10,975.00
08/31/15 11,344.85 11,256.10 10,982.00
09/30/15 11,425.17 11,331.77 11,044.00
10/31/15 11,400.47 11,315.57 11,019.00
11/30/15 11,367.34 11,288.33 10,991.00
12/31/15 11,337.65 11,275.02 10,955.00
01/31/16 11,530.06 11,438.97 11,093.00
02/29/16 11,598.33 11,489.17 11,143.00
03/31/16 11,636.30 11,516.51 11,172.00
04/30/16 11,634.12 11,523.32 11,189.00
05/31/16 11,626.15 11,521.24 11,193.00
06/30/16 11,813.79 11,652.46 11,299.00
07/31/16 11,836.71 11,665.73 11,315.00
08/31/16 11,790.71 11,643.49 11,297.00
09/30/16 11,814.37 11,668.98 11,315.00
10/31/16 11,737.91 11,624.75 11,262.00
11/30/16 11,491.32 11,427.65 11,098.00
[END CHART]
Data from 7/31/10 through 11/30/16.*
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Government Securities Fund Adviser Shares to the Fund's benchmarks listed
above (see page 8 for benchmark definitions).
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 Intermediate U.S. Government Funds Index reflects the fees and
expenses of the underlying funds included in the index.
*The performance of the Lipper Intermediate U.S. Government Funds Index and
Bloomberg Barclays U.S. Aggregate Government Intermediate & Mortgage-Backed
Securities 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.
================================================================================
14 | USAA GOVERNMENT SECURITIES FUND
================================================================================
o ASSET ALLOCATION - 11/30/16 o
[PIE CHART OF ASSET ALLOCATION]
COMMERCIAL MORTGAGE-BACKED SECURITIES 34.3%
30-YEAR FIXED-RATE SINGLE-FAMILY MORTGAGES* 30.5%
U.S. TREASURY SECURITIES - NOTES 14.9%
COLLATERALIZED MORTGAGE OBLIGATIONS 5.1%
MUNICIPAL BONDS 4.1%
ASSET-BACKED SECURITIES 3.5%
15-YEAR FIXED-RATE SINGLE-FAMILY MORTGAGES* 3.4%
OTHER U.S. GOVERNMENT SECURITIES 3.2%
MONEY MARKET INSTRUMENTS 0.5%
10-YEAR FIXED-RATE SINGLE-FAMILY MORTGAGES* 0.4%
[END CHART]
*Combined in the Portfolio of Investments under Mortgage-Backed Pass-Through
Securities, Single-Family.
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 16-22.
================================================================================
INVESTMENT OVERVIEW | 15
================================================================================
PORTFOLIO OF INVESTMENTS
November 30, 2016 (unaudited)
----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY ISSUES (76.9%)(a)
MORTGAGE-BACKED PASS-THROUGH SECURITIES, SINGLE-FAMILY (34.3%)
$ 1 Fannie Mae(+) 6.00% 2/01/2017 $ 1
2,092 Fannie Mae(+) 3.50 5/01/2021 2,181
3,784 Fannie Mae(+) 3.00 2/01/2027 3,896
6,297 Fannie Mae(+) 3.00 2/01/2027 6,483
902 Fannie Mae(+) 5.00 12/01/2035 988
418 Fannie Mae(+) 5.50 11/01/2037 469
730 Fannie Mae(+) 6.00 5/01/2038 830
2,862 Fannie Mae(+) 4.00 8/01/2039 3,016
4,724 Fannie Mae(+) 3.50 1/01/2042 4,855
7,503 Fannie Mae(+) 3.50 5/01/2042 7,711
153 Freddie Mac(+) 5.00 1/01/2021 163
892 Freddie Mac(+) 5.50 12/01/2035 1,010
2,242 Freddie Mac(+) 4.00 9/01/2040 2,364
7,445 Freddie Mac(+) 3.50 5/01/2042 7,673
6,041 Freddie Mac(+) 3.00 6/01/2042 6,033
1 Government National Mortgage Assn. I 6.00 12/15/2016 1
222 Government National Mortgage Assn. I 5.50 12/15/2018 227
13 Government National Mortgage Assn. I 8.50 6/15/2021 13
13 Government National Mortgage Assn. I 9.00 7/15/2021 13
6 Government National Mortgage Assn. I 8.50 7/15/2022 6
476 Government National Mortgage Assn. I 6.00 8/15/2022 510
45 Government National Mortgage Assn. I 8.00 6/15/2023 50
886 Government National Mortgage Assn. I 4.50 5/15/2024 951
1,001 Government National Mortgage Assn. I 4.50 9/15/2024 1,076
892 Government National Mortgage Assn. I 4.50 9/15/2024 923
838 Government National Mortgage Assn. I 4.50 10/15/2024 895
828 Government National Mortgage Assn. I 4.50 10/15/2024 889
54 Government National Mortgage Assn. I 7.00 4/15/2027 55
193 Government National Mortgage Assn. I 7.00 5/15/2027 224
125 Government National Mortgage Assn. I 8.00 5/15/2027 135
103 Government National Mortgage Assn. I 7.50 2/15/2028 120
407 Government National Mortgage Assn. I 6.00 4/15/2028 475
107 Government National Mortgage Assn. I 6.50 5/15/2028 123
51 Government National Mortgage Assn. I 6.50 5/15/2028 58
================================================================================
16 | USAA GOVERNMENT SECURITIES FUND
================================================================================
----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------------------------------
$ 10 Government National Mortgage Assn. I 6.75% 5/15/2028 $ 11
47 Government National Mortgage Assn. I 7.00 6/15/2028 48
93 Government National Mortgage Assn. I 6.50 7/15/2028 107
15 Government National Mortgage Assn. I 7.00 7/15/2028 16
38 Government National Mortgage Assn. I 7.00 8/15/2028 43
51 Government National Mortgage Assn. I 7.00 8/15/2028 56
53 Government National Mortgage Assn. I 6.50 9/15/2028 60
87 Government National Mortgage Assn. I 7.00 9/15/2028 95
73 Government National Mortgage Assn. I 6.00 11/15/2028 83
182 Government National Mortgage Assn. I 6.50 11/15/2028 208
12 Government National Mortgage Assn. I 6.50 1/15/2029 13
30 Government National Mortgage Assn. I 6.50 1/15/2029 35
178 Government National Mortgage Assn. I 6.00 2/15/2029 203
23 Government National Mortgage Assn. I 7.50 3/15/2029 27
44 Government National Mortgage Assn. I 7.50 4/15/2029 48
389 Government National Mortgage Assn. I 7.00 5/15/2029 437
440 Government National Mortgage Assn. I 7.00 6/15/2029 494
220 Government National Mortgage Assn. I 6.00 7/15/2029 257
99 Government National Mortgage Assn. I 7.50 10/15/2029 110
21 Government National Mortgage Assn. I 7.50 10/15/2029 22
79 Government National Mortgage Assn. I 8.00 7/15/2030 85
25 Government National Mortgage Assn. I 8.00 9/15/2030 29
14 Government National Mortgage Assn. I 7.50 12/15/2030 15
30 Government National Mortgage Assn. I 7.50 1/15/2031 34
251 Government National Mortgage Assn. I 6.50 3/15/2031 287
40 Government National Mortgage Assn. I 7.00 8/15/2031 41
93 Government National Mortgage Assn. I 7.00 9/15/2031 111
392 Government National Mortgage Assn. I 6.50 10/15/2031 449
91 Government National Mortgage Assn. I 7.00 10/15/2031 101
35 Government National Mortgage Assn. I 7.50 11/15/2031 39
205 Government National Mortgage Assn. I 6.50 1/15/2032 234
302 Government National Mortgage Assn. I 6.00 5/15/2032 346
30 Government National Mortgage Assn. I 7.00 6/15/2032 32
176 Government National Mortgage Assn. I 7.00 7/15/2032 196
358 Government National Mortgage Assn. I 6.50 8/15/2032 409
1,120 Government National Mortgage Assn. I 6.50 9/15/2032 1,307
1,055 Government National Mortgage Assn. I 6.00 1/15/2033 1,232
445 Government National Mortgage Assn. I 6.00 2/15/2033 520
294 Government National Mortgage Assn. I 6.00 7/15/2033 341
367 Government National Mortgage Assn. I 6.00 9/15/2033 429
3,088 Government National Mortgage Assn. I 5.50 10/15/2033 3,502
1,355 Government National Mortgage Assn. I 5.50 12/15/2033 1,530
596 Government National Mortgage Assn. I 5.50 7/15/2034 674
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------------------------------
$ 1,526 Government National Mortgage Assn. I 5.50% 10/15/2035 $ 1,747
434 Government National Mortgage Assn. I 6.00 3/15/2037 503
293 Government National Mortgage Assn. I 6.00 9/15/2037 340
925 Government National Mortgage Assn. I 5.50 3/15/2038 1,040
1,682 Government National Mortgage Assn. I 5.50 4/15/2038 1,914
668 Government National Mortgage Assn. I 6.00 5/15/2038 783
681 Government National Mortgage Assn. I 6.00 5/15/2038 797
478 Government National Mortgage Assn. I 6.00 9/15/2038 546
638 Government National Mortgage Assn. I 6.00 10/15/2038 730
775 Government National Mortgage Assn. I 6.00 12/15/2038 886
676 Government National Mortgage Assn. I 5.00 2/15/2039 754
3,478 Government National Mortgage Assn. I 5.50 6/15/2039 3,912
5,363 Government National Mortgage Assn. I 4.50 9/15/2039 5,884
3,624 Government National Mortgage Assn. I 4.50 11/15/2039 3,987
5,380 Government National Mortgage Assn. I 4.50 12/15/2039 5,935
16,923 Government National Mortgage Assn. I 4.50 2/15/2040 18,665
3,503 Government National Mortgage Assn. I 4.50 3/15/2040 3,827
2,432 Government National Mortgage Assn. I 4.50 6/15/2040 2,648
1,552 Government National Mortgage Assn. I 4.00 7/15/2040 1,651
3,440 Government National Mortgage Assn. I 4.50 7/15/2040 3,746
1,639 Government National Mortgage Assn. I 4.00 8/15/2040 1,741
4,059 Government National Mortgage Assn. I 4.00 9/15/2040 4,312
3,669 Government National Mortgage Assn. I 4.50 1/15/2041 4,007
14 Government National Mortgage Assn. II 8.00 12/20/2022 15
2,223 Government National Mortgage Assn. II 4.50 4/20/2024 2,390
342 Government National Mortgage Assn. II 8.00 8/20/2030 423
329 Government National Mortgage Assn. II 7.00 9/20/2030 378
195 Government National Mortgage Assn. II 6.00 3/20/2031 223
69 Government National Mortgage Assn. II 7.50 4/20/2031 84
111 Government National Mortgage Assn. II 6.50 5/20/2031 130
86 Government National Mortgage Assn. II 6.50 7/20/2031 101
228 Government National Mortgage Assn. II 6.50 8/20/2031 264
339 Government National Mortgage Assn. II 6.50 4/20/2032 395
317 Government National Mortgage Assn. II 6.50 6/20/2032 362
498 Government National Mortgage Assn. II 6.00 8/20/2032 580
443 Government National Mortgage Assn. II 6.00 9/20/2032 518
430 Government National Mortgage Assn. II 5.50 4/20/2033 486
1,513 Government National Mortgage Assn. II 5.00 5/20/2033 1,693
1,871 Government National Mortgage Assn. II 5.00 7/20/2033 2,093
451 Government National Mortgage Assn. II 6.00 10/20/2033 526
455 Government National Mortgage Assn. II 6.00 12/20/2033 501
1,455 Government National Mortgage Assn. II 6.00 2/20/2034 1,699
1,420 Government National Mortgage Assn. II 5.50 3/20/2034 1,636
================================================================================
18 | USAA GOVERNMENT SECURITIES FUND
================================================================================
----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------------------------------
$ 1,394 Government National Mortgage Assn. II 6.00% 3/20/2034 $ 1,630
1,123 Government National Mortgage Assn. II 5.00 6/20/2034 1,256
1,023 Government National Mortgage Assn. II 6.50 8/20/2034 1,210
883 Government National Mortgage Assn. II 6.00 9/20/2034 1,020
2,503 Government National Mortgage Assn. II 6.00 10/20/2034 2,923
236 Government National Mortgage Assn. II 6.00 11/20/2034 253
5,183 Government National Mortgage Assn. II 5.50 2/20/2035 5,847
4,545 Government National Mortgage Assn. II 5.50 4/20/2035 5,136
2,180 Government National Mortgage Assn. II 5.50 7/20/2035 2,460
2,800 Government National Mortgage Assn. II 5.00 9/20/2035 3,130
905 Government National Mortgage Assn. II 6.00 5/20/2036 1,030
1,014 Government National Mortgage Assn. II 5.50 1/20/2037 1,129
689 Government National Mortgage Assn. II 5.00 2/20/2037 745
3,308 Government National Mortgage Assn. II 4.00 11/20/2040 3,544
--------
184,898
--------
COLLATERALIZED MORTGAGE OBLIGATIONS (5.1%)
5,988 Fannie Mae(+) 1.50 7/25/2027 5,829
2,632 Fannie Mae(+) 1.38 9/25/2027 2,544
2,387 Fannie Mae(+) 1.50 9/25/2027 2,295
2,395 Fannie Mae(+) 1.50 9/25/2027 2,318
2,571 Fannie Mae(+) 1.50 10/25/2027 2,471
24 Fannie Mae(+) 5.00 11/25/2032 24
2,211 Fannie Mae(+) 0.88(b) 4/25/2035 2,204
2,347 Fannie Mae(+) 0.88(b) 8/25/2037 2,339
3,600 Freddie Mac(+) 2.00 9/15/2026 3,609
1,476 Freddie Mac(+) 0.84(b) 3/15/2036 1,470
2,365 Freddie Mac(+) 1.09(b) 10/15/2041 2,394
--------
27,497
--------
COMMERCIAL MORTGAGE-BACKED SECURITIES (34.3%)
8,444 Fannie Mae(+) 2.01 7/01/2019 8,498
2,011 Fannie Mae(+) 2.05 7/01/2019 2,026
3,000 Fannie Mae(+) 1.65 9/25/2019 3,002
7,686 Fannie Mae(+) 1.50 1/01/2020 7,616
10,077 Fannie Mae(+) 1.58 1/01/2020 10,010
10,000 Fannie Mae(+) 2.63 9/01/2021 10,209
21,696 Fannie Mae(+) 2.42 11/01/2022 21,815
8,265 Fannie Mae(+) 2.50 4/01/2023 8,276
2,151 Fannie Mae(+) 2.54 5/01/2023 2,160
5,000 Fannie Mae(+) 2.16 10/25/2023 4,923
2,356 Fannie Mae(+) 2.80 6/25/2025 2,349
3,000 Freddie Mac(+) 4.08 11/25/2020 3,235
8,500 Freddie Mac(+) 2.22 12/25/2018 8,626
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------------------------------
$ 5,000 Freddie Mac(+) 2.86% 1/25/2021 $ 5,178
2,250 Freddie Mac(+) 2.27 3/25/2022 2,258
3,928 Freddie Mac(+) 1.69 4/25/2022 3,919
4,000 Freddie Mac(+) 2.72 6/25/2022 4,103
3,000 Freddie Mac(+) 2.36 7/25/2022 3,018
10,000 Freddie Mac(+) 2.31 8/25/2022 10,023
5,000 Freddie Mac(+) 2.51 11/25/2022 5,057
5,000 Freddie Mac(+) 2.64 1/25/2023 5,090
3,000 Freddie Mac(+) 3.32 2/25/2023 3,165
3,000 Freddie Mac(+) 2.41 3/25/2023 3,018
3,000 Freddie Mac(+) 3.39 3/25/2024 3,169
4,063 Freddie Mac(+) 2.60 1/25/2025 4,134
3,000 Freddie Mac(+) 3.02 1/25/2025 3,082
10,000 Freddie Mac(+) 3.28 6/25/2025 10,443
4,971 Freddie Mac(+) 2.20 7/25/2025 4,873
4,000 Freddie Mac(+) 3.01 7/25/2025 4,094
3,000 Freddie Mac(+) 2.85 3/25/2026 3,016
5,000 Freddie Mac(+) 2.53 5/25/2026 4,901
4,500 Freddie Mac(+) 3.12 9/25/2026 4,613
5,000 Freddie Mac(+) 2.65 9/25/2049 4,942
--------
184,841
--------
OTHER U.S. GOVERNMENT SECURITIES (3.2%)
18,000 Fannie Mae(+) 2.13 4/24/2026 17,142
--------
Total U.S. Government Agency Issues (cost: $403,147) 414,378
--------
ASSET-BACKED SECURITIES (3.5%)
ASSET-BACKED FINANCING (3.5%)
3,550 Navient Student Loan Trust 1.09(b) 6/25/2031 3,423
2,000 Navient Student Loan Trust(c) 1.58(b) 6/25/2065 2,013
3,000 Navient Student Loan Trust(c) 1.27(b) 3/25/2066 3,008
4,651 Nelnet Student Loan Trust 1.11(b) 6/25/2041 3,841
1,917 SLM Student Loan Trust 0.99(b) 10/27/2025 1,893
5,000 SLM Student Loan Trust 1.23(b) 6/25/2055 4,963
--------
19,141
--------
Total Asset-Backed Securities (cost: $19,483) 19,141
--------
U.S. TREASURY SECURITIES (14.9%)
NOTES (14.9%)
10,000 1.88%, 8/31/2017 10,081
7,000 0.88%, 1/31/2018 6,995
5,000 1.00%, 5/15/2018 4,999
10,000 1.00%, 9/15/2018 9,983
================================================================================
20 | USAA GOVERNMENT SECURITIES FUND
================================================================================
----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------------------------------
$ 7,000 0.75%, 9/30/2018 $ 6,955
4,000 1.00%, 3/15/2019 3,983
6,000 0.88%, 4/15/2019 5,952
7,000 1.38%, 5/31/2021 6,875
3,000 2.12%, 6/30/2021 3,040
3,000 2.00%, 2/15/2022 3,011
5,000 2.12%, 11/30/2023 4,982
5,000 2.25%, 11/15/2024 4,984
4,000 2.00%, 2/15/2025 3,906
4,500 2.13%, 5/15/2025 4,428
--------
80,174
--------
Total U.S. Treasury Securities (cost: $80,708) 80,174
--------
MUNICIPAL BONDS (4.1%)
AIRPORT/PORT (0.9%)
5,000 Port Auth. of New York & New Jersey 2.53% 10/15/2020 5,061
--------
GENERAL OBLIGATION (3.2%)
5,000 State of California 1.75 11/01/2017 5,029
5,000 State of Connecticut 2.92 8/01/2023 5,045
3,000 State of Texas 2.83 10/01/2025 2,960
4,000 State of Texas 3.01 10/01/2026 3,946
--------
16,980
--------
Total Municipal Bonds (cost: $22,002) 22,041
--------
MONEY MARKET INSTRUMENTS (0.5%)
REPURCHASE AGREEMENTS (0.5%)
2,488 Credit Agricole Corp. Inv. Bank, 0.27%, acquired
11/30/2016 and due on 12/01/2016 at $2,488
(collateralized by $2,479 of U.S. Treasury, 2.50%(d),
due 5/15/2024; market value $2,538) (cost: $2,488) 2,488
--------
TOTAL INVESTMENTS (COST: $527,828) $538,222
========
================================================================================
PORTFOLIO OF INVESTMENTS | 21
================================================================================
-----------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
-----------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
-----------------------------------------------------------------------------------------------------
U.S. Government Agency Issues $ - $414,378 $- $414,378
Asset-Backed Securities - 19,141 - 19,141
U.S. Treasury Securities 80,174 - - 80,174
Municipal Bonds - 22,041 - 22,041
Money Market Instruments:
Repurchase Agreements - 2,488 - 2,488
-----------------------------------------------------------------------------------------------------
Total $80,174 $458,048 $- $538,222
-----------------------------------------------------------------------------------------------------
For the period of June 1, 2016, through November 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 GOVERNMENT SECURITIES FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
November 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 CATEGORIES AND DEFINITIONS
COLLATERALIZED MORTGAGE OBLIGATIONS (CMOs) - Collateralized mortgage
obligations are debt obligations of a legal entity that are fully
collateralized by a portfolio of mortgages or mortgage-related securities.
CMOs are issued in multiple classes (tranches), with specific adjustable or
fixed interest rates, varying maturities, and must be fully retired no
later than its final distribution date. The cash flow from the underlying
mortgages is used to pay off each tranche separately. CMOs are designed to
provide investors with more predictable maturities than regular mortgage
securities, but such maturities can be difficult to predict because of the
effect of prepayments.
ASSET-BACKED AND COMMERCIAL MORTGAGE-BACKED SECURITIES - Asset-backed
securities represent a participation in, or are secured by and payable
from, a stream of payments generated by particular assets. Commercial
mortgage-backed securities reflect an interest in, and are secured by,
mortgage loans on commercial real property. These securities represent
ownership in a pool of loans and are divided into pieces (tranches) with
varying maturities. The stated final maturity of such securities represents
the date the final principal payment will be made for the last outstanding
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 23
================================================================================
loans in the pool. The weighted average life is the average time for
principal to be repaid, which is calculated by assuming prepayment rates of
the underlying loans. The weighted average life is likely to be
substantially shorter than the stated final maturity as a result of
scheduled principal payments and unscheduled principal prepayments. Stated
interest rates on commercial mortgage-backed securities may change slightly
over time as underlying mortgages pay down.
o SPECIFIC NOTES
(a) U.S. government agency issues - Mortgage-backed securities issued by
certain U.S. Government Sponsored Enterprises (GSEs) such as the
Government National Mortgage Association (GNMA or Ginnie Mae) and
certain other U.S. government guaranteed securities are supported by
the full faith and credit of the U.S. government. Securities issued by
other GSEs, such as Freddie Mac (Federal Home Loan Mortgage Corporation
or FHLMC) and Fannie Mae (Federal National Mortgage Association or
FNMA), indicated with a "+", are supported only by the right of the GSE
to borrow from the U.S. Treasury, the discretionary authority of the
U.S. government to purchase the GSEs' obligations, or only by the
credit of the issuing agency, instrumentality, or corporation, and are
neither issued nor guaranteed by the U.S. Treasury. In September of
2008, the U.S. Treasury placed Fannie Mae and Freddie Mac under
conservatorship and appointed the Federal Housing Finance Agency (FHFA)
to act as conservator and oversee their daily operations. In addition,
the U.S. Treasury entered into purchase agreements with Fannie Mae and
Freddie Mac to provide them with capital in exchange for senior
preferred stock. While these arrangements are intended to ensure that
Fannie Mae and Freddie Mac can continue to meet their obligations, it
is possible that actions by the U.S. Treasury, FHFA, or others could
adversely impact the value of the Fund's investments in securities
issued by Fannie Mae and Freddie Mac.
(b) Variable-rate or floating-rate security - interest rate is adjusted
periodically. The interest rate disclosed represents the rate at
November 30, 2016.
================================================================================
24 | USAA GOVERNMENT SECURITIES FUND
================================================================================
(c) Restricted security that is not registered under the Securities Act of
1933. A resale of this security in the United States may occur in an
exempt transaction to a qualified institutional buyer as defined by
Rule 144A, and as such has been deemed liquid by USAA Asset Management
Company (the Manager) under liquidity guidelines approved by USAA
Mutual Funds Trust's Board of Trustees (the Board), unless otherwise
noted as illiquid.
(d) Rates for U.S. Treasury notes or bonds represent the stated coupon
payment rate at time of issuance.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 25
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
November 30, 2016 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $527,828) $538,222
Receivables:
Capital shares sold 174
USAA Asset Management Company (Note 6C) 1
Interest 1,417
--------
Total assets 539,814
--------
LIABILITIES
Payables:
Capital shares redeemed 528
Dividends on capital shares 75
Accrued management fees 71
Accrued transfer agent's fees 11
Other accrued expenses and payables 103
--------
Total liabilities 788
--------
Net assets applicable to capital shares outstanding $539,026
========
NET ASSETS CONSIST OF:
Paid-in capital $530,259
Overdistribution of net investment income (16)
Accumulated net realized loss on investments (1,611)
Net unrealized appreciation of investments 10,394
--------
Net assets applicable to capital shares outstanding $539,026
========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $419,352/42,668 capital shares
outstanding, no par value) $ 9.83
========
Institutional Shares (net assets of $114,557/11,654 capital shares
outstanding, no par value) $ 9.83
========
Adviser Shares (net assets of $5,117/521 capital shares outstanding,
no par value) $ 9.83
========
See accompanying notes to financial statements.
================================================================================
26 | USAA GOVERNMENT SECURITIES FUND
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended November 30, 2016 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Interest income $ 6,716
-------
EXPENSES
Management fees 359
Administration and servicing fees:
Fund Shares 325
Institutional Shares 55
Adviser Shares 4
Transfer agent's fees:
Fund Shares 267
Institutional Shares 55
Distribution and service fees (Note 6E):
Adviser Shares 6
Custody and accounting fees:
Fund Shares 51
Institutional Shares 20
Adviser Shares 1
Postage:
Fund Shares 16
Shareholder reporting fees:
Fund Shares 15
Trustees' fees 15
Registration fees:
Fund Shares 18
Institutional Shares 10
Adviser Shares 9
Professional fees 48
Other 7
-------
Total expenses 1,281
Expenses reimbursed:
Adviser Shares (4)
-------
Net expenses 1,277
-------
NET INVESTMENT INCOME 5,439
-------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain 3
Change in net unrealized appreciation/(depreciation) (9,520)
-------
Net realized and unrealized loss (9,517)
-------
Decrease in net assets resulting from operations $(4,078)
=======
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 27
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended November 30, 2016 (unaudited), and year ended
May 31, 2016
--------------------------------------------------------------------------------------------------------
11/30/2016 5/31/2016
--------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 5,439 $ 10,945
Net realized gain (loss) on investments 3 (26)
Change in net unrealized appreciation/(depreciation)
of investments (9,520) (1,458)
-------------------------------
Increase (decrease) in net assets resulting from operations (4,078) 9,461
-------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares (4,316) (9,369)
Institutional Shares* (1,140) (1,540)
Adviser Shares (44) (98)
-------------------------------
Distributions to shareholders (5,500) (11,007)
-------------------------------
NET INCREASE IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS (NOTE 5)
Fund Shares (5,666) (1,162)
Institutional Shares* 9,899 106,430
Adviser Shares 120 (8)
-------------------------------
Total net increase in net assets from capital
share transactions 4,353 105,260
-------------------------------
Net increase (decrease) in net assets (5,225) 103,714
NET ASSETS
Beginning of period 544,251 440,537
-------------------------------
End of period $539,026 $544,251
===============================
Undistributed (overdistribution of) net investment income:
End of period $ (16) $ 45
===============================
*Institutional Shares commenced operations on August 7, 2015.
See accompanying notes to financial statements.
================================================================================
28 | USAA GOVERNMENT SECURITIES FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
November 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 Government Securities Fund (the
Fund), which is classified as diversified under the 1940 Act. The Fund's
investment objective is to provide investors a high level of current income
consistent with preservation of principal.
The Fund consists of three classes of shares: Government Securities Fund Shares
(Fund Shares), Government Securities Fund Institutional Shares (Institutional
Shares), and Government Securities 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 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,
================================================================================
NOTES TO FINANCIAL STATEMENTS | 29
================================================================================
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). 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.
Effective December 1, 2016, the Fund will offer a new class of shares, R6
Shares, which will be available for investment by participants in
employer-sponsored retirement plans where a financial intermediary provides
retirement recordkeeping services to plan participants and to endowment funds
and foundations.
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.
================================================================================
30 | USAA GOVERNMENT SECURITIES FUND
================================================================================
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 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. Repurchase agreements are valued at cost.
4. 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,
================================================================================
NOTES TO FINANCIAL STATEMENTS | 31
================================================================================
broker-dealers, other pricing services, or widely used quotation
systems. General factors considered in determining the fair value of
securities include fundamental analytical data, the nature and duration
of any restrictions on disposition of the securities, evaluation of
credit quality, and an evaluation of the forces that influenced the
market in which the securities are purchased and sold.
B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would
be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The
three-level valuation hierarchy disclosed in the Portfolio of Investments
is based upon the transparency of inputs to the valuation of an asset or
liability as of the measurement date. The three levels are defined as
follows:
Level 1 - inputs to the valuation methodology are quoted prices
(unadjusted) in active markets for identical securities.
Level 2 - inputs to the valuation methodology are other significant
observable inputs, including quoted prices for similar securities, inputs
that are observable for the securities, either directly or indirectly, and
market-corroborated inputs such as market indexes.
Level 3 - inputs to the valuation methodology are unobservable and
significant to the fair value measurement, including the Manager's own
assumptions in determining the fair value.
The inputs or methodologies used for valuing securities are not necessarily
an indication of the risks associated with investing in those securities.
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
================================================================================
32 | USAA GOVERNMENT SECURITIES FUND
================================================================================
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. REPURCHASE AGREEMENTS - The Fund may enter into repurchase agreements
with commercial banks or recognized security dealers pursuant to the terms
of a Master Repurchase Agreement. A repurchase agreement is an arrangement
wherein the Fund purchases securities and the seller agrees to repurchase
the securities at an agreed upon time and at an agreed upon price. The
purchased securities are marked-to-market daily to ensure their value is
equal to or in excess of the purchase price plus accrued interest and are
held by the Fund, either through its regular custodian or through a special
"tri-party" custodian that maintains separate accounts for both the Fund
and its counterparty, until maturity of the repurchase agreement. Master
Repurchase Agreements typically contain netting provisions, which provide
for the net settlement of all transactions and collateral with the Fund
through a single payment in the event of default or termination. Repurchase
agreements are subject to credit risk, and the Fund's Manager monitors the
creditworthiness of sellers with which the Fund may enter into repurchase
agreements.
Investments in repurchase agreements as presented on the Portfolio of
Investments are not net settlement amounts but gross. At November 30, 2016,
the value of the related collateral exceeded the value of the repurchase
agreements, reducing the net settlement amount to zero. Details on the
collateral are included on the Portfolio of Investments.
F. 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 33
================================================================================
Fund's NAV to the extent that the Fund makes such purchases while remaining
substantially fully invested.
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 November 30, 2016, there were no custodian
and other bank credits.
H. 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 November 30, 2016, the Adviser Shares did not charge any
redemption fees.
I. 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.
J. 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 with other USAA Funds 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
================================================================================
34 | USAA GOVERNMENT SECURITIES FUND
================================================================================
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 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 November 30, 2016, the Fund paid CAPCO facility
fees of $2,000, which represents 0.8% 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 November 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 May 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 tax.
At May 31, 2016, the Fund had net capital loss carryforwards of $1,614,000, for
federal income tax purposes, as shown in the table below. It is unlikely
================================================================================
NOTES TO FINANCIAL STATEMENTS | 35
================================================================================
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 $1,533,000
Long-Term 81,000
----------
Total $1,614,000
==========
For the six-month period ended November 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 November 30, 2016, were
$72,212,000 and $66,446,000, respectively.
As of November 30, 2016, the cost of securities, including short-term
securities, for federal income tax purposes, was approximately the same as their
cost reported in the financial statements.
Gross unrealized appreciation and depreciation of investments as of November 30,
2016, were $14,889,000 and $4,495,000, respectively, resulting in net unrealized
appreciation of $10,394,000.
(5) CAPITAL SHARE TRANSACTIONS
At November 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
================================================================================
36 | USAA GOVERNMENT SECURITIES FUND
================================================================================
persons or legal entities that the Fund may approve from time to time. Capital
share transactions for all classes were as follows, in thousands:
SIX-MONTH PERIOD ENDED YEAR ENDED
NOVEMBER 30, 2016 MAY 31, 2016
------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------
FUND SHARES:
Shares sold 3,070 $ 30,786 7,079 $ 70,546
Shares issued from reinvested dividends 393 3,940 849 8,463
Shares redeemed (4,036) (40,392) (8,050) (80,171)
------------------------------------------------------
Net decrease from capital
share transactions (573) $ (5,666) (122) $ (1,162)
======================================================
INSTITUTIONAL SHARES
(COMMENCED ON AUGUST 7, 2015):
Shares sold 1,476 $ 14,803 11,176 $111,502
Shares issued from reinvested dividends 112 1,118 145 1,451
Shares redeemed (600) (6,022) (655) (6,523)
------------------------------------------------------
Net increase from capital
share transactions 988 $ 9,899 10,666 $106,430
======================================================
ADVISER SHARES:
Shares sold 14 $ 144 4 $42
Shares issued from reinvested dividends -** 2 -** 4
Shares redeemed* (2) (26) (5) (54)
------------------------------------------------------
Net increase (decrease) from capital
share transactions 12 $ 120 (1) $ (8)
======================================================
* Net of redemption fees, if any.
** Represents less than 500 shares.
(6) TRANSACTIONS WITH MANAGER
A. MANAGEMENT FEES - The Manager provides investment management services to
the Fund pursuant to an Advisory Agreement. Under this agreement, the
Manager is responsible for managing the business and affairs of the Fund,
and for directly managing the day-to-day investment of the Fund's assets,
subject to the authority of and supervision by the Board. The Manager is
authorized to select (with approval of the Board and without shareholder
approval) one or more subadvisers to manage
================================================================================
NOTES TO FINANCIAL STATEMENTS | 37
================================================================================
the day-to-day investment of a portion of the Fund's assets. For the
year ended May 31, 2016, the Fund had 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 0.125% of its 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 Intermediate U.S. Government
Funds Index. The Lipper Intermediate U.S. Government Funds Index
measures the total return performance of funds tracked by Lipper that
invest 65% of fund assets in securities issued or guaranteed by the U.S.
government, its agency, or its instrumentalities, with dollar-weighted
average maturities of five to ten years. For the Fund Shares and Adviser
Shares, the performance period consists of the current month plus the
previous 35 months. The performance period for the Institutional Shares
includes the performance of the Fund Shares for periods prior to
August 7, 2015. 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 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.
================================================================================
38 | USAA GOVERNMENT SECURITIES FUND
================================================================================
Under the performance fee arrangement, each class will pay a positive
performance fee adjustment for a performance period whenever the class
outperforms the Lipper Intermediate U.S. Government Funds Index over that
period, even if the class had overall negative returns during the
performance period.
For the six-month period ended November 30, 2016, the Fund incurred total
management fees, paid or payable to the Manager, of $359,000, which
included a performance adjustment for the Fund Shares, Institutional
Shares, and Adviser Shares of $14,000, $2,000, and $(1,000), respectively.
For the Fund Shares, Institutional Shares, and Adviser Shares, the
performance adjustments were 0.01%, less than 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 of the Fund Shares and Adviser Shares, and
0.10% of average net assets of the Institutional Shares. For the six-month
period ended November 30, 2016, the Fund Shares, Institutional Shares, and
Adviser Shares incurred administration and servicing fees, paid or payable
to the Manager, of $325,000, $55,000, and $4,000, respectively.
In addition to the services provided under its Administration and Servicing
Agreement with the Fund, the Manager also provides certain compliance and
legal services for the benefit of the Fund. The Board has approved the
reimbursement of a portion of these expenses incurred by the Manager. For
the six-month period ended November 30, 2016, the Fund reimbursed the
Manager $7,000 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 September 30, 2017, to
limit the total annual operating expenses of the Adviser Shares to 0.75% of
its average net assets, excluding extraordinary expenses and before
reductions of any expenses paid indirectly, and to reimburse the Adviser
Shares for all expenses in excess of that amount. This expense limitation
arrangement may not be changed or terminated through
================================================================================
NOTES TO FINANCIAL STATEMENTS | 39
================================================================================
September 30, 2017, without approval of the Board, and may be changed or
terminated by the Manager at any time after that date. Prior to October 1,
2016, the Institutional Shares' expense limitation was 0.45% of its average
net assets. Effective October 1, 2016, the Manager terminated this agreement
for the Institutional Shares. For the six-month period ended November 30,
2016, the Fund incurred reimbursable expenses from the Manager for the
Adviser Shares of $4,000, of which $1,000 was receivable from the Manager
while the Institutional Shares incurred no reimbursable expenses.
D. TRANSFER AGENT'S FEES - USAA Transfer Agency Company, d/b/a USAA
Shareholder Account Services (SAS), an affiliate of the Manager, provides
transfer agent services to the Fund Shares 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
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 November 30, 2016, the Fund Shares,
Institutional Shares, and Adviser Shares incurred transfer agent's fees,
paid or payable to SAS, of $267,000, $55,000, and less than $500,
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 November
30, 2016, the Adviser Shares incurred distribution and service (12b-1) fees
of $6,000.
F. UNDERWRITING SERVICES - IMCO provides exclusive underwriting and
distribution of the Fund's shares on a continuing best-efforts basis and
================================================================================
40 | USAA GOVERNMENT SECURITIES FUND
================================================================================
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 Fund offers its Institutional 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 underlying funds for the
purpose of exercising management or control. As of November 30, 2016, the USAA
fund-of-funds owned the following percentages of the total outstanding shares of
the Fund:
AFFILIATED USAA FUND OWNERSHIP %
---------------------------------------------------------------------------------
Cornerstone Conservative 2.4
Target Retirement Income 7.8
Target Retirement 2020 8.0
Target Retirement 2030 3.0
The Manager is indirectly wholly owned by United Services Automobile Association
(USAA), a large, diversified financial services institution. At November 30,
2016, USAA and its affiliates owned 487,000 Adviser Shares, which represents
93.5% of the Adviser Shares outstanding, and 0.9% of the Fund's total
outstanding shares.
Certain trustees and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Fund.
(8) UPCOMING REGULATORY MATTERS
In October 2016, the U.S. Securities and Exchange Commission (SEC) adopted final
rules intended to modernize the reporting and disclosure of information by
registered investment companies. In part, the final rules amend Regulation S-X
to require standardized, enhanced disclosure about derivatives in investment
company financial statements. The Manager is currently evaluating the impact
these rules and amendments will have on the financial statements and related
disclosures. The compliance date for the amendments to Regulation S-X is August
1, 2017, with other staggered compliance dates extending through December 2018.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 41
================================================================================
(9) FINANCIAL HIGHLIGHTS - FUND SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
NOVEMBER 30, YEAR ENDED MAY 31,
----------------------------------------------------------------------
2016 2016 2015 2014 2013 2012
----------------------------------------------------------------------
Net asset value at
beginning of period $ 10.00 $ 10.04 $ 10.02 $ 10.08 $ 10.40 $ 10.30
----------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .10 .22 .25 .28 .29 .33
Net realized and
unrealized gain (loss) (.17) (.04) .03 (.06) (.32) .10
----------------------------------------------------------------------
Total from investment
operations (.07) .18 .28 .22 (.03) .43
----------------------------------------------------------------------
Less distributions from:
Net investment income (.10) (.22) (.26) (.28) (.29) (.33)
----------------------------------------------------------------------
Net asset value at end
of period $ 9.83 $ 10.00 $ 10.04 $ 10.02 $ 10.08 $ 10.40
======================================================================
Total return (%)* (.71) 1.80 2.78 2.20 (.36) 4.24
Net assets at end
of period (000) $419,352 $432,471 $435,421 $451,688 $553,495 $641,730
Ratios to average
net assets:**
Expenses (%)(a) .48(b) .51 .51 .47 .41 .41
Net investment income (%) 1.97(b) 2.17 2.52 2.78 2.77 3.19
Portfolio turnover (%) 12 14 15 0 24 20
* 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 November 30, 2016, average net assets were
$432,518,000.
(a) Reflects total annual operating expenses of the Fund Shares before
reductions of any expenses paid indirectly. The Fund Shares' expenses paid
indirectly decreased the expense ratios as follows:
- - - (.00%)(+) (.00%)(+) (.00%)(+)
(+) Represents less than 0.01% of average net assets.
(b) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
42 | USAA GOVERNMENT SECURITIES FUND
================================================================================
(9) FINANCIAL HIGHLIGHTS (CONTINUED) - INSTITUTIONAL SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED PERIOD ENDED
NOVEMBER 30, MAY 31,
------------------------------------
2016 2016***
------------------------------------
Net asset value at beginning of period $ 10.00 $ 9.94
---------------------------------
Income (loss) from investment operations:
Net investment income .10 .18
Net realized and unrealized gain (loss) (.17) .06
---------------------------------
Total from investment operations (.07) .24
---------------------------------
Less distributions from:
Net investment income (.10) (.18)
---------------------------------
Net asset value at end of period $ 9.83 $ 10.00
=================================
Total return (%)* (.68) 2.39
Net asset value at end of period (000) $114,557 $106,692
Ratios to average net assets:**
Expenses (%)(a) .41(b) .44
Expenses, excluding reimbursements (%)(a) .41(b) .44
Net investment income (%) 2.04 2.16
Portfolio turnover (%) 12 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 annualize.
** For the six-month period ended November 30, 2016, average net assets were
$110,301,00.
*** Institutional Shares commenced operations on August 7, 2015.
(a) Annualized. The ratio is not necessarily indicative of 12 months of
operation.
(b) Prior to October 1, 2016, the Manager voluntarily agreed to reimburse the
Institutional Shares for expenses in excess of 0.45% of their annual
average net assets.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 43
================================================================================
(9) FINANCIAL HIGHLIGHTS (CONTINUED) - ADVISER SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
NOVEMBER 30, YEAR ENDED MAY 31,
------------------------------------------------------------------------------
2016 2016 2015 2014 2013 2012
------------------------------------------------------------------------------
Net asset value at
beginning of period $ 10.00 $10.04 $10.01 $10.07 $10.40 $10.29
------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .09 .19 .22 .24 .24 .28
Net realized and
unrealized gain (loss) (.17) (.04) .04 (.06) (.33) .11
------------------------------------------------------------------------------
Total from investment
operations (.08) .15 .26 .18 (.09) .39
------------------------------------------------------------------------------
Less distributions from:
Net investment income (.09) (.19) (.23) (.24) (.24) (.28)
Redemption fees added to
beneficial interests - - .00(a) - - -
------------------------------------------------------------------------------
Net asset value at
end of period $ 9.83 $10.00 $10.04 $10.01 $10.07 $10.40
==============================================================================
Total return (%)* (.85) 1.55 2.58 1.83 (.94) 3.84
Net assets at
end of period (000) $ 5,117 $5,088 $5,116 $5,162 $5,150 $5,099
Ratios to average
net assets:**
Expenses (%)(c) .75(d) .75 .80(b) .84 .90 .90
Expenses, excluding
reimbursements (%)(c) .92(d) .95 1.05 .84 1.06 1.15
Net investment income (%) 1.70 1.93 2.22 2.41 2.28 2.71
Portfolio turnover (%) 12 14 15 0 24 20
* 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 November 30, 2016, average net assets were
$5,161,000.
(a) Represents less than $0.01 per share.
(b) Prior to October 1, 2014, the Manager voluntarily agreed to reimburse the
Adviser Shares for expenses in excess of 0.90% of their annual average net
assets.
(c) Reflects total annual operating expenses of the Adviser Shares before
reductions of any expenses paid indirectly. The Adviser Shares' expenses
paid indirectly decreased the expense ratios as follows:
- - - (.00%)(+) (.00%)(+) (.00%)(+)
(+) Represents less than 0.01% of average net assets.
(d) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
44 | USAA GOVERNMENT SECURITIES FUND
================================================================================
EXPENSE EXAMPLE
November 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 June 1, 2016, through
November 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 | 45
================================================================================
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 JUNE 1, 2016 -
JUNE 1, 2016 NOVEMBER 30, 2016 NOVEMBER 30, 2016
-----------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $ 992.90 $2.40
Hypothetical
(5% return before expenses) 1,000.00 1,022.66 2.43
INSTITUTIONAL SHARES
Actual 1,000.00 993.20 2.05
Hypothetical
(5% return before expenses) 1,000.00 1,023.01 2.08
ADVISER SHARES
Actual 1,000.00 991.50 3.74
Hypothetical
(5% return before expenses) 1,000.00 1,021.31 3.80
*Expenses are equal to the annualized expense ratio of 0.48% for Fund Shares,
0.41% for Institutional Shares, and 0.75% for Adviser Shares, which are net of
any reimbursements and expenses paid indirectly, multiplied by the average
account value over the period, multiplied by 183 days/365 days (to reflect the
one-half-year period). The Fund's actual ending account values are based on its
actual total returns of - (0.71)% for Fund Shares, (0.68)% for Institutional
Shares, and (0.85)% for Adviser Shares for the six-month period of June 1,
2016, through November 30, 2016.
================================================================================
46 | USAA GOVERNMENT SECURITIES 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] [LOGO OF RECYCLE PAPER]
USAA We know what it means to serve.(R) 10%
=============================================================================
23414-0117 (C)2017, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA TREASURY MONEY MARKET TRUST(R)]
============================================================
SEMIANNUAL REPORT
USAA TREASURY MONEY MARKET TRUST(R)
NOVEMBER 30, 2016
============================================================
================================================================================
================================================================================
PRESIDENT'S MESSAGE
"AS THE NEW YEAR BEGINS, WHY NOT MAKE
A RESOLUTION TO PUT YOUR FINANCIAL HOUSE [PHOTO OF BROOKS ENGLEHARDT]
IN ORDER?"
--------------------------------------------------------------------------------
JANUARY 2017
Financial markets are unpredictable. Many factors can confound those who try to
predict the direction of the markets based on economic or political factors. In
other words, it's easy to get it wrong. And, even if one correctly forecasts
what will happen in the macroeconomic environment, predicting how the markets
will respond is another matter altogether.
Consider the response to the Presidential election. Stocks rose on Monday and
Tuesday (Election Day) at the prospect of a Hillary Clinton victory--virtually
a "sure thing," according to some media pundits. U.S. Treasury securities and
other segments of the bond market sold off as investors likely assumed a
continuation of current economic policy under another Democratic administration.
But these trends reversed on Tuesday evening when it became clear that Donald J.
Trump would be elected the 45(th) President of the United States. Asian and
European equity markets dropped and U.S. stock index futures plunged. The
decline in stock index futures suggested that U.S. stocks might fall when
trading began on Wednesday, however the opposite happened. Stock prices rose and
then rallied strongly, with major stock indexes hitting one record high after
another through the end of November 2016. U.S. Treasury prices fell, driving up
yields on longer-maturity U.S. Treasuries. (Yields move in the opposite
direction of prices.)
Few market participants would have forecasted such a scenario. But with
hindsight, we may be able to understand some of the reasons why the markets
behaved the way they did.
U.S. equity investors appeared to like President-elect Trump's promises of lower
tax rates, less regulation, and more fiscal stimulus through infrastructure
spending. Other explanations may lie overseas, such as complications relating to
the United Kingdom's decision to exit from the European Union ("Brexit") and
continued slow economic growth in China--uncertainties that may have
================================================================================
================================================================================
increased the attractiveness of U.S. stocks. As for bond investors, they may
have been worried about an increase in interest rates if economic growth picks
up under a Trump Administration. Higher growth rates typically correspond with
rising inflation, which in turn could prompt the Federal Reserve (the Fed) to
accelerate the pace of interest rate increases.
What actually happens, however, is yet to be seen. No one knows, except in the
most general terms, what President-elect Trump's plans and priorities will be or
how they could affect economic growth in 2017 and beyond. By extension, it is
also too early to forecast how inflation might be affected and how the Fed could
respond.
At USAA Investments, we are long-term, fundamental investors, who seek to look
at the full market cycle rather than current geopolitical events. We believe
measures such as assessing a company's intrinsic value compared to its current
price tend to be more effective at forecasting potential stock returns over
time. In selecting bonds, our analysts take a bottom-up approach to evaluating
each security individually, building portfolios on a bond-by-bond basis.
It is important to remember market conditions are always fluctuating and time
horizon matters. We believe that it is important to stay focused on your
long-term objectives, using an investment plan that is based on your personal
time horizon and risk tolerance. If you are uneasy about market risk in general
or have concerns about too much exposure to specific asset classes, please call
USAA to speak with an advisor. As the new year begins, why not make a resolution
to put your financial house in order?
Thank you for allowing us to help you in your efforts to achieve your financial
goals. At USAA Investments, we are committed to providing you with our best
advice, top-notch service, and a variety of mutual funds. On behalf of everyone
here, I wish you a happy and healthy 2017.
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 10
Financial Statements 11
Notes to Financial Statements 14
EXPENSE EXAMPLE 23
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE
RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY
USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN
PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS
ABOUT THE FUND.
(C)2017, USAA. All rights reserved.
201010-0117
================================================================================
================================================================================
FUND OBJECTIVE
THE USAA TREASURY MONEY MARKET TRUST (THE FUND) PROVIDES INVESTORS
MAXIMUM CURRENT INCOME WHILE MAINTAINING THE HIGHEST DEGREE OF SAFETY
AND LIQUIDITY.
--------------------------------------------------------------------------------
TYPES OF INVESTMENTS
The Fund normally invests at least 80% of its assets in U.S. government
securities with maturities of 397 days or less, which include U.S. Treasury
bills, notes, and bonds; repurchase agreements collateralized by such
obligations; and other obligations of the U.S. Treasury. The 80% policy may be
changed upon at least 60 days' written notice to shareholders.
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
ANTHONY M. ERA, Jr. [PHOTO OF ANTHONY M. ERA]
USAA Asset Management Company
--------------------------------------------------------------------------------
o WHAT WERE THE MARKET CONDITIONS DURING THE REPORTING PERIOD?
When the reporting period began, the Federal Reserve (the Fed) was widely
expected to raise short-term interest rates twice during 2016. In June
2016, after the release of a surprisingly weak May 2016 jobs report, Fed
officials shelved plans for an interest rate increase. They grew more
cautious in the wake of the United Kingdom's (U.K.) "Brexit" vote, citing
it as a principal reason for leaving interest rates unchanged at their July
2016 meeting. During August 2016, Fed chair Janet Yellen said the odds of
an interest rate increase had "strengthened," but the Fed remained on hold
in September 2016, saying it wanted to wait for "further evidence of
continued progress toward its objectives." At its final policy meeting of
the reporting period, just days before the November 8, 2016 U.S.
presidential election, the Fed opted not to raise interest rates.
As the federal funds target rate remained anchored in a range from 0.25% to
0.50%, yields on money market mutual funds hovered near zero throughout the
reporting period. Demand for U.S. Treasury securities remained high as a
number of money market funds began shifting assets into U.S. Treasuries as
the mid-October 2016 deadline approached for the final phase of money
market fund reform. Overall, investors continued to rely on money market
funds, in spite of exceptionally low absolute yields, for the low risk and
liquidity they offered.
================================================================================
2 | USAA TREASURY MONEY MARKET TRUST
================================================================================
o HOW DID THE USAA TREASURY MONEY MARKET TRUST (THE FUND) PERFORM DURING THE
REPORTING PERIOD?
For the reporting period ended November 30, 2016, the seven-day yield on
the Fund remained less than 0.01%. The total return for the same period was
less than 0.01%, compared to an average of 0.02% for all retail money
market funds that hold U.S. Treasuries and repos backed by the U.S.
Treasury ranked by 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 HOW DID YOU MANAGE THE FUND DURING THE REPORTING PERIOD?
The Fund continued to invest in maturities of 397 days or less that are
backed by the full faith and credit of the U.S. government. In addition to
purchasing U.S. Treasury bills and notes with short maturities, the Fund
also continued to invest in eligible short-term repurchase agreements with
approved counterparties. If the Fed raises interest rates in the near term,
securities that mature sooner would allow us to reinvest earlier in a
rising rate environment (compared to securities with longer final
maturities).
Thank you for allowing us to help you manage your investments.
