UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR/S
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number: 811-7852
Exact name of registrant as specified in charter: USAA MUTUAL FUNDS TRUST
Address of principal executive offices and zip code: 9800 FREDERICKSBURG ROAD
SAN ANTONIO, TX 78288
Name and address of agent for service: KRISTEN MILLAN
USAA MUTUAL FUNDS TRUST
9800 FREDERICKSBURG ROAD
SAN ANTONIO, TX 78288
Registrant's telephone number, including area code: (210) 498-0226
Date of fiscal year end: MAY 31
Date of reporting period: NOVEMBER 30, 2017
ITEM 1. SEMIANNUAL REPORT TO STOCKHOLDERS.
USAA MUTUAL FUNDS TRUST - SEMIANNUAL REPORT FOR PERIOD ENDED NOVEMBER 30, 2017
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA CORNERSTONE AGGRESSIVE FUND]
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SEMIANNUAL REPORT
USAA CORNERSTONE AGGRESSIVE FUND (UCAGX)
NOVEMBER 30, 2017
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TABLE OF CONTENTS
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FUND OBJECTIVE 1
INVESTMENT OVERVIEW 2
FINANCIAL INFORMATION
Portfolio of Investments 4
Notes to Portfolio of Investments 29
Financial Statements 34
Notes to Financial Statements 37
EXPENSE EXAMPLE 52
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)2018, USAA. All rights reserved.
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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.
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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 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 Fund's asset allocation is
actively managed by adjusting the Fund's investments among asset classes that
the Fund's manager(s) deems appropriate, using a combination of active security
selection, quantitative investing strategies, and investments in active and
passive exchange-traded funds (ETFs) and futures. The implementation of the
asset allocation may involve the extensive use of equity and fixed-income 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 natural
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.
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FUND OBJECTIVE | 1
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INVESTMENT OVERVIEW
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o TOP 10 HOLDINGS* - 11/30/17 o
(% of Net Assets)
Schwab Fundamental International Large Co.
Index ETF** ............................................................ 6.6%
iShares Core MSCI EAFE ETF** ............................................. 6.6%
Vanguard Short-Term Corporate Bond ETF** ................................. 4.4%
Vanguard FTSE Developed Markets ETF** .................................... 4.0%
Vanguard S&P 500 ETF** ................................................... 3.2%
iShares Core MSCI Emerging Markets ETF** ................................. 3.0%
Schwab Fundamental Emerging Markets
Large Co. Index ETF** .................................................. 2.6%
Vanguard Short-Term Bond ETF** ........................................... 2.5%
U.S. Treasury Note, 1.13%, 2/28/2021 ..................................... 2.3%
iShares Edge MSCI Minimum
Volatility EAFE ETF** .................................................. 2.0%
*Does not include futures, money market instruments and short-term investments
purchased with cash collateral from securities loaned.
**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 4-28.
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2 | USAA CORNERSTONE AGGRESSIVE FUND
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o ASSET ALLOCATION* - 11/30/17 o
[PIE CHART OF ASSET ALLOCATION]
U.S. EQUITY SECURITIES** 35.2%
INTERNATIONAL EQUITY SECURITIES** 33.6%
FIXED INCOME EXCHANGE-TRADED FUNDS** 9.7%
U.S. TREASURY SECURITIES 8.3%
U.S. GOVERNMENT AGENCY ISSUES 4.1%
MONEY MARKET INSTRUMENTS 3.1%
GLOBAL REAL ESTATE EQUITY SECURITIES** 2.0%
PRECIOUS METALS AND COMMODITY-RELATED SECURITIES** 1.7%
CORPORATE OBLIGATIONS 1.2%
COMMERCIAL MORTGAGE SECURITIES 0.4%
ASSET-BACKED SECURITIES 0.2%
CONVERTIBLE SECURITIES 0.1%
EURODOLLAR AND YANKEE OBLIGATIONS 0.1%
COLLATERALIZED MORTGAGE OBLIGATIONS 0.1%
[END CHART]
* Does not include futures and short-term investments purchased with cash
collateral from securities loaned.
** The Fund may rely on certain Securities and Exchange Commission (SEC)
exemptive orders or rules that permit funds meeting various conditions to
invest in an exchange-traded fund (ETF) in amounts exceeding limits set forth
in the Investment Company Act of 1940, as amended, that would otherwise be
applicable.
Percentages are of the net assets of the Fund and may not equal 100%.
You will find a complete list of securities that the Fund owns on pages 4-28.
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INVESTMENT OVERVIEW | 3
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PORTFOLIO OF INVESTMENTS
November 30, 2017 (unaudited)
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
U.S. EQUITY SECURITIES (35.2%)
COMMON STOCKS (30.4%)
CONSUMER DISCRETIONARY (4.1%)
-----------------------------
APPAREL RETAIL (0.5%)
4,790 American Eagle Outfitters, Inc. $ 77
5,920 Buckle, Inc. 132
2,530 Caleres, Inc. 82
10,780 Foot Locker, Inc.(a) 462
17,060 Gap, Inc.(a) 551
3,760 TJX Companies, Inc. 284
--------
1,588
--------
AUTO PARTS & EQUIPMENT (0.3%)
4,640 American Axle & Manufacturing Holdings, Inc.* 83
860 Cooper-Standard Holdings, Inc.* 109
6,010 Gentex Corp. 123
910 LCI Industries 119
2,740 Lear Corp.(a) 496
--------
930
--------
AUTOMOBILE MANUFACTURERS (0.1%)
710 Tesla, Inc.* 219
1,010 Thor Industries, Inc. 155
--------
374
--------
AUTOMOTIVE RETAIL (0.1%)
1,180 Asbury Automotive Group, Inc.* 78
980 Group 1 Automotive, Inc. 79
780 Lithia Motors, Inc. "A" 92
--------
249
--------
BROADCASTING (0.3%)
4,105 CBS Corp. "B"(a) 230
23,130 Discovery Communications, Inc. "A"*(a) 440
2,698 Entercom Communications Corp. "A" 31
7,590 Gray Television, Inc.* 110
3,470 Sinclair Broadcast Group, Inc. "A" 118
--------
929
--------
================================================================================
4 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
CABLE & SATELLITE (0.3%)
21,090 Comcast Corp. "A"(a) $ 792
--------
COMPUTER & ELECTRONICS RETAIL (0.0%)
2,950 GameStop Corp. "A" 55
--------
DEPARTMENT STORES (0.3%)
8,230 Kohl's Corp.(a) 395
18,520 Macy's, Inc.(a) 441
--------
836
--------
EDUCATION SERVICES (0.1%)
1,860 Adtalem Global Education, Inc. 77
1,110 Capella Education Co. 95
200 Graham Holdings Co. "B" 116
--------
288
--------
GENERAL MERCHANDISE STORES (0.2%)
1,480 Big Lots, Inc. 88
6,600 Target Corp.(a) 395
--------
483
--------
HOME IMPROVEMENT RETAIL (0.3%)
3,900 Home Depot, Inc.(a) 701
3,040 Lowe's Companies, Inc.(a) 254
--------
955
--------
HOMEBUILDING (0.4%)
320 NVR, Inc.* 1,112
3,440 Toll Brothers, Inc. 173
7,370 TRI Pointe Group, Inc.* 134
--------
1,419
--------
HOMEFURNISHING RETAIL (0.1%)
17,560 Bed Bath & Beyond, Inc. 393
--------
HOTELS, RESORTS & CRUISE LINES (0.6%)
9,500 Carnival Corp.(a) 624
4,610 ILG, Inc. 130
3,670 Marriott International, Inc. "A" 466
910 Marriott Vacations Worldwide Corp. 122
4,080 Royal Caribbean Cruises Ltd. 505
--------
1,847
--------
MOVIES & ENTERTAINMENT (0.1%)
11,520 Viacom, Inc. "B" 326
--------
PUBLISHING (0.0%)
1,520 Meredith Corp. 104
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 5
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
RESTAURANTS (0.2%)
2,010 Cheesecake Factory, Inc. $ 98
2,240 DineEquity, Inc. 103
3,260 McDonald's Corp.(a) 561
--------
762
--------
SPECIALTY STORES (0.2%)
13,210 Dick's Sporting Goods, Inc. 389
8,640 Hibbett Sports, Inc.* 172
12,840 Office Depot, Inc. 42
--------
603
--------
TIRES & RUBBER (0.0%)
2,190 Cooper Tire & Rubber Co. 80
--------
Total Consumer Discretionary 13,013
--------
CONSUMER STAPLES (2.3%)
-----------------------
AGRICULTURAL PRODUCTS (0.2%)
8,830 Archer-Daniels-Midland Co.(a) 352
3,060 Ingredion, Inc. 424
--------
776
--------
BREWERS (0.1%)
4,540 Molson Coors Brewing Co. "B" 354
--------
DISTILLERS & VINTNERS (0.1%)
5,480 Brown-Forman Corp. "B" 328
--------
DRUG RETAIL (0.1%)
5,010 CVS Health Corp.(a) 384
--------
FOOD DISTRIBUTORS (0.0%)
1,810 Spartannash Co. 46
--------
FOOD RETAIL (0.1%)
13,370 Kroger Co.(a) 346
--------
HOUSEHOLD PRODUCTS (0.4%)
13,240 Procter & Gamble Co.(a) 1,191
--------
HYPERMARKETS & SUPER CENTERS (0.2%)
1,810 Costco Wholesale Corp. 334
4,340 Wal-Mart Stores, Inc.(a) 422
--------
756
--------
PACKAGED FOODS & MEAT (0.4%)
3,850 J.M. Smucker Co.(a) 449
910 Lancaster Colony Corp. 121
1,090 Sanderson Farms, Inc. 185
================================================================================
6 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
5,720 Tyson Foods, Inc. "A" $ 471
--------
1,226
--------
PERSONAL PRODUCTS (0.1%)
2,770 USANA Health Sciences, Inc.* 199
--------
SOFT DRINKS (0.5%)
11,180 Coca-Cola Co.(a) 512
2,690 Dr. Pepper Snapple Group, Inc. 242
5,670 PepsiCo, Inc. 661
--------
1,415
--------
TOBACCO (0.1%)
3,780 Philip Morris International, Inc.(a) 388
--------
Total Consumer Staples 7,409
--------
ENERGY (1.7%)
-------------
INTEGRATED OIL & GAS (0.1%)
3,660 Chevron Corp. 436
--------
OIL & GAS DRILLING (0.1%)
9,400 Rowan Companies plc "A"* 136
--------
OIL & GAS EQUIPMENT & SERVICES (0.0%)
1,290 Dril-Quip, Inc.* 62
--------
OIL & GAS EXPLORATION & PRODUCTION (0.4%)
11,270 California Resources Corp.* 177
37,130 Denbury Resources, Inc.* 65
11,360 Devon Energy Corp.(a) 438
10,180 Murphy Oil Corp.(a) 284
11,120 Newfield Exploration Co.* 344
3,070 WPX Energy, Inc.* 39
--------
1,347
--------
OIL & GAS REFINING & MARKETING (0.7%)
2,166 Andeavor 228
11,160 HollyFrontier Corp. 496
8,410 Marathon Petroleum Corp. 527
4,760 PBF Energy, Inc. "A" 154
3,800 Phillips 66 371
920 REX American Resources Corp.* 84
5,710 Valero Energy Corp.(a) 489
--------
2,349
--------
OIL & GAS STORAGE & TRANSPORTATION (0.4%)
6,030 Cheniere Energy, Inc.* 291
16,570 Kinder Morgan, Inc. 286
================================================================================
PORTFOLIO OF INVESTMENTS | 7
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
4,740 ONEOK, Inc. $ 246
16,950 Plains Group Holdings, LP "A" 349
--------
1,172
--------
Total Energy 5,502
--------
FINANCIALS (4.9%)
-----------------
ASSET MANAGEMENT & CUSTODY BANKS (0.5%)
1,610 Ameriprise Financial, Inc. 263
9,850 Franklin Resources, Inc. 427
4,980 SEI Investments Co. 350
3,500 T. Rowe Price Group, Inc. 360
6,980 Waddell & Reed Financial, Inc. "A" 142
--------
1,542
--------
CONSUMER FINANCE (0.7%)
4,510 American Express Co.(a) 441
4,030 Capital One Financial Corp. 371
8,200 Discover Financial Services(a) 579
1,480 Encore Capital Group, Inc.* 68
8,370 Enova International, Inc.* 124
6,210 SLM Corp.* 72
9,684 Synchrony Financial 347
700 World Acceptance Corp.* 58
--------
2,060
--------
DIVERSIFIED BANKS (0.4%)
12,850 Citigroup, Inc. 970
4,450 U.S. Bancorp(a) 246
--------
1,216
--------
FINANCIAL EXCHANGES & DATA (0.2%)
2,650 Moody's Corp. 402
2,610 MSCI, Inc. 336
--------
738
--------
INSURANCE BROKERS (0.2%)
2,750 Aon plc 385
3,320 Marsh & McLennan Companies, Inc. 279
--------
664
--------
INVESTMENT BANKING & BROKERAGE (0.2%)
5,800 E*Trade Financial Corp.* 279
8,500 Greenhill & Co., Inc. 173
1,270 Raymond James Financial, Inc. 112
--------
564
--------
================================================================================
8 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
LIFE & HEALTH INSURANCE (0.4%)
4,870 AFLAC, Inc. $ 427
4,840 Athene Holding Ltd. "A"* 233
980 Primerica, Inc. 102
4,120 Principal Financial Group, Inc.(a) 291
2,860 Prudential Financial, Inc.(a) 331
--------
1,384
--------
MULTI-LINE INSURANCE (0.1%)
2,980 American Financial Group, Inc. 313
--------
MULTI-SECTOR HOLDINGS (0.1%)
830 Berkshire Hathaway, Inc. "B"* 160
--------
PROPERTY & CASUALTY INSURANCE (0.4%)
2,560 Allstate Corp.(a) 263
2,500 Employers Holdings, Inc. 123
3,280 First American Financial Corp. 182
7,510 Old Republic International Corp. 158
7,320 Progressive Corp.(a) 389
2,480 W.R. Berkley Corp. 171
--------
1,286
--------
REGIONAL BANKS (1.0%)
1,560 Bank of Hawaii Corp. 132
7,570 BB&T Corp. 374
2,630 Comerica, Inc.(a) 219
7,540 East West Bancorp, Inc. 464
20,060 Fifth Third Bancorp(a) 612
4,080 First Financial Bancorp 116
20,430 KeyCorp(a) 388
1,210 M&T Bank Corp.(a) 205
1,580 PNC Financial Services Group, Inc.(a) 222
24,640 Regions Financial Corp. 409
6,070 TCF Financial Corp. 123
--------
3,264
--------
REINSURANCE (0.3%)
970 Everest Re Group Ltd. 213
7,290 Maiden Holdings Ltd. 47
3,510 Reinsurance Group of America, Inc. 569
--------
829
--------
THRIFTS & MORTGAGE FINANCE (0.4%)
5,340 BofI Holding, Inc.* 148
1,880 Farmer Mac "C" 140
3,710 Homestreet, Inc.* 113
================================================================================
PORTFOLIO OF INVESTMENTS | 9
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
1,280 Meta Financial Group, Inc. $ 120
6,820 Nationstar Mortgage Holdings, Inc.* 123
12,280 NMI Holdings, Inc. "A"* 209
4,850 Provident Financial Services, Inc. 133
9,260 Radian Group, Inc. 190
1,850 Walker & Dunlop, Inc.* 91
3,940 Washington Federal, Inc. 137
--------
1,404
--------
Total Financials 15,424
--------
HEALTH CARE (4.2%)
------------------
BIOTECHNOLOGY (1.1%)
3,940 AbbVie, Inc. 382
4,940 Amgen, Inc.(a) 868
2,020 Biogen, Inc.* 651
1,530 Eagle Pharmaceuticals, Inc.* 90
7,210 Gilead Sciences, Inc.(a) 539
4,040 Myriad Genetics, Inc.* 140
3,200 United Therapeutics Corp.*(a) 416
2,920 Vertex Pharmaceuticals, Inc.* 421
--------
3,507
--------
HEALTH CARE DISTRIBUTORS (0.3%)
4,550 AmerisourceBergen Corp. 386
4,280 Cardinal Health, Inc.(a) 253
1,820 McKesson Corp. 269
--------
908
--------
HEALTH CARE EQUIPMENT (0.5%)
5,120 Baxter International, Inc. 336
1,150 C.R. Bard, Inc. 386
3,180 Globus Medical, Inc. "A"* 121
1,430 IDEXX Laboratories, Inc.* 224
1,350 Intuitive Surgical, Inc.*(a) 540
1,390 Masimo Corp.* 123
--------
1,730
--------
HEALTH CARE FACILITIES (0.2%)
2,660 HealthSouth Corp. 133
5,470 Select Medical Holdings Corp.* 97
2,690 Universal Health Services, Inc. "B"(a) 291
--------
521
--------
HEALTH CARE SERVICES (0.5%)
1,650 AMN Healthcare Services, Inc.* 83
700 Chemed Corp. 172
3,910 DaVita, Inc.* 239
================================================================================
10 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
6,490 Express Scripts Holding Co.* $ 423
7,170 MEDNAX, Inc.* 357
3,050 Quest Diagnostics, Inc.(a) 300
--------
1,574
--------
HEALTH CARE SUPPLIES (0.2%)
1,170 Align Technology, Inc.* 305
1,180 Cooper Companies, Inc. 285
--------
590
--------
LIFE SCIENCES TOOLS & SERVICES (0.5%)
1,990 Cambrex Corp.* 97
1,850 INC Research Holdings, Inc. "A"* 71
840 Mettler-Toledo International, Inc.* 529
1,630 Thermo Fisher Scientific, Inc. 314
2,220 Waters Corp.* 438
--------
1,449
--------
MANAGED HEALTH CARE (0.3%)
1,690 Anthem, Inc.(a) 397
2,560 Centene Corp.*(a) 261
1,450 Cigna Corp.(a) 307
--------
965
--------
PHARMACEUTICALS (0.6%)
4,370 Bristol-Myers Squibb Co. 276
7,710 Corcept Therapeutics, Inc.* 138
10,610 Mallinckrodt plc* 231
9,730 Mylan N.V.* 355
19,130 Pfizer, Inc.(a) 694
2,790 Phibro Animal Health Corp. "A" 97
9,570 Sucampo Pharmaceuticals, Inc. "A"* 122
1,850 Supernus Pharmaceuticals, Inc.* 70
--------
1,983
--------
Total Health Care 13,227
--------
INDUSTRIALS (3.4%)
------------------
AEROSPACE & DEFENSE (0.7%)
2,050 Boeing Co. 567
840 General Dynamics Corp.(a) 174
1,660 Huntington Ingalls Industries, Inc. 401
2,210 L3 Technologies, Inc. 439
1,200 Moog, Inc. "A"* 101
1,840 Rockwell Collins, Inc. 244
920 Teledyne Technologies, Inc.* 171
--------
2,097
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 11
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
AIRLINES (0.3%)
5,580 American Airlines Group, Inc. $ 282
6,430 Delta Air Lines, Inc. 340
4,120 JetBlue Airways Corp.* 88
1,930 SkyWest, Inc. 101
4,030 United Continental Holdings, Inc.* 255
--------
1,066
--------
BUILDING PRODUCTS (0.0%)
7,740 NCI Building Systems, Inc.* 129
--------
COMMERCIAL PRINTING (0.1%)
1,550 Deluxe Corp. 110
2,908 LSC Communications, Inc. 48
--------
158
--------
CONSTRUCTION & ENGINEERING (0.2%)
1,770 EMCOR Group, Inc. 143
5,210 Jacobs Engineering Group, Inc.(a) 342
4,350 KBR, Inc. 81
--------
566
--------
CONSTRUCTION MACHINERY & HEAVY TRUCKS (0.3%)
1,970 Cummins, Inc.(a) 330
1,280 Greenbrier Companies, Inc. 64
5,040 PACCAR, Inc.(a) 354
3,420 Wabash National Corp. 69
--------
817
--------
DIVERSIFIED SUPPORT SERVICES (0.1%)
4,640 Copart, Inc.* 200
2,270 Viad Corp. 131
--------
331
--------
ELECTRICAL COMPONENTS & EQUIPMENT (0.3%)
5,500 Atkore International Group, Inc.* 117
4,260 Eaton Corp. plc 331
1,080 EnerSys 75
1,260 Regal-Beloit Corp. 97
2,130 Rockwell Automation, Inc. 411
--------
1,031
--------
ENVIRONMENTAL & FACILITIES SERVICES (0.2%)
8,150 Republic Services, Inc.(a) 529
--------
HUMAN RESOURCE & EMPLOYMENT SERVICES (0.1%)
3,180 ManpowerGroup, Inc. 410
--------
================================================================================
12 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES (0.1%)
900 3M Co.(a) $ 219
900 Roper Technologies, Inc. 240
--------
459
--------
INDUSTRIAL MACHINERY (0.6%)
2,110 Barnes Group, Inc. 140
1,420 Crane Co. 121
3,110 Illinois Tool Works, Inc.(a) 526
3,700 Ingersoll-Rand plc(a) 324
770 Nordson Corp. 99
1,910 Snap-On, Inc. 324
1,960 Stanley Black & Decker, Inc.(a) 333
--------
1,867
--------
OFFICE SERVICES & SUPPLIES (0.0%)
2,950 Herman Miller, Inc. 106
--------
RESEARCH & CONSULTING SERVICES (0.0%)
4,690 Navigant Consulting, Inc.* 90
--------
TRADING COMPANIES & DISTRIBUTORS (0.3%)
1,460 GATX Corp. 92
2,630 United Rentals, Inc.* 420
1,840 W.W. Grainger, Inc. 407
--------
919
--------
TRUCKING (0.1%)
1,180 Old Dominion Freight Line, Inc. 153
--------
Total Industrials 10,728
--------
INFORMATION TECHNOLOGY (7.2%)
-----------------------------
APPLICATION SOFTWARE (0.4%)
11,170 Cadence Design Systems, Inc.* 491
6,440 Citrix Systems, Inc.*(a) 564
2,320 Intuit, Inc.(a) 365
--------
1,420
--------
COMMUNICATIONS EQUIPMENT (0.7%)
1,220 Arista Networks, Inc.* 285
18,210 Cisco Systems, Inc.(a) 679
2,110 F5 Networks, Inc.*(a) 283
2,170 Harris Corp. 314
970 InterDigital, Inc. 74
16,610 Juniper Networks, Inc. 461
1,650 Plantronics, Inc. 86
--------
2,182
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
DATA PROCESSING & OUTSOURCED SERVICES (1.5%)
2,660 Alliance Data Systems Corp. $ 636
6,210 Automatic Data Processing, Inc.(a) 711
5,010 Convergys Corp. 124
2,520 CSG Systems International, Inc. 116
4,370 Fiserv, Inc.*(a) 574
5,900 MasterCard, Inc. "A" 888
1,480 MAXIMUS, Inc. 102
4,870 PayPal Holdings, Inc.* 369
22,170 Sabre Corp. 441
3,510 Vantiv, Inc. "A"* 263
4,180 Visa, Inc. "A" 471
--------
4,695
--------
ELECTRONIC COMPONENTS (0.2%)
6,520 Amphenol Corp. "A" 591
--------
ELECTRONIC EQUIPMENT & INSTRUMENTS (0.0%)
2,650 Keysight Technologies, Inc.* 115
--------
ELECTRONIC MANUFACTURING SERVICES (0.1%)
3,570 Benchmark Electronics, Inc.* 109
3,470 Jabill, Inc. 100
1,940 Sanmina Corp.* 66
--------
275
--------
HOME ENTERTAINMENT SOFTWARE (0.2%)
5,200 Activision Blizzard, Inc. 325
2,700 Electronic Arts, Inc.* 287
--------
612
--------
INTERNET SOFTWARE & SERVICES (0.7%)
8,090 Akamai Technologies, Inc.*(a) 451
11,480 eBay, Inc.*(a) 398
3,870 Facebook, Inc. "A"* 686
6,840 VeriSign, Inc.*(a) 787
--------
2,322
--------
IT CONSULTING & OTHER SERVICES (1.0%)
6,160 Accenture plc "A" 912
730 CACI International, Inc. "A"* 96
9,930 Cognizant Technology Solutions Corp. "A"(a) 718
3,190 DXC Technology Co. 307
6,870 Hackett Group, Inc. 112
5,870 International Business Machines Corp.(a) 904
1,130 Science Applications International Corp. 84
================================================================================
14 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
4,300 Teradata Corp.* $ 163
--------
3,296
--------
SEMICONDUCTOR EQUIPMENT (0.5%)
1,860 Advanced Energy Industries, Inc.* 140
5,460 Applied Materials, Inc.(a) 288
1,600 Cabot Microelectronics Corp. 154
2,170 KLA-Tencor Corp.(a) 222
2,550 Lam Research Corp.(a) 490
3,660 Teradyne, Inc. 148
2,630 Xperi Corp. 51
--------
1,493
--------
SEMICONDUCTORS (0.7%)
1,670 Cirrus Logic, Inc.* 92
10,790 Intel Corp. 484
3,220 Microchip Technology, Inc.(a) 280
13,190 Micron Technology, Inc.*(a) 559
1,060 NVIDIA Corp. 213
5,210 QUALCOMM, Inc. 345
2,680 Texas Instruments, Inc.(a) 261
--------
2,234
--------
SYSTEMS SOFTWARE (0.4%)
13,540 CA, Inc.(a) 448
2,030 Microsoft Corp.(a) 171
12,040 Oracle Corp.(a) 590
--------
1,209
--------
TECHNOLOGY DISTRIBUTORS (0.3%)
1,520 Arrow Electronics, Inc.* 123
2,820 Avnet, Inc. 117
4,480 CDW Corp. 313
1,380 ePlus, Inc.* 112
1,670 Insight Enterprises, Inc.* 65
900 Tech Data Corp.* 87
--------
817
--------
TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (0.5%)
32,220 Hewlett Packard Enterprise Co. 449
6,820 Seagate Technology plc 263
4,890 Western Digital Corp.(a) 386
14,660 Xerox Corp. 435
--------
1,533
--------
Total Information Technology 22,794
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 15
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
MATERIALS (1.1%)
----------------
COMMODITY CHEMICALS (0.2%)
3,530 LyondellBasell Industries N.V. "A" $ 369
1,880 Trinseo S.A. 139
--------
508
--------
DIVERSIFIED CHEMICALS (0.1%)
2,998 DowDuPont, Inc. 216
--------
DIVERSIFIED METALS & MINING (0.1%)
19,030 Freeport-McMoRan, Inc.* 265
--------
METAL & GLASS CONTAINERS (0.1%)
6,440 Crown Holdings, Inc.*(a) 385
--------
PAPER PACKAGING (0.1%)
2,640 Avery Dennison Corp. 301
2,890 Sonoco Products Co. 155
--------
456
--------
PAPER PRODUCTS (0.1%)
1,700 Neenah Paper, Inc. 152
2,460 Schweitzer-Mauduit International, Inc. 111
--------
263
--------
SPECIALTY CHEMICALS (0.3%)
2,930 Celanese Corp. "A" 314
1,400 Innospec, Inc. 100
2,340 Kraton Corp.* 110
940 Minerals Technologies, Inc. 68
2,920 Rayonier Advanced Materials, Inc. 55
750 Sherwin-Williams Co. 299
1,140 Stepan Co. 95
--------
1,041
--------
STEEL (0.1%)
9,990 SunCoke Energy, Inc.* 114
1,520 Worthington Industries, Inc. 63
--------
177
--------
Total Materials 3,311
--------
TELECOMMUNICATION SERVICES (0.6%)
---------------------------------
ALTERNATIVE CARRIERS (0.2%)
17,147 CenturyLink, Inc. 250
8,270 Zayo Group Holdings, Inc.* 292
--------
542
--------
================================================================================
16 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (0.3%)
15,410 AT&T, Inc.(a) $ 561
8,040 Verizon Communications, Inc.(a) 409
--------
970
--------
WIRELESS TELECOMMUNICATION SERVICES (0.1%)
8,370 T-Mobile US, Inc.*(a) 511
--------
Total Telecommunication Services 2,023
--------
UTILITIES (0.9%)
----------------
ELECTRIC UTILITIES (0.1%)
4,880 Hawaiian Electric Industries, Inc. 187
11,170 Spark Energy, Inc. "A" 140
--------
327
--------
GAS UTILITIES (0.1%)
7,030 UGI Corp. 345
--------
MULTI-UTILITIES (0.7%)
21,970 Ameren Corp.(a) 1,405
26,160 CenterPoint Energy, Inc.(a) 785
--------
2,190
--------
Total Utilities 2,862
--------
Total Common Stocks (cost: $87,311) 96,293
--------
PREFERRED STOCKS (0.4%)
CONSUMER STAPLES (0.1%)
-----------------------
AGRICULTURAL PRODUCTS (0.1%)
8,000 CHS, Inc., Series B, 7.88%,
cumulative redeemable, perpetual 232
2,000 Dairy Farmers of America, Inc., 7.88%,
cumulative redeemable, perpetual(b) 208
--------
440
--------
Total Consumer Staples 440
--------
ENERGY (0.1%)
-------------
OIL & GAS EXPLORATION & PRODUCTION (0.1%)
300 Chesapeake Energy Corp., 5.75%, perpetual(b) 173
--------
173
--------
FINANCIALS (0.1%)
-----------------
LIFE & HEALTH INSURANCE (0.1%)
12,000 Delphi Financial Group, Inc., 4.61%, cumulative redeemable, 3 mo.
USD LIBOR + 3.19%(c) 244
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
REGIONAL BANKS (0.0%)
235 M&T Bank Corp., 6.38%, cumulative redeemable, perpetual $ 243
--------
Total Financials 487
--------
TELECOMMUNICATION SERVICES (0.1%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (0.1%)
8,000 Qwest Corp., 6.50% 188
--------
Total Preferred Stocks (cost: $1,416) 1,288
--------
EXCHANGE-TRADED FUNDS (4.4%)
10,000 Consumer Discretionary Select Sector SPDR Fund 966
16,400 Consumer Staples Select Sector SPDR 919
11,100 Health Care Select Sector SPDR Fund 926
13,200 Industrial Select Sector SPDR Fund 984
41,080 Vanguard S&P 500 ETF 9,997
--------
Total Exchange-Traded Funds (cost: $12,247) 13,792
--------
Total U.S. Equity Securities (cost: $100,974) 111,373
--------
INTERNATIONAL EQUITY SECURITIES (33.6%)
COMMON STOCKS (0.2%)
CONSUMER DISCRETIONARY (0.1%)
-----------------------------
AUTO PARTS & EQUIPMENT (0.1%)
3,620 Delphi Automotive plc 379
--------
ENERGY (0.1%)
-------------
OIL & GAS EQUIPMENT & SERVICES (0.1%)
9,410 TechnipFMC plc 269
--------
Total Common Stocks (cost: $626) 648
--------
EXCHANGE-TRADED FUNDS (33.4%)
318,700 iShares Core MSCI EAFE ETF 20,980
168,300 iShares Core MSCI Emerging Markets ETF 9,400
84,900 iShares Edge MSCI Minimum Volatility EAFE ETF 6,177
87,300 iShares Edge MSCI Minimum Volatility Emerging Markets ETF 5,168
51,700 PowerShares FTSE RAFI Developed Markets ex-U.S. Portfolio 2,327
220,200 PowerShares FTSE RAFI Emerging Markets Portfolio 4,721
276,400 Schwab Fundamental Emerging Markets Large Co. Index ETF 8,076
687,300 Schwab Fundamental International Large Co. Index ETF 21,004
72,800 Schwab Fundamental International Small Co. Index ETF 2,606
14,790 SPDR S&P Emerging Markets Small Cap ETF 756
286,600 Vanguard FTSE Developed Markets ETF 12,771
70,660 Vanguard FTSE Emerging Markets ETF 3,143
================================================================================
18 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
74,080 Vanguard FTSE Europe ETF $ 4,339
16,645 WisdomTree Emerging Markets SmallCap Dividend Fund 823
55,907 WisdomTree India Earnings Fund 1,495
34,580 WisdomTree Japan Hedged Equity Fund 2,027
--------
Total Exchange-Traded Funds (cost: $90,920) 105,813
--------
Total International Equity Securities (cost: $91,546) 106,461
--------
PRECIOUS METALS AND COMMODITY-RELATED SECURITIES (1.7%)
GOLD (0.0%)
NORTH AMERICAN GOLD COMPANIES (0.0%)
8,197 Hycroft Mining Corp.*(d),(e),(f) (cost: $258) 2
--------
EXCHANGE-TRADED FUNDS (1.7%)
24,300 First Trust Global Tactical Commodity Strategy Fund* 499
28,600 PowerShares DB Commodity Index Tracking Fund* 462
60,800 United States Commodity Index Fund* 2,492
63,900 VanEck Vectors Gold Miners ETF 1,436
12,000 VanEck Vectors Junior Gold Miners ETF 380
--------
Total Exchange-Traded Funds (cost: $5,704) 5,269
--------
Total Precious Metals and Commodity-Related Securities (cost: $5,962) 5,271
--------
GLOBAL REAL ESTATE EQUITY SECURITIES (2.0%)
COMMON STOCKS (0.8%)
REAL ESTATE SERVICES (0.2%)
11,350 CBRE Group, Inc. "A"* 492
5,950 HFF, Inc. "A" 269
--------
761
--------
REITs - HEALTH CARE (0.0%)
6,910 Sabra Health Care REIT, Inc. 133
--------
REITs - HOTEL & RESORT (0.1%)
8,480 RLJ Lodging Trust 184
--------
REITs - RETAIL (0.2%)
27,790 Brixmor Property Group, Inc. 502
--------
REITs - SPECIALIZED (0.3%)
2,280 SBA Communications Corp.* 387
4,360 American Tower Corp.(a) 627
--------
1,014
--------
Total Common Stocks (cost: $2,462) 2,594
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
-------------------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------------------------------
PREFERRED STOCKS (0.1%)
REITs - MORTGAGE (0.1%)
8,000 Arbor Realty Trust, Inc., 7.38%* (cost: $200) $ 205
--------
EXCHANGE-TRADED FUNDS (1.1%)
42,890 Vanguard REIT ETF (cost: $3,469) 3,619
--------
Total Global Real Estate Equity Securities (cost: $6,131) 6,418
--------
-------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON
(000) RATE MATURITY
-------------------------------------------------------------------------------------------------------------------------------
BONDS (24.2%)
CORPORATE OBLIGATIONS (1.2%)
CONSUMER DISCRETIONARY (0.2%)
-----------------------------
DEPARTMENT STORES (0.1%)
$ 99 Neiman Marcus Group Ltd., LLC, LIBOR + 3.25%(g) 4.49% 10/25/2020 81
--------
SPECIALTY STORES (0.1%)
299 Academy Ltd., LIBOR + 4%(g) 5.31 7/01/2022 241
150 Guitar Center, Inc.(b) 6.50 4/15/2019 142
--------
383
--------
Total Consumer Discretionary 464
--------
CONSUMER STAPLES (0.0%)
-----------------------
FOOD RETAIL (0.0%)
100 BI-LO, LLC & BI-LO Finance Corp.(b) 9.25 2/15/2019 96
--------
ENERGY (0.2%)
-------------
OIL & GAS DRILLING (0.0%)
261 Schahin II Finance Co. SPV Ltd.(b),(h) 5.88 9/25/2023 39
--------
OIL & GAS STORAGE & TRANSPORTATION (0.2%)
100 Enbridge Energy Partners, LP 7.38 10/15/2045 131
190 Southern Union Co., 3 mo. USD LIBOR + 3.0175% 4.39(c) 11/01/2066 164
150 Tallgrass Energy Partners, LP & Tallgrass Energy Finance Corp.(b) 5.50 9/15/2024 156
--------
451
--------
Total Energy 490
--------
================================================================================
20 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
-------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------------------------
FINANCIALS (0.7%)
----------------
ASSET MANAGEMENT & CUSTODY BANKS (0.1%)
$ 100 Ares Capital Corp. 3.63% 1/19/2022 $ 101
200 Prospect Capital Corp. 5.00 7/15/2019 205
--------
306
--------
LIFE & HEALTH INSURANCE (0.1%)
200 Prudential Financial, Inc., 3 mo. USD
LIBOR + 3.92% 5.63(c) 6/15/2043 217
100 StanCorp Financial Group, Inc., 3 mo. USD
LIBOR + 2.51% 3.83(c) 6/01/2067 100
--------
317
--------
MULTI-LINE INSURANCE (0.1%)
300 Nationwide Mutual Insurance Co., 3 mo. USD
LIBOR + 2.29%(b) 3.61(c) 12/15/2024 300
--------
PROPERTY & CASUALTY INSURANCE (0.2%)
200 Allstate Corp., 3 mo. USD LIBOR + 2.938% 5.75(c) 8/15/2053 219
200 AmTrust Financial Services, Inc. 2.75 12/15/2044 145
200 HSB Group, Inc., 3 mo. USD LIBOR + 0.91% 2.27(c) 7/15/2027 178
--------
542
--------
REGIONAL BANKS (0.2%)
200 Compass Bank 3.88 4/10/2025 200
175 Cullen/Frost Capital Trust II, 3 mo. USD
LIBOR + 1.55% 2.87(c) 3/01/2034 156
50 First Maryland Capital Trust I, 3 mo. USD
LIBOR + 1% 2.36(c) 1/15/2027 47
200 SunTrust Capital I, 3 mo. USD LIBOR + 0.67% 2.09(c) 5/15/2027 185
--------
588
--------
Total Financials 2,053
--------
HEALTH CARE (0.1%)
-----------------
HEALTH CARE FACILITIES (0.1%)
300 Community Health Systems, Inc. 6.88 2/01/2022 182
--------
INDUSTRIALS (0.0%)
-----------------
AIRLINES (0.0%)
38 Continental Airlines, Inc. Pass-Through Trust "B" 6.25 10/11/2021 40
--------
ELECTRICAL COMPONENTS & EQUIPMENT (0.0%)
100 Artesyn Embedded Technologies, Inc.(b) 9.75 10/15/2020 99
--------
Total Industrials 139
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 21
================================================================================
-------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE (0.0%)
-----------------
REAL ESTATE DEVELOPMENT (0.0%)
$ 95 Crescent Communities, LLC & Crescent Ventures, Inc.(b) 8.88% 10/15/2021 $ 101
--------
UTILITIES (0.0%)
---------------
ELECTRIC UTILITIES (0.0%)
50 NextEra Energy Capital Holdings, Inc., 3 mo. USD
LIBOR + 3.348% 4.66(c) 9/01/2067 50
--------
MULTI-UTILITIES (0.0%)
100 WEC Energy Group, Inc., 3 mo. USD
LIBOR + 2.1125% 3.53(c) 5/15/2067 97
--------
Total Utilities 147
--------
Total Corporate Obligations (cost: $3,704) 3,672
--------
CONVERTIBLE SECURITIES (0.1%)
MATERIALS (0.1%)
200 Pretium Resources, Inc.(b) 2.25 3/15/2022 205
--------
Total Convertible Securities (cost: $192) 205
--------
EURODOLLAR AND YANKEE OBLIGATIONS (0.1%)
ENERGY (0.0%)
------------
INTEGRATED OIL & GAS (0.0%)
150 Petroleos Mexicanos Co.(b) 5.38 3/13/2022 161
--------
FINANCIALS (0.1%)
----------------
PROPERTY & CASUALTY INSURANCE (0.1%)
200 QBE Capital Funding III Ltd., USD Swap
Semi-Annual 30/360 10 YR + 4.05%(b) 7.25(c) 5/24/2041 223
--------
MATERIALS (0.0%)
---------------
GOLD (0.0%)
100 Newcrest Finance Property Ltd.(b) 4.45 11/15/2021 105
--------
Total Eurodollar and Yankee Obligations (cost: $434) 489
--------
ASSET-BACKED SECURITIES (0.2%)
FINANCIALS (0.2%)
----------------
ASSET-BACKED FINANCING (0.2%)
125 Avis Budget Rental Car Funding AESOP, LLC(b) 2.96 7/20/2020 125
89 Avis Budget Rental Car Funding AESOP, LLC(b) 3.75 7/20/2020 89
45 Napier Park Rail Lease, LLC 3.37 10/21/2047 45
50 Navient Student Loan Trust, 1 mo. USD
LIBOR + 1.5% 2.83(c) 8/25/2050 50
================================================================================
22 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
-------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------------------------
$ 136 SCF Equipment Trust, LLC(b) 3.41% 12/20/2023 $ 136
137 Synchrony Credit Card Master Note Trust 2.95 5/15/2024 138
--------
583
--------
Total Financials 583
--------
Total Asset-Backed Securities (cost: $577) 583
--------
COLLATERALIZED MORTGAGE OBLIGATIONS (0.1%)
FINANCIALS (0.1%)
----------------
53 Sequoia Mortgage Trust, 1 mo. USD LIBOR + 0.9% 2.18(c) 9/20/2033 52
229 Structured Asset Mortgage Investments, Inc.,
1 mo. USD LIBOR + 0.5% 1.78(c) 7/19/2035 213
48 Wells Fargo Mortgage Backed Securities Trust 3.00(i) 4/25/2035 45
--------
Total Financials 310
--------
Total Collateralized Mortgage Obligations (cost: $322) 310
--------
COMMERCIAL MORTGAGE SECURITIES (0.4%)
FINANCIALS (0.4%)
----------------
COMMERCIAL MORTGAGE-BACKED SECURITIES (0.4%)
52 Banc of America Commercial Mortgage, Inc. 5.00 7/10/2044 37
200 Banc of America Commercial Mortgage, Inc. 6.47(i) 2/10/2051 200
178 Bear Stearns Commercial Mortgage Securities, Inc.(b) 5.66(i) 9/11/2041 180
50 Citigroup Commercial Mortgage Trust 6.42(i) 12/10/2049 32
42 Commercial Mortgage Trust 5.38 12/10/2046 43
226 Credit Suisse Commercial Mortgage
Pass-Through Trust, 1 mo. USD LIBOR + 0.19% 1.46(c) 2/15/2040 212
250 FREMF Mortgage Trust(b) 3.68(i) 8/25/2045 254
50 GE Capital Commercial Mortgage Corp. 5.61(i) 12/10/2049 51
10 GMAC Commercial Mortgage Securities, Inc. 4.97 12/10/2041 10
148 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 5.37 5/15/2047 149
26 Morgan Stanley Capital I Trust 5.57(i) 3/12/2044 25
--------
1,193
--------
INTEREST-ONLY COMMERCIAL MORTGAGE-BACKED SECURITIES (0.0%)
813 CSAIL Commercial Mortgage Trust(d) 1.97(i) 1/15/2049 86
884 UBS Commercial Mortgage Trust(b),(d) 2.27(i) 5/10/2045 65
--------
151
--------
Total Financials 1,344
--------
Total Commercial Mortgage Securities (cost: $1,373) 1,344
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 23
================================================================================
-------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY ISSUES (4.1%)(j)
MORTGAGE-BACKED PASS-THROUGH SECURITIES (4.1%)
$ 250 Fannie Mae(+) 2.15% 1/25/2023 $ 246
700 Freddie Mac(+) 3.00 12/25/2025 712
510 Freddie Mac(+) 3.00 4/01/2046 510
1,519 Freddie Mac(+) 3.00 6/01/2046 1,518
551 Freddie Mac(+) 3.00 9/01/2046 551
278 Freddie Mac(+) 3.00 10/01/2046 277
934 Freddie Mac(+) 3.00 11/01/2046 933
955 Freddie Mac(+) 3.00 1/01/2047 954
912 Freddie Mac(+) 3.00 3/01/2047 911
976 Freddie Mac(+) 3.00 4/01/2047 975
290 Freddie Mac(+) 3.00 4/01/2047 290
743 Freddie Mac(+) 3.00 9/01/2047 742
497 Freddie Mac(+) 3.00 10/01/2047 496
300 Freddie Mac(+) 3.33 5/25/2025 313
2,951 Freddie Mac(+) 3.50 4/01/2046 3,028
500 Freddie Mac(+) 3.51 4/25/2030 518
--------
12,974
--------
Total U.S. Government Agency Issues (cost: $13,142) 12,974
--------
U.S. TREASURY SECURITIES (8.3%)
BONDS (1.5%)(q)
30 3.09%, 8/15/2044 (STRIPS Principal)(k) 14
2,250 3.13%, 8/15/2044 2,380
200 3.00%, 11/15/2044 207
100 2.50%, 2/15/2045 94
3,100 3.02%, 5/15/2045 (STRIPS Principal)(k) 1,410
700 3.00%, 5/15/2047 723
--------
4,828
--------
INFLATION-INDEXED NOTES (1.0%)
2,082 0.13%, 4/15/2021 2,069
1,030 0.13%, 7/15/2026 996
--------
3,065
--------
NOTES (5.8%)(q)
7,500 1.13%, 2/28/2021(l) 7,303
800 1.63%, 4/30/2023 777
250 2.38%, 8/15/2024 251
100 2.00%, 2/15/2025 98
1,000 2.25%, 11/15/2025 991
3,200 1.63%, 2/15/2026 3,020
600 1.63%, 5/15/2026 565
2,600 2.25%, 2/15/2027 2,564
================================================================================
24 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
-------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
(000) SECURITY (000)
-------------------------------------------------------------------------------------------------------------------------------
$ 1,500 2.38%, 5/15/2027 $ 1,494
1,250 2.25%, 8/15/2027 1,230
--------
18,293
--------
Total U.S. Treasury Securities (cost: $26,335) 26,186