Refer to page 5 for the iMoneyNet, Inc. definition.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
================================================================================
MANAGER'S COMMENTARY ON THE FUND | 3
================================================================================
INVESTMENT OVERVIEW
USAA TREASURY MONEY MARKET TRUST (THE FUND)
(Ticker Symbol: UATXX)
--------------------------------------------------------------------------------
11/30/16 5/31/16
--------------------------------------------------------------------------------
Net Assets $2.0 Billion $188.9 Million
Net Asset Value Per Share $1.00 $1.00
Dollar-Weighted Average
Portfolio Maturity(+) 23 Days 19 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 11/30/16
--------------------------------------------------------------------------------
5/31/16-11/30/16* 1 YEAR 5 YEARS 10 YEARS
0.00% 0.00% 0.00% 0.62%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/16
--------------------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS
0.00%** 0.00%** 0.58%
--------------------------------------------------------------------------------
7-DAY YIELDS AS OF 11/30/16
--------------------------------------------------------------------------------
UNSUBSIDIZED -0.08% SUBSIDIZED 0.00%**
--------------------------------------------------------------------------------
EXPENSE RATIO AS OF 5/31/16***
--------------------------------------------------------------------------------
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.
**Represents less than 0.01%.
***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 October 1, 2016, and is
calculated as a percentage of average net assets. The 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 THIS FUND SEEKS TO
PRESERVE THE VALUE OF YOUR INVESTMENT AT $1 PER SHARE, IT CANNOT GUARANTEE TO DO
SO. AN INVESTMENT IN THIS FUND IS NOT A DEPOST 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 TREASURY MONEY MARKET TRUST
================================================================================
o 7-DAY YIELD COMPARISON o
[CHART OF 7-DAY YIELD COMPARISON]
USAA TREASURY
MONEY MARKET TRUST iMoneyNet AVERAGE
11/24/2015 0.000% 0.005%
12/29/2015 0.000% 0.015%
1/26/2016 0.000% 0.015%
2/23/2016 0.000% 0.020%
3/29/2016 0.000% 0.025%
4/26/2016 0.000% 0.025%
5/31/2016 0.000% 0.025%
6/28/2016 0.000% 0.025%
7/26/2016 0.000% 0.025%
8/30/2016 0.000% 0.025%
9/27/2016 0.000% 0.025%
10/25/2016 0.000% 0.030%
11/29/2016 0.000% 0.035%
[END CHART]
Data represents the last Tuesday of each month. Ending date 11/29/16.
The graph tracks the Fund's seven-day yield against the iMoneyNet, Inc. average
for all retail money market funds that hold U.S. Treasuries and repos backed by
the U.S. Treasury and all retail money funds that hold 100% in U.S. Treasuries.
iMoneyNet, Inc. is an organization that tracks the performance of money market
funds.
*Represents less than 0.001%.
================================================================================
INVESTMENT OVERVIEW | 5
================================================================================
o CUMULATIVE PERFORMANCE OF $10,000 o
[CHART OF CUMULATIVE PERFORMANCE]
USAA TREASURY
MONEY MARKET TRUST
11/30/06 $10,000.00
12/31/06 10,043.00
01/31/07 10,081.00
02/28/07 10,117.00
03/31/07 10,160.00
04/30/07 10,198.00
05/31/07 10,240.00
06/30/07 10,280.00
07/31/07 10,320.00
08/31/07 10,362.00
09/30/07 10,395.00
10/31/07 10,432.00
11/30/07 10,466.00
12/31/07 10,492.00
01/31/08 10,516.00
02/29/08 10,535.00
03/31/08 10,550.00
04/30/08 10,565.00
05/31/08 10,580.00
06/30/08 10,592.00
07/31/08 10,606.00
08/31/08 10,620.00
09/30/08 10,629.00
10/31/08 10,631.00
11/30/08 10,632.00
12/31/08 10,632.00
01/31/09 10,632.00
02/28/09 10,632.00
03/31/09 10,632.00
04/30/09 10,632.00
05/31/09 10,632.00
06/30/09 10,632.00
07/31/09 10,632.00
08/31/09 10,632.00
09/30/09 10,632.00
10/31/09 10,632.00
11/30/09 10,632.00
12/31/09 10,632.00
01/31/10 10,632.00
02/28/10 10,632.00
03/31/10 10,632.00
04/30/10 10,632.00
05/31/10 10,632.00
06/30/10 10,632.00
07/31/10 10,632.00
08/31/10 10,632.00
09/30/10 10,632.00
10/31/10 10,632.00
11/30/10 10,632.00
12/31/10 10,632.00
01/31/11 10,632.00
02/28/11 10,632.00
03/31/11 10,632.00
04/30/11 10,632.00
05/31/11 10,632.00
06/30/11 10,632.00
07/31/11 10,632.00
08/31/11 10,632.00
09/30/11 10,632.00
10/31/11 10,632.00
11/30/11 10,632.00
12/31/11 10,632.00
01/31/12 10,632.00
02/29/12 10,632.00
03/31/12 10,632.00
04/30/12 10,632.00
05/31/12 10,632.00
06/30/12 10,632.00
07/31/12 10,632.00
08/31/12 10,632.00
09/30/12 10,632.00
10/31/12 10,632.00
11/30/12 10,632.00
12/31/12 10,632.00
01/31/13 10,632.00
02/28/13 10,632.00
03/31/13 10,632.00
04/30/13 10,632.00
05/31/13 10,632.00
06/30/13 10,632.00
07/31/13 10,632.00
08/31/13 10,632.00
09/30/13 10,632.00
10/31/13 10,632.00
11/30/13 10,632.00
12/31/13 10,632.00
01/31/14 10,632.00
02/28/14 10,632.00
03/31/14 10,632.00
04/30/14 10,632.00
05/31/14 10,632.00
06/30/14 10,632.00
07/31/14 10,632.00
08/31/14 10,632.00
09/30/14 10,632.00
10/31/14 10,632.00
11/30/14 10,633.00
12/31/14 10,633.00
01/31/15 10,633.00
02/28/15 10,633.00
03/31/15 10,633.00
04/30/15 10,633.00
05/31/15 10,633.00
06/30/15 10,633.00
07/31/15 10,633.00
08/31/15 10,633.00
09/30/15 10,633.00
10/31/15 10,633.00
11/30/15 10,633.00
12/31/15 10,633.00
01/31/16 10,633.00
02/29/16 10,633.00
03/31/16 10,633.00
04/30/16 10,633.00
05/31/16 10,633.00
06/30/16 10,633.00
07/31/16 10,633.00
08/31/16 10,633.00
09/30/16 10,633.00
10/31/16 10,633.00
11/30/16 10,633.00
[END CHART]
Data from 11/30/06 through 11/30/16.
The graph illustrates the performance of a hypothetical $10,000 investment
in the USAA Treasury Money Market Trust.
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
distributions or the redemption of shares. Income may be subject to federal,
state, or local taxes, or to the federal alternative minimum tax. For seven-day
yield information, please refer to the Fund's Investment Overview page.
================================================================================
6 | USAA TREASURY MONEY MARKET TRUST
================================================================================
o PORTFOLIO MIX - 11/30/16 o
[PIE CHART OF PORTFOLIO MIX]
U.S. TREASURY BILLS 61.7%
REPURCHASE AGREEMENTS 35.0%
U.S. TREASURY NOTES 3.2%
[END CHART]
Percentages are of the net assets of the Fund and may not equal 100%.
================================================================================
INVESTMENT OVERVIEW | 7
================================================================================
PORTFOLIO OF INVESTMENTS
November 30, 2016 (unaudited)
-------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
(000) SECURITY (000)
-------------------------------------------------------------------------------------------------------------
U.S. TREASURY SECURITIES (64.9%)
NOTES (3.2%)(a)
$ 39,000 0.63%, 12/15/2016 $ 39,005
10,000 0.88%, 1/31/2017 10,008
13,000 3.13%, 1/31/2017 13,061
----------
62,074
----------
BILLS (61.7%)(b)
123,500 0.02%, 12/01/2016 123,500
116,200 0.14%, 12/08/2016 116,194
105,000 0.14%, 12/15/2016 104,991
146,000 0.25%, 12/22/2016 145,978
49,000 0.36%, 12/29/2016 48,987
142,200 0.31%, 1/05/2017 142,161
121,300 0.32%, 1/12/2017 121,259
112,600 0.33%, 1/19/2017 112,552
100,000 0.35%, 1/26/2017 99,951
88,500 0.42%, 2/02/2017 88,439
46,000 0.43%, 2/09/2017 45,969
57,000 0.44%, 2/16/2017 56,954
----------
1,206,935
----------
Total U.S. Treasury Securities (cost: $1,269,009) 1,269,009
----------
REPURCHASE AGREEMENTS (35.0%)
74,852 Bank of America, N.A., 0.26%, acquired 11/30/2016 and due on
12/01/2016 at $74,852 (collateralized by $74,732 of U.S. Treasury,
0.13%(c), due 4/15/2021; market value $76,349) 74,852
138,000 Credit Agricole Corp. Inv. Bank, 0.26%, acquired 11/30/2016 and due on
12/01/2016 at $138,000 (collateralized by $69,445 of U.S. Treasury,
3.88%(c), due 4/15/2029; market value $140,760) 138,000
100,000 Credit Suisse First Boston, LLC, 0.27%, acquired 11/30/2016 and due on
12/01/2016 at $100,000 (collateralized by $102,150 of U.S. Treasury,
1.63%(a), due 11/30/2020; market value $102,003) 100,000
171,500 HSBC Bank USA, Inc., 0.26%, acquired 11/30/2016 and due on
12/01/2016 at $171,500 (collateralized by $53,315 of U.S. Treasury,
2.50%(a), due 5/15/2046; $127,922 of U.S. Treasury, 1.75%(a),
due 1/31/2023; combined market value $174,934) 171,500
================================================================================
8 | USAA TREASURY MONEY MARKET TRUST
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
(000) SECURITY (000)
-------------------------------------------------------------------------------------------------------------
$200,000 Mitsubishi Securities Int. plc, 0.23%, acquired 11/30/2016 and due on
12/01/16 at $200,000 (collateralized by $3,259 of U.S. Treasury,
0.13%-3.88%(c), due 4/15/2020-4/15/2029; $9,214 of U.S. Treasury,
0.16%-3.05%(d), due 12/15/2016-11/15/2041; $196,218 of U.S Treasury,
1.13%-4.50%(a), due 11/15/2018-2/15/2045; combined
market value $204,001) $ 200,000
----------
Total Repurchase Agreements (cost: $684,352) 684,352
----------
TOTAL INVESTMENTS (COST: $1,953,361) $1,953,361
==========
-------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
-------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
-------------------------------------------------------------------------------------------------------------
U.S. Treasury Securities:
Notes $- $ 62,074 $- $ 62,074
Bills - 1,206,935 - 1,206,935
Repurchase Agreements - 684,352 - 684,352
-------------------------------------------------------------------------------------------------------------
Total $- $1,953,361 $- $1,953,361
-------------------------------------------------------------------------------------------------------------
================================================================================
PORTFOLIO OF INVESTMENTS | 9
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
November 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 November 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) Rates for U.S. Treasury notes or bonds represent the stated coupon
payment rate at time of issuance.
(b) Securities offered at a discount to face value rather than at a stated
coupon rate. Rates represent the discount rates at purchase date.
(c) U.S. Treasury inflation-indexed notes - designed to provide a real rate
of return after being adjusted over time to reflect the impact of
inflation. Their principal value periodically adjusts to the rate of
inflation. They trade at the prevailing real, or after-inflation,
interest rates. The U.S. Treasury guarantees repayment of these
securities of at least their face value in the event of sustained
deflation or a drop in prices.
(d) Zero-coupon security. Rate represents the effective yield at the date of
purchase.
See accompanying notes to financial statements.
================================================================================
10 | USAA TREASURY MONEY MARKET TRUST
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
November 30, 2016 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities (amortized cost approximates market value) $1,269,009
Investments in repurchase agreements (amortized cost approximates
market value) 684,352
Cash 1,489
Receivables:
Capital shares sold 28,424
USAA Asset Management Company (Note 4C) 9
Interest 282
----------
Total assets 1,983,565
----------
LIABILITIES
Payables:
Capital shares redeemed 28,008
Accrued management fees 191
Other accrued expenses and payables 97
----------
Total liabilities 28,296
----------
Net assets applicable to capital shares outstanding $1,955,269
==========
NET ASSETS CONSIST OF:
Paid-in capital $1,955,271
Undistributed net investment loss (2)
----------
Net assets applicable to capital shares outstanding $1,955,269
==========
Capital shares outstanding, no par value 1,955,271
==========
Net asset value, redemption price, and offering price per share $ 1.00
==========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 11
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended November 30, 2016 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Interest income $1,569
------
EXPENSES
Management fees 741
Administration and servicing fees 593
Transfer agent's fees 593
Custody and accounting fees 68
Postage 46
Shareholder reporting fees 15
Trustees' fees 15
Registration fees 25
Professional fees 62
Other 7
------
Total expenses 2,165
Expenses reimbursed (594)
------
Net expenses 1,571
------
NET INVESTMENT LOSS $ (2)
======
See accompanying notes to financial statements.
================================================================================
12 | USAA TREASURY MONEY MARKET TRUST
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended November 30, 2016 (unaudited), and year ended
May 31, 2016
-----------------------------------------------------------------------------------------------
11/30/2016 5/31/2016
-----------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income (loss) $ (2) $ 1
-----------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income - (1)
-----------------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 4,176,370 177,628
Reinvested dividends - 1
Cost of shares redeemed (2,409,962) (108,420)
-----------------------------
Increase in net assets from capital
share transactions 1,766,408 69,209
-----------------------------
Net increase in net assets 1,766,406 69,209
NET ASSETS
Beginning of period 188,863 119,654
-----------------------------
End of period $ 1,955,269 $ 188,863
=============================
Undistributed net investment loss
End of period $ (2) $ -
=============================
CHANGE IN SHARES OUTSTANDING
Shares sold 4,176,369 177,628
Shares issued for dividends reinvested 1 1
Shares redeemed (2,409,962) (108,420)
-----------------------------
Increase in shares outstanding 1,766,408 69,209
=============================
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 13
================================================================================
NOTES TO FINANCIAL STATEMENTS
November 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 Treasury Money Market Trust (the
Fund), which is classified as diversified under the 1940 Act. The Fund seeks to
provide investors maximum current income while maintaining the highest degree of
safety and liquidity.
The Fund operates as a retail money market fund in compliance with the
requirements of Rule 2a-7; and as a retail money market fund, shares of the Fund
are available for sale only to accounts that are beneficially owned by natural
persons.
A. SECURITY VALUATION - The Trust's Board of Trustees (the Board) has
established the Valuation Committee (the Committee), and subject to Board
oversight, the Committee administers and oversees the Fund's valuation
policies and procedures, which are approved by the Board. Among other
things, these policies and procedures allow the Fund to utilize independent
pricing services, quotations from securities dealers, and a wide variety of
sources and information to establish and adjust the fair value of securities
as events occur and circumstances warrant.
The Committee reports to the Board on a quarterly basis and makes
recommendations to the Board as to pricing methodologies and services 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.
================================================================================
14 | USAA TREASURY MONEY MARKET TRUST
================================================================================
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. Repurchase agreements are valued at cost.
3. 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 15
================================================================================
that are observable for the securities, either directly or indirectly, and
market-corroborated inputs such as market indexes.
Level 3 - inputs to the valuation methodology are unobservable and
significant to the fair value measurement, including the Manager's own
assumptions in determining the fair value.
The inputs or methodologies used for valuing securities are not necessarily
an indication of the risks associated with investing in those securities.
For example, money market securities are valued using amortized cost, in
accordance with rules under the 1940 Act. Generally, amortized cost
approximates the current fair value of a security, but since the value is
not obtained from a quoted price in an active market, such securities are
reflected as Level 2.
C. FEDERAL TAXES - The Fund's policy is to comply with the requirements of
the Internal Revenue Code of 1986, as amended, applicable to regulated
investment companies and to distribute substantially all of its taxable
income and net capital gains, if any, to its shareholders. Therefore, no
federal income tax provision is required.
D. INVESTMENTS IN SECURITIES - Securities transactions are accounted for
on the date the securities are purchased or sold (trade date). Gains or
losses from sales of investment securities are computed on the identified
cost basis. Interest income is recorded daily on the accrual basis.
Premiums and discounts are amortized over the life of the respective
securities using the straight-line method.
E. REPURCHASE AGREEMENTS - The Fund may enter into repurchase agreements
with commercial banks or recognized security dealers pursuant to the terms
of a Master Repurchase Agreement. A repurchase agreement is an arrangement
wherein the Fund purchases securities and the seller agrees to repurchase
the securities at an agreed upon time and at an agreed upon price. The
purchased securities are marked-to-market daily to ensure their value is
equal to or in excess of the purchase price plus accrued interest and are
held by the Fund, either through its regular custodian or through a special
"tri-party" custodian that maintains separate accounts for both the Fund
and its counterparty, until maturity of the repurchase agreement. Master
Repurchase Agreements typically
================================================================================
16 | USAA TREASURY MONEY MARKET TRUST
================================================================================
contain netting provisions, which provide for the net settlement of all
transactions and collateral with the Fund through a single payment in the
event of default or termination. Repurchase agreements are subject to
credit risk, and the Fund's Manager monitors the creditworthiness of
sellers with which the Fund may enter into repurchase agreements.
Investments in repurchase agreements as presented on the Portfolio of
Investments are not net settlement amounts but gross. At November 30, 2016,
the value of the related collateral exceeded the value of the repurchase
agreements, reducing the net settlement amount to zero. Details on the
collateral are included on the Portfolio of Investments.
F. 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.
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 November 30, 2016, there were no custodian and other bank credits.
H. INDEMNIFICATIONS - Under the Trust's organizational documents, its officers
and trustees are indemnified against certain liabilities arising out of the
performance of their duties to the Trust. In addition, in the normal course
of business, the Trust enters into contracts that contain a variety of
representations and warranties that provide general indemnifications. The
Trust's maximum exposure under these arrangements is unknown, as this would
involve future claims that may be made against the Trust that have not yet
occurred. However, the Trust expects the risk of loss to be remote.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 17
================================================================================
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 with other USAA Funds 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 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 November 30, 2016, the Fund paid CAPCO facility
fees of $3,000, which represents 1.3% 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 November 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 May 31, 2017, in
accordance with applicable federal tax law.
================================================================================
18 | USAA TREASURY MONEY MARKET TRUST
================================================================================
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 tax.
At May 31, 2016, the Fund had no capital loss carryforwards, for federal income
tax purposes.
For the six-month period ended November 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.
The Fund's investment management fee is accrued daily and paid monthly at
an annualized rate of 0.125% of the Fund's average net assets. For the
six-month period ended November 30, 2016, the Fund incurred management
fees, paid or payable to the Manager, of $741,000.
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
November 30, 2016, the Fund incurred administration and servicing fees,
paid or payable to the Manager, of $593,000.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 19
================================================================================
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 November 30, 2016, the Fund reimbursed the
Manager $16,000 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 November 30, 2016, the Fund
incurred reimbursable expenses of $594,000, of which $9,000 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. 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 for the fiscal year. SAS pays a portion of these fees to
certain intermediaries for the administration and servicing of accounts
that are held with such intermediaries. For the six-month period ended
November 30, 2016, the Fund incurred transfer agent's fees, paid or payable
to SAS, of $593,000.
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.
================================================================================
20 | USAA TREASURY MONEY MARKET TRUST
================================================================================
(6) UPCOMING REGULATORY MATTERS
In October 2016, the U.S. Securities and Exchange Commission (SEC) adopted final
rules intended to modernize the reporting and disclosure of information by
registered investment companies. In part, the final rules amend Regulation S-X
to require standardized, enhanced disclosure about derivatives in investment
company financial statements. The Manager is currently evaluating the impact
these rules and amendments will have on the financial statements and related
disclosures. The compliance date for the amendments to Regulation S-X is August
1, 2017, with other staggered compliance dates extending through December 2018.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 21
================================================================================
(7) FINANCIAL HIGHLIGHTS
Per share operating performance for a share outstanding throughout each
period is as follows:
SIX-MONTH
PERIOD ENDED
NOVEMBER 30, YEAR ENDED MAY 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 (loss)(a) (.00) .00 .00 .00 .00 .00
Less distributions from:
Net investment income(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),(e) .00 .00 .00 .00 .00 .00
Net assets at end
of period (000) $1,955,269 $188,863 $119,654 $128,416 $141,474 $150,266
Ratios to average
net assets:**
Expenses (%)(b),(c) .26(d) .17 .06 .04 .15 .08
Expenses, excluding
reimbursements (%)(c) .36(d) .49 .52 .48 .49 .48
Net investment
income (loss)(%)(e) (.00)(d) .00 .00 .00 .00 .00
* 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 November 30, 2016, average net assets were
$1,193,334,000.
(a) Represents less than $0.01 per share.
(b) Effective December 1, 2008, 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.
(c) Reflects total annual operating expenses of the Fund before reductions
of any expenses paid indirectly. The Fund's expenses paid indirectly
decreased the expense ratios as follows:
- - - (.00%)(+) (.00%)(+) (.00%)(+)
(+) Represents less than 0.01% of average net assets.
(d) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(e) Represents less than 0.01%.
================================================================================
22 | USAA TREASURY MONEY MARKET TRUST
================================================================================
EXPENSE EXAMPLE
November 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 June 1, 2016, through
November 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 | 23
================================================================================
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 JUNE 1, 2016-
JUNE 1, 2016 NOVEMBER 30, 2016 NOVEMBER 30, 2016
---------------------------------------------------------------
Actual $1,000.00 $1,000.00 $1.30
Hypothetical
(5% return before expenses) 1,000.00 1,023.76 1.32
*Expenses are equal to the Fund's annualized expense ratio of 0.26%, which is
net of any expenses paid indirectly, multiplied by the average account value
over the period, multiplied by 183 days/365 days (to reflect the one-half-year
period). The Fund's actual ending account value is based on its actual total
return of less than 0.01% for the six-month period of June 1, 2016, through
November 30, 2016.
================================================================================
24 | USAA TREASURY MONEY MARKET TRUST
================================================================================
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] [LOGO OF RECYCLE PAPER]
USAA We know what it means to serve.(R) 10%
=============================================================================
23416-0117 (C)2017, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA EMERGING MARKETS FUND]
==============================================================
SEMIANNUAL REPORT
USAA EMERGING MARKETS FUND
FUND SHARES o INSTITUTIONAL SHARES o ADVISER SHARES
NOVEMBER 30, 2016
==============================================================
================================================================================
================================================================================
PRESIDENT'S MESSAGE
"AS THE NEW YEAR BEGINS, WHY NOT MAKE
A RESOLUTION TO PUT YOUR FINANCIAL HOUSE [PHOTO OF BROOKS ENGLEHARDT]
IN ORDER?"
--------------------------------------------------------------------------------
JANUARY 2017
Financial markets are unpredictable. Many factors can confound those who try to
predict the direction of the markets based on economic or political factors. In
other words, it's easy to get it wrong. And, even if one correctly forecasts
what will happen in the macroeconomic environment, predicting how the markets
will respond is another matter altogether.
Consider the response to the Presidential election. Stocks rose on Monday and
Tuesday (Election Day) at the prospect of a Hillary Clinton victory--virtually
a "sure thing," according to some media pundits. U.S. Treasury securities and
other segments of the bond market sold off as investors likely assumed a
continuation of current economic policy under another Democratic administration.
But these trends reversed on Tuesday evening when it became clear that Donald J.
Trump would be elected the 45(th) President of the United States. Asian and
European equity markets dropped and U.S. stock index futures plunged. The
decline in stock index futures suggested that U.S. stocks might fall when
trading began on Wednesday, however the opposite happened. Stock prices rose and
then rallied strongly, with major stock indexes hitting one record high after
another through the end of November 2016. U.S. Treasury prices fell, driving up
yields on longer-maturity U.S. Treasuries. (Yields move in the opposite
direction of prices.)
Few market participants would have forecasted such a scenario. But with
hindsight, we may be able to understand some of the reasons why the markets
behaved the way they did.
U.S. equity investors appeared to like President-elect Trump's promises of lower
tax rates, less regulation, and more fiscal stimulus through infrastructure
spending. Other explanations may lie overseas, such as complications relating to
the United Kingdom's decision to exit from the European Union ("Brexit") and
continued slow economic growth in China--uncertainties that may have
================================================================================
================================================================================
increased the attractiveness of U.S. stocks. As for bond investors, they may
have been worried about an increase in interest rates if economic growth picks
up under a Trump Administration. Higher growth rates typically correspond with
rising inflation, which in turn could prompt the Federal Reserve (the Fed) to
accelerate the pace of interest rate increases.
What actually happens, however, is yet to be seen. No one knows, except in the
most general terms, what President-elect Trump's plans and priorities will be or
how they could affect economic growth in 2017 and beyond. By extension, it is
also too early to forecast how inflation might be affected and how the Fed could
respond.
At USAA Investments, we are long-term, fundamental investors, who seek to look
at the full market cycle rather than current geopolitical events. We believe
measures such as assessing a company's intrinsic value compared to its current
price tend to be more effective at forecasting potential stock returns over
time. In selecting bonds, our analysts take a bottom-up approach to evaluating
each security individually, building portfolios on a bond-by-bond basis.
It is important to remember market conditions are always fluctuating and time
horizon matters. We believe that it is important to stay focused on your
long-term objectives, using an investment plan that is based on your personal
time horizon and risk tolerance. If you are uneasy about market risk in general
or have concerns about too much exposure to specific asset classes, please call
USAA to speak with an advisor. As the new year begins, why not make a resolution
to put your financial house in order?
Thank you for allowing us to help you in your efforts to achieve your financial
goals. At USAA Investments, we are committed to providing you with our best
advice, top-notch service, and a variety of mutual funds. On behalf of everyone
here, I wish you a happy and healthy 2017.
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 14
Notes to Portfolio of Investments 26
Financial Statements 28
Notes to Financial Statements 32
EXPENSE EXAMPLE 51
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE
RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY
USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN
PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS
ABOUT THE FUND.
(C)2017, USAA. All rights reserved.
201009-0117
================================================================================
================================================================================
FUND OBJECTIVE
THE USAA EMERGING MARKETS FUND (THE FUND) SEEKS CAPITAL APPRECIATION.
--------------------------------------------------------------------------------
TYPES OF INVESTMENTS
The Fund normally invests at least 80% of its assets in equity securities of
emerging market companies. The "equity securities" in which the Fund principally
invests are common stocks, preferred stocks, securities convertible into common
stocks, and securities that carry the right to buy common stocks. This 80%
policy may be changed upon at least 60 days' written notice to shareholders.
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
Lazard Asset Management Brandes Investment Partners, L.P.
JAI JACOB DOUGLAS EDMAN, CFA
JAMES M. DONALD, CFA CHRIS GARRETT, CFA
KEVIN O'HARE, CFA LOUIS LAU, CFA
STEPHEN MARRA, CFA MAURICIO ABADIA
GERARDO ZAMORANO, CFA
Victory Capital Management Inc.
MARGARET LINDSAY
TIFFANY KUO, CFA
JOSHUA LINDLAND, CFA
--------------------------------------------------------------------------------
o PLEASE CHARACTERIZE THE PERFORMANCE OF EMERGING MARKETS DURING THE REPORTING
PERIOD.
Capping a volatile period, emerging market securities as represented by the
MSCI Emerging Markets Index increased during the reporting period ended
November 30, 2016. In Brazil, investor confidence appears to have returned
following the August 2016 impeachment of President Dilma Rousseff, helping
to calm market uncertainty and bring renewed hope of economic reform and
growth within that country. Elsewhere, China's equity market appears to have
benefited from the People's Bank of China's $278 billion stimulus package
aimed at increasing gross domestic product growth. Meanwhile, Turkey
experienced a credit-rating downgrade and saw its equity market decline
likely due to instability that followed an attempted military coup and an
airport bombing. Lastly, the United Kingdom's decision to exit the European
Union ("Brexit"), as well as the U.S. presidential election results,
contributed to heightened volatility in financial markets globally,
including emerging countries.
================================================================================
2 | USAA EMERGING MARKETS FUND
================================================================================
o HOW DID THE USAA EMERGING MARKETS FUND (THE FUND) PERFORM DURING THE
REPORTING PERIOD?
The Fund has three share classes: Fund Shares, Institutional Shares, and
Adviser Shares. For the reporting period ended November 30, 2016, the Fund
Shares, Institutional Shares, and Adviser Shares had total returns of 7.24%,
7.39%, and 7.19%, respectively. This compares to returns of 8.42% for the
MSCI Emerging Markets Index, and 7.40% for the Lipper Emerging Markets Fund
Index.
USAA Asset Management Company (the Manager) is the Fund's investment
adviser. As the investment adviser, the Manager employs dedicated resources
to support the research, selection, and monitoring of the Fund's
subadvisers. Brandes Investment Partners L.P. (Brandes), Lazard Asset
Management (Lazard), and Victory Capital Management Inc. (Victory Capital)
are subadvisers to the Fund. The subadvisers each provide day-to-day
discretionary management for a portion of the Fund's assets.
o HOW DID BRANDES' PORTION OF THE FUND PERFORM?
The portion of the Fund managed by Brandes outperformed the benchmark during
the reporting period. Holdings in Brazil and Panama lifted returns, as did
those within the industrial, consumer staples, and energy sectors.
Allocations to companies in Turkey, China, and Indonesia weighed on relative
performance, as did positions in the financial, real estate, and
telecommunication services sectors. Top individual contributors included the
Panamanian airline Copa Holdings S.A. "A", as well as the Brazil-based oil
firm Petroleo Brasileiro S.A., and food retailer Cia Brasileira de
Distribuicao. Major detractors
You will find a complete list of securities that the Fund owns on pages
14-25.
Refer to page 7 for benchmark definitions.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 3
================================================================================
included the Indonesian telecommunication services provider XL Axiata Tbk
PT, Macquarie Mexico Real Estate Management S.A. de C.V., and the South
Korean automaker KIA Motors Corp.
o HOW DID LAZARD'S PORTION OF THE FUND PERFORM?
The portion of the Fund managed by Lazard outperformed the benchmark. On a
sector basis, stock selection in the consumer discretionary and consumer
staples sectors added to relative performance, as did underweight exposures
to consumer discretionary and consumer staples. An overweight to the
information technology sector also boosted performance. Conversely, stock
selection in the energy and telecommunication services sectors detracted
from relative return. On a country basis, stock selection in China and Korea
contributed to positive performance, as did an overweight to Russia.
Conversely, stock selection in Brazil subtracted from performance, as did an
underweight to Brazil, an overweight to Turkey, and an out-of-index exposure
to Argentina.
o HOW DID VICTORY CAPITAL'S PORTION OF THE FUND PERFORM?
The portion of the Fund managed by Victory Capital underperformed for the
reporting period. Holdings in retail trade, consumer durables, and
communications sectors were among their top contributors, while positions in
consumer services, electronic technology, and health technology sectors
detracted. On a country basis, stock selection was strong within India and
Thailand, while selection in South Korea, Taiwan, and Hong Kong lagged. At
the stock level, top contributors to positive performance included Tongda
Group Holdings Ltd., a Hong Kong-listed LDS antenna manufacturer, Beauty
Community PCLNVDR, a Thai skincare and cosmetics retailer, and KCE
Electronics PCLNVDR, a Thai circuit board manufacturer. Yeong Guan Energy
Technology Group Co. Ltd., a Taiwanese casting
================================================================================
4 | USAA EMERGING MARKETS FUND
================================================================================
products manufacturer; Seoul Auction Co. Ltd., a Korean auction house; and
Xurpas, Inc., a Filipino mobile application services provider were among the
detractors.
Thank you for allowing us to help you manage your investments.
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.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 5
================================================================================
INVESTMENT OVERVIEW
USAA EMERGING MARKETS FUND SHARES (FUND SHARES)
(Ticker Symbol: USEMX)
--------------------------------------------------------------------------------
11/30/16 5/31/16
--------------------------------------------------------------------------------
Net Assets $318.5 Million $302.0 Million
Net Asset Value Per Share $15.26 $14.23
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 11/30/16
--------------------------------------------------------------------------------
5/31/16-11/30/16* 1 YEAR 5 YEARS 10 YEARS
7.24% 8.74% -0.78% 0.54%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/16
--------------------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS
12.23% 0.09% 0.13%
--------------------------------------------------------------------------------
EXPENSE RATIO AS OF 5/31/16**
--------------------------------------------------------------------------------
1.58%
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 October 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 EMERGING MARKETS FUND
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
LIPPER EMERGING USAA EMERGING
MSCI EMERGING MARKET FUNDS MARKETS FUND
MARKETS INDEX INDEX SHARES
11/30/06 $10,000.00 $10,000.00 $10,000.00
12/31/06 10,450.30 10,455.11 10,423.00
01/31/07 10,339.97 10,405.02 10,366.00
02/28/07 10,278.59 10,307.40 10,237.00
03/31/07 10,686.40 10,700.31 10,593.00
04/30/07 11,193.40 11,207.23 11,012.00
05/31/07 11,736.76 11,810.35 11,715.00
06/30/07 12,286.93 12,221.66 12,144.00
07/31/07 12,935.23 12,664.72 12,645.00
08/31/07 12,660.33 12,390.19 12,428.00
09/30/07 14,058.55 13,592.17 13,467.00
10/31/07 15,626.37 15,042.45 14,810.00
11/30/07 14,518.37 14,118.15 13,828.00
12/31/07 14,569.56 14,245.39 13,926.00
01/31/08 12,751.36 12,672.14 12,680.00
02/29/08 13,692.57 13,225.23 13,198.00
03/31/08 12,967.97 12,609.08 12,669.00
04/30/08 14,020.37 13,562.84 13,676.00
05/31/08 14,280.48 13,812.67 13,914.00
06/30/08 12,855.95 12,391.67 12,572.00
07/31/08 12,371.03 11,958.44 12,226.00
08/31/08 11,382.88 11,049.84 11,310.00
09/30/08 9,390.85 9,237.85 9,473.00
10/31/08 6,820.79 6,555.13 6,807.00
11/30/08 6,307.34 5,994.19 6,204.00
12/31/08 6,799.26 6,444.77 6,733.00
01/31/09 6,360.16 5,888.57 6,179.00
02/28/09 6,001.39 5,556.90 5,876.00
03/31/09 6,863.84 6,273.20 6,607.00
04/30/09 8,006.03 7,309.74 7,692.00
05/31/09 9,374.00 8,633.95 9,085.00
06/30/09 9,247.73 8,531.86 8,927.00
07/31/09 10,287.61 9,518.74 9,949.00
08/31/09 10,250.80 9,557.24 9,980.00
09/30/09 11,181.26 10,410.61 10,932.00
10/31/09 11,195.09 10,284.16 10,813.00
11/30/09 11,675.96 10,847.85 11,374.00
12/31/09 12,137.08 11,229.79 11,771.00
01/31/10 11,460.17 10,601.70 11,131.00
02/28/10 11,500.48 10,691.37 11,207.00
03/31/10 12,428.97 11,576.14 12,101.00
04/30/10 12,579.55 11,658.74 12,146.00
05/31/10 11,473.08 10,559.21 10,902.00
06/30/10 11,388.76 10,563.37 10,877.00
07/31/10 12,337.15 11,548.92 11,905.00
08/31/10 12,097.56 11,324.24 11,606.00
09/30/10 13,441.94 12,607.52 12,881.00
10/31/10 13,832.24 12,997.81 13,186.00
11/30/10 13,467.09 12,668.52 12,900.00
12/31/10 14,428.10 13,491.82 13,798.00
01/31/11 14,036.67 13,056.02 13,351.00
02/28/11 13,905.77 12,934.48 13,185.00
03/31/11 14,723.35 13,604.64 13,849.00
04/30/11 15,180.05 14,093.49 14,200.00
05/31/11 14,781.89 13,722.53 13,766.00
06/30/11 14,554.50 13,544.23 13,524.00
07/31/11 14,489.87 13,519.26 13,364.00
08/31/11 13,194.98 12,408.78 12,094.00
09/30/11 11,271.23 10,479.72 10,103.00
10/31/11 12,764.17 11,764.91 11,354.00
11/30/11 11,913.50 11,379.13 10,971.00
12/31/11 11,769.92 11,012.79 10,516.00
01/31/12 13,104.92 12,167.45 11,775.00
02/29/12 13,889.92 12,892.09 12,388.00
03/31/12 13,426.27 12,615.67 11,828.00
04/30/12 13,265.80 12,461.01 11,615.00
05/31/12 11,778.11 11,111.78 10,296.00
06/30/12 12,232.69 11,626.59 10,729.00
07/31/12 12,471.33 11,738.01 10,816.00
08/31/12 12,429.79 11,820.71 10,802.00
09/30/12 13,179.83 12,442.30 11,462.00
10/31/12 13,099.80 12,407.54 11,229.00
11/30/12 13,266.13 12,545.60 11,202.00
12/31/12 13,914.78 13,227.00 11,842.00
01/31/13 14,106.63 13,418.36 12,050.00
02/28/13 13,929.41 13,292.19 12,097.00
03/31/13 13,689.48 13,152.06 11,855.00
04/30/13 13,792.66 13,339.63 11,916.00
05/31/13 13,438.80 12,996.74 11,714.00
06/30/13 12,583.31 12,167.84 10,868.00
07/31/13 12,714.78 12,361.06 11,022.00
08/31/13 12,496.38 11,961.31 10,727.00
09/30/13 13,309.02 12,824.28 11,526.00
10/31/13 13,955.62 13,382.73 12,030.00
11/30/13 13,751.55 13,160.03 11,916.00
12/31/13 13,552.74 13,056.33 11,797.00
01/31/14 12,672.68 12,178.52 10,905.00
02/28/14 13,092.47 12,625.03 11,216.00
03/31/14 13,494.36 12,999.92 11,635.00
04/30/14 13,539.43 13,084.30 11,635.00
05/31/14 14,012.04 13,564.94 12,249.00
06/30/14 14,384.32 13,909.17 12,573.00
07/31/14 14,662.47 13,998.83 12,566.00
08/31/14 14,992.89 14,385.73 12,897.00
09/30/14 13,881.60 13,413.42 11,844.00
10/31/14 14,045.26 13,542.84 12,046.00
11/30/14 13,896.72 13,413.52 11,817.00
12/31/14 13,256.26 12,709.20 10,959.00
01/31/15 13,335.73 12,759.01 10,842.00
02/28/15 13,748.65 13,122.50 11,021.00
03/31/15 13,553.13 12,842.93 10,794.00
04/30/15 14,595.55 13,638.82 11,583.00
05/31/15 14,011.05 13,231.27 11,288.00
06/30/15 13,647.19 12,928.01 11,082.00
07/31/15 12,701.18 12,202.40 10,431.00
08/31/15 11,552.38 11,094.35 9,478.00
09/30/15 11,204.87 10,767.84 9,183.00
10/31/15 12,004.13 11,476.19 9,875.00
11/30/15 11,535.88 11,159.82 9,704.00
12/31/15 11,278.72 10,866.96 9,411.00
01/31/16 10,547.04 10,296.55 8,948.00
02/29/16 10,529.77 10,218.57 8,830.00
03/31/16 11,923.14 11,482.38 9,895.00
04/30/16 11,987.95 11,661.85 10,144.00
05/31/16 11,540.76 11,300.38 9,840.00
06/30/16 12,002.02 11,809.64 10,269.00
07/31/16 12,605.99 12,390.09 10,677.00
08/31/16 12,919.27 12,581.09 10,925.00
09/30/16 13,085.41 12,776.25 11,112.00
10/31/16 13,116.61 12,767.00 11,098.00
11/30/16 12,512.83 12,137.14 10,552.00
[END CHART]
Data from 11/30/06 through 11/30/16.
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Emerging Markets Fund Shares to the following benchmarks:
o The unmanaged MSCI Emerging Markets Index is a free-float-adjusted market
capitalization index that is designed to measure equity market performance
in the global emerging markets.
o The unmanaged Lipper Emerging Markets Funds Index tracks the total return
performance of the Lipper Emerging Markets 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 Emerging Markets Funds Index reflects the fees and expenses of
the underlying funds included in the index.
================================================================================
INVESTMENT OVERVIEW | 7
================================================================================
USAA EMERGING MARKETS FUND INSTITUTIONAL SHARES (INSTITUTIONAL SHARES)
(Ticker Symbol: UIEMX)
--------------------------------------------------------------------------------
11/30/16 5/31/16
--------------------------------------------------------------------------------
Net Assets $575.2 Million $604.0 Million
Net Asset Value Per Share $15.25 $14.20
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 11/30/16
--------------------------------------------------------------------------------
5/31/16-11/30/16* 1 YEAR 5 YEARS SINCE INCEPTION 8/01/08
7.39% 9.08% -0.51% -1.29%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/16
--------------------------------------------------------------------------------
1 YEAR 5 YEARS SINCE INCEPTION 8/01/08
12.57% 0.35% -1.26%
--------------------------------------------------------------------------------
EXPENSE RATIO AS OF 5/31/16**
--------------------------------------------------------------------------------
1.30%
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 October 1, 2016, and is
calculated as a percentage of average net assets. The expense ratio may differ
from the expense ratio disclosed in the Financial Highlights, which exclude
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 EMERGING MARKETS FUND
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
LIPPER EMERGING MSCI EMERGING USAA EMERGING MARKETS
MARKET FUNDS MARKETS FUND INSTITUTIONAL
INDEX INDEX SHARES
07/31/08 $10,000.00 $10,000.00 $10,000.00
08/31/08 9,240.21 9,204.52 9,355.60
09/30/08 7,724.97 7,594.69 7,836.31
10/31/08 5,481.60 5,517.29 5,630.29
11/30/08 5,012.52 5,102.36 5,131.70
12/31/08 5,389.31 5,501.72 5,573.05
01/31/09 4,924.20 5,148.66 5,117.78
02/28/09 4,646.85 4,859.08 4,871.84
03/31/09 5,245.84 5,558.04 5,484.09
04/30/09 6,112.62 6,483.80 6,384.15
05/31/09 7,219.97 7,595.45 7,545.85
06/30/09 7,134.60 7,494.64 7,415.03
07/31/09 7,959.86 8,342.75 8,273.23
08/31/09 7,992.05 8,315.13 8,299.39
09/30/09 8,705.66 9,071.25 9,094.79
10/31/09 8,599.92 9,083.31 9,000.60
11/30/09 9,071.29 9,473.95 9,471.56
12/31/09 9,390.69 9,849.25 9,807.63
01/31/10 8,865.46 9,301.54 9,273.63
02/28/10 8,940.44 9,336.23 9,342.36
03/31/10 9,680.31 10,090.71 10,093.13
04/30/10 9,749.39 10,215.22 10,130.14
05/31/10 8,829.92 9,224.74 9,104.44
06/30/10 8,833.41 9,254.27 9,083.29
07/31/10 9,657.55 10,031.48 9,945.09
08/31/10 9,469.67 9,840.03 9,701.89
09/30/10 10,542.79 10,934.88 10,769.89
10/31/10 10,869.16 11,253.34 11,028.96
11/30/10 10,593.79 10,956.73 10,732.88
12/31/10 11,282.27 11,739.89 11,541.35
01/31/11 10,917.84 11,423.61 11,178.18
02/28/11 10,816.20 11,318.77 11,044.66
03/31/11 11,376.60 11,986.03 11,600.10
04/30/11 11,785.40 12,360.44 11,899.18
05/31/11 11,475.19 12,041.15 11,536.01
06/30/11 11,326.09 11,860.98 11,338.40
07/31/11 11,305.21 11,816.37 11,204.89
08/31/11 10,376.59 10,764.74 10,142.08
09/30/11 8,763.46 9,197.12 8,475.76
10/31/11 9,838.17 10,416.25 9,527.89
11/30/11 9,515.57 9,722.61 9,207.45
12/31/11 9,209.22 9,606.36 8,829.95
01/31/12 10,174.79 10,697.83 9,888.20
02/29/12 10,780.75 11,340.61 10,408.93
03/31/12 10,549.60 10,964.50 9,938.60
04/30/12 10,420.27 10,835.34 9,759.42
05/31/12 9,292.01 9,625.84 8,656.38
06/30/12 9,722.50 10,001.88 9,025.93
07/31/12 9,815.67 10,204.18 9,098.72
08/31/12 9,884.83 10,174.69 9,087.52
09/30/12 10,404.62 10,790.66 9,641.84
10/31/12 10,375.56 10,726.31 9,451.47
11/30/12 10,491.01 10,863.28 9,429.07
12/31/12 11,060.81 11,395.75 9,973.87
01/31/13 11,220.84 11,554.64 10,149.75
02/28/13 11,115.32 11,411.13 10,195.14
03/31/13 10,998.15 11,192.26 9,990.89
04/30/13 11,155.00 11,306.01 10,047.63
05/31/13 10,868.26 11,021.27 9,877.42
06/30/13 10,175.11 10,324.88 9,162.57
07/31/13 10,336.69 10,438.34 9,293.06
08/31/13 10,002.41 10,263.17 9,049.10
09/30/13 10,724.05 10,933.84 9,724.23
10/31/13 11,191.04 11,466.66 10,149.74
11/30/13 11,004.81 11,299.89 10,058.97
12/31/13 10,918.10 11,137.43 9,958.64
01/31/14 10,184.05 10,416.70 9,209.31
02/28/14 10,557.43 10,763.95 9,478.16
03/31/14 10,870.92 11,096.78 9,832.80
04/30/14 10,941.48 11,138.09 9,832.80
05/31/14 11,343.41 11,529.40 10,353.33
06/30/14 11,631.26 11,840.94 10,627.89
07/31/14 11,706.24 12,079.62 10,622.17
08/31/14 12,029.78 12,356.67 10,902.45
09/30/14 11,216.70 11,443.32 10,010.12
10/31/14 11,324.93 11,579.57 10,187.44
11/30/14 11,216.79 11,457.79 9,992.96
12/31/14 10,627.81 10,935.14 9,271.63
01/31/15 10,669.47 11,001.59 9,178.45
02/28/15 10,973.43 11,343.55 9,329.87
03/31/15 10,739.64 11,184.52 9,131.86
04/30/15 11,405.19 12,047.58 9,807.43
05/31/15 11,064.38 11,325.70 9,562.83
06/30/15 10,810.79 11,031.57 9,388.11
07/31/15 10,204.01 10,266.87 8,834.84
08/31/15 9,277.43 9,338.26 8,031.14
09/30/15 9,004.39 9,057.34 7,786.54
10/31/15 9,596.73 9,703.42 8,368.93
11/30/15 9,332.17 9,324.91 8,229.16
12/31/15 9,087.27 9,117.04 7,982.00
01/31/16 8,610.28 8,525.57 7,593.00
02/29/16 8,545.08 8,511.64 7,499.00
03/31/16 9,601.91 9,637.96 8,400.00
04/30/16 9,751.99 9,690.34 8,618.00
05/31/16 9,449.71 9,328.86 8,359.00
06/30/16 9,875.58 9,701.71 8,724.00
07/31/16 10,360.96 10,189.93 9,077.00
08/31/16 10,520.68 10,443.17 9,289.00
09/30/16 10,683.88 10,577.46 9,448.00
10/31/16 10,676.15 10,602.68 9,436.00
11/30/16 10,149.44 10,114.62 8,977.00
[END CHART]
Data from 7/31/08 through 11/30/16.*
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Emerging Markets Fund Institutional Shares to the Fund's benchmarks listed
above (see page 7 for benchmark definitions).
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 Emerging Markets Funds Index reflects the fees and expenses of
the underlying funds included in the index.
*The performance of the Lipper Emerging Markets Funds Index and the MSCI
Emerging Markets Index is calculated from the end of the month, July 31, 2008,
while the inception date of the Institutional Shares is August 1, 2008. There
may be a slight variation of performance numbers because of this difference.
================================================================================
INVESTMENT OVERVIEW | 9
================================================================================
USAA EMERGING MARKETS FUND ADVISER SHARES (ADVISER SHARES)
(Ticker Symbol: UAEMX)
--------------------------------------------------------------------------------
11/30/16 5/31/16
--------------------------------------------------------------------------------
Net Assets $4.2 Million $3.9 Million
Net Asset Value Per Share $15.21 $14.19
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 11/30/16
--------------------------------------------------------------------------------
5/31/16-11/30/16* 1 YEAR 5 YEARS SINCE INCEPTION 8/01/10
7.19% 8.63% -1.04% -2.55%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/16
--------------------------------------------------------------------------------
1 YEAR 5 YEARS SINCE INCEPTION 8/01/10
12.12% -0.19% -2.52%
--------------------------------------------------------------------------------
EXPENSE RATIOS AS OF 5/31/16**
--------------------------------------------------------------------------------
BEFORE REIMBURSEMENT 1.92% AFTER REIMBURSEMENT 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.
*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 October 1, 2016, and
are calculated as a percentage of average net assets. USAA Asset Management
Company (the Manager) has agreed, through September 30, 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 1.65% 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 September 30, 2017.
If the total annual operating expense ratio of the Adviser Shares is lower than
1.65%, 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.
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.
================================================================================
10 | USAA EMERGING MARKETS FUND
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
LIPPER EMERGING USAA EMERGING MARKETS
MARKET FUNDS MSCI EMERGING FUND ADVISER
INDEX MARKETS INDEX SHARES
07/31/10 $10,000.00 $10,000.00 $10,000.00
08/31/10 9,805.45 9,809.16 9,516.13
09/30/10 10,916.63 10,900.57 10,556.71
10/31/10 11,254.57 11,218.03 10,801.25
11/30/10 10,969.44 10,922.35 10,567.12
12/31/10 11,682.33 11,703.05 11,294.94
01/31/11 11,304.98 11,387.76 10,923.50
02/28/11 11,199.74 11,283.25 10,787.48
03/31/11 11,780.01 11,948.42 11,326.33
04/30/11 12,203.30 12,321.66 11,608.83
05/31/11 11,882.09 12,003.37 11,247.85
06/30/11 11,727.70 11,823.76 11,049.05
07/31/11 11,706.09 11,779.29 10,913.03
08/31/11 10,744.54 10,730.96 9,871.95
09/30/11 9,074.20 9,168.26 8,244.94
10/31/11 10,187.02 10,383.57 9,265.09
11/30/11 9,852.98 9,692.10 8,945.97
12/31/11 9,535.77 9,576.22 8,571.56
01/31/12 10,535.58 10,664.27 9,594.06
02/29/12 11,163.03 11,305.03 10,094.43
03/31/12 10,923.68 10,930.10 9,632.13
04/30/12 10,789.77 10,801.35 9,458.09
05/31/12 9,621.49 9,595.64 8,381.21
06/30/12 10,067.25 9,970.49 8,729.29
07/31/12 10,163.73 10,172.16 8,799.99
08/31/12 10,235.34 10,142.77 8,783.68
09/30/12 10,773.56 10,756.81 9,316.68
10/31/12 10,743.46 10,692.66 9,120.88
11/30/12 10,863.01 10,829.20 9,093.70
12/31/12 11,453.02 11,359.99 9,616.54
01/31/13 11,618.72 11,518.38 9,775.18
02/28/13 11,509.46 11,375.33 9,813.47
03/31/13 11,388.13 11,157.14 9,611.07
04/30/13 11,550.55 11,270.53 9,660.30
05/31/13 11,253.64 10,986.68 9,490.72
06/30/13 10,535.91 10,292.48 8,801.49
07/31/13 10,703.22 10,405.59 8,921.83
08/31/13 10,357.08 10,230.96 8,681.14
09/30/13 11,104.31 10,899.53 9,326.62
10/31/13 11,587.87 11,430.68 9,725.94
11/30/13 11,395.03 11,264.43 9,632.95
12/31/13 11,305.24 11,102.49 9,535.75
01/31/14 10,545.16 10,384.01 8,812.77
02/28/14 10,931.79 10,730.18 9,064.72
03/31/14 11,256.39 11,061.96 9,404.30
04/30/14 11,329.46 11,103.14 9,404.30
05/31/14 11,745.63 11,493.22 9,902.72
06/30/14 12,043.70 11,803.78 10,160.15
07/31/14 12,121.33 12,041.71 10,154.67
08/31/14 12,456.34 12,317.89 10,417.58
09/30/14 11,614.44 11,407.41 9,557.66
10/31/14 11,726.50 11,543.24 9,721.98
11/30/14 11,614.52 11,421.83 9,535.75
12/31/14 11,004.67 10,900.83 8,840.59
01/31/15 11,047.80 10,967.06 8,746.25
02/28/15 11,362.54 11,307.96 8,890.54
03/31/15 11,120.46 11,149.42 8,701.85
04/30/15 11,809.61 12,009.78 9,340.06
05/31/15 11,456.72 11,356.80 9,101.43
06/30/15 11,194.13 11,061.87 8,929.39
07/31/15 10,565.84 10,295.07 8,402.17
08/31/15 9,606.40 9,363.90 7,630.77
09/30/15 9,323.68 9,082.22 7,397.68
10/31/15 9,937.03 9,730.07 7,952.65
11/30/15 9,663.09 9,350.52 7,813.91
12/31/15 9,409.50 9,142.08 7,573.00
01/31/16 8,915.59 8,548.98 7,205.00
02/29/16 8,848.08 8,535.01 7,110.00
03/31/16 9,942.39 9,664.42 7,964.00
04/30/16 10,097.78 9,716.95 8,165.00
05/31/16 9,784.79 9,354.48 7,919.00
06/30/16 10,225.76 9,728.35 8,260.00
07/31/16 10,728.35 10,217.91 8,589.00
08/31/16 10,893.74 10,471.85 8,790.00
09/30/16 11,062.73 10,606.50 8,941.00
10/31/16 11,054.72 10,631.79 8,924.00
11/30/16 10,509.33 10,142.39 8,489.00
[END CHART]
Data from 7/31/10 through 11/30/16.*
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Emerging Markets Fund Adviser Shares to the Fund's benchmarks listed above
(see page 7 for benchmark definitions).