--------
-------------------------------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES
-------------------------------------------------------------------------------------------------------------------------------
EXCHANGE-TRADED FUNDS (9.7%)
25,100 iShares 1-3 Year Credit Bond ETF 2,631
96,587 PowerShares Fundamental High Yield Corporate Bond Portfolio(m) 1,833
101,500 Vanguard Short-Term Bond ETF 8,055
173,900 Vanguard Short-Term Corporate Bond ETF 13,848
53,000 Vanguard Total Bond Market ETF 4,320
--------
Total Exchange-Traded Funds (cost: $30,761) 30,687
--------
Total Bonds (cost: $76,840) 76,450
--------
-------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON
(000) RATE MATURITY
-------------------------------------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS (3.1%)
COMMERCIAL PAPER (2.1%)
CONSUMER DISCRETIONARY (0.5%)
----------------------------
HOME FURNISHINGS (0.5%)
$ 1,500 Leggett & Platt, Inc.(b),(n) 1.36% 12/06/2017 1,500
--------
ENERGY (0.1%)
------------
OIL & GAS DRILLING (0.1%)
400 Nabors Industries, Inc.(b),(n) 2.00 1/08/2018 399
--------
MATERIALS (1.2%)
---------------
COMMODITY CHEMICALS (0.2%)
800 Cabot Corp.(b),(n) 1.36 12/05/2017 800
--------
DIVERSIFIED CHEMICALS (0.5%)
1,548 EI du Pont de Nemours & Co.(b),(n) 1.37 12/05/2017 1,548
--------
FERTILIZERS & AGRICULTURAL CHEMICALS (0.5%)
1,500 FMC Corp.(b),(n) 1.42 12/01/2017 1,500
--------
Total Materials 3,848
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 25
================================================================================
-------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------------------------
UTILITIES (0.3%)
----------------
GAS UTILITIES (0.3%)
$ 800 Spire, Inc.(b),(n) 1.37% 12/04/2017 $ 800
--------
Total Commercial Paper (cost: $6,547) 6,547
--------
-------------------------------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES
-------------------------------------------------------------------------------------------------------------------------------
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (1.0%)
3,300,070 State Street Institutional Treasury Money Market
Fund Premier Class, 1.02%(o) 3,300
--------
Total Money Market Instruments (cost: $9,847) 9,847
--------
SHORT-TERM INVESTMENTS PURCHASED WITH CASH
COLLATERAL FROM SECURITIES LOANED (0.3%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (0.3%)
1,057,972 Invesco Government & Agency Portfolio Institutional
Class, 0.98%(o) (cost: $1,058) 1,058
--------
TOTAL INVESTMENTS (COST: $292,358) $316,878
========
-------------------------------------------------------------------------------------------------------------------------------
UNREALIZED
APPRECIATION/
NUMBER OF EXPIRATION NOTIONAL CONTRACT (DEPRECIATION)
CONTRACTS DATE AMOUNT(000) VALUE (000) (000)
-------------------------------------------------------------------------------------------------------------------------------
FUTURES(P)
LONG FUTURES
EQUITY CONTRACTS
215 Euro Stoxx 50 12/15/2017 8,112 EURO $ 9,866 196
146 E-mini S&P 500 12/15/2017 17,966 USD 19,330 1,364
44 TOPIX Index 12/07/2017 723,837 JPY 7,025 594
------- --------
TOTAL LONG FUTURES $36,221 $ 2,154
------- --------
SHORT FUTURES
EQUITY CONTRACTS
(53) E-mini S&P
Midcap 400 12/15/2017 (9,364) USD (10,070) (706)
------- --------
TOTAL SHORT FUTURES (10,070) (706)
------- --------
TOTAL FUTURES $26,151 $ 1,448
======= ========
================================================================================
26 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
-------------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
-------------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
-------------------------------------------------------------------------------------------------------------------
U.S. Equity Securities:
Common Stocks $ 96,293 $ - $- $ 96,293
Preferred Stocks - 1,288 - 1,288
Exchange-Traded Funds 13,792 - - 13,792
International Equity Securities:
Common Stocks 648 - - 648
Exchange-Traded Funds 105,813 - - 105,813
Precious Metals and
Commodity-Related Securities:
Common Stocks - - 2 2
Exchange-Traded Funds 5,269 - - 5,269
Global Real Estate Equity Securities:
Common Stocks 2,594 - - 2,594
Preferred Stocks - 205 - 205
Exchange-Traded Funds 3,619 - - 3,619
Bonds:
Corporate Obligations - 3,672 - 3,672
Convertible Securities - 205 - 205
Eurodollar and Yankee Obligations - 489 - 489
Asset-Backed Securities - 583 - 583
Collateralized Mortgage Obligations - 310 - 310
Commercial Mortgage Securities - 1,344 - 1,344
U.S. Government Agency Issues - 12,974 - 12,974
U.S. Treasury Securities 24,762 1,424 - 26,186
Exchange-Traded Funds 30,687 - - 30,687
Money Market Instruments:
Commercial Paper - 6,547 - 6,547
Government & U.S. Treasury Money
Market Funds 3,300 - - 3,300
Short-Term Investments Purchased with Cash
Collateral from Securities Loaned:
Government & U.S. Treasury Money
Market Funds 1,058 - - 1,058
Futures(1) 2,154 - - 2,154
-------------------------------------------------------------------------------------------------------------------
Total $289,989 $29,041 $2 $319,032
-------------------------------------------------------------------------------------------------------------------
LIABILITIES LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
-------------------------------------------------------------------------------------------------------------------
Futures(1) $ (706) $ - $- $ (706)
-------------------------------------------------------------------------------------------------------------------
Total $ (706) $ - $- $ (706)
-------------------------------------------------------------------------------------------------------------------
(1) Futures are valued at the unrealized appreciation/(depreciation) on the
investment.
================================================================================
PORTFOLIO OF INVESTMENTS | 27
================================================================================
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
-----------------------------------------------------------------------------------------------------------
RECONCILIATION OF LEVEL 3 INVESTMENTS
-----------------------------------------------------------------------------------------------------------
COMMON
($ IN 000s) STOCKS
-----------------------------------------------------------------------------------------------------------
Balance as of May 31, 2017 $11
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 (9)
-----------------------------------------------------------------------------------------------------------
Balance as of November 30, 2017 $ 2
-----------------------------------------------------------------------------------------------------------
For the period of June 1, 2017, through November 30, 2017, there were no
transfers of securities between levels. The Fund's policy is to recognize any
transfers in and transfers out as of the beginning of the reporting period in
which the event or circumstance that caused the transfer occurred.
================================================================================
28 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
November 30, 2017 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
Market values of securities are determined by procedures and practices
discussed in Note 1A to the financial statements.
The Portfolio of Investments category percentages shown represent the
percentages of the investments to net assets, and, in total, may not equal
100%. A category percentage of 0.0% represents less than 0.1% of net
assets. Investments in foreign securities were 34.7% of net assets at
November 30, 2017.
The Fund may rely on certain Securities and Exchange Commission (SEC)
exemptive orders or rules that permit funds meeting various conditions to
invest in an exchange-traded fund (ETF) in amounts exceeding limits set
forth in the Investment Company Act of 1940, as amended, that would
otherwise be applicable.
o 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
ownership in a pool of loans and are divided into pieces (tranches) with
varying maturities. The
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 29
================================================================================
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 cash flows than regular mortgage
securities, but such cash flows 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.
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
================================================================================
30 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
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.
Inflation adjustments to the face value of these securities are included in
interest income.
o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS
LIBOR London Interbank Offered Rate
REIT Real estate investment trust - Dividend distributions from REITs may
be recorded as income and later characterized by the REIT at the end
of the fiscal year as capital gains or a return of capital. Thus,
the fund will estimate the components of distributions from these
securities and revise when actual distributions are known.
STRIPS Separate trading of registered interest and principal of securities
USD U.S. Dollar
o SPECIFIC NOTES
(a) The security, or a portion thereof, is segregated to cover the value of
open futures contracts at November 30, 2017.
(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) Variable-rate security - interest rate is adjusted periodically.
The interest rate disclosed represents the rate at November 30, 2017.
(d) Security deemed illiquid by the Manager, under liquidity
guidelines approved by the Board. The aggregate market value of these
securities at November 30, 2017, was $153,000, which represented 0.0%
of the Fund's net assets.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 31
================================================================================
(e) Security was fair valued at November 30, 2017, by the Manager in
accordance with valuation procedures approved by the Board. The total
value of all such securities was $2,000, which represented 0.0% of the
Fund's net assets.
(f) Security was fair valued at Level 3.
(g) Senior loan (loan) - is not registered under the Securities Act of
1933. The loan contains certain restrictions on resale and cannot be
sold publicly. The stated interest rate represents the weighted average
interest rate of all contracts within the loan facility. The interest
rate is adjusted periodically, and the rate disclosed represents the
current rate at November 30, 2017. The weighted average life of the
loan is likely to be shorter than the stated final maturity date due to
mandatory or optional prepayments. The loan is deemed liquid by the
Manager, under liquidity guidelines approved by the Board, unless
otherwise noted as illiquid.
(h) At November 30, 2017, the issuer was in default with respect to
interest and/or principal payments.
(i) Stated interest rates may change slightly over time as underlying
mortgages pay down.
(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 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
================================================================================
32 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
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) Securities with a value of $974,000 are segregated as collateral
for initial margin requirements on open futures contracts.
(m) The security, or a portion thereof, was out on loan as of November
30, 2017.
(n) Commercial paper issued in reliance on the "private placement"
exemption from registration afforded by Section 4(a)(2) of the
Securities Act of 1933, as amended (Section 4(a)(2) Commercial Paper).
Unless this commercial paper is subsequently registered, a resale of
this commercial paper in the United States must be effected in a
transaction exempt from registration under the Securities Act of 1933.
Section 4(a)(2) Commercial Paper is normally resold to other investors
through or with the assistance of the issuer or an 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.
(o) Rate represents the money market fund annualized seven-day yield
at November 30, 2017.
(p) The contract value of futures purchased and/or sold as a
percentage of net assets is 8.3%.
(q) Rates for U.S. Treasury notes or bonds represent the stated coupon
payment rate at time of issuance.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 33
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
November 30, 2017 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (including
securities on loan of $1,030) (cost of $292,358) $316,878
Cash denominated in foreign currencies (identified cost of $758) 817
Receivables:
Capital shares sold 354
USAA Asset Management Company (Note 6C) 76
Dividends and interest 364
Other 2
Variation margin on futures contracts 1,451
--------
Total assets 319,942
--------
LIABILITIES
Payables:
Upon return of securities loaned 1,058
Capital shares redeemed 165
Bank overdraft 1,796
Accrued management fees 154
Accrued transfer agent's fees 54
Other accrued expenses and payables 143
--------
Total liabilities 3,370
--------
Net assets applicable to capital shares outstanding $316,572
========
NET ASSETS CONSIST OF:
Paid-in capital $269,062
Accumulated undistributed net investment income 1,905
Accumulated net realized gain on investments and futures transactions 19,578
Net unrealized appreciation of investments and futures contracts 25,968
Net unrealized appreciation of foreign currency translations 59
--------
Net assets applicable to capital shares outstanding $316,572
========
Capital shares outstanding, no par value 23,400
========
Net asset value, redemption price, and offering price per share $ 13.53
========
See accompanying notes to financial statements.
================================================================================
34 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended November 30, 2017 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends $ 2,576
Interest 678
Securities lending (net) 22
-------
Total income 3,276
-------
EXPENSES
Management fees 952
Administration and servicing fees 226
Transfer agent's fees 532
Custody and accounting fees 102
Postage 23
Shareholder reporting fees 15
Trustees' fees 18
Registration fees 18
Professional fees 42
Other 9
-------
Total expenses 1,937
Expenses reimbursed (282)
-------
Net expenses 1,655
-------
NET INVESTMENT INCOME 1,621
-------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS,
FOREIGN CURRENCY, AND FUTURES CONTRACTS
Net realized gain on:
Unaffiliated transactions 15,269
Affiliated transactions (Note 8) 35
Foreign currency transactions 6
Futures transactions 1,667
Change in net unrealized appreciation/(depreciation) of:
Investments 3,260
Foreign currency translations 45
Futures contracts 320
-------
Net realized and unrealized gain 20,602
-------
Increase in net assets resulting from operations $22,223
=======
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 35
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended November 30, 2017 (unaudited), and year ended
May 31, 2017
--------------------------------------------------------------------------------------------------------
11/30/2017 5/31/2017
--------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 1,621 $ 3,251
Net realized gain on investments 15,304 4,178
Net realized gain on long-term capital gain distributions
from other investment companies - 19
Net realized gain (loss) on foreign currency transactions 6 (1)
Net realized loss on options - (68)
Net realized gain on futures transactions 1,667 2,654
Change in net unrealized appreciation/(depreciation) of:
Investments 3,260 18,807
Foreign currency translations 45 14
Futures contracts 320 993
----------------------
Increase in net assets resulting from operations 22,223 29,847
----------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income - (3,551)
----------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 43,567 83,580
Reinvested dividends - 3,221
Cost of shares redeemed (33,085) (51,454)
----------------------
Increase in net assets from capital share transactions 10,482 35,347
----------------------
Net increase in net assets 32,705 61,643
NET ASSETS
Beginning of period 283,867 222,224
----------------------
End of period $316,572 $283,867
======================
Accumulated undistributed net investment income:
End of period $ 1,905 $ 284
======================
CHANGE IN SHARES OUTSTANDING
Shares sold 3,355 7,020
Shares issued for dividends reinvested - 277
Shares redeemed (2,536) (4,335)
----------------------
Increase in shares outstanding 819 2,962
======================
See accompanying notes to financial statements.
================================================================================
36 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
November 30, 2017 (unaudited)
--------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company Act
of 1940, as amended (the 1940 Act), is an open-end management investment company
organized as a Delaware statutory trust consisting of 51 separate funds.
Additionally, USAA Cornerstone Aggressive Fund (the Fund) qualifies as a
registered investment company under Accounting Standards Codification Topic 946.
The information presented in this semiannual report pertains only to the Fund,
which is classified as diversified under the 1940 Act and is authorized to issue
an unlimited number of shares. The Fund's investment objective is to seek
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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 37
================================================================================
meetings to review prior actions taken by the Committee and USAA Asset
Management Company (the Manager), an affiliate of the Fund. Among other
things, these monthly meetings include a review and analysis of backtesting
reports, pricing service quotation comparisons, illiquid securities and
fair value determinations, pricing movements, and daily stale price
monitoring.
The value of each security is determined (as of the close of trading on
the New York Stock Exchange (NYSE) on each business day the NYSE is open)
as set forth below:
1. Equity securities, including exchange-traded funds (ETFs), except as
otherwise noted, traded primarily on a domestic securities exchange or
the over-the-counter markets, are valued at the last sales price or
official closing price on the exchange or primary market on which they
trade. Securities traded primarily on foreign securities exchanges or
markets are valued at the last quoted sale price, or the most recently
determined official closing price calculated according to local market
convention, available at the time the Fund is valued. If no last sale or
official closing price is reported or available, the average of the bid
and ask prices generally is used. Actively traded equity securities
listed on a domestic exchange generally are categorized in Level 1 of
the fair value hierarchy. Certain preferred and equity securities traded
in inactive markets generally are categorized in Level 2 of the fair
value hierarchy.
2. Equity securities trading in various foreign markets may take place
on days when the NYSE is closed. Further, when the NYSE is open, the
foreign markets may be closed. Therefore, the calculation of the Fund's
net asset value (NAV) may not take place at the same time the prices of
certain foreign securities held by the Fund are determined. In many
cases, events affecting the values of foreign securities that occur
between the time of their last quoted sale or official closing price and
the close of normal trading on the NYSE on a day the Fund's NAV is
calculated will not need to be reflected in the value of 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
================================================================================
38 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
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 ask prices or
the last sales price to value a security when, in the Service's
judgment, these prices are readily available and are representative of
the security's market value. For many securities, such prices are not
readily available. The Service generally prices those securities based
on methods which include consideration of yields or prices of securities
of comparable quality, coupon, maturity, and type; indications as to
values from dealers in securities; and general market conditions.
Generally, debt securities are categorized in Level 2 of the fair value
hierarchy; however, to the extent the valuations include significant
unobservable inputs, the securities would be categorized in Level 3.
6. Repurchase agreements are valued at cost.
7. 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 39
================================================================================
date if it is within the spread between the closing bid and ask price
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 ask price 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
================================================================================
40 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
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 last quoted 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. 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 | 41
================================================================================
guarantees the transactions against default from the actual counterparty
to the transaction. The Fund's derivative agreements held at November 30,
2017, did not include master netting provisions.
FUTURES CONTRACTS - The Fund is subject to equity price risk, interest rate
risk, and foreign currency exchange rate risk in the normal course of
pursuing its investment objectives. The Fund may use futures contracts to
gain exposure to, or hedge against, changes in the value of equities,
interest rates, or foreign currencies. A futures contract represents a
commitment for the future purchase or sale of an asset at a specified price
on a specified date. Upon entering into such contracts, the Fund is
required to deposit with the broker in either cash or securities an initial
margin in an amount equal to a certain percentage of the contract amount.
Subsequent payments (variation margin) are made or received by the Fund
each day, depending on the daily fluctuations in the value of the contract,
and are recorded for financial statement purposes as unrealized gains or
losses. When the contract is closed, the Fund records a realized gain or
loss equal to the difference between the value of the contract at the time
it was opened and the value at the time it was closed. Upon entering into
such contracts, the Fund bears the risk of interest or exchange rates or
securities prices moving unexpectedly in an unfavorable direction, in which
case, the Fund may not achieve the anticipated benefits of the futures
contracts.
FAIR VALUES OF DERIVATIVE INSTRUMENTS AS OF NOVEMBER 30, 2017*
(IN THOUSANDS)
ASSET DERIVATIVES LIABILITY DERIVATIVES
--------------------------------------------------------------------------------------------------
STATEMENT OF STATEMENT OF
DERIVATIVES NOT ASSETS AND ASSETS AND
ACCOUNTED FOR AS LIABILITIES LIABILITIES
HEDGING INSTRUMENTS LOCATION FAIR VALUE LOCATION FAIR VALUE
--------------------------------------------------------------------------------------------------
Equity contracts Net unrealized $2,154** Net unrealized $706**
appreciation of depreciation of
investments and investments and
futures contracts futures contracts
--------------------------------------------------------------------------------------------------
* For open derivative instruments as of November 30, 2017, see the
Portfolio of Investments, which also is indicative of activity for the
six-month period ended November 30, 2017.
** Includes cumulative appreciation/(depreciation) of futures as
reported on the Portfolio of Investments. Only the variation margin from
the last business day of the reporting period is reported within the
Statement of Assets and Liabilities.
================================================================================
42 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
THE EFFECT OF DERIVATIVE INSTRUMENTS ON THE STATEMENT OF OPERATIONS FOR
THE SIX-MONTH PERIOD ENDED NOVEMBER 30, 2017 (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 $1,667 $320
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.
For the six-month period ended November 30, 2017, the Fund did not incur
any income tax, interest, or penalties, and has recorded no liability for
net unrecognized tax benefits relating to uncertain income tax positions.
On an ongoing basis, the Manager will monitor the Fund's tax basis to
determine if adjustments to this conclusion are necessary. The statute of
limitations on the Fund's tax return filings generally remain open for the
three preceding fiscal reporting year ends and remain subject to
examination by the Internal Revenue Service and state taxing authorities.
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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 43
================================================================================
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
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.
================================================================================
44 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
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, 2017, 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, along with other funds of the Trust and USAA ETF Trust
(together, the Trusts), in a joint, short-term, revolving, committed loan
agreement of $500 million with USAA Capital Corporation (CAPCO), an
================================================================================
NOTES TO FINANCIAL STATEMENTS | 45
================================================================================
affiliate of the Manager. The purpose of the agreement is to provide temporary
or emergency cash needs, including redemption requests that might otherwise
require the untimely disposition of securities. Subject to availability
(including usage of the facility by other funds of the Trusts), the Fund may
borrow from CAPCO an amount up to 5% of the Fund's total assets at an interest
rate based on the London Interbank Offered Rate (LIBOR), plus 100.0 basis
points.
The Trusts are also assessed facility fees by CAPCO in the amount of 13.0 basis
points of the amount of the committed loan agreement. Prior to September 30,
2017, the maximum annual facility fee was 12.0 basis points of the amount of the
committed loan agreement. The facility fees are allocated among the funds of the
Trusts based on their respective average net assets for the period.
The Trusts may request an optional increase of the committed loan agreement from
$500 million up to $750 million. If the Trusts increase the committed loan
agreement, the assessed facility fee on the amount of the additional commitment
will be 14.0 basis points.
For the six-month period ended November 30, 2017, the Fund paid CAPCO facility
fees of $1,000, which represents 0.4% of the total fees paid to CAPCO by the
funds of the Trusts. The Fund had no borrowings under this agreement during the
six-month period ended November 30, 2017.
(3) DISTRIBUTIONS
The tax basis of distributions and any accumulated undistributed net investment
income will be determined as of the Fund's tax year-end of May 31, 2018, in
accordance with applicable federal tax law.
Distributions of net investment income and realized gains from security
transactions not offset by capital losses are made annually in the succeeding
fiscal year or as otherwise required to avoid the payment of federal income tax.
At May 31, 2017, the Fund had no capital loss carryforwards, for federal income
tax purposes.
(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, 2017, were
$126,258,000 and $113,082,000, respectively.
================================================================================
46 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
As of November 30, 2017, 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,
2017, were $28,605,000 and $4,085,000, respectively, resulting in net unrealized
appreciation of $24,520,000.
(5) SECURITIES LENDING
The Fund, through its securities lending agreement with Citibank, N.A.
(Citibank), may lend its securities to qualified financial institutions, such as
certain broker-dealers, to earn additional income. The borrowers are required to
secure their loans continuously with collateral in an amount at least equal to
102% of the fair value of domestic securities and foreign government securities
loaned and 105% of the fair value of foreign securities and all other securities
loaned. Collateral may be cash, U.S. government securities, or other securities
as permitted by SEC guidelines. Cash collateral is invested in high-quality
short-term investments. Collateral requirements are determined daily based on
the prior business day's ending value of securities loaned. Risks to the Fund in
securities-lending transactions are that the borrower may not provide additional
collateral when required or return the securities when due, and that the value
of the short-term investments will be less than the amount of cash collateral
required to be returned to the borrower. The Fund's agreement with Citibank does
not include master netting provisions. Non-cash collateral received by the Fund
may not be sold or re-pledged except to satisfy borrower default. Cash
collateral is listed in the Fund's Portfolio of Investments and Financial
Statements while non-cash collateral is not included.
At November 30, 2017, the Fund's value of outstanding securities on loan and the
value of collateral are as follows:
VALUE OF SECURITIES
ON LOAN NON-CASH COLLATERAL CASH COLLATERAL
-----------------------------------------------------------------------------------
$1,030,000 $- $1,058,000
================================================================================
NOTES TO FINANCIAL STATEMENTS | 47
================================================================================
(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 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
all or a portion of the Fund's assets. For the six-month period ended
November 30, 2017, the Fund had no subadviser(s).
The Fund's investment management fee is accrued daily and paid monthly at
an annualized rate of 0.60% of the Fund's average net assets. Prior to
October 1, 2017, the base investment management fee was 0.65% of the Fund's
average net assets. For the six-month period ended November 30, 2017, the
Fund incurred total management fees, paid or payable to the Manager, of
$952,000.
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, 2017, the Fund incurred administration and servicing fees,
paid or payable to the Manager, of $226,000.
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, 2017, the Fund
reimbursed the Manager $4,000 for these compliance and legal services.
These expenses are included in the professional fees on the Fund's
Statement of Operations.
C. EXPENSE LIMITATION - The Manager agreed, through September 30, 2018, to
limit the total annual operating expenses of the Fund to 1.10% of its
================================================================================
48 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
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, 2018, without approval of the
Board, and may be changed or terminated by the Manager at any time after
that date. For the six-month period ended November 30, 2017, the Fund
incurred reimbursable expenses of $282,000, of which $76,000 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, 2017, the Fund incurred transfer agent's fees,
paid or payable to SAS, of $532,000.
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.
(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,
2017, USAA and its affiliates owned 1,111,000 shares, which represents 4.7% 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) SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
During the six-month period ended November 30, 2017, in accordance with
affiliated transaction procedures approved by the Board, purchases and sales of
security transactions were executed between the Fund and the following
================================================================================
NOTES TO FINANCIAL STATEMENTS | 49
================================================================================
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 $581,000 $30,000
Aggressive
Cornerstone Aggressive Cornerstone Moderate 219,000 4,000
Cornerstone Aggressive Cornerstone Moderately 29,000 1,000
Conservative
(9) UPCOMING REGULATORY MATTERS
In October 2016, the U.S. Securities and Exchange Commission (SEC) issued Final
Rule Release No. 33-10231, INVESTMENT COMPANY REPORTING MODERNIZATION. In part,
the rules require the filing of new forms N-PORT and N-CEN, and amend Regulation
S-X to require standardized, enhanced disclosure about derivatives in investment
company financial statements, as well as other amendments.
In October 2016, the SEC issued Final Rule Release No. 33-10233, INVESTMENT
COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS. This rule requires funds to
establish a liquidity risk management program and enhances disclosures regarding
funds' liquidity.
In October 2016, the SEC issued Final Rule Release No. 33-10234, INVESTMENT
COMPANY SWING PRICING. This rule permits certain funds to use swing pricing
during periods of heavy redemptions and requires certain disclosures regarding
the use of swing pricing in forms filed with the SEC.
The Manager continues to evaluate the impact these rules and amendments will
have on the financial statements and other disclosures. The compliance date for
new forms N-PORT and N-CEN is June 1, 2018 (with filing of Form N-PORT beginning
April 30, 2019), with other staggered compliance dates extending through April
30, 2019. The Fund is expected to comply with the June 1, 2018 compliance date
for new forms N-PORT and N-CEN.
================================================================================
50 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
(10) FINANCIAL HIGHLIGHTS
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH PERIOD
PERIOD ENDED YEAR ENDED ENDED
NOVEMBER 30, MAY 31, MAY 31,
----------------------------------------------------------------------------------------
2017 2017 2016 2015 2014 2013***
----------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 12.57 $ 11.33 $ 12.35 $ 12.40 $ 11.30 $ 10.00
-------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .07 .15 .17 .15 .16 .16(a)
Net realized and
unrealized gain (loss) .89 1.26 (.95) .29 1.13 1.43(a)
-------------------------------------------------------------------------------------
Total from investment
operations .96 1.41 (.78) .44 1.29 1.59(a)
-------------------------------------------------------------------------------------
Less distributions from:
Net investment income - (.17) (.16) (.17) (.14) (.12)
Realized capital gains - - (.08) (.32) (.05) (.17)
-------------------------------------------------------------------------------------
Total distributions - (.17) (.24) (.49) (.19) (.29)
-------------------------------------------------------------------------------------
Net asset value at
end of period $ 13.53 $ 12.57 $ 11.33 $ 12.35 $ 12.40 $ 11.30
=====================================================================================
Total return (%)* 7.64 12.59 (6.26) 3.65 11.48 16.05
Net assets at end
of period (000) $316,572 $283,867 $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 1.10(c)
Expenses, excluding
reimbursements (%)(b) 1.29(c) 1.36 1.46 1.45 1.47 1.65(c)
Net investment
income (%) 1.08(c) 1.32 1.57 1.32 1.48 1.46(c)
Portfolio turnover (%) 39 70 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 year ended November 30, 2017, average net assets were $300,370,000.
*** 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 | 51
================================================================================
EXPENSE EXAMPLE
November 30, 2017 (unaudited)
--------------------------------------------------------------------------------
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: direct costs, such
as wire fees, redemption fees, and low balance fees; and indirect costs,
including management fees, transfer agency fees, and other Fund operating
expenses. This example is intended to help you understand your indirect costs,
also referred to as "ongoing costs" (in dollars), of investing in the Fund and
to compare these costs with the ongoing costs of investing in other mutual
funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire six-month period of June 1, 2017, through
November 30, 2017.
ACTUAL EXPENSES
The line labeled "actual" in the table provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested at the beginning of the period, to estimate the
expenses that you paid over the period. Simply divide your account value by
$1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number in the "actual" line under the heading
"Expenses Paid During Period" to estimate the expenses you paid on your account
during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The line labeled "hypothetical" in the table provides information about
hypothetical account values and hypothetical expenses based on the Fund's actual
expense ratio and an assumed rate of return of 5% per year before expenses,
which is not the Fund's actual return. The hypothetical account
================================================================================
52 | 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, 2017 -
JUNE 1, 2017 NOVEMBER 30, 2017 NOVEMBER 30, 2017
-------------------------------------------------------------
Actual $1,000.00 $1,076.40 $5.73
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 7.64% for the six-month period of June 1, 2017, through
November 30, 2017.
================================================================================
EXPENSE EXAMPLE | 53
================================================================================
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Jefferson C. Boyce
Dawn M. Hawley
Paul L. McNamara
Richard Y. Newton III
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
--------------------------------------------------------------------------------
ADMINISTRATOR AND USAA Asset Management Company
INVESTMENT ADVISER P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
UNDERWRITER AND USAA Investment Management Company
DISTRIBUTOR P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
--------------------------------------------------------------------------------
CUSTODIAN AND State Street Bank and Trust Company
ACCOUNTING AGENT P.O. Box 1713
Boston, Massachusetts 02105
--------------------------------------------------------------------------------
INDEPENDENT Ernst & Young LLP
REGISTERED PUBLIC 100 West Houston St., Suite 1700
ACCOUNTING FIRM San Antonio, Texas 78205
--------------------------------------------------------------------------------
MUTUAL FUND Under "My Accounts" on
SELF-SERVICE 24/7 usaa.com select your mutual fund
AT USAA.COM account and either click the link or
select 'I want to...' and select
OR CALL the desired action.
(800) 531-USAA (8722)
(210) 531-8722
--------------------------------------------------------------------------------
Copies of the Manager's proxy voting policies and procedures, approved by the
Trust's Board of Trustees for use in voting proxies on behalf of the Fund, are
available without charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722;
(ii) at USAA.COM; and (iii) in summary within the Statement of Additional
Information on the SEC's website at HTTP://WWW.SEC.GOV. Information regarding
how the Fund voted proxies relating to portfolio securities during the most
recent 12-month period ended June 30 is available without charge (i) at
USAA.COM; and (ii) on the SEC's website at HTTP://WWW.SEC.GOV.
The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. These Forms N-Q are
available at no charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722;
(ii) at USAA.COM; and (iii) on the SEC's website at HTTP://WWW.SEC.GOV. These
Forms N-Q also may be reviewed and copied at the SEC's Public Reference Room in
Washington, D.C. Information on the operation of the Public Reference Room may
be obtained by calling (800) 732-0330.
================================================================================
--------------
USAA PRSRT STD
9800 Fredericksburg Road U.S. Postage
San Antonio, TX 78288 PAID
USAA
--------------
>> SAVE PAPER AND FUND COSTS
Under MY PROFILE on USAA.COM select MANAGE PREFERENCES
Set your DOCUMENT PREFERENCES to USAA DOCUMENTS ONLINE.
[LOGO OF USAA]
USAA We know what it means to serve.(R)
=============================================================================
97452-0118 (C)2018, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA CORNERSTONE CONSERVATIVE FUND]
============================================================
SEMIANNUAL REPORT
USAA CORNERSTONE CONSERVATIVE FUND (USCCX)
NOVEMBER 30, 2017
============================================================
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
INVESTMENT OVERVIEW 2
FINANCIAL INFORMATION
Portfolio of Investments 3
Notes to Portfolio of Investments 5
Financial Statements 6
Notes to Financial Statements 9
EXPENSE EXAMPLE 21
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)2018, USAA. All rights reserved.
================================================================================
================================================================================
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 and exchange-traded funds
(ETFs) (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
================================================================================
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
o ASSET ALLOCATION - 11/30/17 o
INVESTMENT ALLOCATION
--------------------------------------------------------------------------------------------------------------
USAA FUNDS:
Aggressive Growth .................................................................................. 0.6%
Emerging Markets ................................................................................... 1.7%
Growth ............................................................................................. 0.9%
Income Stock ....................................................................................... 1.0%
International ...................................................................................... 6.5%
Precious Metals and Minerals ....................................................................... 0.4%
S&P 500 Index ...................................................................................... 2.8%
Small Cap Stock .................................................................................... 1.4%
Value .............................................................................................. 2.0%
TOTAL EQUITY & ALTERNATIVE ...................................................................... 17.3%
Core Intermediate-Term Bond ETF* ................................................................... 1.8%
Core Short-Term Bond ETF* .......................................................................... 0.1%
MSCI Emerging Markets Value
Momentum Blend Index ETF* ........................................................................ 0.1%
MSCI International Value
Momentum Blend Index ETF* ........................................................................ 1.3%
MSCI USA Small Cap Value
Momentum Blend Index ETF* ........................................................................ -**
MSCI USA Value Momentum
Blend Index ETF* ................................................................................. 1.4%
TOTAL EXCHANGE-TRADED ............................................................................ 4.7%
Flexible Income .................................................................................... 6.8%
Government Securities .............................................................................. 9.9%
High Income ........................................................................................ 4.9%
Income ............................................................................................. 25.8%
Intermediate-Term Bond ............................................................................. 22.9%
Short-Term Bond .................................................................................... 7.2%
TOTAL FIXED-INCOME ............................................................................... 77.5%
CASH EQUIVALENTS:
Money Market Instruments ........................................................................... 0.8%
TOTAL MONEY MARKET INSTRUMENTS ................................................................... 0.8%
*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%
Percentages are of the net assets of the Fund and may not equal 100%.