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 Emerging Markets Funds Index reflects the fees and expenses of
the underlying funds included in the index.
*The performance of the Lipper Emerging Markets Funds Index and the MSCI
Emerging Markets 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.
================================================================================
INVESTMENT OVERVIEW | 11
================================================================================
o TOP 10 INDUSTRIES - 11/30/16 o
(% of Net Assets)
Diversified Banks ........................................................ 19.3%
Internet Software & Services ............................................. 7.7%
Semiconductors ........................................................... 5.4%
Integrated Oil & Gas ..................................................... 4.4%
Wireless Telecommunication Services ...................................... 3.7%
Technology Hardware, Storage, & Peripherals .............................. 3.5%
Automobile Manufacturers ................................................. 3.3%
Pharmaceuticals .......................................................... 3.2%
Oil & Gas Exploration & Production ....................................... 2.8%
Life & Health Insurance .................................................. 2.0%
o TOP 10 EQUITY HOLDINGS - 11/30/16 o
(% of Net Assets)
Samsung Electronics Co. Ltd. .............................................. 2.9%
Sberbank of Russia PJSC ................................................... 2.8%
Baidu, Inc. ADR ........................................................... 2.0%
Taiwan Semiconductor Manufacturing Co. Ltd. ADR ........................... 1.7%
NetEase, Inc. ADR ......................................................... 1.6%
Ping An Insurance (Group) Co. of China Ltd. "H" ........................... 1.5%
Brilliance China Automotive Holdings Ltd. ................................. 1.5%
Tencent Holdings Ltd. ..................................................... 1.5%
Alibaba Group Holding Ltd. ADR ............................................ 1.5%
Bank Rakyat Indonesia (Persero) Tbk PT .................................... 1.4%
You will find a complete list of securities that the Fund owns on pages 14-25.
================================================================================
12 | USAA EMERGING MARKETS FUND
================================================================================
o COUNTRY ALLOCATION - 11/30/16 o
[PIE CHART OF COUNTRY ALLOCATION]
CHINA 21.9%
SOUTH KOREA 11.5%
INDIA 9.8%
RUSSIA 9.7%
TAIWAN 8.0%
BRAZIL 7.3%
TURKEY 4.4%
INDONESIA 4.1%
MEXICO 3.5%
OTHER* 19.2%
[END CHART]
*Includes countries with less than 3% of portfolio and money market instruments.
Percentages are of the net assets of the Fund and may not equal 100%.
================================================================================
INVESTMENT OVERVIEW | 13
================================================================================
PORTFOLIO OF INVESTMENTS
November 30, 2016 (unaudited)
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (96.8%)
COMMON STOCKS (95.8%)
CONSUMER DISCRETIONARY (13.2%)
------------------------------
ADVERTISING (0.3%)
29,694 Innocean Worldwide, Inc.(a) $ 1,582
829,819 ITE Group plc(a) 1,526
-------
3,108
-------
APPAREL, ACCESSORIES & LUXURY GOODS (1.3%)
374,000 Bon Fame Co. Ltd.(a) 1,794
26,624,000 Bosideng International Holdings Ltd.(a),(b) 2,503
1,924,000 Regina Miracle International Holdings Ltd.(a),(c) 1,893
704,100 Samsonite International S.A.(a) 2,203
390,000 Shenzhou International Group(a) 2,396
56,034 Youngone Corp.(a) 1,320
-------
12,109
-------
AUTO PARTS & EQUIPMENT (1.7%)
456,936 Hota Industrial Manufacturing Co., Ltd.(a) 1,754
49,922 Hyundai Mobis Co. Ltd.(a) 10,617
2,033,000 Nexteer Automotive Group Ltd.(a) 2,546
-------
14,917
-------
AUTOMOBILE MANUFACTURERS (3.0%)
9,723,722 Brilliance China Automotive Holdings Ltd.(a) 13,596
2,712,000 Dongfeng Motor Group Co. Ltd."H"(a) 2,755
72,060 KIA Motors Corp.(a) 2,303
220,511 Tata Motors Ltd. ADR 7,292
178,191 Tofas Turk Otomobil Fabrikasi A.S.(a) 1,113
-------
27,059
-------
CABLE & SATELLITE (0.2%)
297,824 Cyfrowy Polsat S.A.*(a) 1,709
-------
CASINOS & GAMING (0.3%)
893,400 Genting Malaysia Berhad(a) 933
3,420,000 NagaCorp Ltd.(a) 2,107
-------
3,040
-------
================================================================================
14 | USAA EMERGING MARKETS FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
DEPARTMENT STORES (0.8%)
2,339,500 Lifestyle China Group Ltd.*(a) $ 603
2,339,500 Lifestyle International Holdings Ltd.(a) 3,002
251,000 Lojas Renner S.A. 1,668
128,262 Poya International Co. Ltd.(a) 1,605
-------
6,878
-------
EDUCATION SERVICES (1.6%)
560,500 Estacio Participacoes S.A. 2,781
201,850 New Oriental Education & Technology Group, Inc. ADR* 10,127
283,000 Ser Educacional S.A. 1,698
-------
14,606
-------
FOOTWEAR (0.3%)
491,500 Alpargatas S.A. 1,489
332,000 Yue Yuen Industrial Holdings Ltd.(a) 1,196
-------
2,685
-------
HOMEBUILDING (0.1%)
1,496,390 URBI, Desarrollos Urbanos, S.A. de C.V.* (b),(c) 928
61,905 Viver Incorporadora e Construtora S.A. 34
-------
962
-------
HOTELS, RESORTS & CRUISE LINES (0.2%)
254,600 CVC Brasil Operadora e Agencia de Viagens S.A. 1,791
-------
HOUSEHOLD APPLIANCES (0.2%)
939,000 Basso Industry Corp.(a) 2,178
-------
INTERNET RETAIL (0.2%)
972,000 Cogobuy Group*(a) 1,478
-------
LEISURE FACILITIES (0.2%)
4,730,036 DXB Entertainments PJSC*(a) 1,889
-------
MOTORCYCLE MANUFACTURERS (0.6%)
128,871 Bajaj Auto Ltd.(a) 5,077
-------
MOVIES & ENTERTAINMENT (0.2%)
412,220 Inox Leisure Ltd.*(a) 1,415
-------
RESTAURANTS (0.5%)
506,000 Alsea S.A.B. de C.V. 1,486
238,281 Arcos Dorados Holdings, Inc."A"* 1,406
1,050,800 International Meal Co. Alimentacao S.A.* 1,662
-------
4,554
-------
SPECIALIZED CONSUMER SERVICES (0.2%)
163,737 Seoul Auction Co. Ltd.(a) 1,419
-------
================================================================================
PORTFOLIO OF INVESTMENTS | 15
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
SPECIALTY STORES (0.8%)
5,591,100 Beauty Community PCL NVDR(a) $ 1,720
2,827,400 Chow Tai Fook Jewellery Group Ltd.(a) 2,313
869,000 Luk Fook Holdings International Ltd.(a) 2,514
147,360 PC Jeweller Ltd.(a) 796
--------
7,343
--------
TEXTILES (0.5%)
1,876,000 Best Pacific International Holdings Ltd. "H"(a) 1,533
418,974 Himatsingka Seide Ltd.(a) 1,728
1,769,000 Weiqiao Textile Co. Ltd. "H"(a) 1,151
--------
4,412
--------
Total Consumer Discretionary 118,629
--------
CONSUMER STAPLES (4.7%)
-----------------------
BREWERS (0.5%)
975,600 Ambev S.A. ADR 4,868
--------
FOOD RETAIL (1.3%)
37,897 GS Retail Co. Ltd.(a) 1,533
325,904 X5 Retail Group N.V. GDR*(a) 9,777
--------
11,310
--------
HOUSEHOLD PRODUCTS (0.5%)
2,335,000 Kimberly-Clark de Mexico S.A. de C.V. "A" 4,085
--------
HYPERMARKETS & SUPER CENTERS (0.5%)
292,325 Cia Brasileira de Distribuicao 4,719
--------
PACKAGED FOODS & MEAT (1.4%)
71,036 Adecoagro S.A.* 780
20,951 Binggrae Co. Ltd.(a) 1,153
32,833 Britannia Industries Ltd.(a) 1,461
504,362 CCL Products India Ltd.(a) 1,894
549,100 Malee Group PCL Ltd. NVDR(a) 1,724
143,536 Manpasand Beverages Ltd.(a) 1,291
1,496,536 Marfrig Global Foods S.A.* 2,881
188,646 Ulker Biskuvi Sanayi A.S.(a) 946
--------
12,130
--------
PERSONAL PRODUCTS (0.2%)
279,100 Natura Cosmeticos S.A. 2,162
--------
TOBACCO (0.3%)
32,116 KT&G Corp.(a) 2,885
--------
Total Consumer Staples 42,159
--------
================================================================================
16 | USAA EMERGING MARKETS FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
ENERGY (8.3%)
-------------
COAL & CONSUMABLE FUELS (0.8%)
2,733,000 China Shenhua Energy Co. Ltd. "H"(a) $ 5,649
1,025,700 United Tractors Tbk PT(a) 1,586
-------
7,235
-------
INTEGRATED OIL & GAS (4.0%)
625,109 Galp Energia SGPS S.A.(a) 8,495
579,622 Gazprom PAO ADR 2,689
868,250 Gazprom PAO ADR(a) 3,993
208,069 Lukoil PJSC ADR 10,239
98,500 Petroleo Brasileiro S.A.* 466
591,535 YPF S.A. ADR 10,050
-------
35,932
-------
OIL & GAS EQUIPMENT & SERVICES (0.1%)
2,019,000 Hilong Holding Ltd.(a) 544
-------
OIL & GAS EXPLORATION & PRODUCTION (2.8%)
8,626,000 CNOOC Ltd.(a) 11,362
109,801 NovaTek OAO GDR(a) 12,934
125,646 Oil and Natural Gas Corp. Ltd.(a) 527
-------
24,823
-------
OIL & GAS REFINING & MARKETING (0.6%)
205,436 Reliance Industries Ltd. GDR(a),(c) 5,886
-------
Total Energy 74,420
-------
FINANCIALS (22.4%)
------------------
CONSUMER FINANCE (0.4%)
33,673 Kruk S.A.(a) 1,638
612,900 Unifin Financiera, S.A.P.I. DE C.V., SOFOM, E.N.R. 1,484
-------
3,122
-------
DIVERSIFIED BANKS (19.2%)
25,951,653 Agricultural Bank of China Ltd."H"(a) 10,856
591,036 Akbank T.A.S.(a) 1,294
348,772 Axis Bank Ltd. GDR(a) 12,102
1,043,795 Banco do Brasil S.A. 8,796
33,600 Banco Latinoamericano de Exportaciones S.A."E" 957
202,776 Bancolombia S.A. ADR 6,793
521,700 Bangkok Bank Public Co. Ltd. NVDR(a) 2,277
7,802,795 Bank Mandiri (Persero) Tbk PT(a) 6,024
16,140,600 Bank Rakyat Indonesia (Persero) Tbk PT(a) 12,996
50,541 BGEO Group PLC(a) 1,870
15,052,000 China Construction Bank Corp."H"(a) 11,194
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
868,053 Commercial International Bank GDR(a) $ 3,344
54,900 Credicorp Ltd. 8,602
131,303 Erste Group Bank AG(a) 3,652
255,570 Grupo Aval Acciones Y Valores ADR 1,937
390,965 Grupo Aval Acciones Y Valores S.A. 148
1,313,500 Grupo Financiero Banorte S.A."O" 6,299
55,824 Hana Financial Group, Inc.(a) 1,546
1,026,564 ICICI Bank Ltd. ADR 8,048
4,304,900 Jasmine Broadband Internet Infrastructure Fund(d) 1,400
294,100 Kasikornbank PCL NVDR(a) 1,394
20,295 KB Financial Group, Inc.(a) 737
232,740 OTP Bank plc(a) 6,260
10,239,250 Sberbank of Russia PJSC(d) 25,339
273,471 Sberbank of Russia PJSC ADR 2,758
244,016 Shinhan Financial Group Co. Ltd.(a) 9,217
456,777 Standard Bank Group Ltd.(a) 4,897
92,773 Standard Chartered plc*(a) 744
2,907,997 Turkiye Garanti Bankasi A.S.(a) 6,144
2,369,035 Turkiye Is Bankasi "C"(a) 3,311
1,537,800 Turkiye Vakiflar Bankasi T.A.O. "D"(a) 1,857
--------
172,793
--------
LIFE & HEALTH INSURANCE (2.0%)
751,409 Hanwha Life Insurance Co. Ltd.(a) 4,301
2,538,500 Ping An Insurance (Group) Co. of China Ltd."H"(a) 14,008
--------
18,309
--------
MULTI-LINE INSURANCE (0.2%)
4,823,500 Tune Protect Group Berhad(a) 1,585
--------
MULTI-SECTOR HOLDINGS (0.6%)
4,036,000 First Pacific Co. Ltd.(a) 2,845
216,110 Haci Omer Sabanci Holdings A.S.(a) 549
12,494,300 Metro Pacific Investments Corp.(a) 1,557
--------
4,951
--------
Total Financials 200,760
--------
HEALTH CARE (4.6%)
------------------
HEALTH CARE EQUIPMENT (0.3%)
42,035 DIO Corp.*(a) 1,459
56,189 Value Added Technology Co. Ltd.(a) 1,604
--------
3,063
--------
HEALTH CARE FACILITIES (0.8%)
24,854,800 Chularat Hospital PCL NVDR(a) 2,015
483,173 HealthCare Global Enterprises Ltd.*(a) 1,754
================================================================================
18 | USAA EMERGING MARKETS FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
751,375 Life Healthcare Group Holdings Ltd.(a) $ 1,649
7,882,100 Mitra Keluarga Karyasehat Tbk PT(a) 1,454
-------
6,872
-------
HEALTH CARE SUPPLIES (0.3%)
390,000 Bioteque Corp.(a) 1,443
672,000 United Orthopedic Corp.(a) 1,335
-------
2,778
-------
PHARMACEUTICALS (3.2%)
52,898 Ajanta Pharma Ltd.(a) 1,477
962,814 Aurobindo Pharma Ltd.(a) 10,506
1,673,000 China Animal Healthcare Ltd.*(b),(d) 490
4,418,000 China Medical System Holdings Ltd.(a) 7,361
583,400 Glenmark Pharmaceuticals Ltd.(a) 7,494
578,447 Suven Life Sciences Ltd.(a) 1,547
-------
28,875
-------
Total Health Care 41,588
-------
INDUSTRIALS (7.1%)
------------------
AEROSPACE & DEFENSE (1.4%)
2,638,459 Aselsan Elektronik Sanayi Ve Ticaret A.S.(a) 8,485
222,265 Embraer S.A. ADR 4,354
-------
12,839
-------
AGRICULTURAL & FARM MACHINERY (0.2%)
1,269,051 Jain Irrigation Systems Ltd.(a) 1,664
-------
AIR FREIGHT & LOGISTICS (0.2%)
1,408,000 Kerry TJ Logistics Co. Ltd.(a) 1,946
-------
AIRLINES (0.2%)
24,334 Copa Holdings S.A."A" 2,162
-------
AIRPORT SERVICES (0.0%)
67,567 TAV Havalimanlari Holding A.S.(a) 253
-------
BUILDING PRODUCTS (0.2%)
32,480,300 Arwana Citramulia Tbk PT(a) 1,383
-------
CONSTRUCTION & ENGINEERING (1.7%)
8,495,700 Adhi Karya Persero Tbk PT(a) 1,195
6,679,713 China State Construction International Holdings Ltd.(a) 10,787
42,565 Hyundai Engineering and Construction Co. Ltd.(a) 1,429
916,219 KEC International Ltd.(a) 1,943
-------
15,354
-------
CONSTRUCTION MACHINERY & HEAVY TRUCKS (0.1%)
68,916 China Yuchai International Ltd. 861
-------
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
DIVERSIFIED SUPPORT SERVICES (0.1%)
672,920 Blue Label Telecoms Ltd.(a) $ 910
-------
ELECTRICAL COMPONENTS & EQUIPMENT (0.1%)
107,898 Vitzrocell Co. Ltd.(a) 1,181
-------
HIGHWAYS & RAILTRACKS (0.6%)
1,282,000 CCR S.A. 5,576
-------
INDUSTRIAL CONGLOMERATES (0.9%)
163,391 Bidvest Group Ltd.(a) 1,884
321,380 Koc Holding A.S. ADR 5,801
-------
7,685
-------
INDUSTRIAL MACHINERY (0.2%)
5,691,400 SKP Resources Berhad(a) 1,744
-------
RAILROADS (0.2%)
366,710 Globaltrans Investment plc GDR 2,035
-------
TRUCKING (1.0%)
9,803 CJ Korea Express Corp.*(a) 1,547
679,180 Localiza Rent a Car S.A. 6,960
-------
8,507
-------
Total Industrials 64,100
-------
INFORMATION TECHNOLOGY (24.1%)
------------------------------
APPLICATION SOFTWARE (0.1%)
4,681,100 Xurpas, Inc.(a) 911
-------
COMMUNICATIONS EQUIPMENT (0.2%)
753,425 Wistron NeWeb Corp.(a) 2,228
-------
DATA PROCESSING & OUTSOURCED SERVICES (1.1%)
789,284 Cielo S.A. ADR 6,855
2,676,600 My E.G. Services Berhad(a) 1,347
61,017 NICE Information & Telecommunication, Inc.(a) 1,731
-------
9,933
-------
ELECTRONIC COMPONENTS (1.5%)
586,400 KCE Electronics PCL NVDR(a) 1,980
70,406 Largan Precision Co. Ltd.(a) 8,091
11,780,000 Tongda Group Holdings Ltd.(a) 3,454
-------
13,525
-------
ELECTRONIC EQUIPMENT & INSTRUMENTS (0.3%)
4,356,000 Wasion Group Holdings Ltd.(a) 2,741
-------
================================================================================
20 | USAA EMERGING MARKETS FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
ELECTRONIC MANUFACTURING SERVICES (1.6%)
1,171,246 AAC Technologies Holdings, Inc.(a) $ 10,580
736,795 Hon Hai Precision Industry Co. Ltd. GDR "S"(a) 3,691
--------
14,271
--------
HOME ENTERTAINMENT SOFTWARE (1.1%)
44,161 NCsoft Corp.(a) 10,269
--------
INTERNET SOFTWARE & SERVICES (7.7%)
141,740 Alibaba Group Holding Ltd. ADR* 13,326
105,611 Baidu, Inc. ADR* 17,632
65,020 NetEase, Inc. ADR 14,571
542,500 Tencent Holdings Ltd.(a) 13,508
516,001 Yandex N.V. "A"* 9,809
--------
68,846
--------
IT CONSULTING & OTHER SERVICES (1.1%)
151,737 EOH Holdings Ltd.(a) 1,779
435,360 HCL Technologies Ltd.(a) 5,120
82,625 Tata Consultancy Services Ltd.(a) 2,742
--------
9,641
--------
SEMICONDUCTOR EQUIPMENT (0.3%)
78,015 Viatron Technologies, Inc.(a) 1,471
93,958 Wonik IPS Co. Ltd.*(a) 1,697
--------
3,168
--------
SEMICONDUCTORS (5.4%)
5,632,000 Advanced Semiconductor Engineering, Inc.(a) 6,019
837,000 Richwave Technology Corp.(a) 1,447
95,795 Silicon Motion Technology Corp. ADR 4,406
221,457 SK Hynix, Inc.(a) 8,067
2,208,267 Taiwan Semiconductor Manufacturing Co. Ltd.(a) 12,653
526,500 Taiwan Semiconductor Manufacturing Co. Ltd. ADR 15,632
--------
48,224
--------
SYSTEMS SOFTWARE (0.0%)
15,279 NIIT Technologies Ltd. 95
--------
TECHNOLOGY DISTRIBUTORS (0.2%)
452,756 DataTec Ltd.(a) 1,448
--------
TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (3.5%)
737,000 Catcher Technology Co. Ltd.(a) 5,353
17,380 Samsung Electronics Co. Ltd.(a) 25,715
--------
31,068
--------
Total Information Technology 216,368
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 21
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
MATERIALS (3.9%)
----------------
COMMODITY CHEMICALS (0.2%)
4,060,600 Eastern Polymer Group NVDR(a) $ 1,510
-------
CONSTRUCTION MATERIALS (1.5%)
2,662,500 Anhui Conch Cement Co. Ltd."H"(a) 7,694
528,289 Cemex S.A.B. de C.V. ADR* 4,126
2,210,100 Semen Gresik (Perssero) Tbk PT(a) 1,444
-------
13,264
-------
DIVERSIFIED METALS & MINING (1.0%)
379,520 Freeport-McMoRan, Inc.* 5,826
1,283,700 Grupo Mexico S.A.B. de C.V. "B" 3,516
-------
9,342
-------
FOREST PRODUCTS (0.1%)
3,971,800 Heveaboard Berhad(a) 1,336
-------
METAL & GLASS CONTAINERS (0.2%)
45,224 Yonwoo Co. Ltd.*(a) 1,425
-------
SPECIALTY CHEMICALS (0.4%)
135,950 Aarti Industries Ltd.(a) 1,447
24,287 Hansol Chemical Co. Ltd.(a) 1,809
-------
3,256
-------
STEEL (0.5%)
10,170 POSCO(a) 2,177
62,018 Ternium S.A. ADR 1,519
354,000 Yeong Guan Energy Technology Group Co. Ltd.(a) 1,187
-------
4,883
-------
Total Materials 35,016
-------
REAL ESTATE (1.2%)
------------------
REITs - INDUSTRIAL (0.5%)
2,344,276 Macquarie Mexico Real Estate Management S.A de C.V. 2,349
1,794,316 Pla Administradora Industria 2,475
-------
4,824
-------
REITs - RESIDENTIAL (0.7%)
7,556,555 Emlak Konut Gayrimenkul Yatirim Ortakligi A.S.(a) 6,329
-------
Total Real Estate 11,153
-------
TELECOMMUNICATION SERVICES (5.5%)
---------------------------------
ALTERNATIVE CARRIERS (0.2%)
6,140,000 Citic Telecom International(a) 2,021
-------
================================================================================
22 | USAA EMERGING MARKETS FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (1.6%)
181,476 02 Czech Republic A.S.(a) $ 1,666
169,878 Hellenic Telecommunications Organization S.A.(a) 1,543
1,947,500 HKBN Ltd.(a) 2,206
451,329 Magyar Telekom Telecommunications plc(a) 753
292,500 Telekomunikasi Indonesia (Persero) Tbk PT ADR 8,219
--------
14,387
--------
WIRELESS TELECOMMUNICATION SERVICES (3.7%)
251,063 America Movil S.A.B. de C.V. ADR "L" 3,040
313,100 China Mobile Ltd.(a) 3,424
149,565 China Mobile Ltd. ADR 8,180
103,364 Empresa Nacional de Telecomunicaciones S.A.* 1,138
668,936 Mobile TeleSystems ADR 5,238
820,383 Mobile TeleSystems PJSC(d) 2,957
74,180 PLDT Inc. ADR 1,965
140,597 TIM Participacoes S.A. ADR 1,710
487,900 Turkcell Iletisim Hizmetleri A.S. ADR* 3,220
12,451,762 XL Axiata Tbk PT*(a) 2,118
--------
32,990
--------
Total Telecommunication Services 49,398
--------
UTILITIES (0.8%)
----------------
ELECTRIC UTILITIES (0.6%)
46,400 Companhia Paranaense de Energia 288
22,651 Companhia Paranaense de Energia ADR 193
90,700 Companhia Paranaense de Energia-Copel 776
23,236,212 Enel Chile S.A. 2,200
30,183 Reliance Infrastructure Ltd.(a) 211
83,444 Reliance Infrastructure Ltd. GDR 1,756
--------
5,424
--------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS (0.2%)
4,596,557 Adani Power Ltd.*(a) 1,923
--------
Total Utilities 7,347
--------
Total Common Stocks (cost: $787,317) 860,938
--------
PREFERRED STOCKS (1.0%)
CONSUMER DISCRETIONARY (0.3%)
-----------------------------
AUTOMOBILE MANUFACTURERS (0.3%)
38,050 Hyundai Motor Co. Ltd.(a) 3,121
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 23
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
ENERGY (0.4%)
-------------
INTEGRATED OIL & GAS (0.4%)
98,934 Petroleo Brasileiro S.A. ADR* $ 928
5,367,000 Surgutneftegas(d) 2,639
--------
3,567
--------
Total Energy 3,567
--------
FINANCIALS (0.1%)
-----------------
DIVERSIFIED BANKS (0.1%)
76,507 Banco Bradesco S.A. 673
--------
TELECOMMUNICATION SERVICES (0.2%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (0.2%)
113,660 Telefonica Brasil S.A. ADR 1,483
--------
Total Preferred Stocks (cost: $9,443) 8,844
--------
Total Equity Securities (cost: $796,760) 869,782
--------
MONEY MARKET INSTRUMENTS (2.6%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (2.6%)
23,199,771 State Street Institutional Treasury Money Market Fund Premier Class, 0.25%(e)
(cost: $23,200) 23,200
--------
TOTAL INVESTMENTS (COST: $819,960) $892,982
========
--------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
--------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
--------------------------------------------------------------------------------------------------------
Equity Securities:
Common Stocks $318,301 $542,147 $490 $860,938
Preferred Stocks 3,084 5,760 - 8,844
Money Market Instruments:
Government & U.S. Treasury Money Market Funds 23,200 - - 23,200
--------------------------------------------------------------------------------------------------------
Total $344,585 $547,907 $490 $892,982
--------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
================================================================================
24 | USAA EMERGING MARKETS FUND
================================================================================
--------------------------------------------------------------------------------------------------------
RECONCILIATION OF LEVEL 3 INVESTMENTS
--------------------------------------------------------------------------------------------------------
COMMON STOCKS
--------------------------------------------------------------------------------------------------------
Balance as of May 31, 2016 $ 1,713
Purchases -
Sales -
Transfers into Level 3 -
Transfers out of Level 3 (1,142)
Net realized gain (loss) on investments -
Change in net unrealized appreciation/(depreciation) of investments (81)
--------------------------------------------------------------------------------------------------------
Balance as of November 30, 2016 $ 490
--------------------------------------------------------------------------------------------------------
FAIR VALUE LEVEL TRANSFERS
--------------------------
For the period of June 1, 2016, through November 30, 2016, the table below shows
the transfers between Level 1, Level 2, and Level 3. The Fund's policy is to
recognize any transfers in and transfers out as of the beginning of the
reporting period in which the event or circumstance that caused the transfer
occurred.
TRANSFERS INTO TRANSFERS INTO TRANSFERS INTO
(OUT OF) (OUT OF) (OUT OF)
ASSETS ($ IN 000s) LEVEL 1 LEVEL 2 LEVEL 3
--------------------------------------------------------------------------------
Common Stocks(I),(II) $(449,843) $450,985 $(1,142)
Preferred Stocks(I) (3,164) 3,164 -
--------------------------------------------------------------------------------
Total $(453,007) $454,149 $(1,142)
--------------------------------------------------------------------------------
(I)Transferred from Level 1 to Level 2 due to an assessment of events at the end
of the current reporting period, these securities had adjustments to their
foreign market closing prices to reflect changes in value that occurred after
the close of foreign markets and prior to the close of the U.S. securities
markets.
(II) Transferred from Level 3 to Level 1 due to the availability of significant
observable valuation inputs once securities began actively trading.
================================================================================
PORTFOLIO OF INVESTMENTS | 25
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
November 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 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.
GDR Global depositary receipts are receipts issued by a U.S. or foreign
bank evidencing ownership of foreign shares. Dividends are paid in
U.S. dollars.
NVDR Non-voting depositary receipts are receipts issued by Thai NVDR
Company Limited.
REIT Real estate investment trust
o SPECIFIC NOTES
(a) Securities with a value of $544,941,000, which represented 60.7% of the
Fund's net assets, were classified as Level 2 at November 30, 2016, due
to the prices being adjusted to take into account significant market
movements following the close of local trading.
================================================================================
26 | USAA EMERGING MARKETS FUND
================================================================================
(b) Security deemed illiquid by the 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 November 30, 2016, was $3,921,000, which
represented 0.4% of the Fund's net assets.
(c) Restricted security that is not registered under the Securities Act of
1933. A resale of this security in the United States may occur in an
exempt transaction to a qualified institutional buyer as defined by Rule
144A, and as such has been deemed liquid by the Manager under liquidity
guidelines approved by the Board, unless otherwise noted as illiquid.
(d) Security was fair valued at November 30, 2016, by the Manager in
accordance with valuation procedures approved by the Board. The total
value of all such securities was $32,825,000, which represented 3.7% of
the Fund's net assets.
(e) Rate represents the money market fund annualized seven-day yield at
November 30, 2016.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 27
================================================================================
STATEMENT OF ASSETS AND LIABILITIES (IN THOUSANDS)
November 30, 2016 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $819,960) $ 892,982
Cash 11
Cash denominated in foreign currencies (identified cost of $976) 964
Receivables:
Capital shares sold 8,000
USAA Asset Management Company (Note 6D) 2
Dividends and interest 1,240
Securities sold 490
----------
Total assets 903,689
----------
LIABILITIES
Payables:
Securities purchased 3,777
Capital shares redeemed 381
Unrealized depreciation on foreign currency contracts held, at value 9
Accrued management fees 704
Accrued transfer agent's fees 26
Other accrued expenses and payables 860
----------
Total liabilities 5,757
----------
Net assets applicable to capital shares outstanding $ 897,932
==========
NET ASSETS CONSIST OF:
Paid-in capital $1,067,672
Accumulated undistributed net investment income 6,049
Accumulated net realized loss on investments (248,276)
Net unrealized appreciation of investments 73,022
Net unrealized depreciation of foreign currency translations (535)
----------
Net assets applicable to capital shares outstanding $ 897,932
==========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $318,504/20,866 capital shares outstanding, no par value) $ 15.26
==========
Institutional Shares (net assets of $575,223/37,719 capital shares outstanding,
no par value) $ 15.25
==========
Adviser Shares (net assets of $4,205/277 capital shares outstanding, no par value) $ 15.21
==========
See accompanying notes to financial statements.
================================================================================
28 | USAA EMERGING MARKETS FUND
================================================================================
STATEMENT OF OPERATIONS (IN THOUSANDS)
Six-month period ended November 30, 2016 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $1,327) $11,708
Interest 52
-------
Total income 11,760
-------
EXPENSES
Management fees 4,721
Administration and servicing fees:
Fund Shares 246
Institutional Shares 316
Adviser Shares 3
Transfer agent's fees:
Fund Shares 485
Institutional Shares 315
Distribution and service fees (Note 6F):
Adviser Shares 5
Custody and accounting fees:
Fund Shares 49
Institutional Shares 99
Adviser Shares 1
Postage:
Fund Shares 48
Institutional Shares 22
Shareholder reporting fees:
Fund Shares 17
Institutional Shares 7
Trustees' fees 15
Registration fees:
Fund Shares 16
Institutional Shares 26
Adviser Shares 8
Professional fees 80
Other 12
-------
Total expenses 6,491
Expenses paid indirectly:
Institutional Shares (1)
Expenses reimbursed:
Adviser Shares (3)
-------
Net expenses 6,487
-------
NET INVESTMENT INCOME 5,273
-------
================================================================================
FINANCIAL STATEMENTS | 29
================================================================================
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY
Net realized loss on:
Investments (net of foreign taxes withheld of $497) (5,441)
Foreign currency transactions (315)
Change in net unrealized appreciation/(depreciation) of:
Investments 69,064
Foreign currency translations 208
-------
Net realized and unrealized gain 63,516
-------
Increase in net assets resulting from operations $68,789
=======
See accompanying notes to financial statements.
================================================================================
30 | USAA EMERGING MARKETS FUND
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS)
Six-month period ended November 30, 2016 (unaudited), and year ended
May 31, 2016
--------------------------------------------------------------------------------------------------------
11/30/2016 5/31/2016
--------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 5,273 $ 8,918
Net realized loss on investments (5,441) (103,358)
Net realized loss on foreign currency transactions (315) (959)
Change in net unrealized appreciation/(depreciation) of:
Investments 69,064 (50,166)
Foreign currency translations 208 374
--------------------------
Increase (decrease) in net assets resulting from operations 68,789 (145,191)
--------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares - (3,518)
Institutional Shares - (4,964)
Adviser Shares - (21)
--------------------------
Distributions to shareholders - (8,503)
--------------------------
NET DECREASE IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS (NOTE 5)
Fund Shares (5,170) (111,208)
Institutional Shares (75,607) 32,769
Adviser Shares (4) (20)
--------------------------
Total net decrease in net assets from capital share transactions (80,781) (78,459)
--------------------------
Net decrease in net assets (11,992) (232,153)
NET ASSETS
Beginning of period 909,924 1,142,077
--------------------------
End of period $897,932 $ 909,924
==========================
Accumulated undistributed net investment income:
End of period $ 6,049 $ 776
==========================
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 31
================================================================================
NOTES TO FINANCIAL STATEMENTS
November 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 Emerging Markets Fund (the Fund),
which is classified as diversified under the 1940 Act. The Fund's investment
objective is to seek capital appreciation.
The Fund consists of three classes of shares: Emerging Markets Fund Shares (Fund
Shares), Emerging Markets Fund Institutional Shares (Institutional Shares), and
Emerging Markets 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 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
================================================================================
32 | USAA EMERGING MARKETS FUND
================================================================================
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). The Adviser Shares permit investors to purchase shares through
financial intermediaries, including banks, broker-dealers, insurance companies,
investment advisers, plan sponsors, and financial professionals that provide
various administrative and distribution services.
A. SECURITY VALUATION - The Trust's Board of Trustees (the Board) has
established the Valuation Committee (the Committee), and subject to Board
oversight, the Committee administers and oversees the Fund's 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),
exchange-traded notes (ETNs), and equity-linked structured notes,
================================================================================
NOTES TO FINANCIAL STATEMENTS | 33
================================================================================
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 and the Fund's subadviser(s),
if applicable, will monitor for events that would materially affect the
value of the Fund's foreign securities. The Fund's subadviser(s) have
agreed to notify the Manager of significant events they identify that
would materially affect the value of the Fund's foreign securities. If
the Manager determines that a particular event would materially affect
the value of the Fund's foreign securities, then 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
================================================================================
34 | USAA EMERGING MARKETS FUND
================================================================================
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. 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.
5. Short-term debt securities with original or remaining maturities of 60
days or less may be valued at amortized cost, provided that amortized
cost represents the fair value of such securities.
6. Repurchase agreements are valued at cost.
7. In the event that price quotations or valuations are not readily
available, are not reflective of market value, or a significant event
has been recognized in relation to a security or class of securities,
the
================================================================================
NOTES TO FINANCIAL STATEMENTS | 35
================================================================================
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. Level 2
securities include certain equity securities that are valued using
market inputs and other observable factors deemed by the Manager to
appropriately reflect fair value.
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.
================================================================================
36 | USAA EMERGING MARKETS FUND
================================================================================
Level 3 - inputs to the valuation methodology are unobservable and
significant to the fair value measurement, including the Manager's own
assumptions in determining the fair value.
The inputs or methodologies used for valuing securities are not necessarily
an indication of the risks associated with investing in those securities.
The valuation of securities falling in the Level 3 category are primarily
supported by discounted last local market index adjusted price. 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.
Dividend income, less foreign taxes, if any, is recorded on the ex-dividend
date. If the ex-dividend date has passed, certain dividends from foreign
securities are recorded upon notification. Interest income is recorded daily
on the accrual basis. Premiums and discounts on short-term securities are
amortized on a straight-line basis over the life of the respective
securities.
E. FOREIGN TAXATION - Foreign income and capital gains on some foreign
securities may be subject to foreign taxes, which are reflected as a
================================================================================
NOTES TO FINANCIAL STATEMENTS | 37
================================================================================
reduction to such income and realized gains. The Fund records a liability
based on unrealized gains to provide for potential foreign taxes payable
upon the sale of these securities. Foreign taxes have been provided for in
accordance with the Fund's understanding of the applicable countries'
prevailing tax rules and rates.
F. FOREIGN CURRENCY TRANSLATIONS - The Fund's assets may be invested in the
securities of foreign issuers and may be traded in foreign currency. Since
the Fund's accounting records are maintained in U.S. dollars, foreign
currency amounts are translated into U.S. dollars on the following bases:
1. Purchases and sales of securities, income, and expenses at the exchange
rate obtained from an independent pricing service on the respective
dates of such transactions.
2. Market value of securities, other assets, and liabilities at the
exchange rate obtained from an independent pricing service on a daily
basis.
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss
from investments.
Separately, net realized foreign currency gains/losses may arise from sales
of foreign currency, currency gains/losses realized between the trade and
settlement dates on security transactions, and from the difference between
amounts of dividends, interest, and foreign withholding taxes recorded on
the Fund's books and the U.S. dollar equivalent of the amounts received. At
the end of the Fund's fiscal year, net realized foreign currency
gains/losses are reclassified from accumulated net realized gains/losses to
accumulated undistributed net investment income on the Statement of Assets
and Liabilities, as such amounts are treated as ordinary income/loss for
federal income tax purposes. Net unrealized foreign currency exchange
gains/losses arise from changes in the value of assets and liabilities,
other than investments in securities, resulting from changes in the exchange
rate.
================================================================================
38 | USAA EMERGING MARKETS FUND
================================================================================
G. EXPENSES PAID INDIRECTLY - A portion of the brokerage commissions that the
Fund pays may be recaptured as a credit that is tracked and used by the
custodian to directly reduce expenses paid by the Fund. In addition, 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 November 30, 2016, brokerage
commission recapture credits reduced the expenses of the Fund Shares,
Institutional Shares, and Adviser Shares by less than $500, $1,000, and less
than $500, respectively. For the six-month period ended November 30, 2016
there were no custodian and other bank credits.
H. REDEMPTION FEES - Adviser Shares 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 period ended November 30,
2016, the Adviser Shares did not charge any redemption fees.
I. 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.
J. 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 | 39
================================================================================
(2) LINE OF CREDIT
The Fund participates with other USAA Funds 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 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 November 30, 2016, the Fund paid CAPCO facility
fees of $3,000, which represents 1.3% 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 November 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 May 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 tax.
At May 31, 2016, the Fund had net capital loss carryforwards of $223,720,000,
for federal income tax purposes, as shown in the table below. It
================================================================================
40 | USAA EMERGING MARKETS FUND
================================================================================
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 $ 63,940,000
Long-Term 159,780,000
------------
Total $223,720,000
============
For the six-month period ended November 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 November 30, 2016, were
$249,487,000 and $326,565,000, respectively.
As of November 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 November 30,
2016, were $145,687,000 and $72,665,000, respectively, resulting in net
unrealized appreciation of $73,022,000.
(5) CAPITAL SHARE TRANSACTIONS
At November 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 41
================================================================================
persons or legal entities that the Fund may approve from time to time. Capital
share transactions for all classes were as follows, in thousands:
SIX-MONTH PERIOD ENDED YEAR ENDED
NOVEMBER 30, 2016 MAY 31, 2016
--------------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------
FUND SHARES:
Shares sold 1,983 $ 30,762 6,511 $ 92,690
Shares issued from reinvested dividends -** -** 259 3,488
Shares redeemed (2,319) (35,932) (15,971) (207,386)
--------------------------------------------------------
Net decrease from capital share transactions (336) $ (5,170) (9,201) $(111,208)
========================================================
INSTITUTIONAL SHARES:
Shares sold 2,332 $ 35,797 17,522 $ 226,818
Shares issued from reinvested dividends - - 355 4,763
Shares redeemed (7,103) (111,404) (14,188) (198,812)
--------------------------------------------------------
Net increase (decrease) from capital share
transactions (4,771) $ (75,607) 3,689 $ 32,769
========================================================
ADVISER SHARES:
Shares sold 1 $ 13 -** $ 1
Shares issued from reinvested dividends - - -** -**
Shares redeemed* (1) (17) (1) (21)
--------------------------------------------------------
Net decrease from capital share transactions (-)** $ (4) (1) $ (20)
========================================================
*Net of redemption fees, if any.
**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. 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.
================================================================================
42 | USAA EMERGING MARKETS FUND
================================================================================
The Manager monitors each subadviser's performance through quantitative and
qualitative analysis and periodically reports to the Board as to whether
each subadviser's agreement should be renewed, terminated, or modified. The
Manager is also responsible for determining the asset allocation for the
subadviser(s). The allocation for each subadviser could range from 0% to
100% of the Fund's assets, and the Manager could change the allocations
without shareholder approval.
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 1.00% 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 Emerging Markets Funds Index. The Lipper
Emerging Markets Funds Index measures the total return performance of funds
tracked by Lipper that seek long-term capital appreciation by investing at
least 65% of total assets in emerging market equity securities. 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)
------------------------------------------------------------------
+/- 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 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 43
================================================================================
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 Emerging Markets Funds Index over that period, even
if the class had overall negative returns during the performance period.
For the six-month period ended November 30, 2016, the Fund incurred total
management fees, paid or payable to the Manager, of $4,721,000, which
included a performance adjustment for the Fund Shares, Institutional Shares,
and Adviser Shares of $(73,000), $(21,000), and $(1,000), respectively. For
the Fund Shares, Institutional Shares, and Adviser Shares, the performance
adjustments were (0.04)%, (0.01)%, and (0.04)%, respectively.
B. SUBADVISORY ARRANGEMENT(S) - The Manager entered into Investment Subadvisory
Agreements with Brandes Investment Partners, L.P. (Brandes), Lazard Asset
Management (Lazard), and Victory Capital Management Inc. (Victory Capital),
under which Brandes, Lazard, and Victory Capital each direct the investment
and reinvestment of a portion of the Fund's assets (as allocated from time
to time by the Manager).
The Manager (not the Fund) pays Brandes a subadvisory fee in the annual
amount of 0.75% for assets up to $300 million; 0.70% for assets over $300
million up to $600 million; and 0.60% for assets over $600 million on the
portion of the Fund's average net assets that Brandes manages. For the
six-month period ended November 30, 2016, the Manager incurred subadvisory
fees with respect to the Fund, paid or payable to Brandes, of $555,000.
The Manager (not the Fund) pays Lazard a subadvisory fee in the annual
amount of 0.75% for assets up to $200 million; 0.70% for assets over $200
million up to $400 million; 0.65% for assets over $400 million up to $600
million; and 0.60% for assets over $600 million on the portion of the Fund's
average net assets that Lazard manages. For the six-month period ended
November 30, 2016, the Manager incurred subadvisory fees with respect to the
Fund, paid or payable to Lazard, of $2,258,000.
================================================================================
44 | USAA EMERGING MARKETS FUND
================================================================================
The Manager (not the Fund) pays Victory Capital a subadvisory fee in the
annual amount of 0.85% for assets up to $50 million; 0.75% for assets over
$50 million up to $150 million; and 0.70% for assets over $150 million on
the portion of the Fund's average net assets that Victory Capital manages.
For the six-month period ended November 30, 2016, the Manager incurred
subadvisory fees with respect to the Fund, paid or payable to Victory
Capital, of $618,000.
C. 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 Adviser Shares, and
0.10% of average net assets of the Institutional Shares. For the six-month
period ended November 30, 2016, the Fund Shares, Institutional Shares, and
Adviser Shares incurred administration and servicing fees, paid or payable
to the Manager, of $246,000, $316,000, and $3,000, respectively.
In addition to the services provided under its Administration and Servicing
Agreement with the Fund, the Manager also provides certain compliance and
legal services for the benefit of the Fund. The Board has approved the
reimbursement of a portion of these expenses incurred by the Manager. For
the six-month period ended November 30, 2016, the Fund reimbursed the
Manager $13,000 for these compliance and legal services. These expenses are
included in the professional fees on the Fund's Statement of Operations.
D. EXPENSE LIMITATION - The Manager agreed, through September 30, 2017, to
limit the total annual operating expenses of the Adviser Shares to 1.65% 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 September 30, 2017,
without approval of the Board, and may be changed or terminated by the
Manager at any time after that date. Prior to October 1, 2016, the Adviser
Shares' expense limitation was 1.75% of its average net assets. For the
six-month period ended November 30, 2016,
================================================================================
NOTES TO FINANCIAL STATEMENTS | 45
================================================================================
the Adviser Shares incurred reimbursable expenses of $3,000, of which $2,000
was receivable from the Manager.
E. 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 $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 November 30, 2016, the Fund Shares, Institutional
Shares, and Adviser Shares incurred transfer agent's fees, paid or payable
to SAS, of $485,000, $315,000, and less than $500, respectively.
F. 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 November 30, 2016, the Adviser Shares incurred
distribution and service (12b-1) fees of $5,000.
G. 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 Fund offers its Institutional Shares for investment by other USAA funds and
is one of 20 USAA mutual funds in which the affiliated USAA fund-of-
================================================================================
46 | USAA EMERGING MARKETS FUND
================================================================================
funds invest. The USAA fund-of-funds do not invest in the underlying funds for
the purpose of exercising management or control. As of November 30, 2016, the
USAA fund-of-funds owned the following percentages of the total outstanding
shares of the Fund:
AFFILIATED USAA FUND OWNERSHIP %
--------------------------------------------------------------------------------
Cornerstone Conservative 0.3
Cornerstone Equity 1.1
Target Retirement Income 0.5
Target Retirement 2020 1.2
Target Retirement 2030 3.3
Target Retirement 2040 4.1
Target Retirement 2050 2.6
Target Retirement 2060 0.2
The Manager is indirectly wholly owned by United Services Automobile Association
(USAA), a large, diversified financial services institution. At November 30,
2016, USAA and its affiliates owned 271,000 Adviser Shares, which represents
98.1% of the Adviser Shares outstanding and 0.5% of the Fund's outstanding
shares.
Certain trustees and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Fund.
(8) UPCOMING REGULATORY MATTERS
In October 2016, the U.S. Securities and Exchange Commission (SEC) adopted final
rules intended to modernize the reporting and disclosure of information by
registered investment companies. In part, the final rules amend Regulation S-X
to require standardized, enhanced disclosure about derivatives in investment
company financial statements. The Manager is currently evaluating the impact
these rules and amendments will have on the financial statements and related
disclosures. The compliance date for the amendments to Regulation S-X is August
1, 2017, with other staggered compliance dates extending through December 2018.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 47
================================================================================
(9) FINANCIAL HIGHLIGHTS - FUND SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
NOVEMBER 30, YEAR ENDED MAY 31,
----------------------------------------------------------------------------
2016 2016 2015 2014 2013 2012
----------------------------------------------------------------------------
Net asset value at
beginning of period $ 14.24 $ 16.46 $ 18.14 $ 17.44 $ 15.45 $ 21.57
----------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .08 .11(a) .08 .14 .17(a) .15
Net realized and
unrealized gain (loss) .94 (2.22)(a) (1.52) .65 1.96(a) (5.57)
----------------------------------------------------------------------------
Total from investment
operations 1.02 (2.11)(a) (1.44) .79 2.13(a) (5.42)
----------------------------------------------------------------------------
Less distributions from:
Net investment income - (.11) (.24) (.09) (.14) (.14)
Realized capital gains - - - - - (.56)
----------------------------------------------------------------------------
Total distributions - (.11) (.24) (.09) (.14) (.70)
----------------------------------------------------------------------------
Net asset value at
end of period $ 15.26 $ 14.24 $ 16.46 $ 18.14 $ 17.44 $ 15.45
============================================================================
Total return (%)* 7.16 (12.77) (7.84) 4.56 13.78 (25.21)
Net assets at end of
period (000) $318,504 $302,012 $500,510 $503,052 $476,735 $670,698
Ratios to average
net assets:**
Expenses (%)(b) 1.50(d) 1.58 1.50 1.50 1.58 1.58
Net investment income (%) .92(d) .73 .71 .83 1.00 1.06
Portfolio turnover (%) 27 47 46 48 148(c) 72
* 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 November 30, 2016, average net assets were
$326,601,000.
(a) Calculated using average shares.
(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) Reflects increased trading activity due to changes in subadviser(s) and
asset allocation strategies.
(d) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
48 | USAA EMERGING MARKETS FUND
================================================================================
(9) FINANCIAL HIGHLIGHTS (CONTINUED) - INSTITUTIONAL SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
NOVEMBER 30, YEAR ENDED MAY 31,
----------------------------------------------------------------------------
2016 2016 2015 2014 2013 2012
----------------------------------------------------------------------------
Net asset value at
beginning of period $ 14.21 $ 16.42 $ 18.10 $ 17.41 $ 15.45 $ 21.60
----------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .09 .18 .13 .18 .20(a) .20
Net realized and
unrealized gain (loss) .95 (2.25) (1.53) .65 1.99(a) (5.58)
----------------------------------------------------------------------------
Total from investment
operations 1.04 (2.07) (1.40) .83 2.19(a) (5.38)
----------------------------------------------------------------------------
Less distributions from:
Net investment income - (.14) (.28) (.14) (.23) (.21)
Realized capital gains - - - - - (.56)
----------------------------------------------------------------------------
Total distributions - (.14) (.28) (.14) (.23) (.77)
----------------------------------------------------------------------------
Net asset value at end of
period $ 15.25 $ 14.21 $ 16.42 $ 18.10 $ 17.41 $ 15.45
============================================================================
Total return (%)* 7.32 (12.53) (7.64) 4.82 14.18 (25.01)
Net assets at end of
period (000) $575,223 $603,981 $637,007 $730,863 $540,580 $202,173
Ratios to average
net assets:**
Expenses (%)(b) 1.27(d) 1.30 1.27 1.29 1.30 1.27
Net investment income (%) 1.19(d) 1.11 .93 1.03 1.19 1.40
Portfolio turnover (%) 27 47 46 48 148(c) 72
* 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 November 30, 2016, average net assets were
$628,513,000.