================================================================================
2 | USAA CORNERSTONE CONSERVATIVE FUND
================================================================================
PORTFOLIO OF INVESTMENTS
November 30, 2017 (unaudited)
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
EQUITY & ALTERNATIVE FUNDS (17.3%)
23,621 USAA Aggressive Growth Fund $ 1,134
172,904 USAA Emerging Markets Fund 3,380
55,642 USAA Growth Fund 1,730
92,428 USAA Income Stock Fund 1,947
382,822 USAA International Fund 12,882
56,945 USAA Precious Metals and Minerals Fund 724
147,709 USAA S&P 500 Index Fund 5,577
139,898 USAA Small Cap Stock Fund 2,781
166,618 USAA Value Fund 3,841
--------
Total Equity & Alternative Funds (cost: $26,594) 33,996
--------
EXCHANGE-TRADED FUNDS (4.6%)
69,500 USAA Core Intermediate-Term Bond ETF 3,479
4,500 USAA Core Short-Term Bond ETF 225
2,100 USAA MSCI Emerging Markets Value Momentum Blend Index ETF* 105
51,100 USAA MSCI International Value Momentum Blend Index ETF* 2,588
1,100 USAA MSCI USA Small Cap Value Momentum Blend Index ETF* 56
51,100 USAA MSCI USA Value Momentum Blend Index ETF* 2,651
--------
Total Exchange-Traded Funds (cost: $9,020) 9,104
--------
FIXED-INCOME FUNDS (77.6%)
1,447,562 USAA Flexible Income Fund 13,448
1,992,006 USAA Government Securities Fund 19,382
1,173,897 USAA High Income Fund 9,567
3,863,673 USAA Income Fund 50,769
4,228,400 USAA Intermediate-Term Bond Fund 45,033
1,551,282 USAA Short-Term Bond Fund 14,210
--------
Total Fixed-Income Funds (cost: $152,308) 152,409
--------
MONEY MARKET INSTRUMENTS (0.8%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (0.8%)
1,602,259 State Street Institutional Treasury Money Market Fund Premier Class, 1.02%(a)
(cost: $1,602) 1,602
--------
TOTAL INVESTMENTS (COST: $189,524) $197,111
========
================================================================================
PORTFOLIO OF INVESTMENTS | 3
================================================================================
------------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
------------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------------------------------------------------------------------------------------------------------------------
Equity & Alternative Funds $ 33,996 $- $- $ 33,996
Exchange-Traded Funds 9,104 9,104
Fixed-Income Funds 152,409 - - 152,409
Money Market Instruments:
Government & U.S. Treasury Money
Market Funds 1,602 - - 1,602
------------------------------------------------------------------------------------------------------------------
Total $197,111 $- $- $197,111
------------------------------------------------------------------------------------------------------------------
For the period of June 1, 2017, through November 30, 2017, there were no
transfers of securities between levels. The Fund's policy is to recognize any
transfers in and transfers out as of the beginning of the reporting period in
which the event or circumstance that caused the transfer occurred.
================================================================================
4 | USAA CORNERSTONE CONSERVATIVE FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
November 30, 2017 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
Market values of securities are determined by procedures and practices
discussed in Note 1A to the financial statements.
The Portfolio of Investments category percentages shown represent the
percentages of the investments to net assets, and, in total, may not equal
100%. A category percentage of 0.0% represents less than 0.1% of net assets.
The underlying USAA 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.
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) Rate represents the money market fund annualized seven-day yield at
November 30, 2017.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 5
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
November 30, 2017 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in affiliated underlying funds, at value (cost of $187,922) $195,509
Investments in other securities, at value (cost of $1,602) 1,602
Receivables:
Capital shares sold 298
Dividends from affiliated underlying funds 189
Interest 2
--------
Total assets 197,600
--------
LIABILITIES
Payables:
Securities purchased 239
Capital shares redeemed 779
Other accrued expenses and payables 68
--------
Total liabilities 1,086
--------
Net assets applicable to capital shares outstanding $196,514
========
NET ASSETS CONSIST OF:
Paid-in capital $190,268
Accumulated undistributed net investment income 1,053
Accumulated net realized loss on investments (2,394)
Net unrealized appreciation of investments 7,587
--------
Net assets applicable to capital shares outstanding $196,514
========
Capital shares outstanding, no par value 18,042
========
Net asset value, redemption price, and offering price per share $ 10.89
========
See accompanying notes to financial statements.
================================================================================
6 | USAA CORNERSTONE CONSERVATIVE FUND
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended November 30, 2017 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Income distributions from affiliated underlying funds $2,460
Interest 15
------
Total income 2,475
------
EXPENSES
Custody and accounting fees 19
Postage 8
Shareholder reporting fees 8
Trustees' fees 17
Registration fees 26
Professional fees 41
Other 8
------
Total expenses 127
Expenses reimbursed (34)
------
Net expenses 93
------
NET INVESTMENT INCOME 2,382
------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on sales of affiliated underlying funds 198
Change in net unrealized appreciation/(depreciation) of affiliated
underlying funds 2,068
------
Net realized and unrealized gain 2,266
------
Increase in net assets resulting from operations $4,648
======
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 7
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended November 30, 2017 (unaudited), and year ended
May 31, 2017
----------------------------------------------------------------------------------------------------
11/30/2017 5/31/2017
----------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 2,382 $ 4,581
Net realized gain (loss) on sales of affiliated underlying funds 198 (72)
Net realized gain on capital gain distributions from
affiliated underlying funds - 240
Change in net unrealized appreciation/(depreciation) of
affiliated underlying funds 2,068 6,864
----------------------------
Increase in net assets resulting from operations 4,648 11,613
----------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (2,392) (4,387)
----------------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 39,203 71,716
Reinvested dividends 2,383 4,355
Cost of shares redeemed (22,082) (46,248)
----------------------------
Increase in net assets from capital
share transactions 19,504 29,823
----------------------------
Net increase in net assets 21,760 37,049
NET ASSETS
Beginning of period 174,754 137,705
----------------------------
End of period $196,514 $174,754
============================
Accumulated undistributed net investment income:
End of period $ 1,053 $ 1,063
============================
CHANGE IN SHARES OUTSTANDING
Shares sold 3,619 6,825
Shares issued for dividends reinvested 221 420
Shares redeemed (2,038) (4,408)
----------------------------
Increase in shares outstanding 1,802 2,837
============================
See accompanying notes to financial statements.
================================================================================
8 | USAA CORNERSTONE CONSERVATIVE FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
November 30, 2017 (unaudited)
--------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company Act
of 1940, as amended (the 1940 Act), is an open-end management investment
company organized as a Delaware statutory trust consisting of 51 separate funds.
Additionally, USAA Cornerstone Conservative Fund (the Fund) qualifies as a
registered investment company under Accounting Standards Codification Topic 946.
The information presented in this semiannual report pertains only to the Fund,
which is classified as diversified under the 1940 Act and is authorized to issue
an unlimited number of shares. The Fund's investment objective is to seek
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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 9
================================================================================
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 the Manager, an
affiliate of the Fund. Among other things, these monthly meetings include a
review and analysis of backtesting reports, pricing service quotation
comparisons, illiquid securities and fair value determinations, pricing
movements, and daily stale price monitoring.
The value of each security is determined (as of the close of trading on
the New York Stock Exchange (NYSE) on each business day the NYSE is open)
as set forth below:
1. 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. Equity securities, including ETFs, except as otherwise noted, traded
primarily on a domestic securities exchange or the over-the-counter
markets, are valued at the last sales price or official closing price on
the exchange or primary market on which they trade. Securities traded
primarily on foreign securities exchanges or markets are valued at the
last quoted sale price, or the most recently determined official closing
price calculated according to local market convention, available at the
time a fund is valued. If no last sale or official closing price is
reported or available, the average of the bid and ask prices generally
is used.
3. 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
================================================================================
10 | USAA CORNERSTONE CONSERVATIVE FUND
================================================================================
value pricing is that securities may not be priced on the basis of
quotations from the primary market in which they are traded and the
actual price realized from the sale of a security may differ materially
from the fair value price. Valuing these securities at fair value is
intended to cause 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.
B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would
be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The
three-level valuation hierarchy disclosed in the Portfolio of Investments
is based upon the transparency of inputs to the valuation of an asset or
liability as of the measurement date. The three levels are defined as
follows:
Level 1 - inputs to the valuation methodology are quoted prices
(unadjusted) in active markets for identical securities.
Level 2 - inputs to the valuation methodology are other significant
observable inputs, including quoted prices for similar securities, inputs
that are observable for the securities, either directly or indirectly, and
market-corroborated inputs such as market indexes.
Level 3 - inputs to the valuation methodology are unobservable and
significant to the fair value measurement, including the Manager's own
assumptions in determining the fair value.
The inputs or methodologies used for valuing securities are not necessarily
an indication of the risks associated with investing in those securities.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 11
================================================================================
C. FEDERAL TAXES - The Fund's policy is to comply with the requirements of
the Internal Revenue Code of 1986, as amended, applicable to regulated
investment companies and to distribute substantially all of its taxable
income and net capital gains, if any, to its shareholders. Therefore, no
federal income tax provision is required.
For the six-month period ended November 30, 2017, the Fund did not incur
any income tax, interest, or penalties, and has recorded no liability for
net unrecognized tax benefits relating to uncertain income tax positions.
On an ongoing basis, the Manager will monitor the Fund's tax 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.
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.
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, 2017, 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.
================================================================================
12 | USAA CORNERSTONE CONSERVATIVE FUND
================================================================================
The Trust's maximum exposure under these arrangements is unknown, as this
would involve future claims that may be made against the Trust that have
not yet occurred. However, the Trust expects the risk of loss to be remote.
G. USE OF ESTIMATES - The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts in the
financial statements.
(2) LINE OF CREDIT
The Fund participates, along with other funds of the Trust and USAA ETF Trust
(together, the Trusts), in a joint, short-term, revolving, committed loan
agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate of
the Manager. The purpose of the agreement is to provide temporary or emergency
cash needs, including redemption requests that might otherwise require the
untimely disposition of securities. Subject to availability (including usage of
the facility by other funds of the Trusts), the Fund may borrow from CAPCO an
amount up to 5% of the Fund's total assets at an interest rate based on the
London Interbank Offered Rate (LIBOR), plus 100.0 basis points.
The Trusts are also assessed facility fees by CAPCO in the amount of 13.0 basis
points of the amount of the committed loan agreement. Prior to September 30,
2017, the maximum annual facility fee was 12.0 basis points of the amount of the
committed loan agreement. The facility fees are allocated among the funds of the
Trusts based on their respective average net assets for the period.
The Trusts may request an optional increase of the committed loan agreement from
$500 million up to $750 million. If the Trusts increase the committed loan
agreement, the assessed facility fee on the amount of the additional commitment
will be 14.0 basis points.
For the six-month period ended November 30, 2017, the Fund paid CAPCO facility
fees of $1,000, which represents 0.2% of the total fees paid to CAPCO by the
funds of the Trusts. The Fund had no borrowings under this agreement during the
six-month period ended November 30, 2017.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 13
================================================================================
(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, 2018, in
accordance with applicable federal tax law. Distributions of net investment
income are made quarterly. Distributions of realized gains from security
transactions not offset by capital losses are made annually in the succeeding
fiscal year or as otherwise required to avoid the payment of federal income tax.
At May 31, 2017, the Fund had net capital loss carryforwards of $2,021,000, 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 $ 109,000
Long-Term 1,912,000
----------
Total $2,021,000
==========
(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, 2017, were
$24,272,000 and $2,750,000, respectively.
As of November 30, 2017, the cost of securities, including short-term
securities, for federal income tax purposes, was approximately the same as the
cost reported in the financial statements.
Gross unrealized appreciation and depreciation of investments as of November 30,
2017, were $8,041,000 and $454,000, respectively, resulting in net unrealized
appreciation of $7,587,000.
(5) SECURITIES LENDING
The Fund, through its securities lending agreement with Citibank, N.A.
(Citibank), may lend its securities to qualified financial institutions, such as
certain broker-dealers, to earn additional income. The borrowers are required
================================================================================
14 | USAA CORNERSTONE CONSERVATIVE FUND
================================================================================
to secure their loans continuously with collateral in an amount at least equal
to 102% of the fair value of domestic securities and foreign government
securities loaned and 105% of the fair value of foreign securities and all other
securities loaned. Collateral may be cash, U.S. government securities, or other
securities as permitted by SEC guidelines. Cash collateral may be invested in
high-quality short-term investments. Collateral requirements are determined
daily based on the value of the Fund's securities on loan as of the end of the
prior business day. Risks relating to securities-lending transactions include
that the borrower may not provide additional collateral when required or return
the securities when due, and that the value of the short-term investments will
be less than the amount of cash collateral required to be returned to the
borrower. The Fund's agreement with Citibank does not include master netting
provisions. Non-cash collateral received by the Fund may not be sold or
re-pledged except to satisfy borrower default. Cash collateral is listed in the
Fund's Portfolio of Investments and Financial Statements while non-cash
collateral is not included. At November 30, 2017, the Fund had no securities on
loan.
(6) 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, 2017, were $2,000 for the Fund.
C. EXPENSE LIMITATION - The Manager agreed, through September 30, 2018, to
limit the total annual operating expenses of the Fund to 0.10% of its
average net assets, excluding extraordinary expenses and before
================================================================================
NOTES TO FINANCIAL STATEMENTS | 15
================================================================================
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, 2018, without
approval of the Board, and may be changed or terminated by the Manager at
any time after that date. For the six-month period ended November 30, 2017,
the Fund incurred reimbursable expenses of $34,000.
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.
(7) TRANSACTIONS WITH AFFILIATES
The Manager is indirectly wholly owned by United Services Automobile Association
(USAA), a large, diversified financial services institution.
Certain trustees and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Fund.
================================================================================
16 | USAA CORNERSTONE CONSERVATIVE FUND
================================================================================
(8) 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, 2017, 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
Core Intermediate-Term Bond ETF 9.9
Core Short-Term Bond ETF 0.8
Emerging Markets 0.3
Flexible Income 17.9
Government Securities 3.1
Growth 0.1
High Income 0.4
Income 0.7
Income Stock 0.1
Intermediate-Term Bond 1.1
International 0.3
MSCI Emerging Markets Value Momentum Blend Index ETF 0.4
MSCI International Value Momentum Blend Index ETF 4.9
MSCI USA Small Cap Value Momentum Blend Index ETF 0.3
MSCI USA Value Momentum Blend Index ETF 3.4
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 | 17
================================================================================
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, 2017:
CHANGE
IN NET
($ IN 000s) REALIZED UNREALIZED
AFFILIATED PURCHASE SALES DIVIDEND GAIN APPRECIATION/ MARKET VALUE
USAA FUND COST(a) PROCEEDS INCOME (LOSS)(b) DEPRECIATION 05/31/2017 11/30/2017
------------------------------------------------------------------------------------------------------------
Aggressive Growth $ - $ - $ - $ - $ 119 $ 1,015 $ 1,134
Core Intermediate-
Term Bond ETF 3,480 - 7 - (1) - 3,479
Core Short-Term
Bond ETF 226 - - - (1) - 225
Emerging Markets - - - - 345 3,035 3,380
Flexible Income 2,554 - 154 - (156) 11,050 13,448
Government
Securities 3,945 - 195 - (248) 15,685 19,382
Growth - - - - 190 1,540 1,730
High Income 301 1,750 301 28 (158) 11,145 9,567
Income 5,559 - 809 - (63) 45,273 50,769
Income Stock 28 1,000 28 170 35 2,714 1,947
Intermediate-Term
Bond 1,876 - 776 - (131) 43,288 45,033
International - - - - 988 11,894 12,882
MSCI Emerging
Markets Value
Momentum Blend
Index ETF 105 - - - - - 105
MSCI International
Value Momentum
Blend Index ETF 2,578 - - - 10 - 2,588
MSCI USA
Small Cap Value
Momentum Blend
Index ETF 55 - - - 1 - 56
MSCI USA Value
Momentum Blend
Index ETF 2,576 - - - 75 - 2,651
Precious Metals
and Minerals - - - - (20) 744 724
S&P 500 Index 145 - 45 - 494 4,938 5,577
Short-Term Bond 644 - 145 - (61) 13,627 14,210
Small Cap Stock 50 - - - 303 2,428 2,781
Value 150 - - - 347 3,344 3,841
(a) Includes reinvestment of distributions from dividend income and realized
gains.
(b) Includes capital gain distributions received in cash, if any.
================================================================================
18 | USAA CORNERSTONE CONSERVATIVE FUND
================================================================================
(9) UPCOMING REGULATORY MATTERS
In October 2016, the U.S. Securities and Exchange Commission (SEC) issued Final
Rule Release No. 33-10231, INVESTMENT COMPANY REPORTING MODERNIZATION. In part,
the rules require the filing of new forms N-PORT and N-CEN, and amend Regulation
S-X to require standardized, enhanced disclosure about derivatives in investment
company financial statements, as well as other amendments.
In October 2016, the SEC issued Final Rule Release No. 33-10233, INVESTMENT
COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS. This rule requires funds to
establish a liquidity risk management program and enhances disclosures regarding
funds' liquidity.
In October 2016, the SEC issued Final Rule Release No. 33-10234, INVESTMENT
COMPANY SWING PRICING. This rule permits certain funds to use swing pricing
during periods of heavy redemptions and requires certain disclosures regarding
the use of swing pricing in forms filed with the SEC.
The Manager continues to evaluate the impact these rules and amendments will
have on the financial statements and other disclosures. The compliance date for
new forms N-PORT and N-CEN is June 1, 2018 (with filing of Form N-PORT beginning
April 30, 2019), with other staggered compliance dates extending through April
30, 2019. The Fund is expected to comply with the June 1, 2018 compliance date
for new forms N-PORT and N-CEN.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 19
================================================================================
(10) 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,
---------------------------------------------------------------------------------
2017 2017 2016 2015 2014 2013***
---------------------------------------------------------------------------------
Net asset value at
beginning of period $ 10.76 $ 10.27 $ 10.68 $ 10.77 $ 10.60 $ 10.00
------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .13 .31 .35 .31 .34(a) .35(a)
Net realized and
unrealized gain (loss) .14 .49 (.37) (.06) .17(a) .46(a)
------------------------------------------------------------------------------
Total from investment
operations .27 .80 (.02) .25 .51(a) .81(a)
------------------------------------------------------------------------------
Less distributions from:
Net investment income (.14) (.31) (.34) (.32) (.32) (.21)
Realized capital gains - - (.05) (.02) (.02) (.00)(b)
------------------------------------------------------------------------------
Total distributions (.14) (.31) (.39) (.34) (.34) (.21)
------------------------------------------------------------------------------
Net asset value at end
of period $ 10.89 $ 10.76 $ 10.27 $ 10.68 $ 10.77 $ 10.60
==============================================================================
Total return (%)* 2.54 7.93 (.05) 2.37 4.99 8.11
Net assets at end of
period (000) $196,514 $174,754 $137,705 $145,626 $109,013 $68,571
Ratios to average
net assets:**,(c)
Expenses (%)(e) .10(d) .10 .10 .10 .10 .10(d)
Expenses, excluding
reimbursements (%)(e) .14(d) .15 .15 .15 .20 .52(d)
Net investment income (%) 2.55(d) 3.02 3.38 3.03 3.27 3.27(d)
Portfolio turnover (%) 2 7(f) 43(g) 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, 2017, average net assets were
$186,327,000.
*** 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) Overall decrease in purchases and sales of securities.
(g) Reflects increased trading activity due to changes in net asset allocation
strategies.
================================================================================
20 | USAA CORNERSTONE CONSERVATIVE FUND
================================================================================
EXPENSE EXAMPLE
November 30, 2017 (unaudited)
--------------------------------------------------------------------------------
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: direct costs, such
as wire fees, redemption fees, and low balance fees; and indirect costs,
including 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, 2017, through
November 30, 2017.
ACTUAL EXPENSES
The line labeled "actual" in the table provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested at the beginning of the period, to estimate the
expenses that you paid over the period. Simply divide your account value by
$1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number in the "actual" line under the heading
"Expenses Paid During Period" to estimate the expenses you paid on your account
during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The line labeled "hypothetical" in the table provides information about
hypothetical account values and hypothetical expenses based on the Fund's
================================================================================
EXPENSE EXAMPLE | 21
================================================================================
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, 2017 -
JUNE 1, 2017 NOVEMBER 30, 2017 NOVEMBER 30, 2017
---------------------------------------------------------------
Actual $1,000.00 $1,025.40 $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 2.54%
for the six-month period of June 1, 2017, through November 30, 2017.
================================================================================
22 | USAA CORNERSTONE CONSERVATIVE FUND
================================================================================
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Jefferson C. Boyce
Dawn M. Hawley
Paul L. McNamara
Richard Y. Newton III
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
--------------------------------------------------------------------------------
ADMINISTRATOR AND USAA Asset Management Company
INVESTMENT ADVISER P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
UNDERWRITER AND USAA Investment Management Company
DISTRIBUTOR P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
--------------------------------------------------------------------------------
CUSTODIAN AND State Street Bank and Trust Company
ACCOUNTING AGENT P.O. Box 1713
Boston, Massachusetts 02105
--------------------------------------------------------------------------------
INDEPENDENT Ernst & Young LLP
REGISTERED PUBLIC 100 West Houston St., Suite 1700
ACCOUNTING FIRM San Antonio, Texas 78205
--------------------------------------------------------------------------------
MUTUAL FUND Under "My Accounts" on
SELF-SERVICE 24/7 usaa.com select your mutual fund
AT USAA.COM account and either click the link or
select 'I want to...' and select
OR CALL the desired action.