(a) Calculated using average shares.
(b) Reflects total annual operating expenses of the Institutional Shares before
reductions of any expenses paid indirectly. The Institutional Shares'
expenses paid indirectly decreased the expense ratios by less than 0.01%.
(c) Reflects increased trading activity due to changes in subadviser(s) and
asset allocation strategies.
(d) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 49
================================================================================
(9) FINANCIAL HIGHLIGHTS (CONTINUED) - ADVISER SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
NOVEMBER 30, YEAR ENDED MAY 31,
----------------------------------------------------------------------------
2016 2016 2015 2014 2013 2012
----------------------------------------------------------------------------
Net asset value at
beginning of period $14.20 $ 16.40 $18.08 $17.35 $15.40 $ 21.50
--------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .06 .09 .05 .09 .11 .10
Net realized and
unrealized gain (loss) .95 (2.21) (1.53) .66 1.94 (5.57)
--------------------------------------------------------------------------
Total from investment
operations 1.01 (2.12) (1.48) .75 2.05 (5.47)
--------------------------------------------------------------------------
Less distributions from:
Net investment income - (.08) (.20) (.02) (.10) (.07)
Realized capital gains - - - - - (.56)
--------------------------------------------------------------------------
Total distributions - (.08) (.20) (.02) (.10) (.63)
--------------------------------------------------------------------------
Redemption fees added to
beneficial interests - - .00(a) - - -
--------------------------------------------------------------------------
Net asset value at end of
period $15.21 $ 14.20 $16.40 $18.08 $17.35 $ 15.40
==========================================================================
Total return (%)* 7.11 (12.93) (8.09) 4.34 13.31 (25.53)
Net assets at end of
period (000) $4,205 $ 3,931 $4,560 $4,988 $4,784 $ 4,237
Ratios to average
net assets:**
Expenses (%)(b) 1.67(e) 1.75 1.79(c) 1.77 2.00 2.00
Expenses, excluding
reimbursements (%)(b) 1.83(e) 1.92 1.95 1.77 2.04 2.16
Net investment income (%) .75(e) .60 .41 .57 .55 .63
Portfolio turnover (%) 27 47 46 48 148(d) 72
* 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 November 30, 2016, average net assets were
$4,280,000.
(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) Prior to October 1, 2014, the Manager voluntarily agreed to limit the annual
expenses of the Adviser Shares to 2.00% of the Adviser Shares' annual
average net assets.
(d) Reflects increased trading activity due to changes in subadviser(s) and
asset allocation strategies.
(e) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
50 | USAA EMERGING MARKETS FUND
================================================================================
EXPENSE EXAMPLE
November 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 June 1, 2016, through
November 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
================================================================================
EXPENSE EXAMPLE | 51
================================================================================
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 JUNE 1, 2016 -
JUNE 1, 2016 NOVEMBER 30, 2016 NOVEMBER 30, 2016
-------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $1,071.60 $7.79
Hypothetical
(5% return before expenses) 1,000.00 1,017.55 7.59
INSTITUTIONAL SHARES
Actual 1,000.00 1,073.20 6.60
Hypothetical
(5% return before expenses) 1,000.00 1,018.70 6.43
ADVISER SHARES
Actual 1,000.00 1,071.10** 8.67**
Hypothetical
(5% return before expenses) 1,000.00 1,016.70** 8.44**
*Expenses are equal to the annualized expense ratio of 1.50% for Fund Shares,
1.27% for Institutional Shares, and 1.67% 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 7.16% for Fund Shares, 7.32% for Institutional Shares,
and 7.11% for Adviser Shares for the six-month period of June 1, 2016, through
November 30, 2016.
================================================================================
52 | USAA EMERGING MARKETS FUND
================================================================================
**The Funds' annualized expense ratio of 1.67% for the Adviser Shares on the
previous page reflects a change effective October 1, 2016. The Manager's
expense limitation ratio for the Adviser Shares changed from 1.75% to 1.65% of
the Adviser Shares' average net assets. Had the expense limitation ratio of
1.65% been in effect for the entire six-month period of June 1, 2016, through
November 30, 2016, the values in the table on the previous page would be as
shown below.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE JUNE 1, 2016 -
JUNE 1, 2016 NOVEMBER 30, 2016 NOVEMBER 30, 2016
-------------------------------------------------------------
Actual $1,000.00 $1,071.10 $8.57
Hypothetical
(5% return before expenses) 1,000.00 1,016.80 8.34
================================================================================
EXPENSE EXAMPLE | 53
================================================================================
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] [LOGO OF RECYCLE PAPER]
USAA We know what it means to serve.(R) 10%
=============================================================================
25559-0117 (C)2017, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA MANAGED ALLOCATION FUND]
==============================================================
SEMIANNUAL REPORT
USAA MANAGED ALLOCATION FUND
NOVEMBER 30, 2016
==============================================================
================================================================================
================================================================================
PRESIDENT'S MESSAGE
"AS THE NEW YEAR BEGINS, WHY NOT MAKE
A RESOLUTION TO PUT YOUR FINANCIAL HOUSE [PHOTO OF BROOKS ENGLEHARDT]
IN ORDER?"
--------------------------------------------------------------------------------
JANUARY 2017
Financial markets are unpredictable. Many factors can confound those who try to
predict the direction of the markets based on economic or political factors. In
other words, it's easy to get it wrong. And, even if one correctly forecasts
what will happen in the macroeconomic environment, predicting how the markets
will respond is another matter altogether.
Consider the response to the Presidential election. Stocks rose on Monday and
Tuesday (Election Day) at the prospect of a Hillary Clinton victory--virtually
a "sure thing," according to some media pundits. U.S. Treasury securities and
other segments of the bond market sold off as investors likely assumed a
continuation of current economic policy under another Democratic administration.
But these trends reversed on Tuesday evening when it became clear that Donald J.
Trump would be elected the 45th President of the United States. Asian and
European equity markets dropped and U.S. stock index futures plunged. The
decline in stock index futures suggested that U.S. stocks might fall when
trading began on Wednesday, however the opposite happened. Stock prices rose and
then rallied strongly, with major stock indexes hitting one record high after
another through the end of November 2016. U.S. Treasury prices fell, driving up
yields on longer-maturity U.S. Treasuries. (Yields move in the opposite
direction of prices.)
Few market participants would have forecasted such a scenario. But with
hindsight, we may be able to understand some of the reasons why the markets
behaved the way they did.
U.S. equity investors appeared to like President-elect Trump's promises of lower
tax rates, less regulation, and more fiscal stimulus through infrastructure
spending. Other explanations may lie overseas, such as complications relating to
the United Kingdom's decision to exit from the European Union ("Brexit") and
continued slow economic growth in China--uncertainties that may have
================================================================================
================================================================================
increased the attractiveness of U.S. stocks. As for bond investors, they may
have been worried about an increase in interest rates if economic growth picks
up under a Trump Administration. Higher growth rates typically correspond with
rising inflation, which in turn could prompt the Federal Reserve (the Fed) to
accelerate the pace of interest rate increases.
What actually happens, however, is yet to be seen. No one knows, except in the
most general terms, what President-elect Trump's plans and priorities will be or
how they could affect economic growth in 2017 and beyond. By extension, it is
also too early to forecast how inflation might be affected and how the Fed could
respond.
At USAA Investments, we are long-term, fundamental investors, who seek to look
at the full market cycle rather than current geopolitical events. We believe
measures such as assessing a company's intrinsic value compared to its current
price tend to be more effective at forecasting potential stock returns over
time. In selecting bonds, our analysts take a bottom-up approach to evaluating
each security individually, building portfolios on a bond-by-bond basis.
It is important to remember market conditions are always fluctuating and time
horizon matters. We believe that it is important to stay focused on your
long-term objectives, using an investment plan that is based on your personal
time horizon and risk tolerance. If you are uneasy about market risk in general
or have concerns about too much exposure to specific asset classes, please call
USAA to speak with an advisor. As the new year begins, why not make a resolution
to put your financial house in order?
Thank you for allowing us to help you in your efforts to achieve your financial
goals. At USAA Investments, we are committed to providing you with our best
advice, top-notch service, and a variety of mutual funds. On behalf of everyone
here, I wish you a happy and healthy 2017.
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 8
Notes to Portfolio of Investments 10
Financial Statements 12
Notes to Financial Statements 15
EXPENSE EXAMPLE 25
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE
RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY
USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN
PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS
ABOUT THE FUND.
(C)2017, USAA. All rights reserved.
201011-0117
================================================================================
================================================================================
FUND OBJECTIVE
THE USAA MANAGED ALLOCATION FUND (THE FUND) SEEKS TO MAXIMIZE TOTAL RETURN,
CONSISTING PRIMARILY OF 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 contracts, and hedge funds.*
*The Fund is not offered for sale directly to the general public and currently
is available for investment through a USAA discretionary managed account
program. The Fund may be offered to other persons and legal entities that USAA
Asset Management Company may approve from time to time. There are no minimum
initial or subsequent purchase payment 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
USAA Asset Management Company
JOHN P. TOOHEY, CFA LANCE HUMPHREY, CFA
WASIF A. LATIF ARNOLD J. ESPE, CFA
--------------------------------------------------------------------------------
o HOW DID THE GLOBAL FINANCIAL MARKETS PERFORM DURING THE REPORTING PERIOD?
Financial assets produced mixed results during the reporting period ended
November 30, 2016, reflecting the broad range of headlines that
characterized the reporting period.
U.S. equities posted the strongest gains among the major asset categories.
The U.S. economy continued to deliver economic growth ahead of its
developed-market global peers, driving healthy relative performance for the
stock market. Small-cap stocks, in particular, generated favorable gains
thanks in part to their greater exposure to the country's positive growth.
U.S. equities performed particularly well in the wake of the U.S.
election, which removed the element of political uncertainty that had
weighed on the market.
Developed-market international equities finished with a small loss and
trailed the U.S. market by a wide margin. While Japanese stocks were
bolstered by the substantial fiscal and monetary stimulus being provided by
the nation's government, European equities lagged. The leading cause of the
shortfall was likely the region's higher sensitivity to the United
Kingdom's June 2016 vote to exit the European Union ("Brexit"). In
addition, the European markets were pressured by the combination of slow
economic growth, possible instability within the banking system, and the
potential impact of rising nationalism across Europe.
In contrast to the developed markets, emerging-market stocks performed well
during the reporting period. The renewed stability in commodity
================================================================================
2 | USAA MANAGED ALLOCATION FUND
================================================================================
prices provided a positive backdrop for the asset class, as did improving
corporate earnings and signs of stronger economic growth in both Russia and
China.
The U.S. bond market also experienced mixed performance during the
reporting period. Market segments that are sensitive to interest-rate
movements, such as longer-term U.S. Treasuries, generally finished with
slightly negative returns. The stimulation of the U.S. economy, in
conjunction with the prospects of increasingly growth-oriented policies in
the year ahead, raised concerns that the Federal Reserve (the Fed) would
take an aggressive approach to raising interest rates. However, the
improving growth outlook--together with investors' increasing appetite for
risk--helped fuel strong returns for lower-rated segments of the market,
including high-yield bonds.
o HOW DID THE USAA MANAGED ALLOCATION FUND (THE FUND) PERFORM DURING THE
REPORTING PERIOD?
For the reporting period ended November 30, 2016, the Fund had a total
return of 1.38%. This compares to returns of 6.01% for the S&P 500(R) Index
and -0.92% for the Bloomberg Barclays U.S. Aggregate 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.
o PLEASE DISCUSS THE FACTORS THAT HELPED AND HURT THE FUND'S PERFORMANCE.
This Fund is designed to provide us with flexibility in implementing our
tactical asset allocation shifts within USAA's Managed Portfolios (UMP).
Refer to page 6 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 indexes. Thus, the
Fund's benchmark is now called the Bloomberg Barclays U.S. Aggregate Bond
Index.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 3
================================================================================
By using the Fund in this manner, we are able to make allocation changes
more quickly and with less disruption to the UMPs. The Fund primarily uses
exchange-traded funds (ETFs) to implement the asset allocation views since
ETFs are highly liquid vehicles that allow us to apply our tactical asset
allocation decisions quickly and efficiently. The Fund's asset allocations,
therefore, reflect the need to round out the UMPs, rather than an active
strategy.
With this in mind, the Fund's allocation to emerging-market stocks added
significantly to performance during the reporting period. The Fund also
held a position in large-cap U.S. equities during September and October
2016, but this proved to be a detractor given that election-related
uncertainty weighed on the market during this time.
The portfolio's fixed-income investments had a mixed impact on results. The
Fund held a position in investment-grade corporate bonds throughout the
reporting period, which detracted from performance given that the asset
class lost ground on concerns about rising U.S. interest rates. However,
this was offset somewhat by the Fund's exposure to U.S. Treasuries in May
and June 2016, when government bonds rallied. An allocation to
emerging-market bonds, which benefited from improving investor risk
appetites and signs of strengthening growth for countries in the asset
class, was a positive contributor to the Fund's performance. We closed out
this position prior to the end of the reporting period.
The Fund's allocations are adjusted to meet the tactical needs of the UMPs,
and it closed with positions in domestic investment-grade bonds and
emerging-market equities.
Thank you for allowing us to help you manage your investments.
Foreign investing is subject to additional risks, such as currency
fluctuations, market illiquidity, and political instability. Emerging
market countries are less diverse and mature than other countries and tend
to be politically less stable. 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 Exchange-traded
funds (ETFs) are subject to risks similar to those of stocks. Investment
returns may fluctuate and are subject to market volatility, so that an
investor's shares, when redeemed or sold, may be worth more or less than
their original cost. 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 credit worthy investment-grade securities. o Diversification is a
technique intended to help reduce risk and does not guarantee a profit or
prevent a loss.
================================================================================
4 | USAA MANAGED ALLOCATION FUND
================================================================================
INVESTMENT OVERVIEW
USAA MANAGED ALLOCATION FUND (THE FUND)
(Ticker Symbol: UMAFX)
----------------------------------------------------------------------------------------------
11/30/16 5/31/16
----------------------------------------------------------------------------------------------
Net Assets $710.0 Million $708.6 Million
Net Asset Value Per Share $11.05 $10.90
----------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 11/30/16
----------------------------------------------------------------------------------------------
5/31/16-11/30/16* 1 YEAR 5 YEARS SINCE INCEPTION 2/01/10
1.38% -0.52% 2.94% 4.89%
----------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/16
----------------------------------------------------------------------------------------------
1 YEAR 5 YEAR SINCE INCEPTION 2/01/10
1.62% 2.84% 4.84%
----------------------------------------------------------------------------------------------
EXPENSE RATIO AS OF 5/31/16**
----------------------------------------------------------------------------------------------
0.98%
(includes acquired fund fees and expenses of 0.23%)
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 October 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.
================================================================================
INVESTMENT OVERVIEW | 5
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
BLOOMBERG BARCLAYS
USAA MANAGED U.S. AGGREGATE
S&P 500 INDEX ALLOCATION FUND BOND INDEX
01/31/10 $10,000.00 $10,000.00 $10,000.00
02/28/10 10,309.77 10,200.00 10,037.34
03/31/10 10,931.91 10,420.00 10,025.00
04/30/10 11,104.50 10,490.00 10,129.36
05/31/10 10,217.80 10,140.00 10,214.60
06/30/10 9,682.92 9,980.00 10,374.78
07/31/10 10,361.33 10,600.00 10,485.46
08/31/10 9,893.58 10,230.00 10,620.38
09/30/10 10,776.53 11,100.00 10,631.70
10/31/10 11,186.57 11,250.00 10,669.56
11/30/10 11,188.00 11,030.00 10,608.23
12/31/10 11,935.71 11,257.84 10,493.84
01/31/11 12,218.61 11,226.51 10,506.05
02/28/11 12,637.20 11,372.71 10,532.33
03/31/11 12,642.23 11,508.48 10,538.15
04/30/11 13,016.63 11,780.00 10,671.92
05/31/11 12,869.29 11,832.22 10,811.19
06/30/11 12,654.77 11,759.12 10,779.54
07/31/11 12,397.44 11,915.76 10,950.59
08/31/11 11,723.99 12,030.64 11,110.58
09/30/11 10,899.81 11,592.02 11,191.40
10/31/11 12,091.08 12,239.51 11,203.42
11/30/11 12,064.36 11,988.87 11,193.70
12/31/11 12,187.77 12,051.67 11,316.73
01/31/12 12,733.97 12,534.63 11,416.10
02/29/12 13,284.61 12,770.50 11,413.48
03/31/12 13,721.79 12,579.56 11,350.94
04/30/12 13,635.66 12,646.95 11,476.78
05/31/12 12,816.15 11,984.28 11,580.63
06/30/12 13,344.20 12,377.39 11,585.17
07/31/12 13,529.54 12,523.40 11,744.96
08/31/12 13,834.27 12,703.11 11,752.64
09/30/12 14,191.77 12,927.74 11,768.82
10/31/12 13,929.72 12,916.51 11,791.96
11/30/12 14,010.53 12,961.44 11,810.57
12/31/12 14,138.23 13,242.58 11,793.75
01/31/13 14,870.52 13,383.21 11,711.27
02/28/13 15,072.39 13,277.74 11,769.97
03/31/13 15,637.65 13,359.77 11,779.37
04/30/13 15,938.94 13,523.84 11,898.56
05/31/13 16,311.78 13,266.02 11,686.26
06/30/13 16,092.73 12,832.41 11,505.49
07/31/13 16,911.60 13,160.55 11,521.22
08/31/13 16,421.81 12,855.85 11,462.33
09/30/13 16,936.79 13,230.86 11,570.84
10/31/13 17,715.34 13,594.16 11,664.39
11/30/13 18,255.19 13,676.19 11,620.72
12/31/13 18,717.34 13,780.15 11,555.05
01/31/14 18,070.21 13,422.84 11,725.78
02/28/14 18,896.81 13,875.43 11,788.13
03/31/14 19,055.65 13,994.53 11,768.05
04/30/14 19,196.51 14,089.81 11,867.35
05/31/14 19,647.13 14,280.38 12,002.47
06/30/14 20,052.99 14,447.12 12,008.67
07/31/14 19,776.45 14,197.01 11,978.55
08/31/14 20,567.60 14,482.85 12,110.79
09/30/14 20,279.17 14,006.44 12,028.56
10/31/14 20,774.49 14,137.45 12,146.79
11/30/14 21,333.22 14,197.00 12,232.96
12/31/14 21,279.48 13,967.67 12,244.43
01/31/15 20,640.69 13,967.67 12,501.17
02/28/15 21,826.94 14,465.65 12,383.64
03/31/15 21,481.76 14,319.90 12,441.12
04/30/15 21,687.83 14,538.52 12,396.49
05/31/15 21,966.72 14,562.82 12,366.63
06/30/15 21,541.49 14,247.02 12,231.77
07/31/15 21,992.81 14,380.63 12,316.82
08/31/15 20,665.90 13,688.32 12,299.10
09/30/15 20,154.55 13,360.38 12,382.29
10/31/15 21,854.67 13,991.96 12,384.41
11/30/15 21,919.67 13,931.23 12,351.67
12/31/15 21,573.95 13,645.00 12,311.76
01/31/16 20,503.37 13,194.00 12,481.15
02/29/16 20,475.70 13,068.00 12,569.71
03/31/16 21,864.73 13,557.00 12,685.01
04/30/16 21,949.50 13,708.00 12,733.73
05/31/16 22,343.67 13,670.00 12,736.99
06/30/16 22,401.55 14,172.00 12,965.85
07/31/16 23,227.47 14,435.00 13,047.82
08/31/16 23,260.08 14,523.00 13,032.92
09/30/16 23,264.48 14,586.00 13,025.25
10/31/16 22,840.11 14,398.00 12,925.63
11/30/16 23,685.99 13,858.00 12,619.91
[END CHART]
Data from 1/31/10 through 11/30/16.*
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Managed Allocation Fund to the following benchmarks:
o The unmanaged S&P 500 Index represents the weighted average performance of a
group of 500 widely held, publicly traded stocks.
o The Bloomberg Barclays U.S. Aggregate Bond Index covers the U.S.
investment-grade fixed-rate bond market, including government and credit
securities, agency mortgage pass-through securities, asset-backed
securities, and commercial mortgage-backed securities that have remaining
maturities of more than one year.
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 S&P 500 Index and the Bloomberg Barclay U.S. Aggregate
Bond Index is calculated from the end of the month, January 31, 2010, while the
inception date of the Fund is February 1, 2010. There may be a slight variation
of performance numbers because of this difference.
================================================================================
6 | USAA MANAGED ALLOCATION FUND
================================================================================
o ASSET ALLOCATION - 11/30/16 o
[PIE CHART OF ASSET ALLOCATION]
INTERNATIONAL EXCHANGE-TRADED FUNDS* ...................................... 50.6%
MONEY MARKET INSTRUMENTS .................................................. 24.8%
FIXED-INCOME EXCHANGE-TRADED FUNDS* ....................................... 24.7%
[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 page 8-9.
================================================================================
INVESTMENT OVERVIEW | 7
================================================================================
PORTFOLIO OF INVESTMENTS
November 30, 2016 (unaudited)
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (75.3%)
EXCHANGE-TRADED FUNDS (75.3%)
FIXED-INCOME EXCHANGE-TRADED FUNDS (24.7%)
1,501,570 iShares iBoxx Investment Grade Corporate Bond ETF $175,443
--------
INTERNATIONAL EXCHANGE-TRADED FUNDS (50.6%)
9,910,850 Vanguard FTSE Emerging Markets ETF 358,971
--------
Total Exchange-Traded Funds 534,414
--------
Total Equity Securities (cost: $515,554) 534,414
--------
--------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON
(000) RATE MATURITY
--------------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS (24.8%)
COMMERCIAL PAPER (6.2%)
FINANCIALS (6.2%)
-----------------
ASSET-BACKED FINANCING (6.2%)
$ 4,000 Barton Capital S.A.(a),(b) 0.58% 12/08/2016 3,999
2,000 Crown Point Capital Co., LLC(a),(b) 0.50 12/13/2016 2,000
7,000 Gotham Funding Corp.(a),(b) 0.49 12/07/2016 6,999
5,000 LMA-Americas, LLC(a),(b) 0.48 12/05/2016 5,000
4,000 Manhattan Asset Funding Co., LLC(a),(b) 0.52 12/08/2016 4,000
3,000 Manhattan Asset Funding Co., LLC(a),(b) 0.62 12/29/2016 2,999
5,961 Ridgefield Funding Co., LLC(a),(b) 0.60 12/19/2016 5,959
3,800 Victory Receivables Corp.(a),(b) 0.52 12/05/2016 3,800
3,200 Victory Receivables Corp.(a),(b) 0.55 12/19/2016 3,199
6,000 Working Capital Management Co.(a),(b) 0.58 12/28/2016 5,997
--------
Total Financials 43,952
--------
Total Commercial Paper 43,952
--------
================================================================================
8 | USAA MANAGED ALLOCATION FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
GOVERNMENT & U.S. TREASURY MONEY
MARKET FUNDS (18.6%)
132,127,050 State Street Institutional Treasury Money Market Fund
Premier Class, 0.25%(c) $132,127
--------
Total Money Market Instruments (cost: $176,079) 176,079
--------
TOTAL INVESTMENTS (COST: $691,633) $710,493
========
--------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
--------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
--------------------------------------------------------------------------------------------------------
Equity Securities:
Exchange-Traded Funds:
Fixed-Income Exchange-Traded Funds $175,443 $ - $- $175,443
International Exchange-Traded Funds 358,971 - - 358,971
Money Market Instruments:
Commercial Paper - 43,952 - 43,952
Government & U.S. Treasury
Money Market Funds 132,127 - - 132,127
--------------------------------------------------------------------------------------------------------
Total $666,541 $43,952 $- $710,493
--------------------------------------------------------------------------------------------------------
For the period of June 1, 2016, through November 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 | 9
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
November 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 50.6% of net assets at
November 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 SPECIFIC NOTES
(a) Restricted security that is not registered under the Securities Act of
1933. A resale of this security in the United States may occur in an
exempt transaction to a qualified institutional buyer as defined by
Rule 144A, and as such has been deemed liquid by USAA Asset Management
Company (the Manager) under liquidity guidelines approved by USAA
Mutual Funds Trust's Board of Trustees (the Board), unless otherwise
noted as illiquid.
(b) Commercial paper issued in reliance on the "private placement"
exemption from registration afforded by Section 4(a)(2) of the
Securities Act of 1933, as amended (Section 4(2) Commercial Paper).
================================================================================
10 | USAA MANAGED ALLOCATION FUND
================================================================================
Unless this commercial paper is subsequently registered, a resale of
this commercial paper in the United States must be effected in a
transaction exempt from registration under the Securities Act of 1933.
Section 4(2) commercial paper is normally resold to other investors
through or with the assistance of the issuer or an investment dealer
who makes a market in this security, and as such has been deemed liquid
by the Manager under liquidity guidelines approved by the Board, unless
otherwise noted as illiquid.
(c) Rate represents the money market fund annualized seven-day yield at
November 30, 2016.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 11
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
November 30, 2016 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $691,633) $710,493
Receivables:
Capital shares sold 317
Interest 8
--------
Total assets 710,818
--------
LIABILITIES
Payables:
Capital shares redeemed 303
Accrued management fees 355
Other accrued expenses and payables 189
--------
Total liabilities 847
--------
Net assets applicable to capital shares outstanding $709,971
========
NET ASSETS CONSIST OF:
Paid-in capital $749,075
Accumulated undistributed net investment income 13,464
Accumulated net realized loss on investments (71,428)
Net unrealized appreciation of investments 18,860
--------
Net assets applicable to capital shares outstanding $709,971
========
Capital shares outstanding, no par value 64,253
========
Net asset value, redemption price, and offering price per share $ 11.05
========
See accompanying notes to financial statements.
================================================================================
12 | USAA MANAGED ALLOCATION FUND
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended November 30, 2016 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends $13,164
Interest 17
-------
Total income 13,181
-------
EXPENSES
Management fees 2,225
Administration and servicing fees 185
Transfer agent's fees 185
Custody and accounting fees 44
Postage 66
Shareholder reporting fees 10
Trustees' fees 15
Registration fees 76
Professional fees 46
Other 7
-------
Total expenses 2,859
-------
NET INVESTMENT INCOME 10,322
-------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss (4,173)
Change in net unrealized appreciation/(depreciation) of:
Investments 3,787
-------
Net realized and unrealized loss (386)
-------
Increase in net assets resulting from operations $ 9,936
=======
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 13
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended November 30, 2016 (unaudited), and year ended
May 31, 2016
---------------------------------------------------------------------------------------------------
11/30/2016 5/31/2016
---------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 10,322 $ 24,312
Net realized loss on investments (4,173) (66,489)
Change in net unrealized appreciation/(depreciation)
of investments 3,787 (77,754)
---------------------------------
Increase (decrease) in net assets resulting
from operations 9,936 (119,931)
---------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income - (24,927)
Net realized gains - (18,210)
---------------------------------
Distributions to shareholders - (43,137)
---------------------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 52,500 251,360
Reinvested dividends - 42,890
Cost of shares redeemed (61,057) (821,204)
---------------------------------
Decrease in net assets from capital share transactions (8,557) (526,954)
---------------------------------
Net increase (decrease) in net assets 1,379 (690,022)
NET ASSETS
Beginning of period 708,592 1,398,614
---------------------------------
End of period $709,971 $ 708,592
=================================
Accumulated undistributed net investment income:
End of period $ 13,464 $ 3,142
=================================
CHANGE IN SHARES OUTSTANDING
Shares sold 4,611 22,700
Shares issued for dividends reinvested - 3,876
Shares redeemed (5,396) (78,170)
---------------------------------
Decrease in shares outstanding (785) (51,594)
=================================
See accompanying notes to financial statements.
================================================================================
14 | USAA MANAGED ALLOCATION FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
November 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 Managed Allocation Fund (the Fund),
which is classified as diversified under the 1940 Act. The Fund's investment
objective is to seek to maximize total return, consisting primarily of capital
appreciation. The Fund is not offered for sale directly to the general public
and currently is available for investment through a USAA discretionary managed
account program 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
================================================================================
16 | USAA MANAGED ALLOCATION FUND
================================================================================
the Fund's foreign securities. However, the Manager will monitor for
events that would materially affect the value of the Fund's foreign
securities and the Committee will consider such available information
that it deems relevant and will determine a fair value for the affected
foreign securities in accordance with valuation procedures. In
addition, information from an external vendor or other sources may be
used to adjust the foreign market closing prices of foreign equity
securities to reflect what the Committee believes to be the fair value
of the securities as of the close of the NYSE. Fair valuation of
affected foreign equity securities may occur frequently based on an
assessment that events which occur on a fairly regular basis (such as
U.S. market movements) are significant. Such securities are categorized
in Level 2 of the fair value hierarchy.
3. Investments in open-end investment companies, commingled, or other
funds, other than ETFs, are valued at their NAV at the end of each
business day and are categorized in Level 1 of the fair value hierarchy.
4. Short-term debt securities with original or remaining maturities of 60
days or less may be valued at amortized cost, provided that amortized
cost represents the fair value of such securities.
5. 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 17
================================================================================
Fair value methods used by the Manager include, but are not limited to,
obtaining market quotations from secondary pricing services,
broker-dealers, other pricing services, or widely used quotation
systems. General factors considered in determining the fair value of
securities include fundamental analytical data, the nature and duration
of any restrictions on disposition of the securities, evaluation of
credit quality, and an evaluation of the forces that influenced the
market in which the securities are purchased and sold.
B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that
would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date.
The three-level valuation hierarchy disclosed in the Portfolio of
Investments is based upon the transparency of inputs to the valuation of an
asset or liability as of the measurement date. The three levels are defined
as follows:
Level 1 - inputs to the valuation methodology are quoted prices (unadjusted)
in active markets for identical securities.
Level 2 - inputs to the valuation methodology are other significant
observable inputs, including quoted prices for similar securities, inputs
that are observable for the securities, either directly or indirectly, and
market-corroborated inputs such as market indexes.
Level 3 - inputs to the valuation methodology are unobservable and
significant to the fair value measurement, including the Manager's own
assumptions in determining the fair value.
The inputs or methodologies used for valuing securities are not necessarily
an indication of the risks associated with investing in those securities.
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.
================================================================================
18 | USAA MANAGED ALLOCATION FUND
================================================================================
D. INVESTMENTS IN SECURITIES - Securities transactions are accounted for on
the date the securities are purchased or sold (trade date). Gains or losses
from sales of investment securities are computed on the identified cost
basis. Dividend income, less foreign taxes, if any, is recorded on the ex-
dividend date. If the ex-dividend date has passed, certain dividends from
foreign securities are recorded upon notification. Interest income is
recorded daily on the accrual basis. Premiums and discounts 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 November 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 with other USAA Funds in a joint, short-term, revolving,
committed loan agreement of $500 million with USAA Capital
================================================================================
NOTES TO FINANCIAL STATEMENTS | 19
================================================================================
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 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 November 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 November 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 May 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 tax.
================================================================================
20 | USAA MANAGED ALLOCATION FUND
================================================================================
At May 31, 2016, the Fund had net capital loss carryforwards of $67,255,000, 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 $18,862,000
Long-Term 48,393,000
-----------
Total $67,255,000
===========
For the six-month period ended November 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 November 30, 2016, were
$564,025,000 and $733,703,000, respectively.
As of November 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.
Net unrealized appreciation of investments as of November 30, 2016 was
$18,860,000.
(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
================================================================================
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 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 November 30, 2016, the Fund had no subadviser(s).
The Fund's management fee is accrued daily and paid monthly at an
annualized rate of 0.60% of the Fund's average net assets. For the six-
month period ended November 30, 2016, the Fund incurred total management
fees, paid or payable to the Manager, of $2,225,000.
B. ADMINISTRATION AND SERVICING FEES - The Manager provides certain
administration and servicing functions for the Fund. For such services, the
Manager receives a fee accrued daily and paid monthly at an annualized rate
of 0.05% of the Fund's average net assets for the fiscal year. For the
six-month period ended November 30, 2016, the Fund incurred administration
and servicing fees, paid or payable to the Manager, of $185,000.
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 November 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. 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
November 30, 2016, the Fund incurred transfer agent's fees, paid or payable
to SAS, of $185,000.
================================================================================
22 | USAA MANAGED ALLOCATION FUND
================================================================================
D. UNDERWRITING SERVICES - USAA Investment Management Company provides
exclusive underwriting and distribution of the Fund's shares on a
continuing best-efforts basis and receives no fee or other compensation for
these services.
(6) TRANSACTIONS WITH AFFILIATES
The Manager is indirectly wholly owned by United Services Automobile Association
(USAA), a large, diversified financial services institution.
Certain trustees and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Fund.
(7) UPCOMING REGULATORY MATTERS
In October 2016, the U.S. Securities and Exchange Commission (SEC) adopted final
rules intended to modernize the reporting and disclosure of information by
registered investment companies. In part, the final rules amend Regulation S-X
to require standardized, enhanced disclosure about derivatives in investment
company financial statements. The Manager is currently evaluating the impact
these rules and amendments will have on the financial statements and related
disclosures. The compliance date for the amendments to Regulation S-X is August
1, 2017, with other staggered compliance dates extending through December 2018.
================================================================================
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
NOVEMBER 30, YEAR ENDED MAY 31,
--------------------------------------------------------------------------------------
2016 2016 2015 2014 2013 2012
--------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 10.90 $ 11.99 $ 11.99 $ 11.32 $ 10.67 $ 11.33
-------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .16 .24(a) .23 .20 .18 .32(a)
Net realized and
unrealized gain (loss) (.01) (.97)(a) .00(b) .66 .95 (.18)(a)
-------------------------------------------------------------------------------------
Total from investment
operations .15 (.73)(a) .23 .86 1.13 .14(a)
-------------------------------------------------------------------------------------
Less distributions from:
Net investment income - (.21) (.23) (.18) (.23) (.32)
Realized capital gains - (.15) - (.01) (.25) (.48)
-------------------------------------------------------------------------------------
Total distributions - (.36) (.23) (.19) (.48) (.80)
-------------------------------------------------------------------------------------
Net asset value at
end of period $ 11.05 $ 10.90 $ 11.99 $ 11.99 $ 11.32 $ 10.67
=====================================================================================
Total return (%)* 1.38 (6.13) 1.98 7.65 10.70 1.29
Net assets at
end of period (000) $709,971 $708,592 $1,398,614 $1,219,192 $714,894 $519,850
Ratios to average
net assets:**
Expenses (%)(c) .77(d) .75 .74 .73 .74 .74
Net investment income (%) 2.79(d) 2.09 2.04 1.80 1.68 2.87
Portfolio turnover (%) 80 90(g) 35(f) 65 65(e) 125(e)
* 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 November 30, 2016, average net assets were
$739,171,000.
(a) Calculated using average shares.
(b) Represents less than $0.01 per share.
(c) Reflects total annual operating expenses of the Fund before reductions of
any expenses paid indirectly. The Fund's expenses paid indirectly decreased
the expense ratios as follows:
- - - (.00%)(+) (.00%)(+) (.00%)(+)
(+) Represents less than 0.01% of average net assets.
(d) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(e) Reflects decreased trading activity due to asset allocation strategies.
(f) Reflects overall decrease in purchases and sales of securities.
(g) Reflects increased trading activity due to large shareholder redemptions.
================================================================================
24 | USAA MANAGED ALLOCATION FUND
================================================================================
EXPENSE EXAMPLE
November 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 June 1, 2016, through
November 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 JUNE 1, 2016 -
JUNE 1, 2016 NOVEMBER 30, 2016 NOVEMBER 30, 2016
--------------------------------------------------------------
Actual $1,000.00 $1,013.80 $3.89
Hypothetical
(5% return before expenses) 1,000.00 1,021.21 3.90
*Expenses are equal to the Fund's annualized expense ratio of 0.77%, which is
net of any expenses paid indirectly, multiplied by the average account value
over the period, multiplied by 183 days/365 days (to reflect the one-half-year
period). The Fund's actual ending account value is based on its actual total
return of 1.38% for the six-month period of June 1, 2016, through November 30,
2016.
================================================================================
26 | USAA MANAGED ALLOCATION 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] [LOGO OF RECYCLE PAPER]
USAA We know what it means to serve.(R) 10%
=============================================================================
93924-0117 (C)2017, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA CORNERSTONE EQUITY FUND]
============================================================
SEMIANNUAL REPORT
USAA CORNERSTONE EQUITY FUND
NOVEMBER 30, 2016
============================================================
================================================================================
================================================================================
PRESIDENT'S MESSAGE
"AS THE NEW YEAR BEGINS, WHY NOT MAKE
A RESOLUTION TO PUT YOUR FINANCIAL HOUSE [PHOTO OF BROOKS ENGLEHARDT]
IN ORDER?"
--------------------------------------------------------------------------------
JANUARY 2017
Financial markets are unpredictable. Many factors can confound those who try to
predict the direction of the markets based on economic or political factors. In
other words, it's easy to get it wrong. And, even if one correctly forecasts
what will happen in the macroeconomic environment, predicting how the markets
will respond is another matter altogether.
Consider the response to the Presidential election. Stocks rose on Monday and
Tuesday (Election Day) at the prospect of a Hillary Clinton victory--virtually
a "sure thing," according to some media pundits. U.S. Treasury securities and
other segments of the bond market sold off as investors likely assumed a
continuation of current economic policy under another Democratic administration.
But these trends reversed on Tuesday evening when it became clear that Donald J.
Trump would be elected the 45th President of the United States. Asian and
European equity markets dropped and U.S. stock index futures plunged. The
decline in stock index futures suggested that U.S. stocks might fall when
trading began on Wednesday, however the opposite happened. Stock prices rose and
then rallied strongly, with major stock indexes hitting one record high after
another through the end of November 2016. U.S. Treasury prices fell, driving up
yields on longer-maturity U.S. Treasuries. (Yields move in the opposite
direction of prices.)
Few market participants would have forecasted such a scenario. But with
hindsight, we may be able to understand some of the reasons why the markets
behaved the way they did.
U.S. equity investors appeared to like President-elect Trump's promises of lower
tax rates, less regulation, and more fiscal stimulus through infrastructure
spending. Other explanations may lie overseas, such as complications relating to
the United Kingdom's decision to exit from the European Union ("Brexit") and
continued slow economic growth in China--uncertainties that may have
================================================================================
================================================================================
increased the attractiveness of U.S. stocks. As for bond investors, they may
have been worried about an increase in interest rates if economic growth picks
up under a Trump Administration. Higher growth rates typically correspond with
rising inflation, which in turn could prompt the Federal Reserve (the Fed) to
accelerate the pace of interest rate increases.
What actually happens, however, is yet to be seen. No one knows, except in the
most general terms, what President-elect Trump's plans and priorities will be or
how they could affect economic growth in 2017 and beyond. By extension, it is
also too early to forecast how inflation might be affected and how the Fed could
respond.
At USAA Investments, we are long-term, fundamental investors, who seek to look
at the full market cycle rather than current geopolitical events. We believe
measures such as assessing a company's intrinsic value compared to its current
price tend to be more effective at forecasting potential stock returns over
time. In selecting bonds, our analysts take a bottom-up approach to evaluating
each security individually, building portfolios on a bond-by-bond basis.
It is important to remember market conditions are always fluctuating and time
horizon matters. We believe that it is important to stay focused on your
long-term objectives, using an investment plan that is based on your personal
time horizon and risk tolerance. If you are uneasy about market risk in general
or have concerns about too much exposure to specific asset classes, please call
USAA to speak with an advisor. As the new year begins, why not make a resolution
to put your financial house in order?
Thank you for allowing us to help you in your efforts to achieve your financial
goals. At USAA Investments, we are committed to providing you with our best
advice, top-notch service, and a variety of mutual funds. On behalf of everyone
here, I wish you a happy and healthy 2017.
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 9
Notes to Portfolio of Investments 10
Financial Statements 11
Notes to Financial Statements 14
EXPENSE EXAMPLE 23
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE
RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY
USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN
PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS
ABOUT THE FUND.
(C)2017, USAA. All rights reserved.
200989-0117
================================================================================
================================================================================
FUND OBJECTIVE
THE USAA CORNERSTONE EQUITY FUND (THE FUND) SEEKS CAPITAL APPRECIATION OVER THE
LONG TERM.
--------------------------------------------------------------------------------
TYPES OF INVESTMENTS
The Fund invests at least 80% of its assets in a selection of USAA mutual funds
(underlying USAA Funds) consisting of a long-term target asset allocation in
equity securities. This is often referred to as a fund-of-funds investment
strategy. The actual asset class allocation can deviate from time to time from
these targets as market conditions warrant. This 80% policy may be changed upon
at least 60 days' written notice to shareholders.
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
JOHN P. TOOHEY, CFA WASIF A. LATIF
LANCE HUMPHREY, CFA
--------------------------------------------------------------------------------
o HOW DID THE GLOBAL FINANCIAL MARKETS PERFORM DURING THE REPORTING PERIOD?
The world equity markets produced mixed results during the reporting period
ended November 30, 2016, reflecting the broad range of headlines that
characterized the reporting period.
U.S. equities posted the strongest gains among the major asset categories.
The U.S. economy continued to deliver economic growth ahead of its
developed-market global peers, driving healthy relative performance for the
stock market. Small-cap stocks, in particular, generated favorable gains
thanks in part to their greater exposure to the country's positive growth.
U.S. equities performed particularly well in the wake of the U.S. election,
which removed the element of political uncertainty that had weighed on the
market.
Developed-market international equities finished with a small loss and
trailed the U.S. market by a wide margin. While Japanese stocks were
bolstered by the substantial fiscal and monetary stimulus being provided by
the nation's government, European equities lagged. The leading cause of the
shortfall was likely the region's higher sensitivity to the United Kingdom's
June 2016 vote to exit the European Union ("Brexit"). In addition, the
European markets were pressured by the combination of slow economic growth,
possible instability within the banking system, and the potential impact of
rising nationalism across Europe.
In contrast to the developed countries markets, emerging-market stocks
performed well during the reporting period. The renewed stability in
commodity prices provided a positive backdrop for the asset class, as did
improving corporate earnings and signs of stronger economic growth in both
Russia and China.
================================================================================
2 | USAA CORNERSTONE EQUITY FUND
================================================================================
o HOW DID THE USAA CORNERSTONE EQUITY FUND (THE FUND) PERFORM DURING THE
REPORTING PERIOD?
For the reporting period ended November 30, 2016, the Fund had a
total return of 5.12%. This compares to a return of 3.67% for the
MSCI All-Country World Index and 4.21% for the Cornerstone Equity
Composite 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 PLEASE DISCUSS THE FACTORS THAT HELPED AND HURT PERFORMANCE.
We maintained a patient approach to managing the Fund's portfolio. Rather
than trying to keep pace with the rapidly shifting trends in the global
markets, we remained focused on asset classes where we believed there was
value. While low valuations don't necessarily translate to outperformance in
the short term, undervalued market segments have demonstrated superior
results over time. We believe this value-driven strategy is appropriate for
an environment in which macroeconomic headlines are a key driver of
financial-market performance.
The Fund's domestic equity allocation, which holds five funds that represent
a variety of investment styles, contributed positively to performance. The
Fund's positions in value funds outperformed, while those geared toward the
growth style delivered smaller gains. An allocation to small-cap stocks
added further value, as did individual stock selection in the underlying
portfolios in which the Fund invests. Security selection was also a positive
factor in the Fund's results within the large-cap space.
The Fund's developed-market international allocation aided performance
during the middle of the reporting period, but was a net detractor overall.
With that said, the underlying managers generated outperformance through the
strength of their individual stock selection. Although we continue to see a
long-term opportunity in the international markets due to their compelling
valuations relative to U.S. stocks, the unsteady economic conditions
overseas prompted us to slightly reduce the Fund's position.
Refer to page 7 for benchmark definitions.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 3
================================================================================
The Fund's allocation to emerging-market stocks contributed positively to
its performance. We remain enthusiastic on the longer-term outlook for the
emerging markets, where the combination of improving growth, healthy
corporate earnings, and stabilizing commodity prices makes the low
valuations of the asset class particularly compelling.
The Fund's allocation to gold stocks, though modest, slightly detracted from
results. After rallying in the first half of the reporting period, gold
prices subsequently weakened due to the prospect of rising interest rates.
Shares of gold mining companies declined from their mid-August 2016 peak as
a result, causing the sector to finish with a loss. Overall, however, this
aspect of our positioning had only a small effect on the Fund's performance.
The investment backdrop offered a varied picture for investors at the close
of the reporting period. The U.S. economy has continued to produce modest
growth despite the challenging economic conditions elsewhere in the
developed world. In addition, the ultra-loose monetary policies of certain
foreign central banks represent an ongoing engine of demand for higher-risk,
higher-yielding financial assets. While these factors are generally a
positive for the markets, potential sources of volatility include global
political uncertainty and the possibility that the Federal Reserve could
begin to raise interest rates more aggressively.
Our response to this ambiguity is to maintain our strategy: maintain
diversification, stay focused on the long-term picture, and emphasize
undervalued asset classes. We believe this steady approach--rather than one
that tries to keep up with the day-to-day considerations driving short-term
market performance--is well suited to a highly uncertain investment
environment.
Thank you for allowing us to help you manage your investments.
The assets of the Cornerstone Equity Fund will be invested in other USAA
funds and will indirectly bear expenses and reflect the risks of the
underlying funds in which it invests. o The underlying funds may be invested
in, among other things: (1) exchange-traded funds; (2) futures, options, and
other derivatives; (3) non-investment-grade securities; (4) precious metals
and minerals companies; (5) real estate investment trusts; (6) money market
instruments; and (7) foreign and emerging markets. o These types of
investments and asset classes may be more volatile than others. In addition,
it is possible that a particular asset allocation used by the Manager may
not produce the intended result. o Foreign investing is subject to
additional risks, such as currency fluctuations, market illiquidity, and
political instability. Emerging market countries are most volatile. Emerging
market countries are less diverse and mature than other countries and tend
to be politically less stable. o The USAA Precious Metals and Minerals Fund
is subject to additional risks, such as currency fluctuation, market
illiquidity, political instability and increased price volatility. It may be
more volatile than a fund that diversifies across many industries and
companies.
================================================================================
4 | USAA CORNERSTONE EQUITY FUND
================================================================================
INVESTMENT OVERVIEW
USAA CORNERSTONE EQUITY FUND (THE FUND)
(Ticker Symbol: UCEQX)
--------------------------------------------------------------------------------
11/30/16 5/31/16
--------------------------------------------------------------------------------
Net Assets $106.5 Million $100.0 Million
Net Asset Value Per Share $13.15 $12.51
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 11/30/16
--------------------------------------------------------------------------------
5/31/16-11/30/16* 1 YEAR SINCE INCEPTION 6/8/12
5.12% 5.85% 8.31%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/16
--------------------------------------------------------------------------------
1 YEAR SINCE INCEPTION 6/8/12
10.11% 8.56%
--------------------------------------------------------------------------------
EXPENSE RATIOS AS OF 5/31/16**
--------------------------------------------------------------------------------
BEFORE REIMBURSEMENT 1.07% AFTER REIMBURSEMENT 0.95%
(Includes acquired fund fees and expenses of 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.
**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 October 1, 2016, and
are calculated as a percentage of average net assets. USAA Asset Management
Company (the Manager) has agreed, through September 30, 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 (exclusive of commission
recapture, expense offset arrangements, acquired fund fees and expenses, and
extraordinary expenses) do not exceed an annual rate of 0.10% of the Fund's
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
September 30, 2017. If the total annual operating expense ratio of the Fund is
lower than 0.10%, the Fund 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.
================================================================================
INVESTMENT OVERVIEW | 5
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
CORNERSTONE EQUITY MSCI-ALL USAA
COMPOSITE COUNTRY WORLD CORNERSTONE
INDEX INDEX EQUITY FUND
05/31/12 $10,000.00 $10,000.00 $10,000.00
06/30/12 10,454.60 10,493.89 10,250.00
07/31/12 10,589.58 10,637.55 10,290.00
08/31/12 10,827.10 10,868.84 10,570.00
09/30/12 11,138.14 11,211.17 10,940.00
10/31/12 11,030.66 11,136.45 10,810.00
11/30/12 11,148.74 11,278.85 10,900.00
12/31/12 11,372.54 11,534.33 11,162.00
01/31/13 11,911.10 12,065.70 11,546.00
02/28/13 11,949.36 12,063.82 11,516.00
03/31/13 12,236.03 12,281.81 11,718.00
04/30/13 12,525.80 12,635.33 11,728.00
05/31/13 12,557.29 12,600.66 11,839.00
06/30/13 12,241.81 12,232.36 11,455.00
07/31/13 12,823.59 12,817.95 12,062.00
08/31/13 12,548.66 12,550.90 11,839.00
09/30/13 13,138.37 13,199.17 12,355.00
10/31/13 13,636.56 13,729.68 12,779.00
11/30/13 13,842.16 13,924.12 12,941.00
12/31/13 14,103.21 14,164.33 13,133.00
01/31/14 13,647.54 13,597.75 12,650.00
02/28/14 14,304.34 14,254.63 13,308.00
03/31/14 14,361.97 14,318.01 13,308.00
04/30/14 14,453.58 14,454.31 13,339.00
05/31/14 14,731.26 14,761.74 13,596.00
06/30/14 15,045.40 15,039.67 13,925.00
07/31/14 14,801.75 14,857.12 13,596.00
08/31/14 15,186.81 15,185.29 13,966.00
09/30/14 14,684.35 14,693.04 13,442.00
10/31/14 14,878.84 14,796.48 13,534.00
11/30/14 15,102.65 15,043.98 13,812.00
12/31/14 14,891.46 14,753.68 13,520.00
01/31/15 14,664.01 14,523.01 13,415.00
02/28/15 15,433.86 15,331.53 14,098.00
03/31/15 15,240.37 15,093.98 13,856.00
04/30/15 15,577.10 15,531.92 14,245.00
05/31/15 15,616.59 15,511.65 14,287.00
06/30/15 15,300.22 15,146.48 13,961.00
07/31/15 15,393.23 15,278.01 13,919.00
08/31/15 14,425.51 14,230.69 13,048.00
09/30/15 13,953.00 13,715.12 12,628.00
10/31/15 14,962.73 14,791.55 13,541.00
11/30/15 14,877.68 14,669.41 13,510.00
12/31/15 14,614.35 14,404.86 13,213.00
01/31/16 13,759.41 13,535.78 12,474.00
02/29/16 13,698.87 13,442.98 12,441.00
03/31/16 14,705.73 14,439.21 13,333.00
04/30/16 14,926.32 14,652.35 13,540.00
05/31/16 15,003.93 14,670.82 13,605.00
06/30/16 14,969.43 14,582.01 13,540.00
07/31/16 15,578.68 15,210.40 14,149.00
08/31/16 15,608.28 15,261.58 14,225.00
09/30/16 15,709.73 15,355.08 14,301.00
10/31/16 15,400.25 15,094.44 14,040.00
11/30/16 15,637.42 15,209.15 14,301.00
[END CHART]
Data from 5/31/12 through 11/30/16.*
See next page for benchmark definitions.
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 Cornerstone Equity Composite Index and MSCI All-Country
World Index is calculated from the end of the month, May 31, 2012, while the
inception date of the USAA Cornerstone Equity Fund is June 8, 2012. There may
be a slight variation of the performance numbers because of this difference.
================================================================================
6 | USAA CORNERSTONE EQUITY FUND
================================================================================
The graph on page 6 illustrates the comparison of a $10,000 hypothetical
investment in the USAA Cornerstone Equity Fund to the benchmarks listed below.
The Manager has developed the Composite Index, which is used to measure the
Fund's performance. The custom benchmark was created by the Manager to show how
the Fund's performance compares with the returns of an index or indexes with
similar asset allocations.
o The Cornerstone Equity Composite Index is a combination of unmanaged indexes
representing the Fund's model allocation, and consists of the MSCI USA
Investable Market Index (IMI) Gross (56%), the MSCI ACWI ex USA IMI Net
(37%), the Bloomberg Commodity Index Total Return (2.5%), the MSCI U.S. Real
Estate Investment Trust (REIT) Index Gross (2.5%), and the Bloomberg
Barclays U.S. Treasury - Bills (1-3M) (2%).
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.
================================================================================
INVESTMENT OVERVIEW | 7
================================================================================
o ASSET ALLOCATION - 11/30/16 o
[CHART OF ASSET ALLOCATION]
INVESTMENT ALLOCATION
--------------------------------------------------------------------------
USAA FUND:
Aggressive Growth 3.9%
Emerging Markets 8.9%
Growth 6.7%
Income Stock 10.6%
International 28.7%
Precious Metals and Minerals 0.9%
S&P 500 Index 15.3%
Small Cap Stock 11.0%
Value 12.2%
Total Equity & Alternative 98.2%
CASH EQUIVALENTS:
Money Market Instruments 1.8%
Percentages are of the net assets of the Fund and may not equal 100%.
================================================================================
8 | USAA CORNERSTONE EQUITY FUND
================================================================================
PORTFOLIO OF INVESTMENTS
November 30, 2016 (unaudited)
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
EQUITY & ALTERNATIVE FUNDS (98.2%)
105,240 USAA Aggressive Growth Fund $ 4,173
623,484 USAA Emerging Markets Fund 9,508
277,768 USAA Growth Fund 7,097
621,850 USAA Income Stock Fund 11,324
1,154,260 USAA International Fund 30,611
75,851 USAA Precious Metals and Minerals Fund* 973
517,219 USAA S&P 500 Index Fund 16,282
664,343 USAA Small Cap Stock Fund 11,652
626,097 USAA Value Fund 13,023
--------
Total Equity & Alternative Funds (cost: $98,007) 104,643
========
MONEY MARKET INSTRUMENTS (1.8%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (1.8%)
1,862,532 State Street Institutional Treasury Money Market Fund Premier Class, 0.25%(a)
(cost: $1,863) 1,863
--------
TOTAL INVESTMENTS (COST: $99,870) $106,506
========
------------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
------------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------------------------------------------------------------------------------------------------------------------
Equity & Alternative Funds $104,643 $- $- $104,643
Money Market Instruments:
Government & U.S. Treasury Money Market Funds 1,863 - - 1,863
------------------------------------------------------------------------------------------------------------------
Total $106,506 $- $- $106,506
------------------------------------------------------------------------------------------------------------------
For the period of June 1, 2016, through November 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 | 9
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
November 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.
The underlying funds in which the Fund invests are managed by USAA Asset
Management Company, an affiliate of the Fund. The Fund invests in the Reward
Shares of the USAA S&P 500 Index Fund and the Institutional Shares of the
other USAA mutual funds.
o SPECIFIC NOTES
(a) Rate represents the money market fund annualized seven-day yield at
November 30, 2016.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
10 | USAA CORNERSTONE EQUITY FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
November 30, 2016 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in affiliated underlying funds, at value (cost of $98,007) $104,643
Investments in other securities, at value (cost of $1,863) $ 1,863
Receivables:
Capital shares sold 125
USAA Asset Management Company (Note 5C) 15
--------
Total assets 106,646
--------
LIABILITIES
Payables:
Capital shares redeemed 59
Other accrued expenses and payables 49
--------
Total liabilities 108
--------
Net assets applicable to capital shares outstanding $106,538
========
NET ASSETS CONSIST OF:
Paid-in capital $ 98,379
Accumulated undistributed net investment income 338
Accumulated net realized gain on investments 1,185
Net unrealized appreciation of investments 6,636
--------
Net assets applicable to capital shares outstanding $106,538
========
Capital shares outstanding, no par value 8,101
========
Net asset value, redemption price, and offering price per share $ 13.15
========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 11
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended November 30, 2016 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Income distributions from affiliated underlying funds $ 233
Interest 2
------
Total income 235
------
EXPENSES
Custody and accounting fees 21
Postage 10
Shareholder reporting fees 9
Trustees' fees 15
Registration fees 13
Professional fees 31
Other 4
------
Total expenses 103
Expenses reimbursed (51)
------
Net expenses 52
------
NET INVESTMENT INCOME 183
------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss on sales of affiliated underlying funds (78)
Change in net unrealized appreciation/(depreciation) of
affiliated underlying funds 5,132
------
Net realized and unrealized gain 5,054
------
Increase in net assets resulting from operations $5,237
======
See accompanying notes to financial statements.
================================================================================
12 | USAA CORNERSTONE EQUITY FUND
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended November 30, 2016 (unaudited), and year ended
May 31, 2016
--------------------------------------------------------------------------------------------------
11/30/2016 5/31/2016
--------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 183 $ 1,265
Net realized loss on sales of affiliated underlying funds (78) (1,434)
Net realized gain on capital gain distributions from
affiliated underlying funds - 3,258
Change in net unrealized appreciation/(depreciation)
of affiliated underlying funds 5,132 (7,244)
-------------------------
Increase (decrease) in net assets resulting from operations 5,237 (4,155)
-------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income - (1,163)
Net realized gains - (2,140)
-------------------------
Distributions to shareholders - (3,303)
-------------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 17,676 38,208
Reinvested dividends - 3,188
Cost of shares redeemed (16,349) (25,692)
-------------------------
Increase in net assets from capital share transactions 1,327 15,704
-------------------------
Capital contribution from USAA Transfer Agency Company - 2
-------------------------
Net increase in net assets 6,564 8,248
NET ASSETS
Beginning of period 99,974 91,726
-------------------------
End of period $106,538 $ 99,974
=========================
Accumulated undistributed net investment income:
End of period $ 338 $ 155
=========================
CHANGE IN SHARES OUTSTANDING
Shares sold 1,372 3,073
Shares issued for dividends reinvested - 258
Shares redeemed (1,265) (2,077)
-------------------------
Increase in shares outstanding 107 1,254
=========================
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 13
================================================================================
NOTES TO FINANCIAL STATEMENTS
November 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 Cornerstone Equity Fund (the
Fund), which is classified as diversified under the 1940 Act. The Fund's
investment objective is to seek capital appreciation over the long term.
The Fund is a "fund of funds" in that it invests in a portfolio of underlying
USAA equity and alternative funds (underlying USAA Funds) managed by USAA Asset
Management Company (the Manager), an affiliate of the 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.
================================================================================
14 | USAA CORNERSTONE EQUITY 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 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. Investments in the underlying USAA Funds and other open-end
investment companies, other than exchange-traded funds (ETFs) are
valued at their net asset value (NAV) at the end of each business day
and are categorized in Level 1 of the fair value hierarchy.
2. The underlying USAA Funds have specific valuation procedures. 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 a fund's NAV to be more reliable than it otherwise would be.
Fair value methods used by the Manager include, but are not limited
to, obtaining market quotations from secondary pricing services,
broker-dealers, other pricing services, or widely used quotation
systems. General factors considered in determining the fair value of
securities include fundamental analytical data, the nature and duration
of any restrictions on disposition of the securities, evaluation of
credit quality, and an evaluation of the forces that influenced the
market in which the securities are purchased and sold.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 15
================================================================================
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 taxbale
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 and capital gain distributions from the underlying
USAA Funds are recorded on the ex-dividend date. Interest income is recorded
daily on the accrual basis. Premiums and discounts on short-term securities
are amortized on a straight-line basis over the life of the respective
securities.
================================================================================
16 | USAA CORNERSTONE EQUITY FUND
================================================================================
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 November 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 with other USAA Funds 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 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 | 17
================================================================================
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 November 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 November 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 May 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 tax.
At May 31, 2016, the Fund had no capital loss carryforwards, for federal income
tax purposes.
For the six-month period ended November 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 positions 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 November 30, 2016, were
$5,168,000 and $5,034,000, respectively.
================================================================================
18 | USAA CORNERSTONE EQUITY FUND
================================================================================
As of November 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 November
30, 2016, were $7,981,000 and $1,345,000, respectively, resulting in net
unrealized appreciation of $6,636,000.
(5) AGREEMENTS WITH MANAGER
A. ADVISORY AGREEMENT - The Manager carries out the Fund's investment
policies and manages the Fund's portfolio pursuant to an Advisory Agreement.
The Manager does not receive any management fees from the Fund for these
services.
B. ADMINISTRATION AND SERVICING FEES - The Manager provides certain
administration and servicing functions for the Fund. The Manager does not
receive any fees from the Fund for these services. 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 billing of these
expenses to the Fund. These expenses are included in the professional fees
on the Fund's Statement of Operations and, for the six-month period ended
November 30, 2016, were $1,000 for the Fund.
C. EXPENSE LIMITATION - The Manager agreed, through September 30, 2017, to
limit the total annual operating expenses of the Fund to 0.10% 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 September 30, 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 November 30, 2016, the Fund
incurred reimbursable expenses of $51,000, of which $15,000 was receivable
from the Manager.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 19
================================================================================
D. TRANSFER AGENCY AGREEMENT - USAA Transfer Agency Company, d/b/a USAA
Shareholder Account Services (SAS), an affiliate of the Manager, provides
transfer agent services to the Fund. SAS does not receive any fees from the
Fund for these services.
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.
(6) TRANSACTIONS WITH AFFILIATES
The Manager is indirectly wholly owned by United Services Automobile
Association (USAA), a large, diversified financial services institution.
Certain trustees and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Fund.
(7) TRANSACTIONS WITH AFFILIATED FUNDS
A. SHARE OWNERSHIP - The Fund does not invest in the underlying USAA Funds
for the purpose of exercising management or control; however, investments by
the Fund may represent a significant portion of the underlying USAA Funds'
net assets. At November 30, 2016, the Fund owned the following percentages
of the total outstanding shares of each of the underlying USAA Funds:
AFFILIATED USAA FUND OWNERSHIP %
----------------------------------------------------------------------------
Aggressive Growth 0.3
Emerging Markets 1.1
Growth 0.3
Income Stock 0.4
International 0.9
Precious Metals and Minerals 0.2
S&P 500 Index 0.3
Small Cap Stock 0.8
Value 0.9
================================================================================
20 | USAA CORNERSTONE EQUITY FUND
================================================================================
B. TRANSACTIONS WITH AFFILIATED FUNDS - The following table provides details
related to the Fund's investment in the underlying USAA Funds for the
six-month period ended November 30, 2016 (in thousands):
REALIZED
PURCHASE SALES DIVIDEND GAIN MARKET VALUE
AFFILIATED USAA FUND COST(A) PROCEEDS INCOME (LOSS)(B) 05/31/2016 11/30/2016
-------------------------------------------------------------------------------------------------------------
Aggressive Growth $ - $ 900 $ - $ 10 $ 4,939 $ 4,173
Emerging Markets 750 300 - (25) 8,415 9,508
Growth 700 400 - 30 6,516 7,097
Income Stock 491 700 91 (10) 11,045 11,324
International 1,100 1,200 - (139) 30,457 30,611
Precious Metals and Minerals - 434 - 141 1,430 973
S&P 500 Index 1,142 100 142 2 14,493 16,282
Small Cap Stock 85 800 - (74) 11,000 11,652
Value 900 200 - (13) 11,160 13,023
(a) Includes reinvestment of distributions from dividend income and realized
gains.
(b) Includes capital gain distributions received, if any.
(8) UPCOMING REGULATORY MATTERS
In October 2016, the U.S. Securities and Exchange Commission (SEC) adopted
final rules intended to modernize the reporting and disclosure of information
by registered investment companies. In part, the final rules amend Regulation
S-X to require standardized, enhanced disclosure about derivatives in
investment company financial statements. The Manager is currently evaluating
the impact these rules and amendments will have on the financial statements and
related disclosures. The compliance date for the amendments to Regulation S-X
is August 1, 2017, with other staggered compliance dates extending through
December 2018.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 21
================================================================================
(9) FINANCIAL HIGHLIGHTS
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED PERIOD ENDED
NOVEMBER 30, YEAR ENDED MAY 31, MAY 31,
--------------------------------------------------------------------------------
2016 2016 2015 2014 2013***
--------------------------------------------------------------------------------
Net asset value at
beginning of period $ 12.51 $ 13.61 $ 13.22 $ 11.71 $ 10.00
-----------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .02 .16 .24 .17 .12(a)
Net realized and unrealized
gain (loss) .62 (.82) .42 1.55 1.71(a)
-----------------------------------------------------------------------------
Total from investment
operations .64 (.66) .66 1.72 1.83(a)
-----------------------------------------------------------------------------
Less distributions from:
Net investment income - (.15) (.24) (.16) (.12)
Realized capital gains - (.29) (.03) (.05) (.00)(b)
-----------------------------------------------------------------------------
Total distributions - (.44) (.27) (.21) (.12)
-----------------------------------------------------------------------------
Net asset value at end
of period $ 13.15 $ 12.51 $ 13.61 $ 13.22 $ 11.71
=============================================================================
Total return (%)* 5.12 (4.77) 5.08 14.84 18.39
Net assets at end of
period (000) $106,538 $99,974 $91,726 $66,040 $31,555
Ratios to average
net assets:**,(c)
Expenses (%)(d) .10(e) .10 .10 .10 .10(e)
Expenses, excluding
reimbursements (%)(d) .20(e) .22 .24 .33 1.13(e)
Net investment income (%) .36(e) 1.36 1.77 1.45 1.09(e)
Portfolio turnover (%) 5 15 8 2 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 November 30, 2016, average net assets
were $102,824,000.
*** Fund commenced operations on June 8, 2012.
(a) Calculated using average shares.
(b) Represents less than $0.01 per share.
(c) Calculated excluding the Fund's pro-rata share of expenses of the underlying USAA Funds.
(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 as follows:
- - - (.00%)(+) (.00%)(+)
(+) Represents less than 0.01% of average net assets.
(e) Annualized. The ratio is not necessarily indicative of 12 months of operations.
================================================================================
22 | USAA CORNERSTONE EQUITY FUND
================================================================================
EXPENSE EXAMPLE
November 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 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 Fund also indirectly bears its
pro-rata share of the expenses of the underlying USAA Funds in which it invests
(acquired funds). These acquired fund fees and expenses are not included in the
Fund's annualized expense ratios used to calculate the expense estimates in the
table on the next page.
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 June 1, 2016, through
November 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
================================================================================
EXPENSE EXAMPLE | 23
================================================================================
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
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. Acquired
fund fees and expenses are not included in the Fund's annualized expense ratio
used to calculate the expenses paid in the table below.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE JUNE 1, 2016 -
JUNE 1, 2016 NOVEMBER 30, 2016 NOVEMBER 30, 2016
-------------------------------------------------------------
Actual $1,000.00 $1,051.20 $0.51
Hypothetical
(5% return before expenses) 1,000.00 1,024.57 0.51
*Expenses are equal to the Fund's annualized expense ratio of 0.10%, which is
net of any reimbursements and expenses paid indirectly and excludes expenses of
the acquired funds, 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 5.12%
for the six-month period of June 1, 2016, through November 30, 2016.
================================================================================
24 | USAA CORNERSTONE EQUITY 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] [LOGO OF RECYCLE PAPER]
USAA We know what it means to serve.(R) 10%
=============================================================================
97453-0117 (C)2017, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA CORNERSTONE AGGRESSIVE FUND]
==============================================================
SEMIANNUAL REPORT
USAA CORNERSTONE AGGRESSIVE FUND
NOVEMBER 30, 2016
==============================================================
================================================================================
================================================================================
PRESIDENT'S MESSAGE
"AS THE NEW YEAR BEGINS, WHY NOT MAKE
A RESOLUTION TO PUT YOUR FINANCIAL HOUSE [PHOTO OF BROOKS ENGLEHARDT]
IN ORDER?"
--------------------------------------------------------------------------------
JANUARY 2017
Financial markets are unpredictable. Many factors can confound those who try to
predict the direction of the markets based on economic or political factors. In
other words, it's easy to get it wrong. And, even if one correctly forecasts
what will happen in the macroeconomic environment, predicting how the markets
will respond is another matter altogether.
Consider the response to the Presidential election. Stocks rose on Monday and
Tuesday (Election Day) at the prospect of a Hillary Clinton victory--virtually
a "sure thing," according to some media pundits. U.S. Treasury securities and
other segments of the bond market sold off as investors likely assumed a
continuation of current economic policy under another Democratic administration.
But these trends reversed on Tuesday evening when it became clear that Donald J.
Trump would be elected the 45th President of the United States. Asian and
European equity markets dropped and U.S. stock index futures plunged. The
decline in stock index futures suggested that U.S. stocks might fall when
trading began on Wednesday, however the opposite happened. Stock prices rose and
then rallied strongly, with major stock indexes hitting one record high after
another through the end of November 2016. U.S. Treasury prices fell, driving up
yields on longer-maturity U.S. Treasuries. (Yields move in the opposite
direction of prices.)
Few market participants would have forecasted such a scenario. But with
hindsight, we may be able to understand some of the reasons why the markets
behaved the way they did.
U.S. equity investors appeared to like President-elect Trump's promises of lower
tax rates, less regulation, and more fiscal stimulus through infrastructure
spending. Other explanations may lie overseas, such as complications relating to
the United Kingdom's decision to exit from the European Union ("Brexit") and
continued slow economic growth in China--uncertainties that may have
================================================================================
================================================================================
increased the attractiveness of U.S. stocks. As for bond investors, they may
have been worried about an increase in interest rates if economic growth picks
up under a Trump Administration. Higher growth rates typically correspond with
rising inflation, which in turn could prompt the Federal Reserve (the Fed) to
accelerate the pace of interest rate increases.
What actually happens, however, is yet to be seen. No one knows, except in the
most general terms, what President-elect Trump's plans and priorities will be or
how they could affect economic growth in 2017 and beyond. By extension, it is
also too early to forecast how inflation might be affected and how the Fed could
respond.
At USAA Investments, we are long-term, fundamental investors, who seek to look
at the full market cycle rather than current geopolitical events. We believe
measures such as assessing a company's intrinsic value compared to its current
price tend to be more effective at forecasting potential stock returns over
time. In selecting bonds, our analysts take a bottom-up approach to evaluating
each security individually, building portfolios on a bond-by-bond basis.
It is important to remember market conditions are always fluctuating and time
horizon matters. We believe that it is important to stay focused on your
long-term objectives, using an investment plan that is based on your personal
time horizon and risk tolerance. If you are uneasy about market risk in general
or have concerns about too much exposure to specific asset classes, please call
USAA to speak with an advisor. As the new year begins, why not make a resolution
to put your financial house in order?
Thank you for allowing us to help you in your efforts to achieve your financial
goals. At USAA Investments, we are committed to providing you with our best
advice, top-notch service, and a variety of mutual funds. On behalf of everyone
here, I wish you a happy and healthy 2017.
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 11
Notes to Portfolio of Investments 33
Financial Statements 37
Notes to Financial Statements 40
EXPENSE EXAMPLE 54
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE
RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY
USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN
PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS
ABOUT THE FUND.
(C)2017, USAA. All rights reserved.
200987-0117
================================================================================
================================================================================
FUND OBJECTIVE
THE USAA CORNERSTONE AGGRESSIVE FUND (THE FUND) SEEKS CAPITAL APPRECIATION OVER
THE LONG TERM. THE FUND ALSO CONSIDERS THE POTENTIAL FOR CURRENT INCOME.
--------------------------------------------------------------------------------
TYPES OF INVESTMENTS
The Fund invests in equity securities, bonds, and money market instruments, and
other instruments including derivatives. The Fund has a target asset class
allocation of approximately 80% equity securities and 20% fixed-income
securities. The actual asset class allocation can deviate from time to time from
these targets as market conditions warrant. The implementation of the asset
allocation may involve the extensive use of equity and fixed-income
exchange-traded funds (ETFs). The Fund may invest in securities issued by
domestic or foreign companies. The Fund also may invest in investment-grade and
below-investment-grade ("junk" or high-yield) fixed-income securities.
The Fund's investments also include real estate investment trusts (REITs),
investments that provide exposure to commodities (such as ETFs or national
resources companies), and derivatives, including futures and options.
Derivatives may be utilized by the Fund to reduce its volatility over time, to
enhance returns, or to provide diversification.
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
JOHN P. TOOHEY, CFA LANCE HUMPHREY, CFA
WASIF A. LATIF ARNOLD J. ESPE, CFA
--------------------------------------------------------------------------------
o HOW DID THE GLOBAL FINANCIAL MARKETS PERFORM DURING THE REPORTING PERIOD?
Financial assets produced mixed results during the reporting period ended
November 30, 2016, reflecting the broad range of headlines that
characterized the reporting period.
U.S. equities posted the strongest gains among the major asset categories.
The U.S. economy continued to deliver economic growth ahead of its
developed-market global peers, driving healthy relative performance for the
stock market. Small-cap stocks, in particular, generated favorable gains
thanks in part to their greater exposure to the country's positive growth.
U.S. equities performed particularly well in the wake of the U.S.
election, which removed the element of political uncertainty that had
weighed on the market.
Developed-market international equities finished with a small loss and
trailed the U.S. market by a wide margin. While Japanese stocks were
bolstered by the substantial fiscal and monetary stimulus being provided by
the nation's government, European equities lagged. The leading cause of the
shortfall was likely the region's higher sensitivity to the United
Kingdom's June 2016 vote to exit the European Union ("Brexit"). In
addition, the European markets were pressured by the combination of slow
economic growth, possible instability within the banking system, and the
potential impact of rising nationalism across Europe.
================================================================================
2 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
In contrast to the developed markets, emerging-market stocks performed well
during the reporting period. The renewed stability in commodity prices
provided a positive backdrop for the asset class, as did improving
corporate earnings and signs of stronger economic growth in both Russia and
China.
The U.S. bond market also experienced mixed performance during the
reporting period. Market segments that are sensitive to interest-rate
movements, such as longer-term U.S. Treasuries, generally finished with
slightly negative returns. The stimulation of the U.S. economy, in
conjunction with the prospects of increasingly growth-oriented policies in
the year ahead, raised concerns that the Federal Reserve (the Fed) would
take an aggressive approach to raising interest rates. However, the
improving growth outlook--together with investors' increasing appetite for
risk--helped fuel strong returns for lower-rated segments of the market,
including high-yield bonds.
o HOW DID THE USAA CORNERSTONE AGGRESSIVE FUND (THE FUND) PERFORM DURING THE
REPORTING PERIOD?
For the reporting period ended November 30, 2016, the Fund had a total
return of 2.74%. This compares to a return of 3.67% for the MSCI
All-Country World Index and 3.42% for the Cornerstone Aggressive Composite
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 PLEASE DISCUSS THE FACTORS THAT HELPED AND HURT PERFORMANCE.
We maintained a patient approach to managing the Fund's portfolio. Rather
than trying to keep pace with the rapidly shifting trends in the global
markets, we remained focused on asset classes where we believed
Refer to page 8 for benchmark definitions.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 3
================================================================================
there was value. While low valuations don't necessarily translate to
outperformance in the short term, undervalued market segments have
historically demonstrated superior results over time. We believe this
value-driven strategy is appropriate for an environment in which
macroeconomic headlines are a key driver of financial-market performance.
In the Fund's U.S. equity allocation, a diversified portfolio of large-cap,
blue-chip stocks performed well and participated in the broader rally.
Stock selection in the mid-cap space was an additional positive. Although
stronger returns could have been produced through a larger position in
small caps or aggressive growth stocks, we think that a focus on
fundamentally sound, reasonably valued large-and mid-cap companies is
prudent at this stage of the cycle. The Fund remained underweight in the
United States overall, as we continued to see more attractive valuations
overseas.
The Fund's developed-market international allocation aided performance
during the middle of the reporting period, but was a net detractor overall.
Although we continue to see a long-term opportunity in the international
markets due to their compelling valuations relative to U.S. stocks, the
unsteady economic conditions overseas prompted us to slightly reduce the
Fund's position.
The Fund's allocation to emerging-market stocks contributed positively to
its performance. We remain enthusiastic on the longer-term outlook for the
emerging markets, where the combination of improving growth, healthy
corporate earnings, and stabilizing commodity prices makes the low
valuations of the asset class particularly compelling.
The Fund's allocation to gold stocks, though modest, slightly detracted
from results. After rallying in the first half of the reporting period,
gold prices subsequently weakened due to the prospect of rising interest
rates. Shares of gold mining companies declined from their mid-August 2016
peak as a result, causing the sector to finish with a loss. Overall,
however, this aspect of our positioning had only a small effect on the
Fund's performance.
The Fund's actively managed bond portfolio made a positive contribution to
results due in part to its above-average weightings in
================================================================================
4 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
lower-rated investment-grade and high-yield corporate bonds. In addition,
the Fund's performance was aided by positive security selection in both
areas. The portfolio maintained an allocation to longer-term U.S.
Treasuries to counterbalance some of its credit exposure, but this aspect
of its positioning was a slight detractor due to the weaker returns for
government bonds.
The investment backdrop offered a varied picture for investors at the
close of the reporting period. The U.S. economy has continued to
produce modest growth despite the challenging economic conditions
elsewhere in the developed world. In addition, the ultra-loose monetary
policies of certain foreign central banks represent an ongoing engine of
demand for higher-risk, higher-yielding financial assets. While these
factors are generally a positive for the markets, potential sources of
volatility include global political uncertainty and the possibility that the
Fed could begin to raise interest rates more aggressively.
Our response to this ambiguity is to maintain our strategy: maintain
diversification, stay focused on the long-term picture, and emphasize
undervalued asset classes. We believe this steady approach--rather than
one that tries to keep up with the day-to-day considerations driving
short-term market performance--is well suited to a highly uncertain
investment environment.
Thank you for allowing us to help you manage your investments.
Asset Allocation funds may be invested in, among other things:
(1) exchange-traded funds; (2) futures, options, and other derivatives;
(3) non-investment-grade securities; (4) precious metals and minerals
companies; (5) real estate investment trusts; (6) money market instruments;
(7) foreign and emerging markets. These types of investments and asset
classes may be more volatile and prone to experience significant loss than
others. In addition, it is possible that a particular asset allocation used
by the Manager may not produce the intended result. 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 Foreign investing is subject to additional risks, such as currency
fluctuations, market illiquidity, and political instability. Emerging
market countries are less diverse and mature than other countries and tend
to be politically less stable. o Precious metals and minerals is a volatile
asset class and is subject to additional risks, such as currency
fluctuation, market illiquidity, political instability, and increased price
volatility. It may be more volatile than other asset classes that diversify
across many industries and companies. 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 credit worthy investment-grade securities.
o Diversification is a technique intended to help reduce risk and does not
guarantee a profit or prevent a loss. o Exchange Traded Funds (ETFs) are
subject to risks similar to those of stocks. Investment returns may
fluctuate and are subject to market volatility, so that an investor's
shares, when redeemed or sold, may be worth more or less than their
original cost.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 5
================================================================================
INVESTMENT OVERVIEW
USAA CORNERSTONE AGGRESSIVE FUND (THE FUND)
(Ticker Symbol: UCAGX)
--------------------------------------------------------------------------------
11/30/16 5/31/16
--------------------------------------------------------------------------------
Net Assets $237.2 Million $222.2 Million
Net Asset Value Per Share $11.64 $11.33
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 11/30/16
--------------------------------------------------------------------------------
5/31/16-11/30/16* 1 YEAR SINCE INCEPTION 6/08/12
2.74% 1.83% 5.87%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/16
--------------------------------------------------------------------------------
1 YEAR SINCE INCEPTION 6/08/12
5.65% 6.12%
--------------------------------------------------------------------------------
EXPENSE RATIOS AS OF 5/31/16**
--------------------------------------------------------------------------------
BEFORE REIMBURSEMENT 1.52% AFTER REIMBURSEMENT 1.23%
(Includes acquired fund fees and expenses of 0.13%)
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 October 1, 2016, and
are calculated as a percentage of average net assets. USAA Asset Management
Company (the Manager) has agreed, through September 30, 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 (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 Fund's
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
September 30, 2017. If the total annual operating expense ratio of the Fund is
lower than 1.10%, the Fund 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. Effective October 1,
2016, the base investment management fee was reduced from 0.70% to 0.65% of the
Fund's average net assets.
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 CORNERSTONE AGGRESSIVE FUND
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
MSCI CORNERSTONE USAA
ALL-COUNTRY AGGRESSIVE CORNERSTONE
WORLD INDEX COMPOSITE INDEX AGGRESSIVE FUND
05/31/12 $10,000.00 $10,000.00 $10,000.00
06/30/12 10,493.89 10,375.19 10,330.00
07/31/12 10,637.55 10,512.07 10,390.00
08/31/12 10,868.84 10,708.77 10,610.00
09/30/12 11,211.17 10,965.51 10,850.00
10/31/12 11,136.45 10,884.98 10,810.00
11/30/12 11,278.85 10,984.63 10,870.00
12/31/12 11,534.33 11,164.56 11,071.06
01/31/13 12,065.70 11,586.21 11,399.70
02/28/13 12,063.82 11,627.36 11,327.81
03/31/13 12,281.81 11,858.61 11,502.40
04/30/13 12,635.33 12,110.82 11,656.45
05/31/13 12,600.66 12,100.44 11,605.10
06/30/13 12,232.36 11,814.94 11,276.46
07/31/13 12,817.95 12,280.90 11,697.53
08/31/13 12,550.90 12,052.86 11,471.59
09/30/13 13,199.17 12,536.33 11,820.77
10/31/13 13,729.68 12,947.18 12,211.03
11/30/13 13,924.12 13,100.30 12,344.54
12/31/13 14,164.33 13,292.33 12,509.86
01/31/14 13,597.75 12,973.13 12,155.11
02/28/14 14,254.63 13,499.26 12,624.63
03/31/14 14,318.01 13,541.51 12,645.49
04/30/14 14,454.31 13,631.63 12,739.40
05/31/14 14,761.74 13,875.31 12,937.63
06/30/14 15,039.67 14,121.09 13,188.04
07/31/14 14,857.12 13,926.31 12,989.80
08/31/14 15,185.29 14,250.64 13,219.34
09/30/14 14,693.04 13,846.68 12,812.43
10/31/14 14,796.48 14,021.69 12,895.90
11/30/14 15,043.98 14,208.40 13,052.40
12/31/14 14,753.68 14,042.85 12,855.85
01/31/15 14,523.01 13,914.63 12,758.13
02/28/15 15,331.53 14,497.23 13,290.17
03/31/15 15,093.98 14,359.85 13,105.58
04/30/15 15,531.92 14,614.57 13,344.46
05/31/15 15,511.65 14,641.37 13,409.60
06/30/15 15,146.48 14,370.10 13,116.44
07/31/15 15,278.01 14,457.58 13,192.45
08/31/15 14,230.69 13,708.05 12,454.10
09/30/15 13,715.12 13,351.28 12,074.07
10/31/15 14,791.55 14,148.43 12,768.98
11/30/15 14,669.41 14,074.73 12,682.12
12/31/15 14,404.86 13,859.39 12,415.00
01/31/16 13,535.78 13,224.63 11,805.00
02/29/16 13,442.98 13,194.21 11,727.00
03/31/16 14,439.21 14,014.89 12,393.00
04/30/16 14,652.35 14,202.69 12,537.00
05/31/16 14,670.82 14,266.61 12,570.00
06/30/16 14,582.01 14,285.15 12,603.00
07/31/16 15,210.40 14,780.85 13,014.00
08/31/16 15,261.58 14,807.45 13,014.00
09/30/16 15,355.08 14,885.93 13,092.00
10/31/16 15,094.44 14,626.92 12,881.00
11/30/16 15,209.15 14,754.17 12,914.00
[END CHART]
Data from 5/31/12 through 11/30/16.*
See next page for benchmark definitions.
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 the Cornerstone
Aggressive Composite Index are calculated from the end of the month, May 31,
2012, while the inception date of the USAA Cornerstone Aggressive Fund is June
8, 2012. There may be a slight variation of the performance numbers because of
this difference.
================================================================================
INVESTMENT OVERVIEW | 7
================================================================================
The graph on page 7 illustrates the comparison of a $10,000 hypothetical
investment in the USAA Cornerstone Aggressive Fund to the benchmarks listed
below. The Manager has developed the Cornerstone Aggressive Composite Index,
which is used to measure the Fund's performance. The custom benchmark was
created by the Manager to show how the Fund's performance compares with the
returns of an index or indexes with similar asset allocations.
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.
o The Cornerstone Aggressive Composite Index is a combination of unmanaged
indexes representing the Fund's model allocation, and consists of the MSCI
USA Investable Market Index (IMI) Gross (46%), the MSCI ACWI ex USA IMI Net
(30%), the Bloomberg Barclays U.S. Universal Index (18%), the Bloomberg
Commodity Index Total Return (2%), the MSCI U.S. Real Estate Investment
Trust (REIT) Index Gross (2%), and the Bloomberg Barclays U.S. Treasury -
Bills (1-3M) (2%).
================================================================================
8 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
o TOP 10 HOLDINGS* - 11/30/16 o
(% of Net Assets)
iShares Core MSCI EAFE ETF** ............................................. 9.4%
Schwab Fundamental International Large Co. Index ETF**.................... 3.5%
iShares Core MSCI Emerging Markets ETF** ................................. 3.2%
Vanguard FTSE Developed Markets ETF** .................................... 2.9%
Vanguard Short-Term Corporate Bond ETF** ................................. 2.6%
iShares Currency Hedged MSCI EAFE ETF** .................................. 2.4%
iShares iBoxx $ High Yield Corporate Bond ETF** .......................... 2.3%
U.S. Treasury Note, 1.13%, 2/28/2021 ..................................... 2.1%
iShares Edge MSCI Min Vol EAFE ETF** ..................................... 1.8%
Vanguard FTSE Emerging Markets ETF** ..................................... 1.7%
* Excludes futures and money market instruments.
** 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.
You will find a complete list of securities that the Fund owns on pages 11-32.
================================================================================
INVESTMENT OVERVIEW | 9
================================================================================
o ASSET ALLOCATION* - 11/30/16 o
[PIE CHART OF ASSET ALLOCATION]
INTERNATIONAL EQUITY SECURITIES** 33.4%
U.S. EQUITY SECURITIES** 32.7%
MONEY MARKET INSTRUMENTS 8.4%
FIXED INCOME EXCHANGE-TRADED FUNDS** 8.3%
U.S. TREASURY SECURITIES 6.1%
U.S. GOVERNMENT AGENCY ISSUES 4.0%
CORPORATE OBLIGATIONS 2.5%
PRECIOUS METALS AND COMMODITY-RELATED SECURITIES 1.9%
GLOBAL REAL ESTATE EQUITY SECURITIES** 1.8%
COMMERCIAL MORTGAGE SECURITIES 0.9%
EURODOLLAR AND YANKEE OBLIGATIONS 0.4%
COLLATERALIZED MORTGAGE OBLIGATIONS 0.1%
ASSET-BACKED SECURITIES*** 0.0%
[END CHART]
* Excludes futures.
** 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.
*** Represents less than 0.1% of the Fund.
Percentages are of the net assets of the Fund and may not equal 100%.
================================================================================
10 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
PORTFOLIO OF INVESTMENTS
November 30, 2016 (unaudited)
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
U.S. EQUITY SECURITIES (32.7%)
COMMON STOCKS (29.3%)
CONSUMER DISCRETIONARY (2.7%)
-----------------------------
ADVERTISING (0.1%)
3,450 Omnicom Group, Inc.(a) $ 300
-------
APPAREL RETAIL (0.4%)
3,490 American Eagle Outfitters, Inc. 58
2,810 Buckle, Inc. 71
720 Caleres, Inc. 23
8,400 TJX Companies, Inc. 658
-------
810
-------
APPAREL, ACCESSORIES & LUXURY GOODS (0.0%)
2,840 Fossil Group, Inc.* 95
-------
AUTO PARTS & EQUIPMENT (0.1%)
4,050 Gentex Corp. 75
2,650 Gentherm, Inc.* 84
-------
159
-------
AUTOMOBILE MANUFACTURERS (0.1%)
1,500 Thor Industries, Inc. 151
-------
FOOTWEAR (0.1%)
2,810 Steven Madden Ltd.* 104
4,030 Wolverine World Wide, Inc. 91
-------
195
-------
GENERAL MERCHANDISE STORES (0.1%)
1,150 Big Lots, Inc. 58
3,600 Target Corp. 278
-------
336
-------
HOME IMPROVEMENT RETAIL (0.4%)
7,650 Home Depot, Inc.(a) 990
-------
HOMEBUILDING (0.3%)
9,050 CalAtlantic Group, Inc. 302
6,620 KB Home 105
================================================================================
PORTFOLIO OF INVESTMENTS | 11
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
3,430 M/I Homes, Inc.* $ 80
3,490 Meritage Homes Corp.* 126
30 NVR, Inc.* 48
-------
661
-------
HOTELS, RESORTS & CRUISE LINES (0.3%)
5,120 Carnival Corp.(a) 263
4,000 Norwegian Cruise Line Holdings Ltd.* 159
2,450 Royal Caribbean Cruises Ltd. 199
-------
621
-------
INTERNET RETAIL (0.4%)
1,350 Amazon.com, Inc.* 1,013
-------
LEISURE PRODUCTS (0.0%)
6,910 Callaway Golf Co. 84
-------
MOVIES & ENTERTAINMENT (0.1%)
1,750 Time Warner, Inc.(a) 161
-------
PUBLISHING (0.1%)
3,930 Gannett Co., Inc. 38
1,550 John Wiley & Sons, Inc. "A" 85
1,570 Meredith Corp. 87
-------
210
-------
RESTAURANTS (0.0%)
1,180 DineEquity, Inc. 98
-------
SPECIALTY STORES (0.2%)
4,050 Hibbett Sports, Inc.* 163
1,240 Ulta Salon, Cosmetics & Fragrance, Inc.* 322
-------
485
-------
Total Consumer Discretionary 6,369
-------
CONSUMER STAPLES (2.6%)
-----------------------
AGRICULTURAL PRODUCTS (0.3%)
7,750 Bunge Ltd. 529
1,600 Ingredion, Inc. 188
-------
717
-------
DRUG RETAIL (0.5%)
5,580 CVS Health Corp.(a) 429
8,600 Walgreens Boots Alliance, Inc.(a) 729
-------
1,158
-------
FOOD RETAIL (0.1%)
7,500 Kroger Co.(a) 242
-------
================================================================================
12 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS (0.3%)
8,070 Procter & Gamble Co. $ 666
-------
HYPERMARKETS & SUPER CENTERS (0.4%)
15,250 Wal-Mart Stores, Inc. 1,074
-------
PACKAGED FOODS & MEAT (0.3%)
13,150 Blue Buffalo Pet Products, Inc.* 308
5,000 Kraft Heinz Co. 408
-------
716
-------
SOFT DRINKS (0.5%)
6,600 Coca-Cola Co.(a) 266
8,600 PepsiCo, Inc. 861
-------
1,127
-------
TOBACCO (0.2%)
3,800 Altria Group, Inc.(a) 243
2,980 Philip Morris International, Inc. 263
1,530 Universal Corp. 84
-------
590
-------
Total Consumer Staples 6,290
-------
ENERGY (2.1%)
-------------
INTEGRATED OIL & GAS (0.9%)
5,000 Chevron Corp. 558
9,000 Exxon Mobil Corp. 786
11,820 Occidental Petroleum Corp. 843
-------
2,187
-------
OIL & GAS DRILLING (0.2%)
5,260 Atwood Oceanics, Inc. 50
4,280 Helmerich & Payne, Inc. 324
5,480 Noble Corp. plc 34
5,020 Rowan Companies plc "A" 89
-------
497
-------
OIL & GAS EQUIPMENT & SERVICES (0.3%)
2,710 Dril-Quip, Inc.* 153
5,050 Schlumberger Ltd.(a) 425
-------
578
-------
OIL & GAS EXPLORATION & PRODUCTION (0.7%)
7,450 Cabot Oil & Gas Corp. 165
500 Cimarex Energy Co. 69
17,060 ConocoPhillips(a) 828
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
3,200 EOG Resources, Inc. $ 328
2,760 PDC Energy, Inc.* 205
-------
1,595
-------
OIL & GAS REFINING & MARKETING (0.0%)
1,030 REX American Resources Corp.* 101
-------
Total Energy 4,958
-------
FINANCIALS (5.0%)
-----------------
ASSET MANAGEMENT & CUSTODY BANKS (0.4%)
10,300 Bank of New York Mellon Corp. 488
4,910 Eaton Vance Corp. 199
5,240 Federated Investors, Inc. "B" 144
-------
831
-------
CONSUMER FINANCE (0.6%)
38,414 Synchrony Financial 1,328
-------
DIVERSIFIED BANKS (1.5%)
76,300 Bank of America Corp. 1,612
11,250 Citigroup, Inc. 634
14,060 JPMorgan Chase & Co. 1,127
6,040 U.S. Bancorp 300
-------
3,673
-------
FINANCIAL EXCHANGES & DATA (0.0%)
958 Donnelley Financial Solutions, Inc.* 18
-------
INVESTMENT BANKING & BROKERAGE (0.1%)
3,050 Raymond James Financial, Inc. 219
-------
LIFE & HEALTH INSURANCE (0.0%)
2,230 American Equity Investment Life Holding Co. 46
-------
MULTI-LINE INSURANCE (0.0%)
670 American Financial Group, Inc. 55
-------
PROPERTY & CASUALTY INSURANCE (0.8%)
7,700 Allstate Corp.(a) 538
1,310 AMERISAFE, Inc. 83
5,150 Chubb Ltd. 659
870 Hanover Insurance Group, Inc. 75
4,570 Old Republic International Corp. 82
11,650 Progressive Corp. 388
2,480 Selective Insurance Group, Inc. 102
1,350 W.R. Berkley Corp. 84
-------
2,011
-------
================================================================================
14 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
REGIONAL BANKS (1.2%)
14,110 Fifth Third Bancorp(a) $ 367
60,850 KeyCorp(a) 1,053
4,240 PacWest Bancorp 217
4,600 PNC Financial Services Group, Inc. 509
2,580 Prosperity Bancshares, Inc. 171
13,390 TCF Financial Corp. 232
2,850 Wintrust Financial Corp. 188
-------
2,737
-------
REINSURANCE (0.2%)
350 Alleghany Corp.* 199
1,010 Everest Re Group Ltd. 212
810 Reinsurance Group of America, Inc. 99
-------
510
-------
SPECIALIZED FINANCE (0.1%)
1,250 CME Group, Inc.(a) 141
-------
THRIFTS & MORTGAGE FINANCE (0.1%)
5,210 Astoria Financial Corp. 85
3,430 Washington Federal, Inc. 112
-------
197
-------
Total Financials 11,766
-------
HEALTH CARE (4.0%)
------------------
BIOTECHNOLOGY (0.8%)
17,150 AbbVie, Inc. 1,043
1,350 Amgen, Inc.(a) 195
350 Biogen, Inc.* 103
6,400 Gilead Sciences, Inc. 472
320 Ligand Pharmaceuticals, Inc.* 33
760 United Therapeutics Corp.* 95
-------
1,941
-------
HEALTH CARE DISTRIBUTORS (0.2%)
1,890 McKesson Corp. 272
2,060 Owens & Minor, Inc. 70
-------
342
-------
HEALTH CARE EQUIPMENT (0.7%)
11,070 Hologic, Inc.* 424
2,460 Masimo Corp.* 152
15,200 Medtronic plc(a) 1,110
-------
1,686
-------
================================================================================
PORTFOLIO OF INVESTMENTS | 15
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
HEALTH CARE FACILITIES (0.1%)
10,680 Select Medical Holdings Corp.* $ 130
1,360 Surgical Care Affiliates, Inc.* 57
-------
187
-------
HEALTH CARE SERVICES (0.1%)
1,740 AMN Healthcare Services, Inc.* 58
950 Chemed Corp. 142
1,700 MEDNAX, Inc.* 111
-------
311
-------
HEALTH CARE SUPPLIES (0.0%)
1,700 Anika Therapeutics, Inc.* 79
-------
LIFE SCIENCES TOOLS & SERVICES (0.4%)
1,470 Cambrex Corp.* 74
1,880 Charles River Laboratories International, Inc.* 134
4,650 Luminex Corp.* 94
5,150 Thermo Fisher Scientific, Inc. 721
-------
1,023
-------
MANAGED HEALTH CARE (0.5%)
6,700 UnitedHealth Group, Inc. 1,061
-------
PHARMACEUTICALS (1.2%)
350 Allergan plc* 68
9,540 Johnson & Johnson(a) 1,062
12,300 Merck & Co., Inc.(a) 752
32,736 Pfizer, Inc. 1,052
-------
2,934
-------
Total Health Care 9,564
-------
INDUSTRIALS (3.7%)
------------------
AEROSPACE & DEFENSE (1.0%)
3,350 Boeing Co. 504
640 Huntington Ingalls Industries, Inc. 114
300 Lockheed Martin Corp(a) 80
1,040 Moog, Inc."A"* 73
12,250 Spirit AeroSystems Holdings, Inc. "A"* 714
820 Teledyne Technologies, Inc.* 102
6,600 United Technologies Corp.(a) 711
-------
2,298
-------
AIR FREIGHT & LOGISTICS (0.4%)
3,600 FedEx Corp.(a) 690
2,900 United Parcel Service, Inc. "B" 336
-------
1,026
-------
================================================================================
16 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
AIRLINES (0.4%)
7,900 JetBlue Airways Corp.* $ 159
9,900 Southwest Airlines Co.(a) 461
3,810 United Continental Holdings, Inc.* 263
-------
883
-------
BUILDING PRODUCTS (0.2%)
3,380 A.O. Smith Corp. 164
5,200 Masco Corp.(a) 165
660 Universal Forest Products, Inc. 66
-------
395
-------
COMMERCIAL PRINTING (0.1%)
1,510 Deluxe Corp. 102
958 LSC Communications, Inc. 20
2,556 R.R Donnelley & Sons Co. 44
-------
166
-------
CONSTRUCTION & ENGINEERING (0.1%)
8,780 AECOM* 319
-------
CONSTRUCTION MACHINERY & HEAVY TRUCKS (0.2%)
2,350 Greenbrier Companies, Inc. 91
2,040 Trinity Industries, Inc. 57
4,050 Wabtec Corp. 343
-------
491
-------
DIVERSIFIED SUPPORT SERVICES (0.0%)
480 UniFirst Corp. 68
-------
ELECTRICAL COMPONENTS & EQUIPMENT (0.1%)
2,500 Eaton Corp. plc 166
1,230 EnerSys 98
-------
264
-------
ENVIRONMENTAL & FACILITIES SERVICES (0.0%)
2,020 ABM Industries, Inc. 89
-------
HEAVY ELECTRICAL EQUIPMENT (0.0%)
1,090 AZZ, Inc. 71
-------
HUMAN RESOURCE & EMPLOYMENT SERVICES (0.1%)
1,710 ManpowerGroup, Inc. 146
-------
INDUSTRIAL CONGLOMERATES (0.9%)
5,310 Carlisle Companies, Inc.(a) 596
39,347 General Electric Co. 1,210
2,650 Honeywell International, Inc.(a) 302
-------
2,108
-------
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
INDUSTRIAL MACHINERY (0.1%)
1,200 Barnes Group, Inc. $ 55
950 Crane Co. 70
1,920 Mueller Industries, Inc. 73
1,070 Nordson Corp. 114
-------
312
-------
MARINE (0.0%)
2,690 Matson, Inc. 101
-------
TRADING COMPANIES & DISTRIBUTORS (0.1%)
1,180 Applied Industrial Technologies, Inc. 71
1,230 GATX Corp. 67
-------
138
-------
Total Industrials 8,875
-------
INFORMATION TECHNOLOGY (6.6%)
-----------------------------
APPLICATION SOFTWARE (0.2%)
1,500 Ebix, Inc. 89
850 MicroStrategy, Inc. "A"* 165
3,430 Synopsys, Inc.* 208
-------
462
-------
COMMUNICATIONS EQUIPMENT (0.6%)
43,100 Cisco Systems, Inc. 1,285
920 Plantronics, Inc. 48
-------
1,333
-------
DATA PROCESSING & OUTSOURCED SERVICES (0.9%)
2,350 Broadridge Financial Solutions, Inc. 152
3,800 Convergys Corp. 98
950 CSG Systems International, Inc. 42
750 DST Systems, Inc. 77
2,390 Jack Henry & Associates, Inc. 207
3,850 MasterCard, Inc. "A" 394
2,310 Sykes Enterprises, Inc.* 65
15,500 Visa, Inc. "A" 1,199
-------
2,234
-------
ELECTRONIC COMPONENTS (0.1%)
1,440 Belden, Inc. 106
650 Littelfuse, Inc. 95
-------
201
-------
ELECTRONIC EQUIPMENT & INSTRUMENTS (0.0%)
2,310 Keysight Technologies, Inc.* 85
-------
================================================================================
18 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
ELECTRONIC MANUFACTURING SERVICES (0.1%)
1,530 Methode Electronics, Inc. $ 56
1,660 Plexus Corp.* 85
-------
141
-------
INTERNET SOFTWARE & SERVICES (1.2%)
2,725 Alphabet, Inc."A"* 2,115
5,100 Facebook, Inc."A"* 604
670 J2 Global, Inc. 49
-------
2,768
-------
SEMICONDUCTOR EQUIPMENT (0.4%)
10,000 Applied Materials, Inc.(a) 322
1,210 Cabot Microelectronics Corp. 72
4,100 Lam Research Corp.(a) 435
1,470 MKS Instruments, Inc. 84
1,910 Tessera Technologies, Inc. 76
-------
989
-------
SEMICONDUCTORS (0.5%)
3,690 Intel Corp. 128
8,290 Maxim Integrated Products, Inc. 325
5,150 QUALCOMM, Inc. 351
4,500 Texas Instruments, Inc.(a) 333
-------
1,137
-------
SYSTEMS SOFTWARE (1.3%)
33,760 Microsoft Corp.(a) 2,034
24,400 Oracle Corp. 981
-------
3,015
-------
TECHNOLOGY DISTRIBUTORS (0.1%)
1,870 Arrow Electronics, Inc.* 128
2,950 Ingram Micro, Inc. "A" 110
780 SYNNEX Corp. 91
610 Tech Data Corp.* 52
-------
381
-------
TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (1.2%)
16,815 Apple, Inc.(a) 1,858
8,850 Hewlett Packard Enterprise Co. 211
36,150 HP, Inc. 557
4,450 Western Digital Corp.(a) 283
-------
2,909
-------
Total Information Technology 15,655
-------
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
MATERIALS (0.8%)
----------------
DIVERSIFIED CHEMICALS (0.2%)
8,300 Dow Chemical Co.(a) $ 463
-------
METAL & GLASS CONTAINERS (0.0%)
900 AptarGroup, Inc. 66
-------
PAPER PACKAGING (0.1%)
1,030 Bemis Co., Inc. 52
1,410 Packaging Corp. of America 119
1,280 Sonoco Products Co. 69
-------
240
-------
PAPER PRODUCTS (0.1%)
5,110 KapStone Paper & Packaging Corp. 104
-------
SPECIALTY CHEMICALS (0.3%)
1,150 Ecolab, Inc.(a) 134
970 Innospec, Inc. 64
5,370 RPM International, Inc. 284
1,150 Stepan Co. 93
1,160 Valspar Corp. 119
-------
694
-------
STEEL (0.1%)
2,130 Reliance Steel & Aluminum Co. 173
2,280 Worthington Industries, Inc. 128
-------
301
-------
Total Materials 1,868
-------
TELECOMMUNICATION SERVICES (0.7%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (0.7%)
27,050 AT&T, Inc.(a) 1,045
2,860 Consolidated Communications Holdings, Inc. 82
8,461 Verizon Communications, Inc.(a) 422
-------
1,549
-------
Total Telecommunication Services 1,549
-------
UTILITIES (1.1%)
----------------
ELECTRIC UTILITIES (0.9%)
3,210 ALLETE, Inc. 198
8,000 American Electric Power Co., Inc. 472
7,200 Duke Energy Corp.(a) 531
6,500 Edison International 447
================================================================================
20 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
2,500 NextEra Energy, Inc. $ 286
4,950 PPL Corp.(a) 166
-------
2,100
-------
GAS UTILITIES (0.1%)
850 Spire, Inc. 55
1,980 UGI Corp. 89
-------
144
-------
MULTI-UTILITIES (0.1%)
1,880 Avista Corp. 76
3,020 NorthWestern Corp. 169
1,100 Sempra Energy 110
-------
355
-------
Total Utilities 2,599