(800) 531-USAA (8722)
(210) 531-8722
--------------------------------------------------------------------------------
Copies of the Manager's proxy voting policies and procedures, approved by the
Trust's Board of Trustees for use in voting proxies on behalf of the Fund, are
available without charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722;
(ii) at USAA.COM; and (iii) in summary within the Statement of Additional
Information on the SEC's website at HTTP://WWW.SEC.GOV. Information regarding
how the Fund voted proxies relating to portfolio securities during the most
recent 12-month period ended June 30 is available without charge (i) at
USAA.COM; and (ii) on the SEC's website at HTTP://WWW.SEC.GOV.
The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. These Forms N-Q are
available at no charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722;
(ii) at USAA.COM; and (iii) on the SEC's website at HTTP://WWW.SEC.GOV. These
Forms N-Q also may be reviewed and copied at the SEC's Public Reference Room in
Washington, D.C. Information on the operation of the Public Reference Room may
be obtained by calling (800) 732-0330.
================================================================================
--------------
USAA PRSRT STD
9800 Fredericksburg Road U.S. Postage
San Antonio, TX 78288 PAID
USAA
--------------
>> SAVE PAPER AND FUND COSTS
Under MY PROFILE on USAA.COM select MANAGE PREFERENCES
Set your DOCUMENT PREFERENCES to USAA DOCUMENTS ONLINE.
[LOGO OF USAA]
USAA We know what it means to serve.(R)
=============================================================================
97450-0118 (C)2018, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA CORNERSTONE EQUITY FUND]
==============================================================
SEMIANNUAL REPORT
USAA CORNERSTONE EQUITY FUND (UCEQX)
NOVEMBER 30, 2017
==============================================================
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
INVESTMENT OVERVIEW 2
FINANCIAL INFORMATION
Portfolio of Investments 3
Notes to Portfolio of Investments 4
Financial Statements 5
Notes to Financial Statements 8
EXPENSE EXAMPLE 19
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)2018, USAA. All rights reserved.
================================================================================
================================================================================
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
and exchange-traded funds (ETFs) (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
================================================================================
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
o ASSET ALLOCATION - 11/30/17 o
INVESTMENT ALLOCATION
--------------------------------------------------------------------------------
USAA FUNDS:
Aggressive Growth ........................................................ 1.1%
Emerging Markets ......................................................... 8.9%
Growth ................................................................... 7.1%
Income Stock ............................................................. 6.9%
International ............................................................ 29.4%
Precious Metals and Minerals ............................................. 0.9%
S&P 500 Index ............................................................ 10.7%
Small Cap Stock .......................................................... 4.0%
Value .................................................................... 12.0%
TOTAL EQUITY & ALTERNATIVE ............................................. 81.0%
MSCI Emerging Markets Value
Momentum Blend Index ETF* .............................................. 2.1%
MSCI International Value
Momentum Blend Index ETF* .............................................. 6.4%
MSCI USA Small Cap Value
Momentum Blend Index ETF* .............................................. 1.9%
MSCI USA Value Momentum
Blend Index ETF* ....................................................... 8.2%
TOTAL EXCHANGE-TRADED .................................................. 18.6%
CASH EQUIVALENTS:
Money Market Instruments ................................................. 0.3%
TOTAL MONEY MARKET INSTRUMENTS ......................................... 0.3%
*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%.
================================================================================
2 | USAA CORNERSTONE EQUITY FUND
================================================================================
PORTFOLIO OF INVESTMENTS
November 30, 2017 (unaudited)
-------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------------
EQUITY & ALTERNATIVE FUNDS (81.0%)
41,376 USAA Aggressive Growth Fund $ 1,987
798,695 USAA Emerging Markets Fund 15,615
404,549 USAA Growth Fund 12,581
575,217 USAA Income Stock Fund 12,114
1,543,006 USAA International Fund 51,922
121,320 USAA Precious Metals and Minerals Fund 1,542
500,324 USAA S&P 500 Index Fund 18,892
355,699 USAA Small Cap Stock Fund 7,071
922,007 USAA Value Fund 21,252
--------
Total Equity & Alternative Funds (cost: $112,816) 142,976
--------
EXCHANGE-TRADED FUNDS (18.6%)
72,200 USAA MSCI Emerging Markets Value Momentum Blend Index ETF* 3,599
224,200 USAA MSCI International Value Momentum Blend Index ETF* 11,356
66,200 USAA MSCI USA Small Cap Value Momentum Blend Index ETF* 3,395
280,200 USAA MSCI USA Value Momentum Blend Index ETF* 14,534
--------
Total Exchange-Traded Funds (cost: $32,430) 32,884
--------
MONEY MARKET INSTRUMENTS (0.3%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (0.3%)
546,023 State Street Institutional Treasury Money Market Fund Premier Class, 1.02%(a)
(cost: $546) 546
--------
TOTAL INVESTMENTS (COST: $145,792) $176,406
========
-------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
-------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
-------------------------------------------------------------------------------------------------------------
Equity & Alternative Funds $142,976 $- $- $142,976
Exchange-Traded Funds 32,884 - - 32,884
Money Market Instruments:
Government & U.S. Treasury Money
Market Funds 546 - - 546
-------------------------------------------------------------------------------------------------------------
Total $176,406 $- $- $176,406
-------------------------------------------------------------------------------------------------------------
For the period of June 1, 2017, through November 30, 2017, there were no
transfers of securities between levels. The Fund's policy is to recognize any
transfers in and transfers out as of the beginning of the reporting period in
which the event or circumstance that caused the transfer occurred.
================================================================================
PORTFOLIO OF INVESTMENTS | 3
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
November 30, 2017 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
Market values of securities are determined by procedures and practices
discussed in Note 1A to the financial statements.
The Portfolio of Investments category percentages shown represent the
percentages of the investments to net assets, and, in total, may not equal
100%. A category percentage of 0.0% represents less than 0.1% of net assets.
The underlying USAA 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.
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) Rate represents the money market fund annualized seven-day yield at
November 30, 2017.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
4 | USAA CORNERSTONE EQUITY FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
November 30, 2017 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in affiliated underlying funds, at value (cost of $145,246) $175,860
Investments in other securities, at value (cost of $546) 546
Cash 2,519
Receivables:
Capital shares sold 370
Interest 2
--------
Total assets 179,297
--------
LIABILITIES
Payables:
Securities purchased 2,519
Capital shares redeemed 107
Other accrued expenses and payables 68
--------
Total liabilities 2,694
--------
Net assets applicable to capital shares outstanding $176,603
========
NET ASSETS CONSIST OF:
Paid-in capital $142,970
Accumulated undistributed net investment income 407
Accumulated net realized gain on investments 2,612
Net unrealized appreciation of investments 30,614
--------
Net assets applicable to capital shares outstanding $176,603
========
Capital shares outstanding, no par value 11,268
========
Net asset value, redemption price, and offering price per share $ 15.67
========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 5
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended November 30, 2017 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Income distributions from affiliated underlying funds $ 361
Interest 13
-------
Total income 374
-------
EXPENSES
Custody and accounting fees 19
Postage 10
Shareholder reporting fees 8
Trustees' fees 18
Registration fees 22
Professional fees 41
Other 8
-------
Total expenses 126
Expenses reimbursed (46)
-------
Net expenses 80
-------
NET INVESTMENT INCOME 294
-------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on sales of affiliated underlying funds 2,218
Change in net unrealized appreciation/(depreciation) of
affiliated underlying funds 12,099
-------
Net realized and unrealized gain 14,317
-------
Increase in net assets resulting from operations $14,611
=======
See accompanying notes to financial statements.
================================================================================
6 | USAA CORNERSTONE EQUITY FUND
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended November 30, 2017 (unaudited), and year ended
May 31, 2017
---------------------------------------------------------------------------------------------------
11/30/2017 5/31/2017
---------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 294 $ 1,585
Net realized gain (loss) on sales of affiliated underlying funds 2,218 (130)
Net realized gain on capital gain distributions from
affiliated underlying funds - 1,033
Change in net unrealized appreciation/(depreciation)
of affiliated underlying funds 12,099 17,011
---------------------------
Increase in net assets resulting from operations 14,611 19,499
---------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income - (1,627)
Net realized gains - (1,772)
---------------------------
Distributions to shareholders - (3,399)
---------------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 33,208 56,058
Reinvested dividends - 3,389
Cost of shares redeemed (14,873) (31,864)
---------------------------
Increase in net assets from capital share transactions 18,335 27,583
---------------------------
Net increase in net assets 32,946 43,683
NET ASSETS
Beginning of period 143,657 99,974
---------------------------
End of period $176,603 $143,657
===========================
Accumulated undistributed net investment income:
End of period $ 407 $ 113
===========================
CHANGE IN SHARES OUTSTANDING
Shares sold 2,226 4,188
Shares issued for dividends reinvested - 258
Shares redeemed (997) (2,401)
---------------------------
Increase in shares outstanding 1,229 2,045
===========================
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 7
================================================================================
NOTES TO FINANCIAL STATEMENTS
November 30, 2017 (unaudited)
--------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company Act
of 1940, as amended (the 1940 Act), is an open-end management investment
company organized as a Delaware statutory trust consisting of 51 separate funds.
Additionally, USAA Cornerstone Equity Fund (the Fund) qualifies as a registered
investment company under Accounting Standards Codification Topic 946. The
information presented in this semiannual report pertains only to the Fund, which
is classified as diversified under the 1940 Act and is authorized to issue an
unlimited number of shares. The Fund's investment objective is to seek 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.
================================================================================
8 | 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 backtesting reports, pricing service quotation comparisons,
illiquid securities and fair value determinations, pricing movements, and
daily stale price monitoring.
The value of each security is determined (as of the close of trading on the
New York Stock Exchange (NYSE) on each business day the NYSE is open) as
set forth below:
1. 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. Equity securities, including ETFs, except as otherwise noted, traded
primarily on a domestic securities exchange or the over-the-counter
markets, are valued at the last sales price or official closing price
on the exchange or primary market on which they trade. Securities
traded primarily on foreign securities exchanges or markets are valued
at the last quoted sale price, or the most recently determined official
closing price calculated according to local market convention,
available at the time a fund is valued. If no last sale or official
closing price is reported or available, the average of the bid and ask
prices generally is used.
3. 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 9
================================================================================
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.
For the six-month period ended November 30, 2017, the Fund did not incur
any income tax, interest, or penalties, and has recorded no liability for
================================================================================
10 | USAA CORNERSTONE EQUITY FUND
================================================================================
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.
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.
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, 2017, 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 11
================================================================================
(2) LINE OF CREDIT
The Fund participates, along with other funds of the Trust and USAA ETF Trust
(together, the Trusts), in a joint, short-term, revolving, committed loan
agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate of
the Manager. The purpose of the agreement is to provide temporary or emergency
cash needs, including redemption requests that might otherwise require the
untimely disposition of securities. Subject to availability (including usage of
the facility by other funds of the Trusts), the Fund may borrow from CAPCO an
amount up to 5% of the Fund's total assets at an interest rate based on the
London Interbank Offered Rate (LIBOR), plus 100.0 basis points.
The Trusts are also assessed facility fees by CAPCO in the amount of 13.0 basis
points of the amount of the committed loan agreement. Prior to September 30,
2017, the maximum annual facility fee was 12.0 basis points of the amount of the
committed loan agreement. The facility fees are allocated among the funds of the
Trusts based on their respective average net assets for the period.
The Trusts may request an optional increase of the committed loan agreement from
$500 million up to $750 million. If the Trusts increase the committed loan
agreement, the assessed facility fee on the amount of the additional commitment
will be 14.0 basis points.
For the six-month period ended November 30, 2017, the Fund paid CAPCO facility
fees of $1,000, which represents 0.2% of the total fees paid to CAPCO by the
funds of the Trusts. The Fund had no borrowings under this agreement during the
six-month period ended November 30, 2017.
(3) DISTRIBUTIONS
The tax basis of distributions and any accumulated undistributed net investment
income will be determined as of the Fund's tax year-end of May 31, 2018, in
accordance with applicable federal tax law.
Distributions of net investment income and realized gains from security
transactions not offset by capital losses are made annually in the succeeding
fiscal year or as otherwise required to avoid the payment of federal income tax.
At May 31, 2017, the Fund had no capital loss carryforwards, for federal income
tax purposes.
================================================================================
12 | USAA CORNERSTONE EQUITY FUND
================================================================================
(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, 2017, were
$48,090,000 and $28,450,000, respectively.
As of November 30, 2017, the cost of securities, including short-term
securities, for federal income tax purposes, was approximately the same as the
cost reported in the financial statements.
Gross unrealized appreciation and depreciation of investments as of November 30,
2017, were $30,646,000 and $32,000, respectively, resulting in net unrealized
appreciation of $30,614,000.
(5) SECURITIES LENDING
The Fund, through its securities lending agreement with Citibank, N.A.
(Citibank), may lend its securities to qualified financial institutions, such as
certain broker-dealers, to earn additional income. The borrowers are required to
secure their loans continuously with collateral in an amount at least equal to
102% of the fair value of domestic securities and foreign government securities
loaned and 105% of the fair value of foreign securities and all other securities
loaned. Collateral may be cash, U.S. government securities, or other securities
as permitted by SEC guidelines. Cash collateral may be invested in high-quality
short-term investments. Collateral requirements are determined daily based on
the value of the Fund's securities on loan as of the end of the prior business
day. Risks relating to securities-lending transactions include that the borrower
may not provide additional collateral when required or return the securities
when due, and that the value of the short-term investments will be less than the
amount of cash collateral required to be returned to the borrower. The Fund's
agreement with Citibank does not include master netting provisions. Non-cash
collateral received by the Fund may not be sold or re-pledged except to satisfy
borrower default. Cash collateral is listed in the Fund's Portfolio of
Investments and Financial Statements while non-cash collateral is not included.
At November 30, 2017, the Fund had no securities on loan.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 13
================================================================================
(6) 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, 2017, were $2,000 for the Fund.
C. EXPENSE LIMITATION - The Manager agreed, through September 30, 2018, 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, 2018, without approval of the
Board, and may be changed or terminated by the Manager at any time after
that date. For the six-month period ended November 30, 2017, the Fund
incurred reimbursable expenses of $46,000.
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.
================================================================================
14 | USAA CORNERSTONE EQUITY FUND
================================================================================
(7) TRANSACTIONS WITH AFFILIATES
The Manager is indirectly wholly owned by United Services Automobile Association
(USAA), a large, diversified financial services institution.
Certain trustees and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Fund.
(8) 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, 2017, 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 1.5
Growth 0.4
Income Stock 0.4
International 1.2
MSCI Emerging Markets Value Momentum Blend Index ETF 14.4
MSCI International Value Momentum Blend Index ETF 21.4
MSCI USA Small Cap Value Momentum Blend Index ETF 18.9
MSCI USA Value Momentum Blend Index ETF 18.7
Precious Metals and Minerals 0.3
S&P 500 Index 0.3
Small Cap Stock 0.4
Value 1.3
================================================================================
NOTES TO FINANCIAL STATEMENTS | 15
================================================================================
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, 2017:
CHANGE
IN NET
($ IN 000s) REALIZED UNREALIZED
AFFILIATED PURCHASE SALES DIVIDEND GAIN APPRECIATION/ MARKET VALUE
USAA FUND COST(a) PROCEEDS INCOME (LOSS)(b) DEPRECIATION 05/31/2017 11/30/2017
-------------------------------------------------------------------------------------------------------------------------
Aggressive Growth $ 250 $3,000 $ - $598 $ (139) $ 4,279 $ 1,987
Emerging Markets 950 - - - 1,515 13,150 15,615
Growth 400 - - - 1,369 10,813 12,581
Income Stock 1,356 5,000 156 350 824 14,584 12,114
International 6,550 5,500 - 152 3,980 46,740 51,922
MSCI Emerging
Markets Value
Momentum
Blend Index ETF 3,631 - - - (32) - 3,599
MSCI
International
Value Momentum
Blend Index ETF 11,319 - - - 37 - 11,356
MSCI USA Small
Cap Value
Momentum
Blend Index ETF 3,331 - - - 63 - 3,395
MSCI USA Value
Momentum
Blend Index ETF 14,148 - - - 386 - 14,534
Precious Metals
and Minerals 100 - - - (38) 1,480 1,542
S&P 500 Index 3,705 8,500 205 639 1,518 21,531 18,892
Small Cap Stock 450 6,450 - 479 721 11,870 7,071
Value 1,900 - - - 1,895 17,456 21,252
(a) Includes reinvestment of distributions from dividend income and realized
gains.
(b) Includes capital gain distributions received in cash, if any.
================================================================================
16 | USAA CORNERSTONE EQUITY FUND
================================================================================
(9) UPCOMING REGULATORY MATTERS
In October 2016, the U.S. Securities and Exchange Commission (SEC) issued Final
Rule Release No. 33-10231, INVESTMENT COMPANY REPORTING MODERNIZATION. In part,
the rules require the filing of new forms N-PORT and N-CEN, and amend Regulation
S-X to require standardized, enhanced disclosure about derivatives in investment
company financial statements, as well as other amendments.
In October 2016, the SEC issued Final Rule Release No. 33-10233, INVESTMENT
COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS. This rule requires funds to
establish a liquidity risk management program and enhances disclosures regarding
funds' liquidity.
In October 2016, the SEC issued Final Rule Release No. 33-10234, INVESTMENT
COMPANY SWING PRICING. This rule permits certain funds to use swing pricing
during periods of heavy redemptions and requires certain disclosures regarding
the use of swing pricing in forms filed with the SEC.
The Manager continues to evaluate the impact these rules and amendments will
have on the financial statements and other disclosures. The compliance date for
new forms N-PORT and N-CEN is June 1, 2018 (with filing of Form N-PORT beginning
April 30, 2019), with other staggered compliance dates extending through April
30, 2019. The Fund is expected to comply with the June 1, 2018 compliance date
for new forms N-PORT and N-CEN.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 17
================================================================================
(10) 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,
---------------------------------------------------------------------------------
2017 2017 2016 2015 2014 2013***
---------------------------------------------------------------------------------
Net asset value at
beginning of period $ 14.31 $ 12.51 $ 13.61 $ 13.22 $ 11.71 $ 10.00
------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .02 .19 .16 .24 .17 .12(a)
Net realized and
unrealized gain (loss) 1.34 2.02 (.82) .42 1.55 1.71(a)
------------------------------------------------------------------------------
Total from investment
operations 1.36 2.21 (.66) .66 1.72 1.83(a)
------------------------------------------------------------------------------
Less distributions from:
Net investment income - (.19) (.15) (.24) (.16) (.12)
Realized capital gains - (.22) (.29) (.03) (.05) (.00)(b)
------------------------------------------------------------------------------
Total distributions - (.41) (.44) (.27) (.21) (.12)
------------------------------------------------------------------------------
Net asset value at end
of period $ 15.67 $ 14.31 $ 12.51 $ 13.61 $ 13.22 $ 11.71
==============================================================================
Total return (%)* 9.50 17.99 (4.77) 5.08 14.84 18.39
Net assets at end of
period (000) $176,603 $143,657 $99,974 $91,726 $66,040 $31,555
Ratios to average
net assets:**,(c)
Expenses (%)(d) .10(e) .10 .10 .10 .10 .10(e)
Expenses, excluding
reimbursements (%)(d) .16(e) .20 .22 .24 .33 1.13(e)
Net investment income (%) .37(e) 1.39 1.36 1.77 1.45 1.09(e)
Portfolio turnover (%) 18 7 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, 2017, average net assets were
$159,252,000.
*** 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.
================================================================================
18 | USAA CORNERSTONE EQUITY FUND
================================================================================
EXPENSE EXAMPLE
November 30, 2017 (unaudited)
--------------------------------------------------------------------------------
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: direct costs, such
as wire fees, redemption fees, and low balance fees; and indirect costs,
including 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, 2017, through
November 30, 2017.
ACTUAL EXPENSES
The line labeled "actual" in the table provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested at the beginning of the period, to estimate the
expenses that you paid over the period. Simply divide your account value by
$1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number in the "actual" line under the heading
"Expenses Paid During Period" to estimate the expenses you paid on your account
during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The line labeled "hypothetical" in the table provides information about
hypothetical account values and hypothetical expenses based on the Fund's actual
expense ratio and an assumed rate of return of 5% per year before
================================================================================
EXPENSE EXAMPLE | 19
================================================================================
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, 2017 -
JUNE 1, 2017 NOVEMBER 30, 2017 NOVEMBER 30, 2017
-----------------------------------------------------------
Actual $1,000.00 $1,095.00 $0.53
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 9.50%
for the six-month period of June 1, 2017, through November 30, 2017.
================================================================================
20 | USAA CORNERSTONE EQUITY FUND
================================================================================
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Jefferson C. Boyce
Dawn M. Hawley
Paul L. McNamara
Richard Y. Newton III
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
--------------------------------------------------------------------------------
ADMINISTRATOR AND USAA Asset Management Company
INVESTMENT ADVISER P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
UNDERWRITER AND USAA Investment Management Company
DISTRIBUTOR P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
--------------------------------------------------------------------------------
CUSTODIAN AND State Street Bank and Trust Company
ACCOUNTING AGENT P.O. Box 1713
Boston, Massachusetts 02105
--------------------------------------------------------------------------------
INDEPENDENT Ernst & Young LLP
REGISTERED PUBLIC 100 West Houston St., Suite 1700
ACCOUNTING FIRM San Antonio, Texas 78205
--------------------------------------------------------------------------------
MUTUAL FUND Under "My Accounts" on
SELF-SERVICE 24/7 usaa.com select your mutual fund
AT USAA.COM account and either click the link or
select 'I want to...' and select
OR CALL the desired action.
(800) 531-USAA (8722)
(210) 531-8722
--------------------------------------------------------------------------------
Copies of the Manager's proxy voting policies and procedures, approved by the
Trust's Board of Trustees for use in voting proxies on behalf of the Fund, are
available without charge (i) by calling (800) 531-USAA (8722) or (210)
531-8722; (ii) at USAA.COM; and (iii) in summary within the Statement of
Additional Information on the SEC's website at HTTP://WWW.SEC.GOV. Information
regarding how the Fund voted proxies relating to portfolio securities during
the most recent 12-month period ended June 30 is available without charge (i)
at USAA.COM; and (ii) on the SEC's website at HTTP://WWW.SEC.GOV.
The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. These Forms N-Q are
available at no charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722;
(ii) at USAA.COM; and (iii) on the SEC's website at HTTP://WWW.SEC.GOV. These
Forms N-Q also may be reviewed and copied at the SEC's Public Reference Room
in Washington, D.C. Information on the operation of the Public Reference Room
may be obtained by calling (800) 732-0330.
================================================================================
--------------
USAA PRSRT STD
9800 Fredericksburg Road U.S. Postage
San Antonio, TX 78288 PAID
USAA
--------------
>> SAVE PAPER AND FUND COSTS
Under MY PROFILE on USAA.COM select MANAGE PREFERENCES
Set your DOCUMENT PREFERENCES to USAA DOCUMENTS ONLINE.
[LOGO OF USAA]
USAA We know what it means to serve.(R)
=============================================================================
97453-0118 (C)2018, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA CORNERSTONE MODERATELY AGGRESSIVE FUND]
==============================================================
SEMIANNUAL REPORT
USAA CORNERSTONE MODERATELY AGGRESSIVE FUND (USCRX)
NOVEMBER 30, 2017
==============================================================
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
INVESTMENT OVERVIEW 2
FINANCIAL INFORMATION
Portfolio of investments 4
Notes to Portfolio of Investments 32
Financial Statements 38
Notes to Financial Statements 41
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)2018, USAA. All rights reserved.
================================================================================
================================================================================
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 has 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 Fund's asset allocation is
actively managed by adjusting the Fund's investments among asset classes that
the Fund's manager(s) deems appropriate, using a combination of active security
selection, quantitative investing strategies, and investments in active and
passive exchange-traded funds (ETFs) and futures. The implementation of the
asset allocation may involve the extensive use of equity and fixed-income 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
================================================================================
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
o TOP 10 HOLDINGS* - 11/30/17 O
(% of Net Assets)
Vanguard Short-Term Corporate Bond ETF**................................... 6.1%
Vanguard FTSE Developed Markets ETF**...................................... 5.8%
iShares Core MSCI EAFE ETF**............................................... 3.5%
U.S. Treasury Bond, 3.13%, 8/15/2044....................................... 3.1%
Schwab Fundamental International Large Co.
Index ETF**.............................................................. 3.0%
iShares Core MSCI Emerging Markets ETF**................................... 3.0%
Vanguard Total Bond Market ETF**........................................... 2.4%
Vanguard Short-Term Bond ETF**............................................. 2.3%
U.S. Treasury Bond, 3.00%, 5/15/2045....................................... 2.3%
U.S. Treasury Note, 1.13%, 2/28/2021....................................... 2.3%
*Does not include futures, money market instruments and short-term investments
purchased with cash collateral from securities loaned.
**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 4-31.
================================================================================
2 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
o ASSET ALLOCATION* - 11/30/17 o
[PIE CHART OF ASSET ALLOCATION]
INTERNATIONAL EQUITY SECURITIES** 26.4%
U.S. EQUITY SECURITIES** 23.6%
FIXED INCOME EXCHANGE-TRADED FUNDS** 14.2%
U.S. TREASURY SECURITIES 12.6%
U.S. GOVERNMENT AGENCY ISSUES 8.5%
CORPORATE OBLIGATIONS 4.2%
MONEY MARKET INSTRUMENTS 4.1%
PRECIOUS METALS AND COMMODITY-RELATED SECURITIES** 1.6%
COMMERCIAL MORTGAGE SECURITIES 1.6%
GLOBAL REAL ESTATE EQUITY SECURITIES** 1.1%
ASSET-BACKED SECURITIES 0.7%
EURODOLLAR AND YANKEE OBLIGATIONS 0.5%
CONVERTIBLE SECURITIES 0.2%
COLLATERALIZED MORTGAGE OBLIGATIONS 0.1%
[END CHART]
*Does not include futures and short-term investments purchased with cash
collateral from securities loaned.
**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%.
================================================================================
INVESTMENT OVERVIEW | 3
================================================================================
PORTFOLIO OF INVESTMENTS
November 30, 2017 (unaudited)
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
U.S. EQUITY SECURITIES (23.6%)
COMMON STOCKS (15.4%)
CONSUMER DISCRETIONARY (2.1%)
-----------------------------
APPAREL RETAIL (0.3%)
16,390 American Eagle Outfitters, Inc. $ 264
18,920 Buckle, Inc.(a) 421
8,670 Caleres, Inc. 283
44,570 Foot Locker, Inc. 1,909
70,480 Gap, Inc. 2,277
15,550 TJX Companies, Inc. 1,175
----------
6,329
----------
AUTO PARTS & EQUIPMENT (0.1%)
13,830 American Axle & Manufacturing Holdings, Inc.* 248
2,940 Cooper-Standard Holdings, Inc.* 371
20,540 Gentex Corp. 421
3,120 LCI Industries 408
11,330 Lear Corp. 2,049
----------
3,497
----------
AUTOMOBILE MANUFACTURERS (0.1%)
2,960 Tesla, Inc.*(a) 914
3,460 Thor Industries, Inc. 531
----------
1,445
----------
AUTOMOTIVE RETAIL (0.0%)
4,050 Asbury Automotive Group, Inc.* 267
3,380 Group 1 Automotive, Inc. 274
2,670 Lithia Motors, Inc. "A" 313
----------
854
----------
BROADCASTING (0.2%)
16,976 CBS Corp. "B" 951
95,000 Discovery Communications, Inc. "A"* 1,807
11,155 Entercom Communications Corp. "A" 129
26,510 Gray Television, Inc.* 382
12,120 Sinclair Broadcast Group, Inc. "A"(a) 413
----------
3,682
----------
================================================================================
4 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
CABLE & SATELLITE (0.1%)
87,000 Comcast Corp. "A" $ 3,266
----------
COMPUTER & ELECTRONICS RETAIL (0.0%)
10,090 GameStop Corp. "A"(a) 189
----------
DEPARTMENT STORES (0.1%)
34,040 Kohl's Corp. 1,633
76,550 Macy's, Inc. 1,822
----------
3,455
----------
EDUCATION SERVICES (0.0%)
6,360 Adtalem Global Education, Inc. 264
3,810 Capella Education Co. 325
710 Graham Holdings Co. "B" 414
----------
1,003
----------
GENERAL MERCHANDISE STORES (0.1%)
5,080 Big Lots, Inc. 300
27,270 Target Corp. 1,634
----------
1,934
----------
HOME IMPROVEMENT RETAIL (0.2%)
16,120 Home Depot, Inc. 2,899
12,520 Lowe's Companies, Inc. 1,044
----------
3,943
----------
HOMEBUILDING (0.2%)
1,340 NVR, Inc.* 4,657
11,770 Toll Brothers, Inc. 592
25,200 TRI Pointe Group, Inc.* 457
----------
5,706
----------
HOMEFURNISHING RETAIL (0.1%)
72,550 Bed Bath & Beyond, Inc. 1,624
----------
HOTELS, RESORTS & CRUISE LINES (0.3%)
39,300 Carnival Corp. 2,580
15,770 ILG, Inc. 443
15,200 Marriott International, Inc. "A" 1,930
3,120 Marriott Vacations Worldwide Corp. 419
16,850 Royal Caribbean Cruises Ltd. 2,087
----------
7,459
----------
MOVIES & ENTERTAINMENT (0.1%)
47,630 Viacom, Inc. "B" 1,349
----------
PUBLISHING (0.0%)
5,190 Meredith Corp. 354
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 5
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
RESTAURANTS (0.1%)
6,880 Cheesecake Factory, Inc.(a) $ 337
7,680 DineEquity, Inc. 352
13,460 McDonald's Corp. 2,315
----------
3,004
----------
SPECIALTY STORES (0.1%)
54,650 Dick's Sporting Goods, Inc. 1,610
28,760 Hibbett Sports, Inc.* 574
43,900 Office Depot, Inc. 143
----------
2,327
----------
TIRES & RUBBER (0.0%)
7,500 Cooper Tire & Rubber Co. 276
----------
Total Consumer Discretionary 51,696
----------
CONSUMER STAPLES (1.2%)
-----------------------
AGRICULTURAL PRODUCTS (0.1%)
36,550 Archer-Daniels-Midland Co. 1,458
12,640 Ingredion, Inc. 1,750
----------
3,208
----------
BREWERS (0.1%)
18,790 Molson Coors Brewing Co. "B" 1,468
----------
DISTILLERS & VINTNERS (0.1%)
22,650 Brown-Forman Corp. "B" 1,354
----------
DRUG RETAIL (0.1%)
20,700 CVS Health Corp. 1,586
----------
FOOD DISTRIBUTORS (0.0%)
6,190 Spartannash Co. 157
----------
FOOD RETAIL (0.1%)
55,140 Kroger Co. 1,426
----------
HOUSEHOLD PRODUCTS (0.2%)
54,810 Procter & Gamble Co. 4,932
----------
HYPERMARKETS & SUPER CENTERS (0.1%)
7,480 Costco Wholesale Corp. 1,380
17,940 Wal-Mart Stores, Inc. 1,744
----------
3,124
----------
PACKAGED FOODS & MEAT (0.1%)
15,960 J.M. Smucker Co. 1,862
3,140 Lancaster Colony Corp. 418
================================================================================
6 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
3,730 Sanderson Farms, Inc. $ 633
23,630 Tyson Foods, Inc. "A" 1,944
----------
4,857
----------
PERSONAL PRODUCTS (0.0%)
9,420 USANA Health Sciences, Inc.* 675
----------
SOFT DRINKS (0.2%)
46,260 Coca-Cola Co. 2,117
11,140 Dr. Pepper Snapple Group, Inc. 1,005
23,440 PepsiCo, Inc. 2,731
----------
5,853
----------
TOBACCO (0.1%)
15,670 Philip Morris International, Inc. 1,610
----------
Total Consumer Staples 30,250
----------
ENERGY (0.9%)
-------------
INTEGRATED OIL & GAS (0.1%)
15,110 Chevron Corp. 1,798
----------
OIL & GAS DRILLING (0.0%)
30,930 Rowan Companies plc "A"* 447
----------
OIL & GAS EQUIPMENT & SERVICES (0.0%)
4,400 Dril-Quip, Inc.* 211
----------
OIL & GAS EXPLORATION & PRODUCTION (0.2%)
39,040 California Resources Corp.*(a) 614
124,070 Denbury Resources, Inc.* 217
47,000 Devon Energy Corp. 1,811
42,220 Murphy Oil Corp. 1,180
46,080 Newfield Exploration Co.* 1,425
10,520 WPX Energy, Inc.* 134
----------
5,381
----------
OIL & GAS REFINING & MARKETING (0.4%)
8,543 Andeavor 901
46,250 HollyFrontier Corp. 2,057
34,810 Marathon Petroleum Corp. 2,180
16,490 PBF Energy, Inc. "A"(a) 534
15,690 Phillips 66 1,531
3,120 REX American Resources Corp.* 286
23,620 Valero Energy Corp. 2,022
----------
9,511
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 7
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
OIL & GAS STORAGE & TRANSPORTATION (0.2%)
24,960 Cheniere Energy, Inc.* $ 1,206
68,680 Kinder Morgan, Inc. 1,184
19,620 ONEOK, Inc. 1,018
70,270 Plains Group Holdings, LP "A" 1,447
----------
4,855
----------
Total Energy 22,203
----------
FINANCIALS (2.4%)
-----------------
ASSET MANAGEMENT & CUSTODY BANKS (0.3%)
6,680 Ameriprise Financial, Inc. 1,090
40,690 Franklin Resources, Inc. 1,764
20,590 SEI Investments Co. 1,449
14,470 T. Rowe Price Group, Inc. 1,489
23,820 Waddell & Reed Financial, Inc. "A" 484
----------
6,276
----------
CONSUMER FINANCE (0.3%)
18,660 American Express Co. 1,823
16,670 Capital One Financial Corp. 1,534
33,910 Discover Financial Services 2,394
5,090 Encore Capital Group, Inc.* 233
28,560 Enova International, Inc.* 424
21,240 SLM Corp.* 246
39,964 Synchrony Financial 1,434
2,410 World Acceptance Corp.* 200
----------
8,288
----------
DIVERSIFIED BANKS (0.2%)
53,047 Citigroup, Inc. 4,005
18,400 U.S. Bancorp 1,015
----------
5,020
----------
FINANCIAL EXCHANGES & DATA (0.1%)
10,970 Moody's Corp. 1,666
10,800 MSCI, Inc. 1,390
----------
3,056
----------
INSURANCE BROKERS (0.1%)
11,400 Aon plc 1,598
13,760 Marsh & McLennan Companies, Inc. 1,155
----------
2,753
----------
INVESTMENT BANKING & BROKERAGE (0.1%)
23,980 E*Trade Financial Corp.* 1,155
29,030 Greenhill & Co., Inc.(a) 589
================================================================================
8 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
4,330 Raymond James Financial, Inc. $ 382
----------
2,126
----------
LIFE & HEALTH INSURANCE (0.2%)
20,140 AFLAC, Inc. 1,765
19,990 Athene Holding Ltd. "A"* 961
3,350 Primerica, Inc. 348
17,020 Principal Financial Group, Inc. 1,205
11,800 Prudential Financial, Inc.(b) 1,367
----------
5,646
----------
MULTI-LINE INSURANCE (0.1%)
12,330 American Financial Group, Inc. 1,295
----------
MULTI-SECTOR HOLDINGS (0.0%)
3,430 Berkshire Hathaway, Inc. "B"* 662
----------
PROPERTY & CASUALTY INSURANCE (0.2%)
10,570 Allstate Corp.(b) 1,085
8,550 Employers Holdings, Inc. 419
11,230 First American Financial Corp. 624
25,680 Old Republic International Corp. 539
30,260 Progressive Corp. 1,609
8,500 W.R. Berkley Corp. 588
----------
4,864
----------
REGIONAL BANKS (0.5%)
5,360 Bank of Hawaii Corp. 455
31,290 BB&T Corp. 1,546
10,890 Comerica, Inc. 907
29,890 East West Bancorp, Inc. 1,839
82,910 Fifth Third Bancorp 2,530
13,950 First Financial Bancorp 396
84,420 KeyCorp 1,602
4,980 M&T Bank Corp. 841
6,490 PNC Financial Services Group, Inc. 912
101,850 Regions Financial Corp. 1,690
20,750 TCF Financial Corp. 422
----------
13,140
----------
REINSURANCE (0.1%)
4,010 Everest Re Group Ltd. 880
24,950 Maiden Holdings Ltd. 162
13,580 Reinsurance Group of America, Inc. 2,201
----------
3,243
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 9
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE (0.2%)
18,240 BofI Holding, Inc.*(a) $ 504
6,430 Farmer Mac "C" 477
12,710 Homestreet, Inc.* 388
4,390 Meta Financial Group, Inc. 412
23,270 Nationstar Mortgage Holdings, Inc.* 421
41,910 NMI Holdings, Inc. "A"* 715
16,580 Provident Financial Services, Inc. 453
31,610 Radian Group, Inc. 648
6,330 Walker & Dunlop, Inc.* 312
13,470 Washington Federal, Inc. 469
----------
4,799
----------
Total Financials 61,168
----------
HEALTH CARE (2.1%)
------------------
BIOTECHNOLOGY (0.6%)
16,270 AbbVie, Inc. 1,577
20,400 Amgen, Inc. 3,584
8,360 Biogen, Inc.* 2,693
5,280 Eagle Pharmaceuticals, Inc.* 312
29,760 Gilead Sciences, Inc. 2,225
13,840 Myriad Genetics, Inc.* 479
12,860 United Therapeutics Corp.* 1,672
12,080 Vertex Pharmaceuticals, Inc.* 1,743
----------
14,285
----------
HEALTH CARE DISTRIBUTORS (0.1%)
18,810 AmerisourceBergen Corp. 1,596
17,640 Cardinal Health, Inc. 1,044
7,520 McKesson Corp. 1,111
----------