-------
Total Common Stocks (cost: $59,896) 69,493
-------
PREFERRED STOCKS (0.6%)
CONSUMER STAPLES (0.2%)
-----------------------
AGRICULTURAL PRODUCTS (0.2%)
8,000 CHS, Inc., Series B, 7.88%, cumulative redeemable, perpetual 233
2,000 Dairy Farmers of America, Inc., 7.88%, cumulative redeemable, perpetual(b) 208
-------
441
-------
Total Consumer Staples 441
-------
ENERGY (0.1%)
-------------
OIL & GAS EXPLORATION & PRODUCTION (0.1%)
300 Chesapeake Energy Corp., 5.75%, perpetual*(b) 162
-------
OIL & GAS STORAGE & TRANSPORTATION (0.0%)
150 Kinder Morgan G.P., Inc., 4.81%, cumulative redeemable(b) 135
-------
Total Energy 297
-------
FINANCIALS (0.2%)
-----------------
LIFE & HEALTH INSURANCE (0.1%)
12,000 Delphi Financial Group, Inc., 7.38%, cumulative redeemable 265
-------
REGIONAL BANKS (0.1%)
235 M&T Bank Corp., 6.38%, cumulative redeemable, perpetual 248
-------
Total Financials 513
-------
================================================================================
PORTFOLIO OF INVESTMENTS | 21
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES (0.1%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (0.1%)
8,000 Qwest Corp., 6.50% $ 190
-------
Total Preferred Stocks (cost: $1,552) 1,441
-------
EXCHANGE-TRADED FUNDS (2.8%)
7,500 iShares Core S&P 500 ETF 1,661
9,700 Vanguard Mid-Cap ETF 1,274
33,360 Vanguard Total Stock Market ETF 3,796
-------
Total Exchange-Traded Funds (cost: $6,117) 6,731
-------
Total U.S. Equity Securities (cost: $67,565) 77,665
-------
INTERNATIONAL EQUITY SECURITIES (33.4%)
COMMON STOCKS (0.9%)
CONSUMER DISCRETIONARY (0.4%)
-----------------------------
AUTO PARTS & EQUIPMENT (0.4%)
5,600 Delphi Automotive plc 358
15,000 Magna International, Inc. 607
-------
965
-------
Total Consumer Discretionary 965
-------
ENERGY (0.1%)
-------------
INTEGRATED OIL & GAS (0.1%)
4,150 TOTAL S.A. ADR 198
-------
FINANCIALS (0.2%)
-----------------
PROPERTY & CASUALTY INSURANCE (0.2%)
12,000 XL Group Ltd. 434
-------
INFORMATION TECHNOLOGY (0.1%)
-----------------------------
SEMICONDUCTORS (0.1%)
1,000 Broadcom Ltd. 170
1,550 NXP Semiconductors N.V.* 154
-------
324
-------
Total Information Technology 324
-------
TELECOMMUNICATION SERVICES (0.1%)
---------------------------------
WIRELESS TELECOMMUNICATION SERVICES (0.1%)
12,650 Vodafone Group plc ADR 309
-------
Total Common Stocks (cost: $2,309) 2,230
-------
================================================================================
22 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
EXCHANGE-TRADED FUNDS (32.5%)
422,900 iShares Core MSCI EAFE ETF $ 22,354
176,300 iShares Core MSCI Emerging Markets ETF 7,628
226,100 iShares Currency Hedged MSCI EAFE ETF 5,749
67,600 iShares Edge MSCI Min Vol EAFE ETF 4,193
32,200 iShares Edge MSCI Min Vol Emerging Markets ETF 1,617
68,500 iShares MSCI Pacific ex Japan ETF 2,812
33,300 PowerShares FTSE RAFI Developed Markets ex-U.S. Portfolio 1,219
220,200 PowerShares FTSE RAFI Emerging Markets Portfolio 3,990
20,000 Schwab Fundamental Emerging Markets Large Co. Index ETF 480
338,700 Schwab Fundamental International Large Co. Index ETF 8,420
14,790 SPDR S&P Emerging Markets SmallCap ETF 609
54,540 Vanguard FTSE All-World ex-US ETF 2,384
193,300 Vanguard FTSE Developed Markets ETF 6,951
114,620 Vanguard FTSE Emerging Markets ETF 4,151
57,200 Vanguard FTSE Europe ETF 2,626
16,645 WisdomTree Emerging Markets SmallCap Dividend Fund 652
55,907 WisdomTree India Earnings Fund 1,132
--------
Total Exchange-Traded Funds (cost: $80,210) 76,967
--------
Total International Equity Securities (cost: $82,519) 79,197
--------
PRECIOUS METALS AND COMMODITY-RELATED SECURITIES (1.9%)
GOLD (0.0%)
NORTH AMERICAN GOLD COMPANIES (0.0%)
8,197 Hycroft Mining Corp.*(c),(d) 8
3,000 Newmont Mining Corp.(a) 98
--------
106
--------
Total Gold (cost: $381) 106
--------
EXCHANGE-TRADED FUNDS (1.9%)
24,300 First Trust Global Tactical Commodity Strategy Fund* 496
28,600 PowerShares DB Commodity Index Tracking Fund* 435
50,600 United States Commodity Index Fund* 2,108
71,170 VanEck Vectors Gold Miners ETF 1,483
--------
Total Exchange-Traded Funds (cost: $5,090) 4,522
--------
Total Precious Metals and Commodity-Related Securities (cost: $5,471) 4,628
--------
GLOBAL REAL ESTATE EQUITY SECURITIES (1.8%)
COMMON STOCKS (0.9%)
REAL ESTATE SERVICES (0.1%)
1,350 Jones Lang LaSalle, Inc. 137
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 23
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
REITs - DIVERSIFIED (0.1%)
1,230 PS Business Parks, Inc. $ 137
-------
REITs - HEALTH CARE (0.0%)
7,260 Medical Properties Trust, Inc. 87
-------
REITs - HOTEL & RESORT (0.1%)
3,560 Hospitality Properties Trust 103
9,580 Summit Hotel Properties, Inc. 136
-------
239
-------
REITs - INDUSTRIAL (0.1%)
1,850 EastGroup Properties, Inc. 126
-------
REITs - MORTGAGE (0.2%)
28,504 Annaly Capital Management, Inc. 291
7,130 Capstead Mortgage Corp. 74
21,300 Two Harbors Investment Corp. 185
-------
550
-------
REITs - OFFICE (0.1%)
700 Boston Properties, Inc.(a) 87
4,550 Corporate Office Properties Trust 130
1,970 Highwoods Properties, Inc. 94
1,560 Kilroy Realty Corp. 113
-------
424
-------
REITs - RETAIL (0.1%)
1,000 Simon Property Group, Inc.(a) 180
5,600 Urstadt Biddle Properties, Inc. "A" 127
-------
307
-------
REITs - SPECIALIZED (0.1%)
2,040 Lamar Advertising Co. "A" 135
400 Public Storage(a) 84
-------
219
-------
Total Common Stocks (cost: $2,243) 2,226
-------
PREFERRED STOCKS (0.1%)
REITs - MORTGAGE (0.1%)
8,000 Arbor Realty Trust, Inc., 7.38% (cost: $200) 203
-------
EXCHANGE-TRADED FUNDS (0.8%)
22,200 Vanguard REIT ETF (cost: $1,752) 1,785
-------
Total Global Real Estate Equity Securities (cost: $4,195) 4,214
-------
================================================================================
24 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
BONDS (22.3%)
CORPORATE OBLIGATIONS (2.5%)
CONSUMER STAPLES (0.0%)
-----------------------
FOOD RETAIL (0.0%)
$ 100 BI-LO, LLC & BI-LO Finance Corp.(b) 9.25% 2/15/2019 $ 80
-------
ENERGY (0.4%)
-------------
OIL & GAS DRILLING (0.0%)
261 Schahin II Finance Co. SPV Ltd.(b),(e) 5.88 9/25/2023 35
-------
OIL & GAS STORAGE & TRANSPORTATION (0.4%)
100 Enbridge Energy Partners, LP 7.38 10/15/2045 122
200 Enbridge Energy Partners, LP 8.05 10/01/2077 181
300 Energy Transfer Partners, LP 3.90(f) 11/01/2066 231
200 Enterprise Products Operating, LLC 7.00(f) 6/01/2067 170
190 Southern Union Co. 3.90(f) 11/01/2066 145
-------
849
-------
Total Energy 884
-------
FINANCIALS (1.4%)
-----------------
ASSET MANAGEMENT & CUSTODY BANKS (0.1%)
100 Ares Capital Corp. 3.63 1/19/2022 97
200 Prospect Capital Corp. 5.00 7/15/2019 202
-------
299
-------
LIFE & HEALTH INSURANCE (0.3%)
300 Lincoln National Corp. 3.26(f) 5/17/2066 240
200 Prudential Financial, Inc. 5.63 6/15/2043 208
350 StanCorp Financial Group, Inc. 6.90(f) 6/01/2067 279
-------
727
-------
MULTI-LINE INSURANCE (0.2%)
300 Glen Meadow Pass-Through Trust(b) 6.51(f) 2/12/2067 231
300 Nationwide Mutual Insurance Co.(b) 3.14(f) 12/15/2024 296
-------
527
-------
PROPERTY & CASUALTY INSURANCE (0.5%)
200 Allstate Corp. 5.75 8/15/2053 210
200 AmTrust Financial Services, Inc. 6.13 8/15/2023 203
200 HSB Group, Inc. 1.79(f) 7/15/2027 150
250 Ironshore Holdings, Inc.(b) 8.50 5/15/2020 279
395 Oil Insurance Ltd.(b) 3.82(f) -(g) 316
100 Progressive Corp. 6.70 6/15/2067 98
-------
1,256
-------
================================================================================
PORTFOLIO OF INVESTMENTS | 25
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
REGIONAL BANKS (0.3%)
$ 200 Compass Bank 3.88% 4/10/2025 $ 190
175 Cullen/Frost Capital Trust II 2.39(f) 3/01/2034 152
50 First Maryland Capital Trust I 1.88(f) 1/15/2027 44
200 SunTrust Capital I 1.57(f) 5/15/2027 170
-------
556
-------
Total Financials 3,365
-------
HEALTH CARE (0.1%)
------------------
HEALTH CARE FACILITIES (0.1%)
100 Community Health Systems, Inc. 6.88 2/01/2022 67
100 HCA, Inc. 4.50 2/15/2027 95
-------
162
-------
Total Health Care 162
-------
INDUSTRIALS (0.1%)
------------------
AIRLINES (0.0%)
45 Continental Airlines, Inc. Pass-Through Trust 6.25 10/11/2021 48
-------
ELECTRICAL COMPONENTS & EQUIPMENT (0.1%)
100 Artesyn Embedded Technologies, Inc.(b) 9.75 10/15/2020 90
-------
Total Industrials 138
-------
REAL ESTATE (0.0%)
------------------
REAL ESTATE DEVELOPMENT (0.0%)
100 Crescent Communities, LLC(b) 8.88 10/15/2021 99
-------
UTILITIES (0.5%)
----------------
ELECTRIC UTILITIES (0.3%)
200 NextEra Energy Capital Holdings, Inc. 2.91(f) 10/01/2066 171
174 NextEra Energy Capital Holdings, Inc. 6.65 6/15/2067 153
50 NextEra Energy Capital Holdings, Inc. 7.30 9/01/2067 50
300 PPL Capital Funding, Inc. 6.70(f) 3/30/2067 265
-------
639
-------
MULTI-UTILITIES (0.2%)
500 WEC Energy Group, Inc. 6.25(f) 5/15/2067 438
-------
Total Utilities 1,077
-------
Total Corporate Obligations (cost: $6,430) 5,805
-------
EURODOLLAR AND YANKEE OBLIGATIONS (0.4%)
ENERGY (0.2%)
-------------
OIL & GAS STORAGE & TRANSPORTATION (0.2%)
400 TransCanada PipeLines Ltd. 6.35(f) 5/15/2067 314
-------
================================================================================
26 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
FINANCIALS (0.1%)
-----------------
PROPERTY & CASUALTY INSURANCE (0.1%)
$ 200 QBE Capital Funding III Ltd(b) 7.25% 5/24/2041 $ 222
-------
MATERIALS (0.1%)
----------------
GOLD (0.1%)
300 Newcrest Finance Property Ltd(b) 4.45 11/15/2021 311
-------
Total Eurodollar and Yankee Obligations (cost: $864) 847
-------
ASSET-BACKED SECURITIES (0.0%)
FINANCIALS (0.0%)
-----------------
ASSET-BACKED FINANCING (0.0%)
50 Navient Student Loan Trust (cost: $43) 2.08(f) 8/25/2050 43
-------
COLLATERALIZED MORTGAGE OBLIGATIONS (0.1%)
FINANCIALS (0.1%)
-----------------
70 Sequoia Mortgage Trust 1.46(f) 9/20/2033 62
249 Structured Asset Mortgage Investments, Inc. 1.06(f) 7/19/2035 230
59 Wells Fargo Mortgage Backed Securities Trust 3.00(f) 4/25/2035 56
-------
Total Financials 348
-------
Total Collateralized Mortgage Obligations (cost: $359) 348
-------
COMMERCIAL MORTGAGE SECURITIES (0.9%)
FINANCIALS (0.9%)
-----------------
COMMERCIAL MORTGAGE-BACKED SECURITIES (0.8%)
100 Banc of America Commercial Mortgage, Inc. 6.00 7/10/2044 77
200 Banc of America Commercial Mortgage, Inc. 6.48 2/10/2051 200
200 Bear Stearns Commercial Mortgage Securities,
Inc.(b) 5.66 9/11/2041 195
50 Citigroup Commercial Mortgage Trust 6.00 12/10/2049 35
100 Commercial Mortgage Trust 5.38 12/10/2046 99
350 Credit Suisse Commercial Mortgage
Pass-Through Trust 0.74 2/15/2040 347
250 FREMF Mortgage Trust(b) 3.00 8/25/2045 255
200 GE Capital Commercial Mortgage Corp. 5.00 11/10/2045 191
50 GE Capital Commercial Mortgage Corp. 5.61 12/10/2049 50
17 GMAC Commercial Mortgage Securities, Inc. 4.97 12/10/2041 17
250 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 6.11 4/17/2045 197
300 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 5.37 5/15/2047 300
================================================================================
PORTFOLIO OF INVESTMENTS | 27
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
$ 100 Morgan Stanley Capital I Trust 5.59% 3/12/2044 $ 91
-------
2,054
-------
INTEREST-ONLY COMMERCIAL MORTGAGE-BACKED
SECURITIES (0.1%)
817 CSAIL Commercial Mortgage Trust(c) 1.00 1/15/2049 94
905 UBS Commercial Mortgage Trust(b),(c) 2.27 5/10/2045 82
-------
176
-------
Total Financials 2,230
-------
Total Commercial Mortgage Securities (cost: $2,323) 2,230
-------
U.S. GOVERNMENT AGENCY ISSUES (4.0%)(l)
COMMERCIAL MORTGAGE-BACKED SECURITIES (0.8%)
250 Fannie Mae(+) 2.15 1/25/2023 247
700 Freddie Mac(+) 3.00 12/25/2025 714
500 Freddie Mac(+) 3.51 4/25/2030 519
300 Freddie Mac(+) 3.33 5/25/2025 314
-------
1,794
-------
MORTGAGE-BACKED PASS-THROUGH SECURITIES (3.2%)
562 Freddie Mac(+) 3.00 4/01/2046 560
1,652 Freddie Mac(+) 3.00 6/01/2046 1,647
593 Freddie Mac(+) 3.00 9/01/2046 591
298 Freddie Mac(+) 3.00 10/01/2046 297
998 Freddie Mac(+) 3.00 11/01/2046 994
3,394 Freddie Mac(+) 3.50 4/01/2046 3,487
-------
7,576
-------
Total U.S. Government Agency Issues (cost: $9,579) 9,370
-------
U.S. TREASURY SECURITIES (6.1%)
BONDS (1.6%)
2,250 3.13%, 8/15/2044 2,298
30 3.18%, 8/15/2044 (STRIP Principal)(h) 13
200 3.00%, 11/15/2044 199
100 2.50%, 2/15/2045 90
3,100 3.02%, 5/15/2045 (STRIP Principal)(h) 1,280
-------
3,880
-------
NOTES (4.5%)
5,000 1.13%, 2/28/2021(i) 4,871
800 1.63%, 4/30/2023 776
250 2.38%, 8/15/2024 252
100 2.00%, 2/15/2025 98
1,000 2.25%, 11/15/2025 991
================================================================================
28 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
(000) SECURITY (000)
--------------------------------------------------------------------------------------------------------
$ 3,200 1.63%, 2/15/2026 $ 3,003
600 1.63%, 5/15/2026 562
--------
10,553
--------
Total U.S. Treasury Securities (cost: $14,686) 14,433
--------
--------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES
--------------------------------------------------------------------------------------------------------
EXCHANGE-TRADED FUNDS (8.3%)
15,340 iShares 20+ Year Treasury Bond ETF 1,845
13,510 iShares Core U.S. Aggregate Bond ETF 1,462
63,200 iShares iBoxx $ High Yield Corporate Bond ETF 5,413
87,900 PowerShares Fundamental High Yield Corporate Bond Portfolio 1,633
19,700 Vanguard Mortgage-Backed Securities ETF 1,037
76,600 Vanguard Short-Term Corporate Bond ETF 6,084
27,900 Vanguard Total Bond Market ETF 2,257
--------
Total Exchange-Traded Funds (cost: $19,817) 19,731
--------
Total Bonds (cost: $54,101) 52,807
--------
MONEY MARKET INSTRUMENTS (8.4%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (8.4%)
19,976,296 State Street Institutional Treasury Money Market Fund
Premier Class, 0.25%(j) (cost: 19,976) 19,976
--------
TOTAL INVESTMENTS (COST: $233,827) $238,487
========
================================================================================
PORTFOLIO OF INVESTMENTS | 29
================================================================================
--------------------------------------------------------------------------------------------------------
UNREALIZED
CONTRACT APPRECIATION/
NUMBER OF EXPIRATION VALUE (DEPRECIATION)
CONTRACTS SECURITY DATE (000) (000)
--------------------------------------------------------------------------------------------------------
FUTURES(k)
LONG FUTURES
EQUITY CONTRACTS
133 E-mini S&P 500 12/16/2016 $14,622 $509
12 E-mini S&P Midcap 400 12/16/2016 1,952 101
7 Mini MSCI EAFE 12/16/2016 572 (24)
46 Mini MSCI Emerging Markets Index 12/16/2016 1,985 (68)
------- ----
19,131 518
------- ----
TOTAL LONG FUTURES $19,131 $518
======= ====
SHORT FUTURES
EQUITY CONTRACTS
(14) Russell 2000 Mini 12/16/2016 (1,851) (33)
------- ----
TOTAL SHORT FUTURES $(1,851) $(33)
------- ----
TOTAL FUTURES $17,280 $485
======= ====
================================================================================
30 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
--------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
--------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
--------------------------------------------------------------------------------------------------------
U.S. Equity Securities:
Common Stocks $ 69,493 $ - $- $ 69,493
Preferred Stocks - 1,441 - 1,441
Exchange-Traded Funds 6,731 - - 6,731
International Equity Securities:
Common Stocks 2,230 - - 2,230
Exchange-Traded Funds 76,967 - - 76,967
Precious Metals and Commodity-
Related Securities:
Common Stocks 98 - 8 106
Exchange-Traded Funds 4,522 - - 4,522
Global Real Estate Equity Securities:
Common Stocks 2,226 - - 2,226
Preferred Stocks - 203 - 203
Exchange-Traded Funds 1,785 - - 1,785
Bonds:
Corporate Obligations - 5,805 - 5,805
Eurodollar and Yankee Obligations - 847 - 847
Asset-Backed Securities - 43 - 43
Collateralized Mortgage Obligations - 348 - 348
Commercial Mortgage Securities - 2,230 - 2,230
U.S. Government Agency Issues - 9,370 - 9,370
U.S. Treasury Securities 13,140 1,293 - 14,433
Exchange-Traded Funds 19,731 - - 19,731
Money Market Instruments:
Government & U.S. Treasury Money
Market Funds 19,976 - - 19,976
Futures(1) 610 - - 610
--------------------------------------------------------------------------------------------------------
Total $217,509 $21,580 $8 $239,097
--------------------------------------------------------------------------------------------------------
LIABILITIES LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
--------------------------------------------------------------------------------------------------------
Futures(1) $ (125) $ - $- $ (125)
--------------------------------------------------------------------------------------------------------
(1) Futures are valued at the unrealized appreciation/(depreciation) on the
investment.
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
================================================================================
PORTFOLIO OF INVESTMENTS | 31
================================================================================
---------------------------------------------------------------------------------------------
RECONCILIATION OF LEVEL 3 INVESTMENTS
---------------------------------------------------------------------------------------------
COMMON CORPORATE
STOCKS OBLIGATIONS
---------------------------------------------------------------------------------------------
Balance as of May 31, 2016 $6 $ 142
Purchases - -
Sales - -
Transfers into Level 3 - -
Transfers out of Level 3 - (142)
Net realized gain (loss) on investments - -
Change in net unrealized appreciation/(depreciation) of investments 2 -
---------------------------------------------------------------------------------------------
Balance as of November 30, 2016 $8 $ -
---------------------------------------------------------------------------------------------
FAIR VALUE LEVEL TRANSFERS
--------------------------
For the period of June 1, 2016, through November 30, 2016, the table below shows
the transfers between Level 1, Level 2, and Level 3. The Fund's policy is to
recognize any transfers in and transfers out as of the beginning of the
reporting period in which the event or circumstance that caused the transfer
occurred.
---------------------------------------------------------------------------------------------
TRANSFERS INTO TRANSFERS INTO TRANSFERS INTO
(OUT OF) (OUT OF) (OUT OF)
ASSETS ($ IN 000s) LEVEL 1 LEVEL 2 LEVEL 3
---------------------------------------------------------------------------------------------
Corporate Obligations(I) $- $142 $(142)
---------------------------------------------------------------------------------------------
(I) Transferred from Level 3 to Level 2 as result of the securities no longer
being a single broker quote.
================================================================================
32 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
November 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 34.6% of net assets at November 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 CATEGORIES AND DEFINITIONS
EURODOLLAR AND YANKEE OBLIGATIONS - Eurodollar obligations are U.S.
dollar-denominated instruments that are issued outside the U.S. capital
markets by foreign corporations and financial institutions and by foreign
branches of U.S. corporations and financial institutions. Yankee obligations
are dollar-denominated instruments that are issued by foreign issuers in the
U.S. capital markets.
ASSET-BACKED AND COMMERCIAL MORTGAGE-BACKED SECURITIES - Asset-backed
securities represent a participation in, or are secured by and payable from,
a stream of payments generated by particular assets. Commercial
mortgage-backed securities reflect an interest in, and are secured by,
mortgage loans on commercial real property. These securities represent
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 33
================================================================================
ownership in a pool of loans and are divided into pieces (tranches) with
varying maturities. The stated final maturity of such securities represents
the date the final principal payment will be made for the last outstanding
loans in the pool. The weighted average life is the average time for
principal to be repaid, which is calculated by assuming prepayment rates of
the underlying loans. The weighted average life is likely to be
substantially shorter than the stated final maturity as a result of
scheduled principal payments and unscheduled principal prepayments. Stated
interest rates on commercial mortgage-backed securities may change slightly
over time as underlying mortgages pay down.
COLLATERALIZED MORTGAGE OBLIGATIONS (CMOs) - Collateralized mortgage
obligations are debt obligations of a legal entity that are fully
collateralized by a portfolio of mortgages or mortgage-related securities.
CMOs are issued in multiple classes (tranches), with specific adjustable or
fixed interest rates, varying maturities, and must be fully retired no later
than its final distribution date. The cash flow from the underlying
mortgages is used to pay off each tranche separately. CMOs are designed to
provide investors with more predictable maturities than regular mortgage
securities, but such maturities can be difficult to predict because of the
effect of prepayments.
INTEREST-ONLY COMMERCIAL MORTGAGE-BACKED SECURITIES (CMBS IOs) - Represent
the right to receive only the interest payments on an underlying pool of
commercial mortgage loans. The purchase yield reflects an anticipated yield
based upon interest rates at the time of purchase and the estimated timing
and amount of future cash flows. Coupon rates after purchase vary from
period to period. The principal amount represents the notional amount of the
underlying pool on which current interest is calculated. CMBS IOs are backed
by loans that have various forms of prepayment protection, which include
lock-out provisions, yield maintenance provisions, and prepayment
penalties. This serves to moderate their prepayment risk. CMBS IOs are
subject to default-related prepayments that may have a negative impact on
yield.
================================================================================
34 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
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.
REIT Real estate investment trust
STRIPS Separate trading of registered interest and principal of securities
o SPECIFIC NOTES
(a) The security, or a portion thereof, is segregated to cover the value of
open futures contracts at November 30, 2016.
(b) Restricted security that is not registered under the Securities Act
of 1933. A resale of this security in the United States may occur in an
exempt transaction to a qualified institutional buyer as defined by Rule
144A, and as such has been deemed liquid by USAA Asset Management
Company (the Manager) under liquidity guidelines approved by USAA Mutual
Funds Trust's Board of Trustees (the Board), unless otherwise noted as
illiquid.
(c) Security deemed illiquid by the Manager, under liquidity guidelines
approved by the Board. The aggregate market value of these securities at
November 30, 2016, was $184,000, which represented 0.1% of the Fund's
net assets.
(d) Security was fair valued at November 30, 2016, by the Manager in
accordance with valuation procedures approved by the Board. The total
value of all such securities was $8,000, which represented less than
0.1% of the Fund's net assets.
(e) At November 30, 2016, the issuer was in default with respect to interest
and/or principal payments.
(f) Variable-rate or floating-rate security - interest rate is adjusted
periodically. The interest rate disclosed represents the rate at
November 30, 2016.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 35
================================================================================
(g) Security is perpetual and has no final maturity date but may be
subject to calls at various dates in the future.
(h) Zero-coupon security. Rate represents the effective yield at the
date of purchase.
(i) Security with a value of $974,000 is segregated as collateral for
initial margin requirements on open futures contracts.
(j) Rate represents the money market fund annualized seven-day yield at
November 30, 2016.
(k) The contract value of futures purchased and/or sold as a percentage
of net assets is 7.3%.
(l) U.S. government agency issues - Mortgage-backed securities issued by
certain U.S. Government Sponsored Enterprises (GSEs) such as the
Government National Mortgage Association (GNMA or Ginnie Mae) and
certain other U.S. government guaranteed securities are supported by the
full faith and credit of the U.S. government. Securities issued by
other GSEs, such as Freddie Mac (Federal Home Loan Mortgage Corporation
or FHLMC) and Fannie Mae (Federal National Mortgage Association or
FNMA), indicated with a "+", are supported only by the right of the GSE
to borrow from the U.S. Treasury, the discretionary authority of the
U.S. government to purchase the GSEs' obligations, or only by the credit
of the issuing agency, instrumentality, or corporation, and are neither
issued nor guaranteed by the U.S. Treasury. In September of 2008, the
U.S. Treasury placed Fannie Mae and Freddie Mac under conservatorship
and appointed the Federal Housing Finance Agency (FHFA) to act as
conservator and oversee their daily operations. In addition, the U.S.
Treasury entered into purchase agreements with Fannie Mae and Freddie
Mac to provide them with capital in exchange for senior preferred stock.
While these arrangements are intended to ensure that Fannie Mae and
Freddie Mac can continue to meet their obligations, it is possible that
actions by the U.S. Treasury, FHFA, or others could adversely impact the
value of the Fund's investments in securities issued by Fannie Mae and
Freddie Mac.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
36 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES (IN THOUSANDS)
November 30, 2016 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $233,827) $238,487
Receivables:
Capital shares sold 207
USAA Asset Management Company (Note 5C) 116
Dividends and interest 345
Securities sold 1,764
Variation margin on futures contracts 486
--------
Total assets 241,405
--------
LIABILITIES
Payables:
Securities purchased 3,369
Capital shares redeemed 103
Bank overdraft 456
Accrued management fees 126
Accrued transfer agent's fees 33
Other accrued expenses and payables 97
--------
Total liabilities 4,184
--------
Net assets applicable to capital shares outstanding $237,221
========
NET ASSETS CONSIST OF:
Paid-in capital $231,966
Accumulated undistributed net investment income 2,378
Accumulated net realized loss on investments and futures transactions (2,268)
Net unrealized appreciation of investments and futures contracts 5,145
--------
Net assets applicable to capital shares outstanding $237,221
========
Capital shares outstanding, no par value 20,373
========
Net asset value, redemption price, and offering price per share $ 11.64
========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 37
================================================================================
STATEMENT OF OPERATIONS (IN THOUSANDS)
Six-month period ended November 30, 2016 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $4) $2,474
Interest 564
------
Total income 3,038
------
EXPENSES
Management fees 794
Administration and servicing fees 174
Transfer agent's fees 431
Custody and accounting fees 88
Postage 29
Shareholder reporting fees 15
Trustees' fees 15
Registration fees 16
Professional fees 38
Other 5
------
Total expenses 1,605
Expenses reimbursed (327)
------
Net expenses 1,278
------
NET INVESTMENT INCOME 1,760
------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
AND FUTURES CONTRACTS
Net realized gain on:
Unaffiliated transactions 1,277
Affiliated transactions (Note 7) 71
Futures transactions 599
Change in net unrealized appreciation/(depreciation) of:
Investments 2,207
Futures contracts 350
------
Net realized and unrealized gain 4,504
------
Increase in net assets resulting from operations $6,264
======
See accompanying notes to financial statements.
================================================================================
38 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS)
Six-month period ended November 30, 2016 (unaudited), and year ended
May 31, 2016
---------------------------------------------------------------------------------------------------
11/30/2016 5/31/2016
---------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 1,760 $ 3,219
Net realized gain (loss) on investments 1,348 (2,418)
Net realized gain on long-term capital gain distributions
from other investment companies - 103
Net realized gain on options - 9
Net realized gain (loss) on futures transactions 599 (24)
Change in net unrealized appreciation/(depreciation) of:
Investments 2,207 (13,621)
Options - 57
Futures contracts 350 135
----------------------------
Increase (decrease) in net assets resulting from operations 6,264 (12,540)
----------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income - (2,941)
Net realized gains - (1,506)
----------------------------
Distributions to shareholders - (4,447)
----------------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 31,885 77,572
Reinvested dividends - 3,974
Cost of shares redeemed (23,152) (44,665)
----------------------------
Increase in net assets from capital share transactions 8,733 36,881
----------------------------
Capital contribution from USAA Transfer Agency Company - 3
----------------------------
Net increase in net assets 14,997 19,897
NET ASSETS
Beginning of period 222,224 202,327
----------------------------
End of period $237,221 $222,224
============================
Accumulated undistributed net investment income:
End of period $ 2,378 $ 618
============================
CHANGE IN SHARES OUTSTANDING
Shares sold 2,750 6,818
Shares issued for dividends reinvested - 350
Shares redeemed (1,996) (3,933)
----------------------------
Increase in shares outstanding 754 3,235
============================
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 39
================================================================================
NOTES TO FINANCIAL STATEMENTS
November 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 Cornerstone Aggressive Fund (the
Fund), which is classified as diversified under the 1940 Act. The Fund's
investment objective is to seek capital appreciation over the long term and also
considers the potential for current income.
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.
================================================================================
40 | USAA CORNERSTONE AGGRESSIVE 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 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,
================================================================================
NOTES TO FINANCIAL STATEMENTS | 41
================================================================================
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. 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. Futures are valued at the settlement price at the close of market on
the principal exchange on which they are traded or, in the absence of
any transactions that day, the settlement price on the prior trading
date if it is within the spread between the closing bid and asked prices
closest to the last reported sale price.
================================================================================
42 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
8. Options are valued by a pricing service at the National Best
Bid/Offer (NBBO) composite price, which is derived from the best
available bid and asked prices in all participating options exchanges
determined to most closely reflect market value of the options at the
time of computation of the Fund's NAV.
9. Forward foreign currency contracts are valued on a daily basis using
forward foreign currency exchange rates obtained from an independent
pricing service and are categorized in Level 2 of the fair value
hierarchy.
10. 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
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:
================================================================================
NOTES TO FINANCIAL STATEMENTS | 43
================================================================================
Level 1 - inputs to the valuation methodology are quoted prices (unadjusted)
in active markets for identical securities.
Level 2 - inputs to the valuation methodology are other significant
observable inputs, including quoted prices for similar securities, inputs
that are observable for the securities, either directly or indirectly, and
market-corroborated inputs such as market indexes.
Level 3 - inputs to the valuation methodology are unobservable and
significant to the fair value measurement, including the Manager's own
assumptions in determining the fair value.
The inputs or methodologies used for valuing securities are not necessarily
an indication of the risks associated with investing in those securities.
The valuation of securities falling in the Level 3 category are primarily
supported by quoted prices obtained from broker-dealers participating in the
market for these 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. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - The Fund may buy, sell,
and enter into certain types of derivatives, including, but not limited to
futures contracts, options, and options on futures contracts, under
circumstances in which such instruments are expected by the portfolio
manager to aid in achieving the Fund's investment objective. The Fund also
may use derivatives in circumstances where the portfolio manager believes
they offer an economical means of gaining exposure to a particular asset
class or securities market or to keep cash on hand to meet shareholder
redemptions or other needs while maintaining exposure to the market. With
exchange-listed futures contracts and options, counterparty credit risk to
the Fund is limited to the exchange's clearinghouse which, as counterparty
to all exchange-traded futures contracts and options, guarantees the
transactions against default from the actual counterparty to the
transaction. The Fund's derivative
================================================================================
44 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
agreements held at November 30, 2016, did not include master netting
provisions.
FUTURES CONTRACTS - The Fund is subject to equity price risk, interest rate
risk, and foreign currency exchange rate risk in the normal course of
pursuing its investment objectives. The Fund may use futures contracts to
gain exposure to, or hedge against, changes in the value of equities,
interest rates, or foreign currencies. A futures contract represents a
commitment for the future purchase or sale of an asset at a specified price
on a specified date. Upon entering into such contracts, the Fund is required
to deposit with the broker in either cash or securities an initial margin in
an amount equal to a certain percentage of the contract amount. Subsequent
payments (variation margin) are made or received by the Fund each day,
depending on the daily fluctuations in the value of the contract, and are
recorded for financial statement purposes as unrealized gains or losses.
When the contract is closed, the Fund records a realized gain or loss equal
to the difference between the value of the contract at the time it was
opened and the value at the time it was closed. Upon entering into such
contracts, the Fund bears the risk of interest or exchange rates or
securities prices moving unexpectedly in an unfavorable direction, in which
case, the Fund may not achieve the anticipated benefits of the futures
contracts.
FAIR VALUES OF DERIVATIVE INSTRUMENTS AS OF NOVEMBER 30, 2016*
(IN THOUSANDS)
ASSET DERIVATIVES LIABILITY DERIVATIVES
--------------------------------------------------------------------------------------------------
STATEMENT OF STATEMENT OF
DERIVATIVES NOT ASSETS AND ASSETS AND
ACCOUNTED FOR AS LIABILITIES LIABILITIES
HEDGING INSTRUMENTS LOCATION FAIR VALUE LOCATION FAIR VALUE
--------------------------------------------------------------------------------------------------
Equity contracts Net unrealized $610** Net unrealized $125**
appreciation of appreciation of
investments and investments and
futures contracts futures contracts
--------------------------------------------------------------------------------------------------
* For open derivative instruments as of November 30, 2016, see the Portfolio
of Investments, which also is indicative of activity for the six-month period
ended November 30, 2016.
** Includes cumulative appreciation/(depreciation) of futures as reported on the
Portfolio of Investments. Only current day's variation margin is reported
within the Statement of Assets and Liabilities.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 45
================================================================================
THE EFFECT OF DERIVATIVE INSTRUMENTS ON THE STATEMENT OF OPERATIONS FOR THE
SIX-MONTH PERIOD ENDED NOVEMBER 30, 2016 (IN THOUSANDS)
CHANGE IN
UNREALIZED
DERIVATIVES NOT REALIZED APPRECIATION/
ACCOUNTED FOR AS STATEMENT OF GAIN (LOSS) (DEPRECIATION)
HEDGING INSTRUMENTS OPERATIONS LOCATION ON DERIVATIVES ON DERIVATIVES
--------------------------------------------------------------------------------------
Equity contracts Net realized gain on $599 $350
Futures transactions /
Change in net unrealized
appreciation/(depreciation)
of Futures contracts
--------------------------------------------------------------------------------------
D. FEDERAL TAXES - The Fund's policy is to comply with the requirements of
the Internal Revenue Code of 1986, as amended, applicable to regulated
investment companies and to distribute substantially all of its taxable
income and net capital gains, if any, to its shareholders. Therefore, no
federal income tax provision is required.
E. FOREIGN TAXATION - Foreign income and capital gains on some foreign
securities may be subject to foreign taxes, which are reflected as a
reduction to such income and realized gains. The Fund records a liability
based on unrealized gains to provide for potential foreign taxes payable
upon the sale of these securities. Foreign taxes have been provided for in
accordance with the Fund's understanding of the applicable countries'
prevailing tax rules and rates.
F. INVESTMENTS IN SECURITIES - Securities transactions are accounted for on
the date the securities are purchased or sold (trade date). Gains or losses
from sales of investment securities are computed on the identified cost
basis. Dividend income, less foreign taxes, if any, is recorded on the ex-
dividend date. If the ex-dividend date has passed, certain dividends from
foreign securities are recorded upon notification. Interest income is
recorded daily on the accrual basis. Premiums and discounts are amortized
over the life of the respective securities, using the effective yield method
for long-term securities and the straight-line method for short-term
securities.
G. FOREIGN CURRENCY TRANSLATIONS - The Fund's assets may be invested in the
securities of foreign issuers and may be traded in foreign currency. Since
================================================================================
46 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
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.
H. 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 47
================================================================================
Fund's NAV to the extent that the Fund makes such purchases while remaining
substantially fully invested.
I. 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 November 30, 2016, there were no custodian and other bank credits.
J. 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.
K. 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 with other USAA Funds 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 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
================================================================================
48 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
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 November 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 November 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 May 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 tax.
At May 31, 2016, the Fund had no capital loss carryforwards, for federal income
tax purposes.
For the six-month period ended November 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 positions 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 November 30, 2016, were
$84,922,000 and $81,246,000, respectively.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 49
================================================================================
As of November 30, 2016, the cost of securities, including short-term
securities, for federal income tax purposes, was approximately the same as their
cost reported in the financial statements.
Gross unrealized appreciation and depreciation of investments as of November 30,
2016, were $12,448,000 and $7,788,000, respectively, resulting in net unrealized
appreciation of $4,660,000.
(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 of the Fund's assets,
subject to the authority of and supervision by the Board. The Manager also
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 November 30,
2016, the Fund had no subadviser(s).
The Fund's investment management fee is accrued daily and paid monthly at an
annualized rate of 0.65% of the Fund's average net assets. Prior to October
1, 2016, the base investment management fee was 0.70% of the Fund's average
net assets. For the six-month period ended November 30, 2016, the Fund
incurred total management fees, paid or payable to the Manager, of $794,000.
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 0.15% of the Fund's average net assets. For the six-month period ended
November 30, 2016, the Fund incurred administration and servicing fees, paid
or payable to the Manager, of $174,000.
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 November 30, 2016, the
================================================================================
50 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
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. EXPENSE LIMITATION - The Manager agreed, through September 30, 2017, to
limit the total annual operating expenses of the Fund to 1.10% 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 September 30, 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 November 30, 2016, the Fund
incurred reimbursable expenses of $327,000, of which $116,000 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 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. For the six-month period
ended November 30, 2016, the Fund incurred transfer agent's fees, paid or
payable to SAS, of $431,000.
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.
(6) TRANSACTIONS WITH AFFILIATES
The Manager is indirectly wholly owned by United Services Automobile Association
(USAA), a large, diversified financial services institution. At November 30,
2016, USAA and its affiliates owned 1,869,000 shares, which represents 9.2% of
the Fund's 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 | 51
================================================================================
(7) SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
During the six-month period ended November 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) TO
SELLER PURCHASER PURCHASER SELLER
------------------------------------------------------------------------------------
Cornerstone Aggressive Cornerstone Moderately
Aggressive $770,000 $42,000
Cornerstone Aggressive Cornerstone Moderately
Conservative 48,000 5,000
Cornerstone Aggressive Cornerstone Moderate 212,000 24,000
Cornerstone Moderately Cornerstone Aggressive
Aggressive 403,000 43,000
Cornerstone Moderate Cornerstone Aggressive 141,000 10,000
Cornerstone Moderately Cornerstone Aggressive
Conservative 38,000 (-)*
*Represents less than $500.
(8) UPCOMING REGULATORY MATTERS
In October 2016, the U.S. Securities and Exchange Commission (SEC) adopted final
rules intended to modernize the reporting and disclosure of information by
registered investment companies. In part, the final rules amend Regulation S-X
to require standardized, enhanced disclosure about derivatives in investment
company financial statements. The Manager is currently evaluating the impact
these rules and amendments will have on the financial statements and related
disclosures. The compliance date for the amendments to Regulation S-X is August
1, 2017, with other staggered compliance dates extending through December 2018.
================================================================================
52 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
(9) FINANCIAL HIGHLIGHTS
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED PERIOD ENDED
NOVEMBER 30, YEAR ENDED MAY 31, MAY 31,
-----------------------------------------------------------------------
2016 2016 2015 2014 2013***
-----------------------------------------------------------------------
Net asset value at
beginning of period $ 11.33 $ 12.35 $ 12.40 $ 11.30 $ 10.00
--------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .09 .17 .15 .16 .16(a)
Net realized and
unrealized gain (loss) .22 (.95) .29 1.13 1.43(a)
--------------------------------------------------------------------
Total from investment
operations .31 (.78) .44 1.29 1.59(a)
--------------------------------------------------------------------
Less distributions from:
Net investment income - (.16) (.17) (.14) (.12)
Realized capital gains - (.08) (.32) (.05) (.17)
--------------------------------------------------------------------
Total distributions - (.24) (.49) (.19) (.29)
--------------------------------------------------------------------
Net asset value at
end of period $ 11.64 $ 11.33 $ 12.35 $ 12.40 $ 11.30
====================================================================
Total return (%)* 2.74 (6.26) 3.65 11.48 16.05
Net assets at end of
period (000) $237,221 $222,224 $202,327 $150,358 $83,585
Ratios to average
net assets:**
Expenses (%)(b) 1.10(c) 1.10 1.10 1.10 1.10(c)
Expenses, excluding
reimbursements (%)(b) 1.38(c) 1.46 1.45 1.47 1.65(c)
Net investment income (%) 1.51(c) 1.57 1.32 1.48 1.46(c)
Portfolio turnover (%) 37 81(d) 46 46 74
* 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 November 30, 2016, average net assets were
$231,736,000.
*** Fund commenced operations on June 8, 2012.
(a) Calculated using average shares.
(b) Reflects total annual operating expenses of the Fund before reductions of
any expenses paid indirectly. The Fund's expenses paid indirectly decreased
the expense ratios as follows:
- - - (.00%)(+) (.00%)(+)
(+) Represents less than 0.01% of average net assets.
(c) Annualized. The ratio is not necessarily indicative of 12 months of operations.
(d) Reflects increased trading activity due to changes in asset allocation strategies.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 53
================================================================================
EXPENSE EXAMPLE
November 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 June 1, 2016, through
November 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
================================================================================
54 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
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 JUNE 1, 2016 -
JUNE 1, 2016 NOVEMBER 30, 2016 NOVEMBER 30, 2016
-------------------------------------------------------------
Actual $1,000.00 $1,027.40 $5.59
Hypothetical
(5% return before expenses) 1,000.00 1,019.55 5.57
*Expenses are equal to the Fund's annualized expense ratio of 1.10%, which is
net of any expenses paid indirectly, multiplied by the average account value
over the period, multiplied by 183 days/365 days (to reflect the one-half-year
period). The Fund's actual ending account value is based on its actual total
return of 2.74% for the six-month period of June 1, 2016, through November 30,
2016.
================================================================================
EXPENSE EXAMPLE | 55
================================================================================
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] [LOGO OF RECYCLE PAPER]
USAA We know what it means to serve.(R) 10%
=============================================================================
97452-0117 (C)2017, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA CORNERSTONE MODERATELY CONSERVATIVE FUND]
==============================================================
SEMIANNUAL REPORT
USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
NOVEMBER 30, 2016
==============================================================
================================================================================
================================================================================
PRESIDENT'S MESSAGE
"AS THE NEW YEAR BEGINS, WHY NOT MAKE [PHOTO OF BROOKS ENGLEHARDT]
A RESOLUTION TO PUT YOUR FINANCIAL HOUSE
IN ORDER?"
--------------------------------------------------------------------------------
JANUARY 2017
Financial markets are unpredictable. Many factors can confound those who try to
predict the direction of the markets based on economic or political factors. In
other words, it's easy to get it wrong. And, even if one correctly forecasts
what will happen in the macroeconomic environment, predicting how the markets
will respond is another matter altogether.
Consider the response to the Presidential election. Stocks rose on Monday and
Tuesday (Election Day) at the prospect of a Hillary Clinton victory--virtually
a "sure thing," according to some media pundits. U.S. Treasury securities and
other segments of the bond market sold off as investors likely assumed a
continuation of current economic policy under another Democratic administration.
But these trends reversed on Tuesday evening when it became clear that Donald J.
Trump would be elected the 45th President of the United States. Asian and
European equity markets dropped and U.S. stock index futures plunged. The
decline in stock index futures suggested that U.S. stocks might fall when
trading began on Wednesday, however the opposite happened. Stock prices rose and
then rallied strongly, with major stock indexes hitting one record high after
another through the end of November 2016. U.S. Treasury prices fell, driving up
yields on longer-maturity U.S. Treasuries. (Yields move in the opposite
direction of prices.)
Few market participants would have forecasted such a scenario. But with
hindsight, we may be able to understand some of the reasons why the markets
behaved the way they did.
U.S. equity investors appeared to like President-elect Trump's promises of lower
tax rates, less regulation, and more fiscal stimulus through infrastructure
spending. Other explanations may lie overseas, such as complications relating to
the United Kingdom's decision to exit from the European Union ("Brexit") and
continued slow economic growth in China--uncertainties that may have
================================================================================
================================================================================
increased the attractiveness of U.S. stocks. As for bond investors, they may
have been worried about an increase in interest rates if economic growth picks
up under a Trump Administration. Higher growth rates typically correspond with
rising inflation, which in turn could prompt the Federal Reserve (the Fed) to
accelerate the pace of interest rate increases.
What actually happens, however, is yet to be seen. No one knows, except in the
most general terms, what President-elect Trump's plans and priorities will be or
how they could affect economic growth in 2017 and beyond. By extension, it is
also too early to forecast how inflation might be affected and how the Fed could
respond.
At USAA Investments, we are long-term, fundamental investors, who seek to look
at the full market cycle rather than current geopolitical events. We believe
measures such as assessing a company's intrinsic value compared to its current
price tend to be more effective at forecasting potential stock returns over
time. In selecting bonds, our analysts take a bottom-up approach to evaluating
each security individually, building portfolios on a bond-by-bond basis.
It is important to remember market conditions are always fluctuating and time
horizon matters. We believe that it is important to stay focused on your
long-term objectives, using an investment plan that is based on your personal
time horizon and risk tolerance. If you are uneasy about market risk in general
or have concerns about too much exposure to specific asset classes, please call
USAA to speak with an advisor. As the new year begins, why not make a resolution
to put your financial house in order?
Thank you for allowing us to help you in your efforts to achieve your financial
goals. At USAA Investments, we are committed to providing you with our best
advice, top-notch service, and a variety of mutual funds. On behalf of everyone
here, I wish you a happy and healthy 2017.
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 11
Notes to Portfolio of Investments 28
Financial Statements 32
Notes to Financial Statements 35
EXPENSE EXAMPLE 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)2017, USAA. All rights reserved.
200994-0117
================================================================================
================================================================================
FUND OBJECTIVE
THE USAA CORNERSTONE MODERATELY CONSERVATIVE FUND (THE FUND) SEEKS CURRENT
INCOME WITH A SECONDARY FOCUS ON CAPITAL APPRECIATION.
--------------------------------------------------------------------------------
TYPES OF INVESTMENTS
The Fund invests in equity securities, bonds, and money market instruments, and
other instruments including derivatives. The Fund will have a target asset class
allocation of approximately 40% equity securities and 60% fixed-income
securities. The actual asset class allocation can deviate from time to time from
these targets as market conditions warrant. The implementation of the asset
allocation may involve the extensive use of equity and fixed-income exchange-
traded funds (ETFs). The Fund may invest in securities issued by domestic or
foreign companies. The Fund also may invest in investment-grade and below-
investment-grade ("junk" or high-yield) fixed-income securities.
The Fund's investments also include real estate investment trusts (REITs),
investments that provide exposure to commodities (such as ETFs or national
resources companies), and derivatives, including futures and options.
Derivatives may be utilized by the Fund to reduce its volatility over time, to
enhance returns, or to provide diversification.
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
JOHN P. TOOHEY, CFA LANCE HUMPHREY, CFA
WASIF A. LATIF ARNOLD J. ESPE, CFA
--------------------------------------------------------------------------------
o HOW DID THE GLOBAL FINANCIAL MARKETS PERFORM DURING THE REPORTING PERIOD?
Financial assets produced mixed results during the reporting period ended
November 30, 2016, reflecting the broad range of headlines that
characterized the reporting period.
U.S. equities posted the strongest gains among the major asset categories.
The U.S. economy continued to deliver economic growth ahead of its
developed-market global peers, driving healthy relative performance for the
stock market. Small-cap stocks, in particular, generated favorable gains
thanks in part to their greater exposure to the country's positive growth.
U.S. equities performed particularly well in the wake of the U.S. election,
which removed the element of political uncertainty that had weighed on the
market.
Developed-market international equities finished with a small loss and
trailed the U.S. market by a wide margin. While Japanese stocks were
bolstered by the substantial fiscal and monetary stimulus being provided by
the nation's government, European equities lagged. The leading cause of the
shortfall was likely the region's higher sensitivity to the United
Kingdom's June 2016 vote to exit the European Union ("Brexit"). In
addition, the European markets were pressured by the combination of slow
economic growth, possible instability within the banking system, and the
potential impact of rising nationalism across Europe.
In contrast to the developed markets, emerging-market stocks performed well
during the reporting period. The renewed stability in
================================================================================
2 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
commodity prices provided a positive backdrop for the asset class, as did
improving corporate earnings and signs of stronger economic growth in both
Russia and China.
The U.S. bond market also experienced mixed performance during the
reporting period. Market segments that are sensitive to interest-rate
movements, such as longer-term U.S. Treasuries, generally finished with
slightly negative returns. The stimulation of the U.S. economy, in
conjunction with the prospects of increasingly growth-oriented policies in
the year ahead, raised concerns that the Federal Reserve (the Fed) would
take an aggressive approach to raising interest rates. However, the
improving growth outlook--together with investors' increasing appetite for
risk--helped fuel strong returns for lower-rated segments of the market,
including high-yield bonds.
o HOW DID THE USAA CORNERSTONE MODERATELY CONSERVATIVE FUND (THE FUND) PERFORM
DURING THE REPORTING PERIOD?
For the reporting period ended November 30, 2016, the Fund had a total
return of 1.49%. This compares to returns of -0.24% for the Bloomberg
Barclays U.S. Universal Index*, and 1.60% for the Cornerstone Moderately
Conservative Composite 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 PLEASE DISCUSS THE FACTORS THAT HELPED AND HURT PERFORMANCE.
We maintained a patient approach to managing the Fund's portfolio. Rather
than trying to keep pace with the rapidly shifting trends in the global
markets, we remained focused on asset classes where we believed
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 U.S. Universal Index.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 3
================================================================================
there was value. While low valuations don't necessarily translate to
outperformance in the short term, undervalued market segments have
historically demonstrated superior results over time. We believe this
value-driven strategy is appropriate for an environment in which
macroeconomic headlines are a key driver of financial-market performance.
In the Fund's U.S. equity allocation, a diversified portfolio of large-cap,
blue-chip stocks performed well and participated in the broader rally.
Although stronger returns could have been produced through a larger
position in small caps, we think that a focus on fundamentally sound,
reasonably valued large-cap companies is prudent at this stage of the
cycle. The Fund remained underweight in the United States overall, as we
continued to see more attractive valuations overseas.
The Fund's developed-market international allocation, aided performance
during the middle of the reporting period, but was a net detractor overall.
Although we continue to see a long-term opportunity in the international
markets due to their compelling valuations relative to U.S. stocks, the
unsteady economic conditions overseas prompted us to slightly reduce the
Fund's position.
The Fund's allocation to emerging-market stocks contributed positively to
its performance. We remain enthusiastic on the longer-term outlook for the
emerging markets, where the combination of improving growth, healthy
corporate earnings, and stabilizing commodity prices makes the low
valuations of the asset class particularly compelling.
The Fund's allocation to gold stocks, though modest, slightly detracted
from results. After rallying in the first half of the reporting period,
gold prices subsequently weakened due to the prospect of rising interest
rates. Shares of gold mining companies declined from their mid-August 2016
peak as a result, causing the sector to finish with a loss. Overall,
however, this aspect of our positioning had only a small effect on the
Fund's performance.
The Fund's actively managed bond portfolio made a positive contribution to
results due in part to its above-average weightings in lower-rated
investment-grade and high-yield corporate bonds. In addition, the Fund's
performance was aided by positive security selection in both areas. The
portfolio maintained an allocation to longer-term U.S. Treasuries to
================================================================================
4 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
counterbalance some of its credit exposure, but this aspect of its
positioning was a slight detractor due to the weaker returns for government
bonds.
The investment backdrop offered a varied picture for investors at the close
of the reporting period. The U.S. economy has continued to produce modest
growth despite the challenging economic conditions elsewhere in the
developed world. In addition, the ultra-loose monetary policies of certain
foreign central banks represent an ongoing engine of demand for
higher-risk, higher-yielding financial assets. While these factors are
generally a positive for the markets, potential sources of volatility
include global political uncertainty and the possibility that the Fed could
begin to raise interest rates more aggressively.
Our response to this ambiguity is to maintain our strategy: maintain
diversification, stay focused on the long-term picture, and emphasize
undervalued asset classes. We believe this steady approach--rather than one
that tries to keep up with the day-to-day considerations driving short-term
market performance--is well suited to a highly uncertain investment
environment.
Thank you for allowing us to help you manage your investments.
Asset Allocation funds may be invested in, among other things:
(1) exchange-traded funds; (2) futures, options, and other derivatives;
(3) non-investment-grade securities; (4) precious metals and minerals
companies; (5) real estate investment trusts; (6) money market instruments;
(7) foreign and emerging markets. These types of investments and asset
classes may be more volatile and prone to experience significant loss than
others. In addition, it is possible that a particular asset allocation used
by the Manager may not produce the intended result. 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 Foreign investing is subject to additional risks, such as currency
fluctuations, market illiquidity, and political instability. Emerging
market countries are less diverse and mature than other countries and tend
to be politically less stable. o Precious metals and minerals is a volatile
asset class and is subject to additional risks, such as currency
fluctuation, market illiquidity, political instability, and increased price
volatility. It may be more volatile than other asset classes that diversify
across many industries and companies. 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 credit worthy investment-grade securities.
o Diversification is a technique intended to help reduce risk and does not
guarantee a profit or prevent a loss. o Exchange Traded Funds (ETFs) are
subject to risks similar to those of stocks. Investment returns may
fluctuate and are subject to market volatility, so that an investor's
shares, when redeemed or sold, may be worth more or less than their
original cost.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 5
================================================================================
INVESTMENT OVERVIEW
USAA CORNERSTONE MODERATELY CONSERVATIVE
FUND (THE FUND) (Ticker Symbol: UCMCX)
--------------------------------------------------------------------------------
11/30/16 5/31/16
--------------------------------------------------------------------------------
Net Assets $193.5 Million $194.4 Million
Net Asset Value Per Share $10.71 $10.67
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 11/30/16
--------------------------------------------------------------------------------
5/31/16-11/30/16* 1 YEAR SINCE INCEPTION 6/08/12
1.49% 2.43% 4.61%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/16
--------------------------------------------------------------------------------
1 YEAR SINCE INCEPTION 6/08/12
5.16% 4.72%
--------------------------------------------------------------------------------
EXPENSE RATIOS AS OF 5/31/16**
--------------------------------------------------------------------------------
BEFORE REIMBURSEMENT 1.18% AFTER REIMBURSEMENT 0.99%
(Includes acquired fund fees and expenses of 0.09%)
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 October 1, 2016, and
are calculated as a percentage of average net assets. USAA Asset Management
Company (the Manager) has agreed, through September 30, 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 (exclusive of commission
recapture, expense offset arrangements, acquired fund fees and expenses, and
extraordinary expenses) do not exceed an annual rate of 0.90% of the Fund's
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
September 30, 2017. If the total annual operating expense ratio of the Fund is
lower than 0.90%, the Fund 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 CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
CORNERSTONE MODERATELY USAA CORNERSTONE
CONSERVATIVE MODERATELY BLOOMBERG BARCLAYS
COMPOSITE INDEX CONSERVATIVE FUND U.S. UNIVERSAL INDEX
05/31/12 $10,000.00 $10,000.00 $10,000.00
06/30/12 10,200.03 10,170.00 10,025.20
07/31/12 10,341.82 10,311.00 10,174.72
08/31/12 10,449.23 10,461.00 10,196.08
09/30/12 10,589.56 10,623.00 10,225.98
10/31/12 10,567.13 10,693.00 10,258.45
11/30/12 10,627.87 10,754.00 10,283.01
12/31/12 10,715.94 10,887.00 10,284.93
01/31/13 10,890.90 11,070.00 10,231.32
02/28/13 10,935.85 11,090.00 10,280.45
03/31/13 11,051.03 11,200.00 10,292.62
04/30/13 11,228.00 11,363.00 10,405.61
05/31/13 11,129.80 11,292.00 10,229.19
06/30/13 10,902.56 11,034.00 10,049.13
07/31/13 11,134.97 11,239.00 10,081.81
08/31/13 11,000.41 11,106.00 10,024.35
09/30/13 11,274.70 11,287.00 10,124.10
10/31/13 11,514.19 11,555.00 10,224.27
11/30/13 11,563.91 11,617.00 10,191.17
12/31/13 11,623.95 11,700.00 10,146.53
01/31/14 11,559.83 11,595.00 10,281.09
02/28/14 11,834.59 11,869.00 10,354.35
03/31/14 11,847.80 11,919.00 10,344.74
04/30/14 11,935.29 12,025.00 10,430.39
05/31/14 12,112.38 12,184.00 10,555.98
06/30/14 12,228.69 12,327.00 10,572.00
07/31/14 12,125.69 12,231.00 10,539.11
08/31/14 12,331.36 12,380.00 10,653.38
09/30/14 12,108.61 12,158.00 10,568.80
10/31/14 12,243.23 12,222.00 10,672.39
11/30/14 12,357.12 12,318.00 10,729.00
12/31/14 12,274.19 12,228.00 10,710.63
01/31/15 12,332.64 12,294.00 10,914.39
02/28/15 12,555.60 12,468.00 10,850.74
03/31/15 12,521.51 12,399.00 10,895.60
04/30/15 12,625.45 12,486.00 10,883.00
05/31/15 12,626.20 12,497.00 10,863.99
06/30/15 12,440.18 12,268.00 10,742.67
07/31/15 12,513.54 12,301.00 10,805.25
08/31/15 12,171.11 11,894.00 10,773.42
09/30/15 12,036.08 11,706.00 10,815.50
10/31/15 12,414.24 12,049.00 10,850.10
11/30/15 12,359.73 11,949.00 10,810.59
12/31/15 12,234.89 11,737.00 10,756.55
01/31/16 12,020.78 11,490.00 10,875.31
02/29/16 12,048.43 11,524.00 10,952.63
03/31/16 12,495.43 11,902.00 11,086.76
04/30/16 12,621.63 12,037.00 11,162.38
05/31/16 12,654.45 12,060.00 11,171.13
06/30/16 12,772.13 12,251.00 11,367.64
07/31/16 13,045.46 12,524.00 11,461.40
08/31/16 13,063.72 12,536.00 11,473.79
09/30/16 13,100.30 12,582.00 11,476.57
10/31/16 12,944.41 12,422.00 11,400.32
11/30/16 12,857.68 12,239.00 11,144.00
[END CHART]
Data from 5/31/12 through 11/30/16.*
See next page for benchmark definitions.
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 Bloomberg Barclays U.S. Universal Index and the
Cornerstone Moderately Conservative Composite Index is calculated from the end
of the month, May 31, 2012, while the inception date of the USAA Cornerstone
Moderately Conservative Fund is June 8, 2012. There may be a slight variation of
the performance numbers because of this difference.
================================================================================
INVESTMENT OVERVIEW | 7
================================================================================
The graph on page 7 illustrates the comparison of a $10,000 hypothetical
investment in the USAA Cornerstone Moderately Conservative Fund to the
benchmarks listed below. The Manager has developed the Cornerstone Moderately
Conservative Composite Index, which is used to measure the Fund's performance.
The custom benchmark was created by the Manager to show how the Fund's
performance compares with the returns of an index or indexes with similar asset
allocations.
o The Cornerstone Moderately Conservative Composite Index is a combination of
unmanaged indexes representing the Fund's model allocation, and consists of
the MSCI USA Investable Market Index (IMI) Gross (23%), the MSCI ACWI ex USA
IMI Net (15%), the Bloomberg Barclays U.S. Universal Index (58%), the
Bloomberg Commodity Index Total Return (1%), the MSCI U.S. Real Estate
Investment Trust (REIT) Index Gross (1%), and the Bloomberg Barclays U.S.
Treasury - Bills (1-3M) (2%).
o The Bloomberg Barclays U.S. Universal Index is an index that represents
the union of the U.S. Aggregate Index, U.S. Corporate High-Yield,
Investment Grade 144A Index, Eurodollar Index, U.S. Emerging Markets Index,
and the non-ERISA eligible portion of the CMBS Index. The index covers USD
denominated, taxable bonds that are rated either investment-grade or below
investment-grade.
================================================================================
8 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
o TOP 10 HOLDINGS* - 11/30/16 o
(% of Net Assets)
U.S. Treasury Bond, 3.13%, 8/15/2044 .................................... 4.6%
iShares Core MSCI EAFE ETF** ............................................ 4.1%
Vanguard Total Bond Market ETF** ........................................ 3.9%
Freddie Mac, 3.50%, 4/01/2046 ........................................... 3.3%
U.S. Treasury Note, 2.25%, 11/15/2025 ................................... 3.2%
U.S. Treasury Note, 1.13%, 2/28/2021 .................................... 3.1%
Vanguard Short-Term Corporate Bond ETF** ................................ 2.6%
Freddie Mac, 3.00%, 6/01/2046 ........................................... 2.2%
iShares Core S&P 500 ETF** .............................................. 2.2%
iShares iBoxx $ High Yield Corporate Bond ETF** ......................... 2.1%
* Excludes money market instruments and futures.
** 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.
You will find a complete list of securities that the Fund owns on pages 11-27.
================================================================================
INVESTMENT OVERVIEW | 9
================================================================================
o ASSET ALLOCATION* - 11/30/16 o
[PIE CHART OF ASSET ALLOCATION]
U.S. TREASURY SECURITIES 18.8%
INTERNATIONAL EQUITY SECURITIES** 18.6%
U.S. EQUITY SECURITIES** 18.5%
FIXED INCOME EXCHANGE-TRADED FUNDS** 13.3%
CORPORATE OBLIGATIONS 10.5%
U.S. GOVERNMENT AGENCY ISSUES 10.4%
COMMERCIAL MORTGAGE SECURITIES 4.4%
MONEY MARKET INSTRUMENTS 1.7%
EURODOLLAR AND YANKEE OBLIGATIONS 1.4%
PRECIOUS METALS AND COMMODITY-RELATED SECURITIES 0.6%
COLLATERALIZED MORTGAGE OBLIGATIONS 0.5%
GLOBAL REAL ESTATE EQUITY SECURITIES** 0.5%
CONVERTIBLE SECURITIES 0.4%
ASSET-BACKED SECURITIES 0.1%
[END CHART]
Percentages are of the net assets of the Fund and may not equal 100%.
*Excludes futures.
**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.
================================================================================
10 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
PORTFOLIO OF INVESTMENTS
November 30, 2016 (unaudited)
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
U.S. EQUITY SECURITIES (18.5%)
COMMON STOCKS (8.7%)
CONSUMER DISCRETIONARY (0.7%)
-----------------------------
ADVERTISING (0.0%)
1,000 Omnicom Group, Inc. $ 87
--------
APPAREL RETAIL (0.1%)
2,450 TJX Companies, Inc. 192
--------
GENERAL MERCHANDISE STORES (0.0%)
1,100 Target Corp. 85
--------
HOME IMPROVEMENT RETAIL (0.2%)
2,300 Home Depot, Inc. 298
--------
HOMEBUILDING (0.0%)
1,950 CalAtlantic Group, Inc. 65
--------
HOTELS, RESORTS & CRUISE LINES (0.1%)
1,520 Carnival Corp. 78
1,150 Norwegian Cruise Line Holdings Ltd.* 46
700 Royal Caribbean Cruises Ltd. 56
--------
180
--------
INTERNET RETAIL (0.2%)
400 Amazon.com, Inc.* 300
--------
MOVIES & ENTERTAINMENT (0.0%)
500 Time Warner, Inc. 46
--------
SPECIALTY STORES (0.1%)
370 Ulta Salon, Cosmetics & Fragrance, Inc.* 96
--------
Total Consumer Discretionary 1,349
--------
CONSUMER STAPLES (0.9%)
-----------------------
AGRICULTURAL PRODUCTS (0.1%)
2,300 Bunge Ltd. 157
--------
DRUG RETAIL (0.2%)
1,640 CVS Health Corp. 126
2,820 Walgreens Boots Alliance, Inc. 239
--------
365
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 11
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
FOOD RETAIL (0.0%)
2,300 Kroger Co. $ 74
--------
HOUSEHOLD PRODUCTS (0.1%)
2,380 Procter & Gamble Co. 196
--------
HYPERMARKETS & SUPER CENTERS (0.1%)
4,350 Wal-Mart Stores, Inc. 307
--------
PACKAGED FOODS & MEAT (0.1%)
3,850 Blue Buffalo Pet Products, Inc.* 90
1,550 Kraft Heinz Co. 127
--------
217
--------
SOFT DRINKS (0.2%)
2,000 Coca-Cola Co. 81
2,600 PepsiCo, Inc. 260
--------
341
--------
TOBACCO (0.1%)
1,150 Altria Group, Inc. 73
880 Philip Morris International, Inc. 78
--------
151
--------
Total Consumer Staples 1,808
--------
ENERGY (0.7%)
-------------
INTEGRATED OIL & GAS (0.3%)
1,500 Chevron Corp. 167
2,600 Exxon Mobil Corp. 227
3,460 Occidental Petroleum Corp. 247
--------
641
--------
OIL & GAS DRILLING (0.1%)
1,270 Helmerich & Payne, Inc. 96
--------
OIL & GAS EQUIPMENT & SERVICES (0.1%)
1,500 Schlumberger Ltd. 126
--------
OIL & GAS EXPLORATION & PRODUCTION (0.2%)
2,200 Cabot Oil & Gas Corp. 49
150 Cimarex Energy Co. 21
5,020 ConocoPhillips 244
1,000 EOG Resources, Inc. 102
--------
416
--------
Total Energy 1,279
--------
================================================================================
12 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
FINANCIALS (1.4%)
-----------------
ASSET MANAGEMENT & CUSTODY BANKS (0.1%)
3,000 Bank of New York Mellon Corp. $ 142
--------
CONSUMER FINANCE (0.2%)
11,677 Synchrony Financial 404
--------
DIVERSIFIED BANKS (0.6%)
23,300 Bank of America Corp. 492
3,320 Citigroup, Inc. 187
4,180 JPMorgan Chase & Co. 335
1,780 U.S. Bancorp 89
--------
1,103
--------
PROPERTY & CASUALTY INSURANCE (0.2%)
2,250 Allstate Corp. 157
1,520 Chubb Ltd. 195
3,500 Progressive Corp. 116
--------
468
--------
REGIONAL BANKS (0.3%)
4,160 Fifth Third Bancorp 108
18,000 KeyCorp 312
1,350 PNC Financial Services Group, Inc. 149
--------
569
--------
SPECIALIZED FINANCE (0.0%)
350 CME Group, Inc. 40
--------
Total Financials 2,726
--------
HEALTH CARE (1.3%)
------------------
BIOTECHNOLOGY (0.3%)
5,100 AbbVie, Inc. 310
400 Amgen, Inc. 58
120 Biogen, Inc.* 35
1,900 Gilead Sciences, Inc. 140
--------
543
--------
HEALTH CARE DISTRIBUTORS (0.0%)
560 McKesson Corp. 81
--------
HEALTH CARE EQUIPMENT (0.2%)
3,250 Hologic, Inc.* 124
4,480 Medtronic plc 327
--------
451
--------
LIFE SCIENCES TOOLS & SERVICES (0.1%)
1,550 Thermo Fisher Scientific, Inc. 217
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
MANAGED HEALTH CARE (0.2%)
2,000 UnitedHealth Group, Inc. $ 317
--------
PHARMACEUTICALS (0.5%)
100 Allergan plc* 20
2,850 Johnson & Johnson 317
3,650 Merck & Co., Inc. 223
9,653 Pfizer, Inc. 310
--------
870
--------
Total Health Care 2,479
--------
INDUSTRIALS (1.0%)
------------------
AEROSPACE & DEFENSE (0.3%)
1,000 Boeing Co. 151
100 Lockheed Martin Corp. 27
3,700 Spirit AeroSystems Holdings, Inc. "A"* 215
1,950 United Technologies Corp. 210
--------
603
--------
AIR FREIGHT & LOGISTICS (0.2%)
1,050 FedEx Corp. 201
850 United Parcel Service, Inc."B" 99
--------
300
--------
AIRLINES (0.1%)
2,950 Southwest Airlines Co. 137
1,130 United Continental Holdings, Inc.* 78
--------
215
--------
BUILDING PRODUCTS (0.0%)
1,550 Masco Corp. 49
--------
CONSTRUCTION & ENGINEERING (0.0%)
2,600 AECOM* 94
--------
CONSTRUCTION MACHINERY & HEAVY TRUCKS (0.1%)
1,200 Wabtec Corp. 102
--------
ELECTRICAL COMPONENTS & EQUIPMENT (0.0%)
750 Eaton Corp. plc 50
--------
INDUSTRIAL CONGLOMERATES (0.3%)
1,200 Carlisle Companies, Inc. 135
11,843 General Electric Co. 364
810 Honeywell International, Inc. 92
--------
591
--------
Total Industrials 2,004
--------
================================================================================
14 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
INFORMATION TECHNOLOGY (2.1%)
-----------------------------
COMMUNICATIONS EQUIPMENT (0.2%)
13,063 Cisco Systems, Inc. $ 390
--------
DATA PROCESSING & OUTSOURCED SERVICES (0.3%)
1,150 MasterCard, Inc."A" 117
4,600 Visa, Inc. "A" 356
--------
473
--------
INTERNET SOFTWARE & SERVICES (0.4%)
800 Alphabet, Inc. "A"* 621
1,600 Facebook, Inc. "A"* 189
--------
810
--------
SEMICONDUCTOR EQUIPMENT (0.1%)
3,000 Applied Materials, Inc. 97
1,200 Lam Research Corp. 127
--------
224
--------
SEMICONDUCTORS (0.2%)
1,150 Intel Corp. 40
2,440 Maxim Integrated Products, Inc. 96
1,550 QUALCOMM, Inc. 105
1,350 Texas Instruments, Inc. 100
--------
341
--------
SYSTEMS SOFTWARE (0.5%)
9,940 Microsoft Corp. 599
7,500 Oracle Corp. 301
--------
900
--------
TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (0.4%)
4,920 Apple, Inc. 544
2,700 Hewlett Packard Enterprise Co. 64
10,700 HP, Inc. 165
1,350 Western Digital Corp. 86
--------
859
--------
Total Information Technology 3,997
--------
MATERIALS (0.1%)
----------------
DIVERSIFIED CHEMICALS (0.1%)
2,600 Dow Chemical Co. 145
--------
SPECIALTY CHEMICALS (0.0%)
350 Ecolab, Inc. 41
--------
Total Materials 186
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 15
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES (0.2%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (0.2%)
8,150 AT&T, Inc. $ 315
2,551 Verizon Communications, Inc. 127
--------
442
--------
Total Telecommunication Services 442
--------
UTILITIES (0.3%)
----------------
ELECTRIC UTILITIES (0.3%)
2,350 American Electric Power Co., Inc. 139
2,100 Duke Energy Corp. 155
1,950 Edison International 134
700 NextEra Energy, Inc. 80
1,500 PPL Corp. 50
--------
558
--------
MULTI-UTILITIES (0.0%)
300 Sempra Energy 30
--------
Total Utilities 588
--------
Total Common Stocks (cost: $13,955) 16,858
--------
PREFERRED STOCKS (2.6%)
CONSUMER STAPLES (1.0%)
-----------------------
AGRICULTURAL PRODUCTS (1.0%)
32,000 CHS, Inc., Series B, 7.88%, cumulative redeemable, perpetual 930
10,000 Dairy Farmers of America, Inc., 7.88%, cumulative
redeemable, perpetual(a) 1,042
--------
1,972
--------
Total Consumer Staples 1,972
--------
ENERGY (0.5%)
-------------
OIL & GAS EXPLORATION & PRODUCTION (0.3%)
1,120 Chesapeake Energy Corp., 5.75%, perpetual*(a) 605
--------
OIL & GAS STORAGE & TRANSPORTATION (0.2%)
300 Kinder Morgan G.P., Inc., 4.81%, cumulative redeemable(a) 269
--------
Total Energy 874
--------
FINANCIALS (0.9%)
-----------------
LIFE & HEALTH INSURANCE (0.3%)
27,414 Delphi Financial Group, Inc., 7.38%, cumulative redeemable 607
--------
================================================================================
16 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
REGIONAL BANKS (0.6%)
1,035 M&T Bank Corp., 6.38%, cumulative redeemable, perpetual $ 1,090
--------
Total Financials 1,697
--------
TELECOMMUNICATION SERVICES (0.2%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (0.2%)
20,000 Qwest Corp., 6.50% 475
--------
Total Preferred Stocks (cost: $5,251) 5,018
--------
EXCHANGE-TRADED FUNDS (7.2%)
19,200 iShares Core S&P 500 ETF(b) 4,253
35,900 PowerShares DB Commodity Index Tracking Fund* 546
28,000 United States Commodity Index Fund* 1,167
22,000 Vanguard Mid-Cap ETF 2,890
29,900 Vanguard Small-Cap Value ETF 3,540
13,210 Vanguard Total Stock Market ETF 1,503
--------
Total Exchange-Traded Funds (cost: $12,958) 13,899
--------
Total U.S. Equity Securities (cost: $32,164) 35,775
--------
INTERNATIONAL EQUITY SECURITIES (18.6%)
COMMON STOCKS (0.4%)
CONSUMER DISCRETIONARY (0.2%)
-----------------------------
AUTO PARTS & EQUIPMENT (0.2%)
1,650 Delphi Automotive plc 106
4,550 Magna International, Inc. 184
--------
290
--------
Total Consumer Discretionary 290
--------
ENERGY (0.0%)
-------------
INTEGRATED OIL & GAS (0.0%)
1,250 TOTAL S.A. ADR 59
--------
FINANCIALS (0.1%)
-----------------
PROPERTY & CASUALTY INSURANCE (0.1%)
3,600 XL Group Ltd. 130
--------
INFORMATION TECHNOLOGY (0.0%)
-----------------------------
SEMICONDUCTORS (0.0%)
200 Broadcom Ltd. 34
450 NXP Semiconductors N.V.* 45
--------
79
--------
Total Information Technology 79
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES (0.1%)
---------------------------------
WIRELESS TELECOMMUNICATION SERVICES (0.1%)
3,850 Vodafone Group plc ADR $ 94
--------
Total Common Stocks (cost: $665) 652
--------
EXCHANGE-TRADED FUNDS (18.2%)
148,665 iShares Core MSCI EAFE ETF 7,858
86,338 iShares Core MSCI Emerging Markets ETF 3,736
143,100 iShares Currency Hedged MSCI EAFE ETF 3,638
35,600 iShares Edge MSCI Minimum Volatility EAFE ETF 2,208
18,800 iShares Edge MSCI Minimum Volatility Emerging Markets ETF 944
34,900 iShares MSCI Pacific ex Japan ETF 1,433
31,400 PowerShares FTSE RAFI Developed Markets ex-U.S. Portfolio 1,149
87,600 PowerShares FTSE RAFI Emerging Markets Portfolio 1,587
154,100 Schwab Fundamental International Large Co. Index ETF 3,831
7,496 SPDR S&P Emerging Markets SmallCap ETF 309
22,420 Vanguard FTSE All-World ex-US ETF 980
88,300 Vanguard FTSE Developed Markets ETF 3,175
80,250 Vanguard FTSE Emerging Markets ETF(b) 2,907
14,400 Vanguard FTSE Europe ETF 661
5,259 WisdomTree Emerging Markets SmallCap Dividend Fund 206
29,552 WisdomTree India Earnings Fund 598
--------
Total Exchange-Traded Funds (cost: $36,605) 35,220
--------
Total International Equity Securities (cost: $37,270) 35,872
--------
PRECIOUS METALS AND COMMODITY-RELATED SECURITIES (0.6%)
GOLD (0.0%)
NORTH AMERICAN GOLD COMPANIES (0.0%)
24,262 Hycroft Mining Corp.*(c),(d) 24
900 Newmont Mining Corp. 29
--------
53
--------
Total Gold (cost: $887) 53
--------
EXCHANGE-TRADED FUNDS (0.6%)
11,700 First Trust Global Tactical Commodity Strategy Fund* 239
44,200 VanEck Vectors Gold Miners ETF 921
--------
Total Exchange-Traded Funds (cost: $1,302) 1,160
--------
Total Precious Metals and Commodity-Related Securities (cost: $2,189) 1,213
--------
================================================================================
18 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
GLOBAL REAL ESTATE EQUITY SECURITIES (0.5%)
COMMON STOCKS (0.3%)
REITs - MORTGAGE (0.3%)
------------------------
26,358 Annaly Capital Management, Inc.(b) $ 269
19,800 Two Harbors Investment Corp. 172
--------
441
--------
REITs - OFFICE (0.0%)
---------------------
300 Boston Properties, Inc. 37
--------
REITs - RETAIL (0.0%)
---------------------
300 Simon Property Group, Inc. 54
--------
REITs - SPECIALIZED (0.0%)
--------------------------
150 Public Storage 32
--------
Total Common Stocks (cost: $574) 564
--------
PREFERRED STOCKS (0.1%)
REITs - MORTGAGE (0.1%)
-----------------------
8,000 Arbor Realty Trust, Inc., 7.38% (cost: $200) 203
--------
EXCHANGE-TRADED FUNDS (0.1%)
2,600 Vanguard REIT ETF (cost: $206) 209
--------
Total Global Real Estate Equity Securities (cost: $980) 976
--------
------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON
(000) RATE MATURITY
------------------------------------------------------------------------------------------------------------------
BONDS (59.8%)
CORPORATE OBLIGATIONS (10.5%)
CONSUMER STAPLES (0.1%)
-----------------------
FOOD RETAIL (0.1%)
$ 300 BI-LO, LLC & BI-LO Finance Corp.(a) 9.25% 2/15/2019 240
--------
ENERGY (1.7%)
-------------
OIL & GAS DRILLING (0.1%)
912 Schahin II Finance Co. SPV Ltd.(a),(e) 5.88 9/25/2023 123
--------
OIL & GAS STORAGE & TRANSPORTATION (1.6%)
650 Enbridge Energy Partners, LP 7.38 10/15/2045 795
500 Enbridge Energy Partners, LP 8.05 10/01/2077 452
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 950 Energy Transfer Partners, LP 3.90%(f) 11/01/2066 $ 731
1,000 Enterprise Products Operating, LLC 7.00 6/01/2067 850
200 Martin Midstream Partners, LP & Martin
Midstream Finance Corp. 7.25 2/15/2021 195
200 Southern Union Co. 3.90(f) 11/01/2066 153
--------
3,176
--------
Total Energy 3,299
--------
FINANCIALS (6.7%)
-----------------
ASSET MANAGEMENT & CUSTODY BANKS (0.6%)
350 Ares Capital Corp. 3.63 1/19/2022 342
900 Prospect Capital Corp. 5.00 7/15/2019 907
--------
1,249
--------
LIFE & HEALTH INSURANCE (1.5%)
1,100 Lincoln National Corp. 3.26(f) 5/17/2066 878
1,000 Prudential Financial, Inc. 5.63 6/15/2043 1,039
1,350 StanCorp Financial Group, Inc. 6.90 6/01/2067 1,078
--------
2,995
--------
MULTI-LINE INSURANCE (1.0%)
1,000 Glen Meadow Pass-Through Trust(a) 6.51(f) 2/12/2067 770
1,100 Nationwide Mutual Insurance Co.(a) 3.14(f) 12/15/2024 1,085
--------
1,855
--------
PROPERTY & CASUALTY INSURANCE (2.4%)
1,000 Allstate Corp. 5.75 8/15/2053 1,051
1,000 AmTrust Financial Services, Inc. 6.13 8/15/2023 1,017
750 HSB Group, Inc. 1.79(f) 7/15/2027 561
600 Ironshore Holdings, Inc.(a) 8.50 5/15/2020 670
1,200 Oil Insurance Ltd.(a) 3.82(f) -(g) 960
300 Progressive Corp. 6.70 6/15/2067 294
--------
4,553
--------
REGIONAL BANKS (1.2%)
400 Compass Bank 6.40 10/01/2017 413
100 Compass Bank 3.88 4/10/2025 95
1,000 Cullen/Frost Capital Trust II 2.39(f) 3/01/2034 866
100 First Maryland Capital Trust I 1.88(f) 1/15/2027 89
1,000 SunTrust Capital I 1.57(f) 5/15/2027 853
--------
2,316
--------
Total Financials 12,968
--------
================================================================================
20 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
HEALTH CARE (0.3%)
------------------
HEALTH CARE FACILITIES (0.3%)
$ 300 Community Health Systems, Inc. 6.88% 2/01/2022 $ 202
400 HCA, Inc. 4.50 2/15/2027 378
--------
580
--------
Total Health Care 580
--------
INDUSTRIALS (0.1%)
------------------
AIRLINES (0.1%)
194 Continental Airlines, Inc. Pass-Through Trust 6.25 10/11/2021 206
--------
ELECTRICAL COMPONENTS & EQUIPMENT (0.0%)
100 Artesyn Embedded Technologies, Inc.(a) 9.75 10/15/2020 90
--------
Total Industrials 296
--------
REAL ESTATE (0.2%)
------------------
REAL ESTATE DEVELOPMENT (0.2%)
300 Crescent Communities, LLC & Crescent
Ventures, Inc.(a) 8.88 10/15/2021 298
--------
UTILITIES (1.4%)
----------------
ELECTRIC UTILITIES (0.8%)
600 NextEra Energy Capital Holdings, Inc. 2.91(f) 10/01/2066 513
324 NextEra Energy Capital Holdings, Inc. 6.65 6/15/2067 286
300 NextEra Energy Capital Holdings, Inc. 7.30 9/01/2067 299
550 PPL Capital Funding, Inc. 6.70(f) 3/30/2067 485
--------
1,583
--------
MULTI-UTILITIES (0.6%)
1,250 WEC Energy Group, Inc. 6.25(f) 5/15/2067 1,094
--------
Total Utilities 2,677
--------
Total Corporate Obligations (cost: $22,270) 20,358
--------
CONVERTIBLE SECURITIES (0.4%)
MATERIALS (0.4%)
----------------
GOLD (0.4%)
521 Hycroft Mining Corp.(h) (cost: $504) 15.00 10/22/2020 821
--------
EURODOLLAR AND YANKEE OBLIGATIONS (1.4%)
ENERGY (0.7%)
-------------
OIL & GAS STORAGE & TRANSPORTATION (0.7%)
1,700 TransCanada PipeLines Ltd. 6.35(f) 5/15/2067 1,335
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 21
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
FINANCIALS (0.1%)
-----------------
PROPERTY & CASUALTY INSURANCE (0.1%)
$ 250 QBE Capital Funding III Ltd.(a) 7.25% 5/24/2041 $ 277
--------
MATERIALS (0.6%)
----------------
GOLD (0.6%)
1,100 Newcrest Finance Property Ltd.(a) 4.45 11/15/2021 1,139
--------
Total Eurodollar and Yankee Obligations (cost: $2,920) 2,751
--------
ASSET-BACKED SECURITIES (0.1%)
FINANCIALS (0.1%)
-----------------
ASSET-BACKED FINANCING (0.1%)
200 Navient Student Loan Trust (cost: $172) 2.08(f) 8/25/2050 173
--------
COLLATERALIZED MORTGAGE OBLIGATIONS (0.5%)
FINANCIALS (0.5%)
-----------------
ASSET-BACKED FINANCING (0.5%)
70 Sequoia Mortgage Trust 1.46(f) 9/20/2033 62
912 Structured Asset Mortgage Investments, Inc. 1.06(f) 7/19/2035 843
59 Wells Fargo Mortgage Backed Securities Trust 3.00(f) 4/25/2035 56
--------
961
--------
Total Financials 961
--------
Total Collateralized Mortgage Obligations (cost: $985) 961
--------
COMMERCIAL MORTGAGE SECURITIES (4.4%)
FINANCIALS (4.4%)
-----------------
COMMERCIAL MORTGAGE-BACKED SECURITIES (4.4%)
400 Banc of America Commercial Mortgage, Inc. 6.00 7/10/2044 309
800 Banc of America Commercial Mortgage, Inc. 6.48 2/10/2051 798
1,200 Bear Stearns Commercial Mortgage Securities, Inc.(a) 5.66 9/11/2041 1,170
50 Citigroup Commercial Mortgage Trust 6.00 12/10/2049 35
400 Commercial Mortgage Trust 5.38 12/10/2046 397
850 Credit Suisse Commercial Mortgage
Pass-Through Trust 0.74 2/15/2040 842
3,244 CSAIL Commercial Mortgage Trust(c) 1.00 1/15/2049 372
830 FREMF Mortgage Trust(a) 3.00 8/25/2045 848
750 GE Capital Commercial Mortgage Corp. 5.00 11/10/2045 718
225 GE Capital Commercial Mortgage Corp. 5.61 12/10/2049 224
66 GMAC Commercial Mortgage Securities, Inc. 4.97 12/10/2041 67
1,000 J.P. Morgan Chase Commercial
Mortgage Securities Corp. 6.11 4/17/2045 789
================================================================================
22 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 1,200 J.P. Morgan Chase Commercial
Mortgage Securities Corp. 5.37% 5/15/2047 $ 1,200
324 Morgan Stanley Capital I Trust 5.59 3/12/2044 325
100 Morgan Stanley Capital I Trust 5.59 3/12/2044 91
2,857 UBS Commercial Mortgage Trust(a),(c) 2.27 5/10/2045 259
--------
8,444
--------
Total Financials 8,444
--------
Total Commercial Mortgage Securities (cost: $8,790) 8,444
--------
U.S. GOVERNMENT AGENCY ISSUES (10.4%)(i)
COMMERCIAL MORTGAGE-BACKED SECURITIES (1.4%)
500 Fannie Mae(+) 2.15 1/25/2023 494
1,000 Freddie Mac(+) 3.51 4/25/2030 1,037
1,100 Freddie Mac(+) 3.33 5/25/2025 1,152
--------
2,683
--------
MORTGAGE-BACKED PASS-THROUGH SECURITIES (9.0%)
1,873 Freddie Mac(+) 3.00 4/01/2046 1,867
4,373 Freddie Mac(+) 3.00 6/01/2046 4,359
1,976 Freddie Mac(+) 3.00 9/01/2046 1,970
994 Freddie Mac(+) 3.00 10/01/2046 991
1,996 Freddie Mac(+) 3.00 11/01/2046 1,989
6,138 Freddie Mac(+) 3.50 4/01/2046 6,305
--------
17,481
--------
Total U.S. Government Agency Issues (cost: $20,655) 20,164
--------
U.S. TREASURY SECURITIES (18.8%)
BONDS (8.4%)
8,700 3.13%, 8/15/2044 8,886
4,000 3.17%, 8/15/2044 (STRIPS Principal)(j) 1,699
2,285 3.00%, 11/15/2044 2,277
300 2.50%, 2/15/2045 270
3,000 3.00%, 5/15/2045 2,985
--------
16,117
--------
NOTES (10.4%)
6,100 1.13%, 2/28/2021(k) 5,943
618 2.00%, 2/15/2023 614
1,800 1.63%, 4/30/2023 1,745
1,500 2.50%, 5/15/2024 1,527
1,500 2.38%, 8/15/2024 1,511
800 2.25%, 11/15/2024 798
================================================================================
PORTFOLIO OF INVESTMENTS | 23
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
(000) SECURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 6,200 2.25%, 11/15/2025 $ 6,147
2,000 1.63%, 2/15/2026 1,877
--------
20,162
--------
Total U.S. Treasury Securities (cost: $36,485) 36,279
--------
------------------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES
------------------------------------------------------------------------------------------------------------------
EXCHANGE-TRADED FUNDS (13.3%)
22,810 iShares 20+ Year Treasury Bond ETF 2,743
33,790 iShares Core U.S. Aggregate Bond ETF 3,657
46,400 iShares iBoxx $High Yield Corporate Bond ETF(b) 3,974
74,400 Powershares Fundamental High Yield Corporate Bond Portfolio 1,382
25,500 Vanguard Mortgage-Backed Securities ETF 1,343
64,600 Vanguard Short-Term Corporate Bond ETF(b) 5,131
93,100 Vanguard Total Bond Market ETF 7,531
--------
Total Exchange-Traded Funds (cost: $26,124) 25,761
--------
Total Bonds (cost: $118,905) 115,712
--------
MONEY MARKET INSTRUMENTS (1.7%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (1.7%)
3,294,868 State Street Institutional Treasury
Money Market Fund Premier Class, 0.25%(l) (cost: $3,295) 3,295
--------
TOTAL INVESTMENTS (COST: $194,803) $192,843
========
================================================================================
24 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
UNREALIZED
CONTRACT APPRECIATION/
NUMBER OF EXPIRATION VALUE (DEPRECIATION)
CONTRACTS SECURITY DATE (000) (000)
------------------------------------------------------------------------------------------------------------------
FUTURES(m)
LONG FUTURES
EQUITY CONTRACTS
63 E-mini S&P 500 12/16/2016 $ 6,926 $229
19 Mini MSCI Emerging Markets Index 12/16/2016 820 (28)
------- ----
7,746 201
------- ----
TOTAL LONG FUTURES $ 7,746 $201
------- ----
SHORT FUTURES
INTEREST RATE CONTRACTS
(21) U.S. Treasury Bond 3/22/2017 $(3,177) $(15)
------- ----
EQUITY CONTRACTS
(14) Russell 2000 Mini 12/16/2016 (1,851) (33)
------- ----
TOTAL SHORT FUTURES $(5,028) $(48)
======= ====
TOTAL FUTURES $ 2,718 $153
======= ====
================================================================================
PORTFOLIO OF INVESTMENTS | 25
================================================================================
------------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
------------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------------------------------------------------------------------------------------------------------------------
U.S. Equity Securities:
Common Stocks $ 16,858 $ - $ - $ 16,858
Preferred Stocks - 5,018 - 5,018
Exchange-Traded Funds 13,899 - - 13,899
International Equity Securities:
Common Stocks 652 - - 652
Exchange-Traded Funds 35,220 - - 35,220
Precious Metals and Commodity-
Related Securities:
Common Stocks 29 - 24 53
Exchange-Traded Funds 1,160 - - 1,160
Global Real Estate Equity Securities:
Common Stocks 564 - - 564
Preferred Stocks - 203 - 203
Exchange-Traded Funds 209 - - 209
Bonds:
Corporate Obligations - 20,358 - 20,358
Convertible Securities - 821 - 821
Eurodollar and Yankee Obligations - 2,751 - 2,751
Asset-Backed Securities - 173 - 173
Collateralized Mortgage Obligations - 961 - 961
Commercial Mortgage Securities - 8,444 - 8,444
U.S. Government Agency Issues - 20,164 - 20,164
U.S. Treasury Securities 34,580 1,699 - 36,279
Exchange-Traded Funds 25,761 - - 25,761
Money Market Instruments:
Government & U.S. Treasury
Money Market Funds 3,295 - - 3,295
Futures(1) 229 - - 229
------------------------------------------------------------------------------------------------------------------
Total $132,456 $60,592 $24 $193,072
------------------------------------------------------------------------------------------------------------------
LIABILITIES LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------------------------------------------------------------------------------------------------------------------
Futures(1) $ (76) $ - $ - $ (76)
------------------------------------------------------------------------------------------------------------------
(1)Futures are valued at the unrealized appreciation/(depreciation) on the
investment.
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
================================================================================
26 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
RECONCILIATION OF LEVEL 3 INVESTMENTS
------------------------------------------------------------------------------------------------------------------
COMMON STOCKS CORPORATE OBLIGATIONS
------------------------------------------------------------------------------------------------------------------
Balance as of May 31, 2016 $18 $ 530
Purchases - -
Sales - -
Transfers into Level 3 - -
Transfers out of Level 3 - (530)
Net realized gain (loss) on investments - -
Change in net unrealized appreciation/(depreciation)
of investments 6 -
------------------------------------------------------------------------------------------------------------------
Balance as of November 30, 2016 $24 $ -
------------------------------------------------------------------------------------------------------------------
FAIR VALUE LEVEL TRANSFERS
--------------------------
For the period of June 1, 2016, through November 30, 2016, the table below shows
the transfers between Level 1, Level 2, and Level 3. The Fund's policy is to
recognize any transfers in and transfers out as of the beginning of the
reporting period in which the event or circumstance that caused the transfer
occurred.
TRANSFERS INTO TRANSFERS INTO TRANSFERS INTO
(OUT OF) (OUT OF) (OUT OF)
ASSETS ($ IN 000s) LEVEL 1 LEVEL 2 LEVEL 3
------------------------------------------------------------------------------------------------------------------
CORPORATE OBLIGATIONS(I) $- $530 $(530)
------------------------------------------------------------------------------------------------------------------
(I) Transferred from Level 3 to Level 2 as result of the securities no longer
being a single broker quote.
================================================================================
PORTFOLIO OF INVESTMENTS | 27
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
November 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 20.8% of net assets at
November 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 CATEGORIES AND DEFINITIONS
EURODOLLAR AND YANKEE OBLIGATIONS - Eurodollar obligations are U.S.
dollar-denominated instruments that are issued outside the U.S. capital
markets by foreign corporations and financial institutions and by foreign
branches of U.S. corporations and financial institutions. Yankee
obligations are dollar-denominated instruments that are issued by foreign
issuers in the U.S. capital markets.
ASSET-BACKED AND COMMERCIAL MORTGAGE-BACKED SECURITIES - Asset-backed
securities represent a participation in, or are secured by and payable
from, a stream of payments generated by particular assets. Commercial
mortgage-backed securities reflect an interest in, and are secured by,
mortgage loans on commercial real property. These securities represent
================================================================================
28 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
ownership in a pool of loans and are divided into pieces (tranches) with
varying maturities. The stated final maturity of such securities represents
the date the final principal payment will be made for the last outstanding
loans in the pool. The weighted average life is the average time for
principal to be repaid, which is calculated by assuming prepayment rates of
the underlying loans. The weighted average life is likely to be
substantially shorter than the stated final maturity as a result of
scheduled principal payments and unscheduled principal prepayments. Stated
interest rates on commercial mortgage-backed securities may change slightly
over time as underlying mortgages pay down.
COLLATERALIZED MORTGAGE OBLIGATIONS (CMOs) - Collateralized mortgage
obligations are debt obligations of a legal entity that are fully
collateralized by a portfolio of mortgages or mortgage-related securities.
CMOs are issued in multiple classes (tranches), with specific adjustable or
fixed interest rates, varying maturities, and must be fully retired no
later than its final distribution date. The cash flow from the underlying
mortgages is used to pay off each tranche separately. CMOs are designed to
provide investors with more predictable maturities than regular mortgage
securities, but such maturities can be difficult to predict because of the
effect of prepayments.
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.
REIT Real estate investment trust
STRIPS Separate trading of registered interest and principal of securities
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
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 29
================================================================================
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) The security, or a portion thereof, is segregated to cover the
value of open futures contracts at November 30, 2016.
(c) Security deemed illiquid by the Manager, under liquidity guidelines
approved by the Board. The aggregate market value of these securities
at November 30, 2016, was $655,000, which represented 0.3% of the
Fund's net assets.
(d) Security was fair valued at November 30, 2016, by the Manager in
accordance with valuation procedures approved by the Board. The total
value of all such securities was $24,000, which represented less than
0.1% of the Fund's net assets.
(e) At November 30, 2016, the issuer was in default with respect to
interest and/or principal payments.
(f) Variable-rate or floating-rate security - interest rate is adjusted
periodically. The interest rate disclosed represents the rate at
November 30, 2016.
(g) Security is perpetual and has no final maturity date but may be
subject to calls at various dates in the future.
(h) Security in which the issuer has or will have the option to make
all or a portion of the interest or dividend payments in additional
securities in lieu of cash.
(i) U.S. government agency issues - Mortgage-backed securities issued
by certain U.S. Government Sponsored Enterprises (GSEs) such as the
Government National Mortgage Association (GNMA or Ginnie Mae) and
certain other U.S. government guaranteed securities are supported by
the full faith and credit of the U.S. government. Securities issued by
other GSEs, such as Freddie Mac (Federal Home Loan Mortgage Corporation
or FHLMC) and Fannie Mae (Federal National Mortgage Association or
FNMA), indicated with a "+",
================================================================================
30 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
are supported only by the right of the GSE to borrow from the U.S.
Treasury, the discretionary authority of the U.S. government to
purchase the GSEs' obligations, or only by the credit of the issuing
agency, instrumentality, or corporation, and are neither issued nor
guaranteed by the U.S. Treasury. In September of 2008, the U.S.
Treasury placed Fannie Mae and Freddie Mac under conservatorship and
appointed the Federal Housing Finance Agency (FHFA) to act as
conservator and oversee their daily operations. In addition, the U.S.
Treasury entered into purchase agreements with Fannie Mae and Freddie
Mac to provide them with capital in exchange for senior preferred
stock. While these arrangements are intended to ensure that Fannie Mae
and Freddie Mac can continue to meet their obligations, it is possible
that actions by the U.S. Treasury, FHFA, or others could adversely
impact the value of the Fund's investments in securities issued by
Fannie Mae and Freddie Mac.
(j) Zero-coupon security. Rate represents the effective yield at the
date of purchase.
(k) Securities with a value of $487,000 are segregated as collateral
for initial margin requirements on open futures contracts.
(l) Rate represents the money market fund annualized seven-day yield at
November 30, 2016.
(m) The contract value of futures purchased and/or sold as a percentage
of net assets is 1.4%.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 31
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
November 30, 2016 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $194,803) $192,843
Cash denominated in foreign currencies (identified cost of $7) 7
Receivables:
Capital shares sold 99
USAA Asset Management Company (Note 5C) 94
Dividends and interest 612
Securities sold 541
Variation margin on futures contracts 153
--------
Total assets 194,349
--------
LIABILITIES
Payables:
Securities purchased 449
Capital shares redeemed 125
Bank overdraft 71
Accrued management fees 80
Accrued transfer agent's fees 16
Other accrued expenses and payables 90
--------
Total liabilities 831
--------
Net assets applicable to capital shares outstanding $193,518
========
NET ASSETS CONSIST OF:
Paid-in capital $196,670
Accumulated undistributed net investment income 511
Accumulated net realized loss on investments and futures transactions (1,856)
Net unrealized depreciation of investments and futures contracts (1,807)
--------
Net assets applicable to capital shares outstanding $193,518
========
Capital shares outstanding, no par value 18,076
========
Net asset value, redemption price, and offering price per share $ 10.71
========
See accompanying notes to financial statements.
================================================================================
32 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended November 30, 2016 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $1) $1,432
Interest 1,618
------
Total income 3,050
------
EXPENSES
Management fees 499
Administration and servicing fees 150
Transfer agent's fees 248
Custody and accounting fees 80
Postage 12
Shareholder reporting fees 13
Trustees' fees 15
Registration fees 20
Professional fees 42
Other 5
------
Total expenses 1,084
Expenses reimbursed (187)
------
Net expenses 897
------
NET INVESTMENT INCOME 2,153
------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FUTURES CONTRACTS
Net realized gain (loss) on:
Unaffiliated transactions (520)
Affiliated transactions (Note 7) 192
Futures transactions 473
Change in net unrealized appreciation/(depreciation) of:
Investments 365
Futures contracts 136
------
Net realized and unrealized gain 646
------
Increase in net assets resulting from operations $2,799
======
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 33
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended November 30, 2016 (unaudited), and year ended
May 31, 2016
------------------------------------------------------------------------------------------------------------------
11/30/2016 5/31/2016
------------------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 2,153 $ 5,025
Net realized loss on investments (328) (836)
Net realized gain on long-term capital gain distributions
from other investment companies - 74
Net realized gain on options - 5
Net realized gain (loss) on futures transactions 473 (11)
Change in net unrealized appreciation/(depreciation) of:
Investments 365 (11,845)
Options - 28
Futures contracts 136 17
------------------------------
Increase (decrease) in net assets resulting from operations 2,799 (7,543)
------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (2,181) (4,749)
Net realized gains - (1,578)
------------------------------
Distributions to shareholders (2,181) (6,327)
------------------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 22,629 55,158
Reinvested dividends 1,955 5,677
Cost of shares redeemed (26,060) (57,124)
------------------------------
Increase (decrease) in net assets from capital
share transactions (1,476) 3,711
------------------------------
Net decrease in net assets (858) (10,159)
NET ASSETS
Beginning of period 194,376 204,535
------------------------------
End of period $193,518 $194,376
==============================
Accumulated undistributed net investment income:
End of period $ 511 $ 539
CHANGE IN SHARES OUTSTANDING
Shares sold 2,079 5,154
Shares issued for dividends reinvested 181 533
Shares redeemed (2,397) (5,377)
------------------------------
Increase (decrease) in shares outstanding (137) 310
==============================
See accompanying notes to financial statements.
================================================================================
34 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
November 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 Cornerstone Moderately Conservative
Fund (the Fund), which is classified as diversified under the 1940 Act. The
Fund's investment objective is to seek current income with a secondary focus on
capital appreciation.
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 | 35
================================================================================
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. Equity 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
events that would materially affect the value of the Fund's foreign
================================================================================
36 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
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. 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 37
================================================================================
6. Repurchase agreements are valued at cost.
7. Futures are valued at the settlement price at the close of market on
the principal exchange on which they are traded or, in the absence of
any transactions that day, the settlement price on the prior trading
date if it is within the spread between the closing bid and asked
prices closest to the last reported sale price.
8. Options are valued by a pricing service at the National Best
Bid/Offer (NBBO) composite price, which is derived from the best
available bid and asked prices in all participating options exchanges
determined to most closely reflect market value of the options at the
time of computation of the Fund's NAV.
9. Forward foreign currency contracts are valued on a daily basis using
forward foreign currency exchange rates obtained from an independent
pricing service and are categorized in Level 2 of the fair value
hierarchy.
10. 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,
================================================================================
38 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
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.
The valuation of securities falling in the Level 3 category are primarily
supported by quoted prices obtained from broker-dealers participating in
the market for these 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 39
================================================================================
C. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - The Fund may buy, sell,
and enter into certain types of derivatives, including, but not limited to
futures contracts, options, and options on futures contracts, under
circumstances in which such instruments are expected by the portfolio
manager to aid in achieving the Fund's investment objective. The Fund also
may use derivatives in circumstances where the portfolio manager believes
they offer an economical means of gaining exposure to a particular asset
class or securities market or to keep cash on hand to meet shareholder
redemptions or other needs while maintaining exposure to the market. With
exchange-listed futures contracts and options, counterparty credit risk to
the Fund is limited to the exchange's clearinghouse which, as counterparty
to all exchange-traded futures contracts and options, guarantees the
transactions against default from the actual counterparty to the
transaction. The Fund's derivative agreements held at November 30, 2016,
did not include master netting provisions.
FUTURES CONTRACTS - The Fund is subject to equity price risk, interest
rate risk, and foreign currency exchange rate risk in the normal course of
pursuing its investment objectives. The Fund may use futures contracts to
gain exposure to, or hedge against, changes in the value of equities,
interest rates, or foreign currencies. A futures contract represents a
commitment for the future purchase or sale of an asset at a specified price
on a specified date. Upon entering into such contracts, the Fund is
required to deposit with the broker in either cash or securities an initial
margin in an amount equal to a certain percentage of the contract amount.
Subsequent payments (variation margin) are made or received by the Fund
each day, depending on the daily fluctuations in the value of the contract,
and are recorded for financial statement purposes as unrealized gains or
losses. When the contract is closed, the Fund records a realized gain or
loss equal to the difference between the value of the contract at the time
it was opened and the value at the time it was closed. Upon entering into
such contracts, the Fund bears the risk of interest or exchange rates or
securities prices moving unexpectedly in an
================================================================================
40 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
unfavorable direction, in which case, the Fund may not achieve the
anticipated benefits of the futures contracts.
FAIR VALUES OF DERIVATIVE INSTRUMENTS AS OF NOVEMBER 30, 2016*
(IN THOUSANDS)
ASSET DERIVATIVES LIABILITY DERIVATIVES
-----------------------------------------------------------------------------------------------------
STATEMENT OF STATEMENT OF
DERIVATIVES NOT ASSETS AND ASSETS AND
ACCOUNTED FOR AS LIABILITIES LIABILITIES
HEDGING INSTRUMENTS LOCATION FAIR VALUE LOCATION FAIR VALUE
-----------------------------------------------------------------------------------------------------
Interest rate $ - Net unrealized $15**
contracts depreciation of
investments and
futures contracts
-----------------------------------------------------------------------------------------------------
Equity contracts Net unrealized 229** Net unrealized 61**
depreciation of depreciation of
investments and investments and
futures contracts futures contracts
-----------------------------------------------------------------------------------------------------
Total $229 $76
-----------------------------------------------------------------------------------------------------
* For open derivative instruments as of November 30, 2016, see the
Portfolio of Investments, which also is indicative of activity for the
six-month period ended November 30, 2016.
** Includes cumulative appreciation/(depreciation) of futures as reported
on the Portfolio of Investments. Only current day's variation margin is
reported within the Statement of Assets and Liabilities.
THE EFFECT OF DERIVATIVE INSTRUMENTS ON THE STATEMENT OF OPERATIONS
FOR THE SIX-MONTH PERIOD ENDED NOVEMBER 30, 2016 (IN THOUSANDS)
CHANGE IN
UNREALIZED
DERIVATIVES NOT APPRECIATION/
ACCOUNTED FOR AS STATEMENT OF REALIZED GAIN (LOSS) (DEPRECIATION)
HEDGING INSTRUMENTS OPERATIONS LOCATION ON DERIVATIVES ON DERIVATIVES
-----------------------------------------------------------------------------------------------------
Interest rate Net realized gain (loss) $276 $(15)
contracts on Futures transactions/
Change in net unrealized
appreciation/(depreciation)
of Futures contracts
-----------------------------------------------------------------------------------------------------
Equity contracts Net realized gain (loss) on 197 151
Futures transactions/
Change in net unrealized
appreciation/(depreciation)
of Futures contracts
-----------------------------------------------------------------------------------------------------
Total $473 $136
-----------------------------------------------------------------------------------------------------
================================================================================
NOTES TO FINANCIAL STATEMENTS | 41
================================================================================
D. FEDERAL TAXES - The Fund's policy is to comply with the requirements of
the Internal Revenue Code of 1986, as amended, applicable to regulated
investment companies and to distribute substantially all of its taxable
income and net capital gains, if any, to its shareholders. Therefore, no
federal income tax provision is required.
E. FOREIGN TAXATION - Foreign income and capital gains on some foreign
securities may be subject to foreign taxes, which are reflected as a
reduction to such income and realized gains. The Fund records a liability
based on unrealized gains to provide for potential foreign taxes payable
upon the sale of these securities. Foreign taxes have been provided for in
accordance with the Fund's understanding of the applicable countries'
prevailing tax rules and rates.
F. INVESTMENTS IN SECURITIES - Securities transactions are accounted for on
the date the securities are purchased or sold (trade date). Gains or losses
from sales of investment securities are computed on the identified cost
basis. Dividend income, less foreign taxes, if any, is recorded on the ex-
dividend date. If the ex-dividend date has passed, certain dividends from
foreign securities are recorded upon notification. Interest income is
recorded daily on the accrual basis. Premiums and discounts are amortized
over the life of the respective securities, using the effective yield
method for long-term securities and the straight-line method for short-term
securities.
G. 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.
================================================================================
42 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
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.
H. 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 and commitments
while remaining substantially fully invested.
I. 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 43
================================================================================
expenses. For the six-month period ended November 30, 2016, there were no
custodian and other bank credits.
J. 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.
K. 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 with other USAA Funds 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 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.
================================================================================
44 | USAA CORNERSTONE MODERATELY CONSERVATIVE 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 November 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 November 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 May 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 tax.
At May 31, 2016, the Fund had no capital loss carryforwards, for federal income
tax purposes.
For the six-month period ended November 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 positions 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 November 30, 2016, were
$58,519,000 and $55,066,000, respectively.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 45
================================================================================
As of November 30, 2016, the cost of securities, including short-term
securities, for federal income tax purposes, was approximately the same as their
cost reported in the financial statements.
Gross unrealized appreciation and depreciation of investments as of November 30,
2016, were $6,471,000 and $8,431,000, respectively, resulting in net unrealized
depreciation of $1,960,000.
(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 of a portion of the
Fund's assets, subject to the authority of and supervision by the Board.
The Manager is authorized to select (with approval of the Board and without
shareholder approval) one or more subadvisers to manage the day-to-day
investment of a portion of the Fund's assets. For the six-month period
ended November 30, 2016, the Fund had no subadviser(s).
The Fund's investment management fee is accrued daily and paid monthly at
an annualized rate of 0.50% of the Fund's average net assets. For the
six-month period ended November 30, 2016, the Fund incurred total
management fees, paid or payable to the Manager, of $499,000.
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 0.15% of the Fund's average net assets. For the six-month period ended
November 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 November 30, 2016, the Fund reimbursed the
Manager $3,000 for these compliance and legal
================================================================================
46 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
services. These expenses are included in the professional fees on the
Fund's Statement of Operations.
C. EXPENSE LIMITATION - The Manager agreed, through September 30, 2017, to
limit the total annual operating expenses of the Fund to 0.90% 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 September 30, 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 November 30, 2016, the Fund
incurred reimbursable expenses of $187,000, of which $94,000 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 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. For the six-month
period ended November 30, 2016, the Fund incurred transfer agent's fees,
paid or payable to SAS, of $248,000.
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.
(6) TRANSACTIONS WITH AFFILIATES
The Manager is indirectly wholly owned by United Services Automobile Association
(USAA), a large, diversified financial services institution. At November 30,
2016, USAA and its affiliates owned 1,756,000 shares, which represents 9.7% 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 | 47
================================================================================
(7) SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
During the six-month period ended November 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) TO
SELLER PURCHASER PURCHASER SELLER
---------------------------------------------------------------------------------------------------
Cornerstone Moderately Cornerstone Moderately
Conservative Aggressive $ 97,000 $ (2,000)
Cornerstone Moderately Cornerstone Moderate
Conservative 49,000 (1,000)
Cornerstone Moderately Cornerstone Aggressive
Conservative 38,000 (-)*
Cornerstone Moderately Target Managed
Conservative 3,181,000 195,000
Cornerstone Aggressive Cornerstone Moderately
Conservative 48,000 5,000
*Represents less than $500.
(8) UPCOMING REGULATORY MATTERS
In October 2016, the U.S. Securities and Exchange Commission (SEC) adopted final
rules intended to modernize the reporting and disclosure of information by
registered investment companies. In part, the final rules amend Regulation S-X
to require standardized, enhanced disclosure about derivatives in investment
company financial statements. The Manager is currently evaluating the impact
these rules and amendments will have on the financial statements and related
disclosures. The compliance date for the amendments to Regulation S-X is August
1, 2017, with other staggered compliance dates extending through December 2018.
================================================================================
48 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
(9) FINANCIAL HIGHLIGHTS
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED PERIOD ENDED
NOVEMBER 30, YEAR ENDED MAY 31, MAY 31,
-------------------------------------------------------------------------
2016 2016 2015 2014 2013***
-------------------------------------------------------------------------
Net asset value at
beginning of period $ 10.67 $ 11.42 $ 11.52 $ 11.05 $ 10.00
--------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .12 .28 .26 .25 .28(a)
Net realized and
unrealized gain (loss) .04 (.68) .03 .61 .99(a)
--------------------------------------------------------------------
Total from investment
operations .16 (.40) .29 .86 1.27(a)
--------------------------------------------------------------------
Less distributions from:
Net investment income (.12) (.26) (.27) (.26) (.22)
Realized capital gains - (.09) (.12) (.13) -
--------------------------------------------------------------------
Total distributions (.12) (.35) (.39) (.39) (.22)
--------------------------------------------------------------------
Net asset value at
end of period $ 10.71 $ 10.67 $ 11.42 $ 11.52 $ 11.05
====================================================================
Total return (%)* 1.49 (3.50) 2.58 8.00 12.81
Net assets at end of
period (000) $193,518 $194,376 $204,535 $167,742 $99,683
Ratios to average
net assets:**
Expenses (%)(b) .90(c) .90 .90 .90 .90(c)
Expenses, excluding
reimbursements (%)(b) 1.09(c) 1.09 1.05 1.08 1.25(c)
Net investment income (%) 2.16(c) 2.56 2.43 2.40 2.56(c)
Portfolio turnover (%) 29 70(d) 37 36 59
* 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 November 30, 2016, average net assets
were $198,869,000.
*** Fund commenced operations on June 8, 2012.
(a) Calculated using average shares.
(b) Reflects total annual operating expenses of the Fund before reductions of
any expenses paid indirectly. The Fund's expenses paid indirectly decreased
the expense ratios as follows:
- - - (.00%)(+) (.00%)(+)
(+) Represents less than 0.01% of average net assets.
(c) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(d) Reflects overall increase in purchases and sales of securities.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 49
================================================================================
EXPENSE EXAMPLE
November 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 June 1, 2016, through
November 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
================================================================================
50 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
balance or expenses you paid for the period. You may use this information to
compare the ongoing costs of investing in the Fund and other funds. To do so,
compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any direct costs, such as wire fees,
redemption fees, or low balance fees. Therefore, the line labeled "hypothetical"
is useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if these direct
costs were included, your costs would have been higher.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE JUNE 1, 2016 -
JUNE 1, 2016 NOVEMBER 30, 2016 NOVEMBER 30, 2016
--------------------------------------------------------------
Actual $1,000.00 $1,014.90 $4.55
Hypothetical
(5% return before expenses) 1,000.00 1,020.56 4.56
*Expenses are equal to the Fund's annualized expense ratio of 0.90%, 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 1.49% for the six-month period of June 1,
2016, through November 30, 2016.
================================================================================
EXPENSE EXAMPLE | 51
================================================================================
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] [LOGO OF RECYCLE PAPER]
USAA We know what it means to serve.(R) 10%
=============================================================================
97451-0117 (C)2017, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA CORNERSTONE CONSERVATIVE FUND]
============================================================
SEMIANNUAL REPORT
USAA CORNERSTONE CONSERVATIVE FUND
NOVEMBER 30, 2016
============================================================
================================================================================
================================================================================
PRESIDENT'S MESSAGE
"AS THE NEW YEAR BEGINS, WHY NOT MAKE
A RESOLUTION TO PUT YOUR FINANCIAL HOUSE [PHOTO OF BROOKS ENGLEHARDT]
IN ORDER?"
--------------------------------------------------------------------------------
JANUARY 2017
Financial markets are unpredictable. Many factors can confound those who try to
predict the direction of the markets based on economic or political factors. In
other words, it's easy to get it wrong. And, even if one correctly forecasts
what will happen in the macroeconomic environment, predicting how the markets
will respond is another matter altogether.
Consider the response to the Presidential election. Stocks rose on Monday and
Tuesday (Election Day) at the prospect of a Hillary Clinton victory--virtually
a "sure thing," according to some media pundits. U.S. Treasury securities and
other segments of the bond market sold off as investors likely assumed a
continuation of current economic policy under another Democratic administration.
But these trends reversed on Tuesday evening when it became clear that Donald J.
Trump would be elected the 45th President of the United States. Asian and
European equity markets dropped and U.S. stock index futures plunged. The
decline in stock index futures suggested that U.S. stocks might fall when
trading began on Wednesday, however the opposite happened. Stock prices rose and
then rallied strongly, with major stock indexes hitting one record high after
another through the end of November 2016. U.S. Treasury prices fell, driving up
yields on longer-maturity U.S. Treasuries. (Yields move in the opposite
direction of prices.)
Few market participants would have forecasted such a scenario. But with
hindsight, we may be able to understand some of the reasons why the markets
behaved the way they did.
U.S. equity investors appeared to like President-elect Trump's promises of lower
tax rates, less regulation, and more fiscal stimulus through infrastructure
spending. Other explanations may lie overseas, such as complications relating to
the United Kingdom's decision to exit from the European Union ("Brexit") and
continued slow economic growth in China--uncertainties that may have
================================================================================
================================================================================
increased the attractiveness of U.S. stocks. As for bond investors, they may
have been worried about an increase in interest rates if economic growth picks
up under a Trump Administration. Higher growth rates typically correspond with
rising inflation, which in turn could prompt the Federal Reserve (the Fed) to
accelerate the pace of interest rate increases.
What actually happens, however, is yet to be seen. No one knows, except in the
most general terms, what President-elect Trump's plans and priorities will be or
how they could affect economic growth in 2017 and beyond. By extension, it is
also too early to forecast how inflation might be affected and how the Fed could
respond.
At USAA Investments, we are long-term, fundamental investors, who seek to look
at the full market cycle rather than current geopolitical events. We believe
measures such as assessing a company's intrinsic value compared to its current
price tend to be more effective at forecasting potential stock returns over
time. In selecting bonds, our analysts take a bottom-up approach to evaluating
each security individually, building portfolios on a bond-by-bond basis.
It is important to remember market conditions are always fluctuating and time
horizon matters. We believe that it is important to stay focused on your
long-term objectives, using an investment plan that is based on your personal
time horizon and risk tolerance. If you are uneasy about market risk in general
or have concerns about too much exposure to specific asset classes, please call
USAA to speak with an advisor. As the new year begins, why not make a resolution
to put your financial house in order?
Thank you for allowing us to help you in your efforts to achieve your financial
goals. At USAA Investments, we are committed to providing you with our best
advice, top-notch service, and a variety of mutual funds. On behalf of everyone
here, I wish you a happy and healthy 2017.
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 10
Notes to Portfolio of Investments 12
Financial Statements 13
Notes to Financial Statements 16
EXPENSE EXAMPLE 26
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE
RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY
USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN
PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS
ABOUT THE FUND.
(C)2017, USAA. All rights reserved.
201007-0117
================================================================================
================================================================================
FUND OBJECTIVE
THE USAA CORNERSTONE CONSERVATIVE FUND (THE FUND) SEEKS CURRENT INCOME. THE FUND
ALSO CONSIDERS THE POTENTIAL FOR CAPITAL APPRECIATION.
--------------------------------------------------------------------------------
TYPES OF INVESTMENTS
The Fund invests in a selection of USAA mutual funds (underlying USAA Funds)
consisting of a target asset class allocation of approximately 20% equity
securities and 80% fixed-income securities. This is often referred to as a
fund-of-funds investment strategy. The actual asset class allocation can deviate
from time to time from these targets as market conditions warrant. The Fund may
invest in investment-grade and below-investment-grade ("junk" or high-yield)
fixed-income 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
JOHN P. TOOHEY, CFA WASIF A. LATIF
LANCE HUMPHREY, CFA
--------------------------------------------------------------------------------
o HOW DID THE GLOBAL FINANCIAL MARKETS PERFORM DURING THE REPORTING PERIOD?
Financial assets produced mixed results during the reporting period ended
November 30, 2016, reflecting the broad range of headlines that
characterized the reporting period.
U.S. equities posted the strongest gains among the major asset categories.
The U.S. economy continued to deliver economic growth ahead of its
developed-market global peers, driving healthy relative performance for the
stock market. Small-cap stocks, in particular, generated favorable gains
thanks in part to their greater exposure to the country's positive growth.
U.S. equities performed particularly well in the wake of the U.S. election,
which removed the element of political uncertainty that had weighed on the
market.
Developed-market international equities finished with a small loss and
trailed the U.S. market by a wide margin. While Japanese stocks were
bolstered by the substantial fiscal and monetary stimulus being provided by
the nation's government, European equities lagged. The leading cause of the
shortfall was likely the region's higher sensitivity to the United
Kingdom's June 2016 vote to exit the European Union ("Brexit"). In
addition, the European markets were pressured by the combination of slow
economic growth, possible instability within the banking system, and the
potential impact of rising nationalism across Europe.
================================================================================
2 | USAA CORNERSTONE CONSERVATIVE FUND
================================================================================
In contrast to the developed markets, emerging-market stocks performed
well during the reporting period. The renewed stability in commodity prices
provided a positive backdrop for the asset class, as did improving
corporate earnings and signs of stronger economic growth in both Russia and
China.
The U.S. bond market also experienced mixed performance during the
reporting period. Market segments that are sensitive to interest-rate
movements, such as longer-term U.S. Treasuries, generally finished with
slightly negative returns. The stimulation of the U.S. economy, in
conjunction with the prospects of increasingly growth-oriented policies in
the year ahead, raised concerns that the Federal Reserve (the Fed) would
take an aggressive approach to raising interest rates. However, the
improving growth outlook--together with investors' increasing appetite for
risk--helped fuel strong returns for lower-rated segments of the market,
including high-yield bonds.
o HOW DID THE USAA CORNERSTONE CONSERVATIVE FUND (THE FUND) PERFORM DURING THE
REPORTING PERIOD?
For the reporting period ended November 30, 2016, the Fund had a total
return of 2.21%. This compares to returns of -0.24% for the Bloomberg
Barclays U.S. Universal Index* and 0.66% for the Cornerstone Conservative
Composite 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 PLEASE DISCUSS THE FACTORS THAT HELPED AND HURT PERFORMANCE.
We maintained a patient approach to managing the Fund's portfolio. Rather
than trying to keep pace with the rapidly shifting trends in the
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 indexes. Thus, the
Fund's benchmark is now called the Bloomberg Barclays U.S. Universal Index.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 3
================================================================================
global markets, we remained focused on asset classes where we believed
there was value. While low valuations don't necessarily translate to
outperformance in the short term, undervalued market segments have
historically demonstrated superior results over time. We believe this
value-driven strategy is appropriate for an environment in which
macroeconomic headlines are a key driver of financial-market performance.
The Fund's allocation to bonds had a mixed impact on performance during
the reporting period. The fixed-income portfolio is allocated among five
investment-grade bond funds, which reflects our goal of income and capital
appreciation. While bonds experienced weak performance relative to stocks
in the reporting period, the underlying funds in the portfolio added
meaningful value through their individual security selection. In addition,
our weighting in high-yield bonds enabled the Fund to participate in the
strong relative performance of the asset class.
The Fund's U.S. equity allocation, which holds five funds that represent a
variety of investment styles, also added value. Our positions in value
funds outperformed, while those geared toward the growth style delivered
smaller gains. We continue to favor large-cap stocks over small cap stocks
on the basis of the more compelling valuations in the former group.
The Fund's developed-market international allocation, though aiding
performance in the middle of the reporting period, was a net detractor
overall. Although we continue to see a long-term opportunity in the
international markets due to their compelling valuations relative to U.S.
stocks, the unsteady economic conditions overseas prompted us to slightly
reduce the Fund's position.
The Fund's allocation to emerging-market stocks contributed positively to
its performance. We remain enthusiastic on the longer-term outlook for the
emerging markets, where the combination of improving growth, healthy
corporate earnings, and stabilizing commodity prices makes the low
valuations of the asset class particularly compelling.
The Fund's allocation to gold stocks, though modest, slightly detracted
from results. After rallying in the first half of the reporting period,
gold prices subsequently weakened due to the prospect of rising interest
rates.
================================================================================
4 | USAA CORNERSTONE CONSERVATIVE FUND
================================================================================
Shares of gold mining companies declined from their mid-August 2016 peak as
a result, causing the sector to finish with a loss. Overall, however, this
aspect of our positioning had only a small effect on the Fund's performance.
The investment backdrop offered a varied picture for investors at the close
of the reporting period. The U.S. economy has continued to produce modest
growth despite the challenging economic conditions elsewhere in the
developed world. In addition, the ultra-loose monetary policies of foreign
central banks represent an ongoing engine of demand for higher-risk,
higher-yielding financial assets. While these factors are a positive for
the markets, potential sources of volatility include global political
uncertainty and the possibility that the Fed could begin to raise interest
rates more aggressively.
Our response to this ambiguity is to maintain our strategy: maintain
diversification, stay focused on the long-term picture, and emphasize
undervalued asset classes. We believe this steady approach--rather than one
that tries to keep up with the day-to-day considerations driving short-term
market performance--is well suited to a highly uncertain investment
environment.
Thank you for allowing us to help you manage your investments.
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 The underlying funds may be invested in, among other
things: (1) exchange-traded funds; (2) futures, options, and other
derivatives; (3) non-investment-grade securities; (4) precious metals and
minerals companies; (5) real estate investment trusts; (6) money market
instruments; and (7) foreign and emerging markets. These types of
investments and asset classes may be more volatile and prone to experience
significant loss than others. In addition, it is possible that a particular
asset allocation used by the Manager may not produce the intended result.
The assets of the Cornerstone Conservative Fund and Cornerstone Equity Fund
will be invested in other USAA funds and will indirectly bear expenses and
reflect the risks of the underlying funds in which it invests.
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 credit worthy
investment-grade securities. o Diversification is a technique intended to
help reduce risk and does not guarantee a profit or prevent a loss.
o Foreign investing is subject to additional risks, such as currency
fluctuations, market illiquidity, and political instability. Emerging
market countries are less diverse and mature than other countries and tend
to be politically less stable. o The USAA Precious Metals and Minerals Fund
is subject to additional risks, such as currency fluctuation, market
illiquidity, political instability and increased price volatility. It may
be more volatile than a fund that diversifies across many industries and
companies.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 5
================================================================================
INVESTMENT OVERVIEW
USAA CORNERSTONE CONSERVATIVE FUND (THE FUND)
(Ticker Symbol: USCCX)
--------------------------------------------------------------------------------
11/30/16 5/31/16
--------------------------------------------------------------------------------
Net Assets $146.4 Million $137.7 Million
Net Asset Value Per Share $10.35 $10.27
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 11/30/16
--------------------------------------------------------------------------------
5/31/16-11/30/16* 1 YEAR SINCE INCEPTION 6/8/12
2.21% 4.82% 3.90%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/16
--------------------------------------------------------------------------------
1 YEAR SINCE INCEPTION 6/8/12
7.39% 4.01%
--------------------------------------------------------------------------------
EXPENSE RATIOS AS OF 5/31/16**
--------------------------------------------------------------------------------
BEFORE REIMBURSEMENT 0.76% AFTER REIMBURSEMENT 0.71%
(Includes acquired fund fees and expenses of 0.61%)
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 October 1, 2016, and
are calculated as a percentage of average net assets. USAA Asset Management
Company (the Manager) has agreed, through September 30, 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 (exclusive of commission
recapture, expense offset arrangements, acquired fund fees and expenses, and
extraordinary expenses) do not exceed an annual rate of 0.10% of the Fund's
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
September 30, 2017. If the total annual operating expense ratio of the Fund is
lower than 0.10%, the Fund 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 CORNERSTONE CONSERVATIVE FUND
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
CORNERSTONE CONSERVATIVE USAA CORNERSTONE BLOOMBERG BARCLAYS
COMPOSITE INDEX CONSERVATIVE FUND U.S. UNIVERSAL INDEX
05/31/12 $10,000.00 $10,000.00 $10,000.00
06/30/12 10,113.27 10,095.00 10,025.20
07/31/12 10,257.57 10,205.00 10,174.72
08/31/12 10,321.22 10,305.00 10,196.08
09/30/12 10,406.09 10,426.00 10,225.98
10/31/12 10,412.33 10,477.00 10,258.45
11/30/12 10,454.97 10,527.00 10,283.01
12/31/12 10,500.52 10,580.00 10,284.93
01/31/13 10,558.69 10,661.00 10,231.32
02/28/13 10,604.16 10,712.00 10,280.45
03/31/13 10,664.38 10,780.00 10,292.62
04/30/13 10,808.14 10,882.00 10,405.61
05/31/13 10,668.50 10,811.00 10,229.19
06/30/13 10,465.93 10,587.00 10,049.13
07/31/13 10,593.68 10,710.00 10,081.81
08/31/13 10,500.81 10,649.00 10,024.35
09/30/13 10,684.73 10,767.00 10,124.10
10/31/13 10,849.74 10,922.00 10,224.27
11/30/13 10,854.35 10,942.00 10,191.17
12/31/13 10,858.43 10,947.00 10,146.53
01/31/14 10,898.40 10,999.00 10,281.09
02/28/14 11,066.13 11,146.00 10,354.35
03/31/14 11,067.18 11,160.00 10,344.74
04/30/14 11,153.50 11,234.00 10,430.39
05/31/14 11,301.89 11,350.00 10,555.98
06/30/14 11,364.12 11,427.00 10,572.00
07/31/14 11,299.38 11,374.00 10,539.11
08/31/14 11,453.25 11,501.00 10,653.38
09/30/14 11,303.61 11,363.00 10,568.80
10/31/14 11,418.49 11,427.00 10,672.39
11/30/14 11,500.75 11,491.00 10,729.00
12/31/14 11,450.11 11,424.00 10,710.63
01/31/15 11,585.66 11,522.00 10,914.39
02/28/15 11,657.00 11,586.00 10,850.74
03/31/15 11,664.47 11,576.00 10,895.60
04/30/15 11,708.96 11,630.00 10,883.00
05/31/15 11,697.67 11,619.00 10,863.99
06/30/15 11,546.94 11,479.00 10,742.67
07/31/15 11,612.70 11,479.00 10,805.25
08/31/15 11,436.28 11,293.00 10,773.42
09/30/15 11,393.93 11,193.00 10,815.50
10/31/15 11,590.39 11,391.00 10,850.10
11/30/15 11,542.81 11,325.00 10,810.59
12/31/15 11,456.24 11,144.00 10,756.55
01/31/16 11,417.29 11,032.00 10,875.31
02/29/16 11,469.81 11,054.00 10,952.63
03/31/16 11,751.96 11,388.00 11,086.76
04/30/16 11,851.86 11,580.00 11,162.38
05/31/16 11,869.63 11,614.00 11,171.13
06/30/16 12,026.31 11,791.00 11,367.64
07/31/16 12,204.30 12,019.00 11,461.40
08/31/16 12,220.17 12,076.00 11,473.79
09/30/16 12,239.72 12,111.00 11,476.57
10/31/16 12,127.11 12,020.00 11,400.32
11/30/16 11,948.85 11,871.00 11,144.00
[END CHART]
Data from 5/31/12 through 11/30/16.*
See next page for benchmark definitions.
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 Bloomberg Barclays U.S. Universal Index and the
Cornerstone Conservative Composite Index is calculated from the end of the
month, May 31, 2012, while the inception date for the USAA Cornerstone
Conservative Fund is June 8, 2012. There may be a slight variation of the
performance numbers because of this difference.
================================================================================
INVESTMENT OVERVIEW | 7
================================================================================
The graph on page 7 illustrates the comparison of a $10,000 hypothetical
investment in the USAA Cornerstone Conservative Fund to the benchmarks listed
below. The Manager has developed the Cornerstone Conservative Composite Index,
which is used to measure the Fund's performance. The custom benchmark was
created by the Manager to show how the Fund's performance compares with the
returns of an index or indexes with similar asset allocations.
o The Cornerstone Conservative Composite Index is a combination of unmanaged
indexes representing the Fund's model allocation, and consists of the MSCI
USA Investable Market Index (IMI) Gross (11%), the MSCI ACWI ex USA IMI Net
(8%), the Bloomberg Barclays U.S. Universal Index (78%), the Bloomberg
Commodity Index Total Return (0.5%), the MSCI U.S. Real Estate Investment
Trust (REIT) Index Gross (0.5%), and the Bloomberg Barclays U.S. Treasury -
Bills (1-3M) (2%).
o The unmanaged Bloomberg Barclays U.S. Universal Index is an index that
represents the union of the U.S. Aggregate Index, U.S. Corporate
High-Yield, Investment Grade 144A Index, Eurodollar Index, U.S. Emerging
Markets Index, and the non-ERISA eligible portion of the CMBS Index. The
index covers USD denominated, taxable bonds that are rated either
investment-grade or below investment-grade.
================================================================================
8 | USAA CORNERSTONE CONSERVATIVE FUND
================================================================================
o ASSET ALLOCATION - 11/30/16 o
INVESTMENT ALLOCATION
--------------------------------------------------------------------------------
USAA FUND:
Aggressive Growth ..................................................... 0.7%
Emerging Markets ..................................................... 1.6%
Growth ............................................................... 1.1%
Income Stock ......................................................... 1.9%
International ........................................................ 5.8%
Precious Metals and Minerals ......................................... 0.3%
S&P 500 Index ........................................................ 2.9%
Small Cap Stock ...................................................... 1.8%
Value ................................................................ 2.0%
Total Equity & Alternative ......................................... 18.1%
Flexible Income ...................................................... 4.2%
Government Securities ................................................. 8.7%
High Income ........................................................... 8.3%
Income ................................................................ 24.8%
Intermediate-Term Bond ................................................ 27.3%
Short-Term Bond ....................................................... 7.6%
Total Fixed-Income .................................................. 80.9%
CASH EQUIVALENTS:
Money Market Instruments .............................................. 1.0%
Percentages are of the net assets of the Fund and may not equal 100%.
================================================================================
INVESTMENT OVERVIEW | 9
================================================================================
PORTFOLIO OF INVESTMENTS
November 30, 2016 (unaudited)
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
EQUITY & ALTERNATIVE FUNDS (18.1%)
25,491 USAA Aggressive Growth Fund $ 1,011
155,384 USAA Emerging Markets Fund 2,370
65,521 USAA Growth Fund 1,674
151,380 USAA Income Stock Fund 2,757
322,280 USAA International Fund 8,547
33,705 USAA Precious Metals and Minerals Fund* 432
134,262 USAA S&P 500 Index Fund 4,227
148,526 USAA Small Cap Stock Fund 2,605
136,895 USAA Value Fund 2,847
--------
Total Equity & Alternative Funds (cost: $24,671) 26,470
--------
FIXED-INCOME FUNDS (80.9%)
689,069 USAA Flexible Income Fund 6,140
1,289,147 USAA Government Securities Fund 12,672
1,513,922 USAA High Income Fund 12,081
2,827,573 USAA Income Fund 36,363
3,847,332 USAA Intermediate-Term Bond Fund 40,012
1,226,959 USAA Short-Term Bond Fund 11,190
--------
Total Fixed-Income Funds (cost: $120,618) 118,458
--------
MONEY MARKET INSTRUMENTS (1.0%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (1.0%)
1,450,384 State Street Institutional Treasury Money Market Fund Premier Class, 0.25%(a)
(cost: $1,450) 1,450
--------
TOTAL INVESTMENTS (COST: $146,739) $146,378
--------
================================================================================
10 | USAA CORNERSTONE CONSERVATIVE FUND
================================================================================
---------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
---------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
---------------------------------------------------------------------------------------------------------
Equity & Alternative Funds $ 26,470 $- $- $ 26,470
Fixed-Income Funds 118,458 - - 118,458
Money Market Instruments:
Government & U.S. Treasury Money Market Funds 1,450 - - 1,450
---------------------------------------------------------------------------------------------------------
Total $146,378 $- $- $146,378
---------------------------------------------------------------------------------------------------------
For the period of June 1, 2016, through November 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 | 11
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
November 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.
The underlying funds in which the Fund invests are managed by USAA Asset
Management Company, an affiliate of the Fund. The Fund invests in the
Reward Shares of the USAA S&P 500 Index Fund and the Institutional Shares
of the other USAA mutual funds.
o SPECIFIC NOTES
(a) Rate represents the money market fund annualized seven-day yield at
November 30, 2016.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
12 | USAA CORNERSTONE CONSERVATIVE FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
November 30, 2016 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in affiliated underlying funds, at value (cost of $145,289) $144,928
Investments in other securities, at value (cost of $1,450) $ 1,450
Receivables:
Capital shares sold 206
USAA Asset Management Company (Note 5C) 6
Dividends from affiliated underlying funds 166
--------
Total assets 146,756
--------
LIABILITIES
Payables:
Securities purchased 166
Capital shares redeemed 105
Other accrued expenses and payables 53
--------
Total liabilities 324
--------
Net assets applicable to capital shares outstanding $146,432
========
NET ASSETS CONSIST OF:
Paid-in capital $148,786
Accumulated undistributed net investment income 889
Accumulated net realized loss on investments (2,882)
Net unrealized depreciation of investments (361)
--------
Net assets applicable to capital shares outstanding $146,432
========
Capital shares outstanding, no par value 14,151
========
Net asset value, redemption price, and offering price per share $ 10.35
========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 13
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended November 30, 2016 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Income distributions from affiliated underlying funds $2,103
Interest 2
------
Total income 2,105
------
EXPENSES
Custody and accounting fees 22
Postage 8
Shareholder reporting fees 9
Trustees' fees 15
Registration fees 19
Professional fees 32
Other 5
------
Total expenses 110
Expenses reimbursed (37)
------
Net expenses 73
------
NET INVESTMENT INCOME 2,032
------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss on sales of affiliated underlying funds (122)
Change in net unrealized appreciation/(depreciation) of affiliated
underlying funds 984
------
Net realized and unrealized gain 862
------
Increase in net assets resulting from operations $2,894
======
See accompanying notes to financial statements.
================================================================================
14 | USAA CORNERSTONE CONSERVATIVE FUND
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended November 30, 2016 (unaudited), and year ended
May 31, 2016
---------------------------------------------------------------------------------------------------
11/30/2016 5/31/2016
---------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 2,032 $ 4,640
Net realized loss on sales of affiliated underlying funds (122) (3,408)
Net realized gain on capital gain distributions from
affiliated underlying funds - 961
Change in net unrealized appreciation/(depreciation) of
affiliated underlying funds 984 (2,487)
--------------------------
Increase (decrease) in net assets resulting from operations 2,894 (294)
--------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (2,012) (4,606)
Net realized gains - (665)
--------------------------
Distributions to shareholders (2,012) (5,271)
--------------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 27,390 47,932
Reinvested dividends 1,997 5,232
Cost of shares redeemed (21,542) (55,520)
--------------------------
Increase (decrease) in net assets from capital
share transactions 7,845 (2,356)
--------------------------
Net increase (decrease) in net assets 8,727 (7,921)
NET ASSETS
Beginning of period 137,705 145,626
--------------------------
End of period $146,432 $137,705
Accumulated undistributed net investment income:
End of period $ 889 $ 869
==========================
CHANGE IN SHARES OUTSTANDING
Shares sold 2,613 4,699
Shares issued for dividends reinvested 192 518
Shares redeemed (2,057) (5,451)
--------------------------
Increase (decrease) in shares outstanding 748 (234)
==========================
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 15
================================================================================
NOTES TO FINANCIAL STATEMENTS
November 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 Cornerstone Conservative Fund (the
Fund), which is classified as diversified under the 1940 Act. The Fund's
investment objective is to seek current income. The Fund also considers the
potential for capital appreciation.
The Fund is a "fund of funds" in that it invests in a portfolio of underlying
USAA equity and alternative and fixed-income funds (underlying USAA Funds)
managed by USAA Asset Management Company (the Manager), an affiliate of the
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
================================================================================
16 | USAA CORNERSTONE CONSERVATIVE FUND
================================================================================
regarding application of the pricing and fair valuation policies and
procedures during the preceding quarter.
The Committee meets as often as necessary to make pricing and fair value
determinations. In addition, the Committee holds regular monthly meetings
to review prior actions taken by the Committee and 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. Investments in the underlying USAA Funds and other open-end investment
companies, other than exchange-traded funds (ETFs) are valued at their
net asset value (NAV) at the end of each business day and are categorized
in Level 1 of the fair value hierarchy.
2. The underlying USAA Funds have specific valuation procedures. 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
a 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 17
================================================================================
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 and capital gain distributions from the underlying
USAA Funds are recorded on the ex-dividend date. Interest income is
recorded daily on the accrual basis. Premiums and discounts
================================================================================
18 | USAA CORNERSTONE CONSERVATIVE FUND
================================================================================
on short-term securities are amortized on a straight-line basis over the
life of the respective 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 November 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 with other USAA Funds 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 are assessed facility fees by CAPCO in the amount of 12.0 basis
points of the amount of the committed loan agreement. Prior to
================================================================================
NOTES TO FINANCIAL STATEMENTS | 19
================================================================================
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 November 30, 2016, the Fund paid CAPCO facility
fees of less than $500, 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 November 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 May 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 tax.
At May 31, 2016, the Fund had net capital loss carryforwards of $2,131,000, 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 $ 116,000
Long-Term 2,015,000
----------
Total $2,131,000
==========
================================================================================
20 | USAA CORNERSTONE CONSERVATIVE FUND
================================================================================
For the six-month period ended November 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 positions 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 November 30, 2016, were
$13,793,000 and $7,200,000, respectively.
As of November 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 November 30,
2016, were $2,286,000 and $2,647,000, respectively, resulting in net unrealized
depreciation of $361,000.
(5) AGREEMENTS WITH MANAGER
A. ADVISORY AGREEMENT - The Manager carries out the Fund's investment
policies and manages the Fund's portfolio pursuant to an Advisory
Agreement. The Manager does not receive any management fees from the Fund
for these services.
B. ADMINISTRATION AND SERVICING FEES - The Manager provides certain
administration and servicing functions for the Fund. The Manager does not
receive any fees from the Fund for these services. 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 billing of these
expenses to the Fund. These expenses are included in the professional
================================================================================
NOTES TO FINANCIAL STATEMENTS | 21
================================================================================
fees on the Fund's Statement of Operations and, for the six-month period
ended November 30, 2016, were $2,000 for the Fund.
C. EXPENSE LIMITATION - The Manager agreed, through September 30, 2017, to
limit the total annual operating expenses of the Fund to 0.10% 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 September 30, 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 November 30, 2016, the Fund
incurred reimbursable expenses of $37,000, of which $6,000 was receivable
from the Manager.
D. TRANSFER AGENCY AGREEMENT - USAA Transfer Agency Company, d/b/a USAA
Shareholder Account Services (SAS), an affiliate of the Manager, provides
transfer agent services to the Fund. SAS does not receive any fees from the
Fund for these services.
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.
(6) TRANSACTIONS WITH AFFILIATES
The Manager is indirectly wholly owned by United Services Automobile Association
(USAA), a large, diversified financial services institution.
Certain trustees and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Fund.
================================================================================
22 | USAA CORNERSTONE CONSERVATIVE FUND
================================================================================
(7) TRANSACTIONS WITH AFFILIATED FUNDS
A. SHARE OWNERSHIP - The Fund does not invest in the underlying USAA Funds
for the purpose of exercising management or control; however, investments
by the Fund may represent a significant portion of the underlying USAA
Funds' net assets. At November 30, 2016, the Fund owned the following
percentages of the total outstanding shares of each of the underlying USAA
Funds:
AFFILIATED USAA FUND OWNERSHIP %
--------------------------------------------------------------------------------
Aggressive Growth 0.1
Emerging Markets 0.3
Flexible Income 8.2
Government Securities 2.4
Growth 0.1
High Income 0.6
Income 0.5
Income Stock 0.1
Intermediate-Term Bond 1.1
International 0.3
Precious Metals and Minerals 0.1
S&P 500 Index 0.1
Short-Term Bond 0.4
Small Cap Stock 0.2
Value 0.2
================================================================================
NOTES TO FINANCIAL STATEMENTS | 23
================================================================================
B. TRANSACTIONS WITH AFFILIATED FUNDS - The following table provides
details related to the Fund's investment in the underlying USAA Funds for
the six-month period ended November 30, 2016 (in thousands):
REALIZED
PURCHASE SALES DIVIDEND GAIN MARKET VALUE
AFFILIATED USAA FUND COST(a) PROCEEDS INCOME (LOSS)(b) 05/31/2016 11/30/2016
------------------------------------------------------------------------------------------------------------------
Aggressive Growth $ - $ 100 $ - $ 2 $ 1,085 $ 1,011
Emerging Markets 140 - - - 2,074 2,370
Flexible Income 2,058 - 58 - 4,230 6,140
Government Securities 5,804 - 104 - 7,105 12,672
Growth - 100 - 4 1,699 1,674
High Income 365 1,750 366 (80) 12,910 12,081
Income 3,412 - 612 - 33,411 36,363
Income Stock 23 100 22 2 2,714 2,757
Intermediate-Term Bond 793 4,250 793 (100) 43,536 40,012
International 900 - - - 7,610 8,547
Precious Metals and Minerals - 200 - 57 631 432
S&P 500 Index 187 - 37 - 3,845 4,227
Short-Term Bond 111 - 111 - 11,092 11,190
Small Cap Stock - 450 - (18) 2,713 2,605
Value - 250 - 11 2,818 2,847
(a) Includes reinvestment of distributions from dividend income and realized
gains.
(b) Includes capital gain distributions received, if any.
(8) UPCOMING REGULATORY MATTERS
In October 2016, the U.S. Securities and Exchange Commission (SEC) adopted final
rules intended to modernize the reporting and disclosure of information by
registered investment companies. In part, the final rules amend Regulation S-X
to require standardized, enhanced disclosure about derivatives in investment
company financial statements. The Manager is currently evaluating the impact
these rules and amendments will have on the financial statements and related
disclosures. The compliance date for the amendments to Regulation S-X is August
1, 2017, with other staggered compliance dates extending through December 2018.
================================================================================
24 | USAA CORNERSTONE CONSERVATIVE FUND
================================================================================
(9) FINANCIAL HIGHLIGHTS
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED PERIOD ENDED
NOVEMBER 30, YEAR ENDED MAY 31, MAY 31,
--------------------------------------------------------------------------------
2016 2016 2015 2014 2013***
--------------------------------------------------------------------------------
Net asset value at
beginning of period $ 10.27 $ 10.68 $ 10.77 $ 10.60 $ 10.00
-----------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .15 .35 .31 .34(a) .35(a)
Net realized and
unrealized gain (loss) .08 (.37) (.06) .17(a) .46(a)
-----------------------------------------------------------------------------
Total from investment
operations .23 (.02) .25 .51(a) .81(a)
-----------------------------------------------------------------------------
Less distributions from:
Net investment income (.15) (.34) (.32) (.32) (.21)
Realized capital gains - (.05) (.02) (.02) (.00)(b)
-----------------------------------------------------------------------------
Total distributions (.15) (.39) (.34) (.34) (.21)
-----------------------------------------------------------------------------
Net asset value at
end of period $ 10.35 $ 10.27 $ 10.68 $ 10.77 $ 10.60
=============================================================================
Total return (%)* 2.21 (0.05) 2.37 4.99 8.11
Net assets at
end of period (000) $146,432 $137,705 $145,626 $109,013 $68,571
Ratios to average
net assets:**,(c)
Expenses (%)(e) .10(d) .10 .10 .10 .10(d)
Expenses, excluding
reimbursements (%)(e) .15(d) .15 .15 .20 .52(d)
Net investment income (%) 2.81(d) 3.38 3.03 3.27 3.27(d)
Portfolio turnover (%) 5 43(f) 5 1 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 November 30, 2016, average net assets
were $144,096,000.
*** Fund commenced operations on June 8, 2012.
(a) Calculated using average shares.
(b) Represents less than $0.01 per share.
(c) Calculated excluding the Fund's pro-rata share of expenses of the
underlying USAA Funds.
(d) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(e) Reflects total annual operating expenses of the Fund before reductions of
any expenses paid indirectly. The Fund's expenses paid indirectly decreased
the expense ratios as follows:
- - - (.00%)(+) (.00%)(+)
(+) Represents less than 0.01% of average net assets.
(f) Reflects overall increased trading activity due to changes in asset
allocation strategies.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 25
================================================================================
EXPENSE EXAMPLE
November 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 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 Fund also indirectly bears its
pro-rata share of the expenses of the underlying USAA Funds in which it invests
(acquired funds). These acquired fund fees and expenses are not included in the
Fund's annualized expense ratios used to calculate the expense estimates in the
table on the next page.
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 June 1, 2016, through
November 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
================================================================================
26 | USAA CORNERSTONE CONSERVATIVE FUND
================================================================================
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 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. Acquired fund fees and
expenses are not included in the Fund's annualized expense ratio used to
calculate the expenses paid in the table below.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE JUNE 1, 2016 -
JUNE 1, 2016 NOVEMBER 30, 2016 NOVEMBER 30, 2016
---------------------------------------------------------------
Actual $1,000.00 $1,022.10 $0.51
Hypothetical
(5% return before expenses) 1,000.00 1,024.57 0.51
*Expenses are equal to the Fund's annualized expense ratio of 0.10%, which is
net of any reimbursements and expenses paid indirectly and excludes expenses
of the acquired funds, 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
2.21% for the six-month period of June 1, 2016, through November 30, 2016.
================================================================================
EXPENSE EXAMPLE | 27
================================================================================
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] [LOGO OF RECYCLE PAPER]
USAA We know what it means to serve.(R) 10%
=============================================================================
97450-0117 (C)2017, USAA. All rights reserved.
ITEM 2. CODE OF ETHICS.
NOT APPLICABLE. This item must be disclosed only in annual reports.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
NOT APPLICABLE. This item must be disclosed only in annual reports.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
NOT APPLICABLE. This item must be disclosed only in annual reports.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not Applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
Filed as part of the report to shareholders.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not Applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not Applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not Applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Corporate Governance Committee selects and nominates candidates for
membership on the Board as independent trustees. The Corporate Governance
Committee has adopted procedures to consider Board candidates suggested by
shareholders. The procedures are initiated by the receipt of nominations
submitted by a fund shareholder sent to Board member(s) at the address specified
in fund disclosure documents or as received by AMCO or a fund officer. Any
recommendations for a nomination by a shareholder, to be considered by the
Board, must include at least the following information: name; date of birth;
contact information; education; business profession and other expertise;
affiliations; experience relating to serving on the Board; and references. The
Corporate Governance Committee gives shareholder recommendations the same
consideration as any other candidate.
ITEM 11. CONTROLS AND PROCEDURES
The principal executive officer and principal financial officer of USAA Mutual
Funds Trust (Trust) have concluded that the Trust's disclosure controls and
procedures are sufficient to ensure that information required to be disclosed by
the Trust in this Form N-CSR/S was recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission's
rules and forms, based upon such officers' evaluation of these controls and
procedures as of a date within 90 days of the filing date of the report.
There were no significant changes or corrective actions with regard to
significant deficiencies or material weaknesses in the Trust's internal controls
or in other factors that could significantly affect the Trust's internal
controls subsequent to the date of their evaluation. The only change to the
procedures was to document the annual disclosure controls and procedures
established for the new section of the shareholder reports detailing the factors
considered by the Funds' Board in approving the Funds' advisory agreements.
ITEM 12. EXHIBITS.
(a)(1). NOT APPLICABLE. This item must be disclosed only in annual reports.
(a)(2). Certification pursuant to Rule 30a-2(a) under the Investment Company Act
of 1940 (17 CFR 270.30a-2(a)) is filed and attached hereto as Exhibit
99.CERT.
(a)(3). Not Applicable.
(b). Certification pursuant to Rule 30a-2(b) under the Investment Company Act
of 1940 (17 CFR 270.30a-2(b))is filed and attached hereto as Exhibit
99.906CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Registrant: USAA MUTUAL FUNDS TRUST, Period Ended November 30, 2016
By:* /S/ DANIEL J. MAVICO
-----------------------------------------------------------
Signature and Title: Daniel J. Mavico, Assistant Secretary
Date: 01/30/2017
------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By:* /S/ DANIEL S. MCNAMARA
-----------------------------------------------------
Signature and Title: Daniel S. McNamara, President
Date: 01/23/2017
------------------------------
By:* /S/ ROBERTO GALINDO, JR.
-----------------------------------------------------
Signature and Title: Roberto Galindo, Jr., Treasurer
Date: 01/18/2017
------------------------------
*Print the name and title of each signing officer under his or her signature.