3,751
----------
HEALTH CARE EQUIPMENT (0.3%)
21,170 Baxter International, Inc. 1,387
4,720 C.R. Bard, Inc. 1,586
10,900 Globus Medical, Inc. "A"* 414
5,900 IDEXX Laboratories, Inc.* 923
5,560 Intuitive Surgical, Inc.* 2,223
4,750 Masimo Corp.* 422
----------
6,955
----------
HEALTH CARE FACILITIES (0.1%)
9,100 HealthSouth Corp. 455
18,700 Select Medical Holdings Corp.* 330
11,130 Universal Health Services, Inc. "B" 1,206
----------
1,991
----------
================================================================================
10 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
HEALTH CARE SERVICES (0.2%)
5,640 AMN Healthcare Services, Inc.* $ 283
2,370 Chemed Corp. 583
16,140 DaVita, Inc.* 985
26,800 Express Scripts Holding Co.* 1,747
28,330 MEDNAX, Inc.* 1,410
12,600 Quest Diagnostics, Inc. 1,241
----------
6,249
----------
HEALTH CARE SUPPLIES (0.1%)
4,830 Align Technology, Inc.* 1,260
4,880 Cooper Companies, Inc. 1,177
----------
2,437
----------
LIFE SCIENCES TOOLS & SERVICES (0.2%)
6,840 Cambrex Corp.* 334
6,360 INC Research Holdings, Inc. "A"* 244
3,440 Mettler-Toledo International, Inc.* 2,164
6,760 Thermo Fisher Scientific, Inc. 1,303
9,200 Waters Corp.* 1,814
----------
5,859
----------
MANAGED HEALTH CARE (0.2%)
6,980 Anthem, Inc. 1,640
10,560 Centene Corp.* 1,078
6,000 Cigna Corp. 1,270
----------
3,988
----------
PHARMACEUTICALS (0.3%)
18,080 Bristol-Myers Squibb Co. 1,143
26,400 Corcept Therapeutics, Inc.* 474
43,580 Mallinckrodt plc* 951
40,030 Mylan N.V.* 1,462
79,040 Pfizer, Inc. 2,866
9,570 Phibro Animal Health Corp. "A" 332
32,770 Sucampo Pharmaceuticals, Inc. "A"* 416
6,350 Supernus Pharmaceuticals, Inc.* 240
----------
7,884
----------
Total Health Care 53,399
----------
INDUSTRIALS (1.7%)
------------------
AEROSPACE & DEFENSE (0.3%)
8,470 Boeing Co. 2,344
3,470 General Dynamics Corp. 719
6,900 Huntington Ingalls Industries, Inc. 1,668
================================================================================
PORTFOLIO OF INVESTMENTS | 11
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
9,130 L3 Technologies, Inc. $ 1,813
4,120 Moog, Inc. "A"* 347
7,640 Rockwell Collins, Inc. 1,011
3,170 Teledyne Technologies, Inc.* 590
----------
8,492
----------
AIRLINES (0.2%)
23,040 American Airlines Group, Inc. 1,163
26,570 Delta Air Lines, Inc. 1,406
14,090 JetBlue Airways Corp.* 302
6,620 SkyWest, Inc. 345
16,630 United Continental Holdings, Inc.* 1,053
----------
4,269
----------
BUILDING PRODUCTS (0.0%)
26,280 NCI Building Systems, Inc.* 439
----------
COMMERCIAL PRINTING (0.0%)
5,310 Deluxe Corp. 378
9,200 LSC Communications, Inc. 150
----------
528
----------
CONSTRUCTION & ENGINEERING (0.1%)
6,080 EMCOR Group, Inc. 491
21,580 Jacobs Engineering Group, Inc. 1,416
14,900 KBR, Inc. 280
----------
2,187
----------
CONSTRUCTION MACHINERY & HEAVY TRUCKS (0.1%)
8,160 Cummins, Inc. 1,366
4,380 Greenbrier Companies, Inc.(a) 219
20,820 PACCAR, Inc. 1,464
11,720 Wabash National Corp. 236
----------
3,285
----------
DIVERSIFIED SUPPORT SERVICES (0.0%)
15,880 Copart, Inc.* 685
7,780 Viad Corp. 448
----------
1,133
----------
ELECTRICAL COMPONENTS & EQUIPMENT (0.2%)
18,670 Atkore International Group, Inc.* 398
17,630 Eaton Corp. plc 1,371
3,680 EnerSys 254
4,330 Regal-Beloit Corp. 333
8,820 Rockwell Automation, Inc. 1,703
----------
4,059
----------
================================================================================
12 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
ENVIRONMENTAL & FACILITIES SERVICES (0.1%)
33,720 Republic Services, Inc. $ 2,190
----------
HUMAN RESOURCE & EMPLOYMENT SERVICES (0.1%)
12,360 ManpowerGroup, Inc. 1,593
----------
INDUSTRIAL CONGLOMERATES (0.1%)
3,740 3M Co. 909
3,730 Roper Technologies, Inc. 997
----------
1,906
----------
INDUSTRIAL MACHINERY (0.3%)
7,220 Barnes Group, Inc. 478
4,880 Crane Co. 417
12,870 Illinois Tool Works, Inc. 2,178
15,300 Ingersoll-Rand plc 1,341
2,610 Nordson Corp. 335
7,900 Snap-On, Inc. 1,338
8,110 Stanley Black & Decker, Inc. 1,376
----------
7,463
----------
OFFICE SERVICES & SUPPLIES (0.0%)
10,090 Herman Miller, Inc. 361
----------
RESEARCH & CONSULTING SERVICES (0.0%)
16,030 Navigant Consulting, Inc.* 308
----------
TRADING COMPANIES & DISTRIBUTORS (0.2%)
5,000 GATX Corp. 316
10,800 United Rentals, Inc.* 1,722
7,650 W.W. Grainger, Inc. 1,693
----------
3,731
----------
TRUCKING (0.0%)
4,040 Old Dominion Freight Line, Inc. 522
----------
Total Industrials 42,466
----------
INFORMATION TECHNOLOGY (3.7%)
-----------------------------
APPLICATION SOFTWARE (0.2%)
46,120 Cadence Design Systems, Inc.* 2,025
26,610 Citrix Systems, Inc.* 2,332
9,600 Intuit, Inc. 1,509
----------
5,866
----------
COMMUNICATIONS EQUIPMENT (0.4%)
5,060 Arista Networks, Inc.* 1,179
75,307 Cisco Systems, Inc. 2,809
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
8,760 F5 Networks, Inc.* $ 1,176
8,990 Harris Corp. 1,299
3,340 InterDigital, Inc. 254
68,590 Juniper Networks, Inc. 1,904
5,650 Plantronics, Inc. 296
----------
8,917
----------
DATA PROCESSING & OUTSOURCED SERVICES (0.8%)
11,040 Alliance Data Systems Corp. 2,642
25,690 Automatic Data Processing, Inc. 2,940
17,140 Convergys Corp. 423
8,620 CSG Systems International, Inc. 396
18,090 Fiserv, Inc.* 2,378
24,340 MasterCard, Inc. "A" 3,662
5,060 MAXIMUS, Inc. 350
20,120 PayPal Holdings, Inc.* 1,524
91,730 Sabre Corp. 1,826
14,540 Vantiv, Inc. "A"* 1,090
17,290 Visa, Inc. "A"(a) 1,947
----------
19,178
----------
ELECTRONIC COMPONENTS (0.1%)
26,970 Amphenol Corp. "A" 2,443
----------
ELECTRONIC EQUIPMENT & INSTRUMENTS (0.0%)
9,060 Keysight Technologies, Inc.* 394
----------
ELECTRONIC MANUFACTURING SERVICES (0.0%)
12,200 Benchmark Electronics, Inc.* 372
11,870 Jabill, Inc. 343
6,630 Sanmina Corp.* 225
----------
940
----------
HOME ENTERTAINMENT SOFTWARE (0.1%)
21,530 Activision Blizzard, Inc. 1,343
11,160 Electronic Arts, Inc.* 1,187
----------
2,530
----------
INTERNET SOFTWARE & SERVICES (0.4%)
33,480 Akamai Technologies, Inc.* 1,868
47,430 eBay, Inc.* 1,645
15,980 Facebook, Inc. "A"* 2,831
28,290 VeriSign, Inc.*(a) 3,256
----------
9,600
----------
================================================================================
14 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
IT CONSULTING & OTHER SERVICES (0.5%)
25,500 Accenture plc "A" $ 3,774
2,520 CACI International, Inc. "A"* 333
41,050 Cognizant Technology Solutions Corp. "A" 2,967
13,180 DXC Technology Co. 1,267
23,180 Hackett Group, Inc. 379
24,280 International Business Machines Corp. 3,738
3,870 Science Applications International Corp. 287
14,520 Teradata Corp.* 552
----------
13,297
----------
SEMICONDUCTOR EQUIPMENT (0.2%)
6,380 Advanced Energy Industries, Inc.* 478
22,560 Applied Materials, Inc. 1,191
5,490 Cabot Microelectronics Corp. 529
8,970 KLA-Tencor Corp. 917
10,560 Lam Research Corp. 2,031
12,520 Teradyne, Inc. 507
9,020 Xperi Corp. 174
----------
5,827
----------
SEMICONDUCTORS (0.4%)
5,630 Cirrus Logic, Inc.* 311
44,640 Intel Corp. 2,002
13,300 Microchip Technology, Inc. 1,157
54,390 Micron Technology, Inc.* 2,305
4,370 NVIDIA Corp. 877
21,520 QUALCOMM, Inc. 1,428
11,050 Texas Instruments, Inc. 1,075
----------
9,155
----------
SYSTEMS SOFTWARE (0.2%)
55,890 CA, Inc. 1,848
8,370 Microsoft Corp. 705
49,780 Oracle Corp. 2,442
----------
4,995
----------
TECHNOLOGY DISTRIBUTORS (0.1%)
5,190 Arrow Electronics, Inc.* 419
9,670 Avnet, Inc. 400
18,490 CDW Corp. 1,295
4,720 ePlus, Inc.* 383
5,730 Insight Enterprises, Inc.* 223
3,100 Tech Data Corp.* 300
----------
3,020
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 15
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (0.3%)
133,200 Hewlett Packard Enterprise Co. $ 1,858
28,210 Seagate Technology plc 1,088
20,260 Western Digital Corp. 1,598
60,640 Xerox Corp. 1,798
----------
6,342
----------
Total Information Technology 92,504
----------
MATERIALS (0.5%)
----------------
COMMODITY CHEMICALS (0.1%)
14,620 LyondellBasell Industries N.V. "A" 1,531
6,450 Trinseo S.A. 476
----------
2,007
----------
DIVERSIFIED CHEMICALS (0.0%)
12,347 DowDuPont, Inc. 889
----------
DIVERSIFIED METALS & MINING (0.0%)
78,530 Freeport-McMoRan, Inc.* 1,093
----------
METAL & GLASS CONTAINERS (0.1%)
26,650 Crown Holdings, Inc.* 1,592
----------
PAPER PACKAGING (0.1%)
10,940 Avery Dennison Corp. 1,248
9,900 Sonoco Products Co. 530
----------
1,778
----------
PAPER PRODUCTS (0.0%)
5,820 Neenah Paper, Inc. 520
8,420 Schweitzer-Mauduit International, Inc. 381
----------
901
----------
SPECIALTY CHEMICALS (0.2%)
12,100 Celanese Corp. "A" 1,298
4,780 Innospec, Inc. 341
8,000 Kraton Corp.* 376
3,220 Minerals Technologies, Inc. 233
9,980 Rayonier Advanced Materials, Inc. 188
3,130 Sherwin-Williams Co. 1,250
3,880 Stepan Co. 323
----------
4,009
----------
STEEL (0.0%)
34,180 SunCoke Energy, Inc.* 389
5,190 Worthington Industries, Inc. 216
----------
605
----------
Total Materials 12,874
----------
================================================================================
16 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES (0.3%)
---------------------------------
ALTERNATIVE CARRIERS (0.1%)
71,284 CenturyLink, Inc. $ 1,040
34,260 Zayo Group Holdings, Inc.* 1,210
----------
2,250
----------
INTEGRATED TELECOMMUNICATION SERVICES (0.1%)
63,710 AT&T, Inc. 2,318
33,270 Verizon Communications, Inc. 1,693
----------
4,011
----------
WIRELESS TELECOMMUNICATION SERVICES (0.1%)
34,580 T-Mobile US, Inc.* 2,112
----------
Total Telecommunication Services 8,373
----------
UTILITIES (0.5%)
----------------
ELECTRIC UTILITIES (0.0%)
16,690 Hawaiian Electric Industries, Inc. 640
38,200 Spark Energy, Inc. "A"(a) 478
----------
1,118
----------
GAS UTILITIES (0.1%)
29,104 UGI Corp. 1,426
----------
MULTI-UTILITIES (0.4%)
90,380 Ameren Corp. 5,781
108,210 CenterPoint Energy, Inc. 3,247
----------
9,028
----------
Total Utilities 11,572
----------
Total Common Stocks (cost: $349,763) 386,505
----------
PREFERRED STOCKS (0.9%)
CONSUMER STAPLES (0.2%)
-----------------------
AGRICULTURAL PRODUCTS (0.2%)
40,000 Dairy Farmers of America, Inc., 7.88%, cumulative redeemable, perpetual(b),(c) 4,152
----------
ENERGY (0.2%)
-------------
OIL & GAS EXPLORATION & PRODUCTION (0.2%)
8,600 Chesapeake Energy Corp., 5.75%, perpetual(b),(c) 4,972
----------
FINANCIALS (0.3%)
-----------------
LIFE & HEALTH INSURANCE (0.3%)
381,253 Delphi Financial Group, Inc., 4.61%, cumulative redeemable,
3 mo. USD LIBOR + 3.19%(h) 7,763
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
REINSURANCE (0.0%)
3,000 American Overseas Group Ltd., 5.12%, non-cumulative,
3 mo. USD LIBOR + 3.56%*(d),(e),(h),(r) $ 750
----------
Total Financials 8,513
----------
TELECOMMUNICATION SERVICES (0.2%)
---------------------------------
ALTERNATIVE CARRIERS (0.2%)
200,000 Qwest Corp., 6.50%(b) 4,693
----------
Total Preferred Stocks (cost: $27,034) 22,330
----------
EXCHANGE-TRADED FUNDS (7.3%)
236,600 Consumer Discretionary Select Sector SPDR Fund 22,868
385,800 Consumer Staples Select Sector SPDR Fund 21,624
262,200 Health Care Select Sector SPDR Fund 21,886
311,800 Industrial Select Sector SPDR Fund 23,232
17,200 SPDR S&P 500 ETF Trust 4,558
223,440 Vanguard S&P 500 ETF 54,374
132,100 Vanguard Small-Cap Value ETF 17,565
114,110 Vanguard Total Stock Market ETF 15,558
----------
Total Exchange-Traded Funds (cost: $160,213) 181,665
----------
Total U.S. Equity Securities (cost: $537,010) 590,500
----------
INTERNATIONAL EQUITY SECURITIES (26.4%)
COMMON STOCKS (0.1%)
CONSUMER DISCRETIONARY (0.1%)
-----------------------------
AUTO PARTS & EQUIPMENT (0.1%)
14,980 Delphi Automotive plc 1,568
----------
ENERGY (0.0%)
-------------
OIL & GAS EQUIPMENT & SERVICES (0.0%)
38,910 TechnipFMC plc 1,114
----------
Total Common Stocks (cost: $2,591) 2,682
----------
EXCHANGE-TRADED FUNDS (26.3%)
1,337,975 iShares Core MSCI EAFE ETF 88,079
1,326,386 iShares Core MSCI Emerging Markets ETF 74,079
390,800 iShares Edge MSCI Min Volatility Emerging Markets ETF 23,135
468,200 iShares Edge MSCI Min Volatility EAFE ETF 34,066
350,100 PowerShares FTSE RAFI Developed Markets ex-U.S. Portfolio 15,754
1,116,600 PowerShares FTSE RAFI Emerging Markets Portfolio 23,940
1,379,900 Schwab Fundamental Emerging Markets Large Co. Index ETF 40,321
2,478,900 Schwab Fundamental International Large Co. Index ETF 75,755
================================================================================
18 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
509,600 Schwab Fundamental International Small Co. Index ETF $ 18,244
107,983 SPDR S&P Emerging Markets Small Cap ETF 5,519
214,970 Vanguard FTSE All-World ex-US ETF 11,626
3,267,000 Vanguard FTSE Developed Markets ETF 145,578
544,380 Vanguard FTSE Emerging Markets ETF 24,214
564,450 Vanguard FTSE Europe ETF 33,060
182,288 WisdomTree Emerging Markets SmallCap Dividend Fund 9,014
693,900 WisdomTree India Earnings Fund 18,555
304,200 WisdomTree Japan Hedged Equity Fund 17,829
----------
Total Exchange-Traded Funds (cost: $547,365) 658,768
----------
Total International Equity Securities (cost: $549,956) 661,450
----------
PRECIOUS METALS AND COMMODITY-RELATED SECURITIES (1.6%)
GOLD (0.4%)
AFRICAN GOLD COMPANIES (0.1%)
30,000 AngloGold Ashanti Ltd. ADR 314
25,000 Endeavour Mining Corp.* 452
74,000 Gold Fields Ltd. ADR 313
----------
1,079
----------
AUSTRALIAN GOLD COMPANIES (0.0%)
25,000 Newcrest Mining Ltd. 441
----------
EUROPEAN GOLD COMPANIES (0.0%)
6,700 Randgold Resources Ltd. ADR 615
----------
NORTH AMERICAN GOLD COMPANIES (0.3%)
12,200 Agnico-Eagle Mines Ltd. 533
80,395 Alamos Gold, Inc. "A" 510
35,351 AuRico Metals, Inc.* 49
180,000 B2Gold Corp.* 459
23,000 Barrick Gold Corp. 317
88,000 Centerra Gold, Inc.* 498
227,400 Dundee Precious Metals, Inc.* 522
151,000 Eldorado Gold Corp. 171
36,000 Goldcorp, Inc. 455
196,721 Hycroft Mining Corp.*(d),(e),(r) 59
125,000 IAMGOLD Corp.* 679
120,000 Kinross Gold Corp.* 499
55,000 Kirkland Lake Gold Ltd. 792
110,000 New Gold, Inc.* 341
20,000 Newmont Mining Corp. 740
8,800 Royal Gold, Inc. 728
77,884 SEMAFO, Inc.* 193
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
45,000 Tahoe Resources, Inc. $ 199
113,000 Yamana Gold, Inc. 287
----------
8,031
----------
SOUTH AMERICAN GOLD COMPANIES (0.0%)
44,000 Compania de Minas Buenaventura S.A.ADR 615
----------
Total Gold (cost: $17,800) 10,781
----------
SILVER (0.0%)
27,500 MAG Silver Corp.* 291
25,000 Pan American Silver Corp. 379
25,000 Wheaton Precious Metals Corp. 522
----------
Total Silver (cost: $1,112) 1,192
----------
EXCHANGE-TRADED FUNDS (1.2%)
74,000 First Trust Global Tactical Commodity Strategy Fund* 1,518
256,100 PowerShares DB Commodity Index Tracking Fund* 4,138
492,000 United States Commodity Index Fund* 20,167
27,000 VanEck Vectors Gold Miners ETF 607
101,000 VanEck Vectors Junior Gold Miners ETF 3,197
----------
Total Exchange-Traded Funds (cost: $32,755) 29,627
----------
Total Precious Metals and Commodity-Related Securities (cost: $51,667) 41,600
----------
GLOBAL REAL ESTATE EQUITY SECURITIES (1.1%)
COMMON STOCKS (0.4%)
REAL ESTATE SERVICES (0.1%)
46,920 CBRE Group, Inc. "A"* 2,034
20,360 HFF, Inc. "A" 919
----------
2,953
----------
REITs - HEALTH CARE (0.0%)
23,630 Sabra Health Care REIT, Inc. 455
----------
REITs - HOTEL & RESORT (0.0%)
29,000 RLJ Lodging Trust 629
----------
REITs - RETAIL (0.1%)
114,990 Brixmor Property Group, Inc. 2,078
----------
REITs - SPECIALIZED (0.2%)
17,980 American Tower Corp. 2,588
9,420 SBA Communications Corp.* 1,599
----------
4,187
----------
Total Common Stocks (cost: $9,776) 10,302
----------
================================================================================
20 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
PREFERRED STOCKS (0.1%)
REITs - MORTGAGE (0.1%)
60,000 Arbor Realty Trust, Inc., 7.38%*(b) (cost: $1,500) $ 1,534
----------
EXCHANGE-TRADED FUNDS (0.6%)
182,920 Vanguard REIT ETF (cost: $14,776) 15,436
----------
Total Global Real Estate Equity Securities (cost: $26,052) 27,272
----------
------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON
(000) RATE MATURITY
------------------------------------------------------------------------------------------------------------------
BONDS (42.6%)
CORPORATE OBLIGATIONS (4.2%)
CONSUMER DISCRETIONARY (0.4%)
-----------------------------
DEPARTMENT STORES (0.1%)
$ 2,481 Neiman Marcus Group Ltd., LLC, LIBOR + 3.25%(f) 4.49% 10/25/2020 2,034
----------
SPECIALTY STORES (0.3%)
4,778 Academy Ltd., LIBOR + 4%(f) 5.31 7/01/2022 3,860
3,000 Guitar Center, Inc.(b),(c) 6.50 4/15/2019 2,831
----------
6,691
----------
Total Consumer Discretionary 8,725
----------
CONSUMER STAPLES (0.1%)
-----------------------
FOOD RETAIL (0.1%)
2,100 BI-LO, LLC & BI-LO Finance Corp.(b),(c) 9.25 2/15/2019 2,021
----------
ENERGY (0.4%)
-------------
OIL & GAS DRILLING (0.0%)
3,683 Schahin II Finance Co. SPV Ltd.(c),(g) 5.88 9/25/2023 553
----------
OIL & GAS STORAGE & TRANSPORTATION (0.4%)
1,300 Enbridge Energy Partners, LP(b) 7.38 10/15/2045 1,703
3,030 Energy Transfer Partners, LP, 3 mo.
USD LIBOR + 3.0175%(b) 4.39(h) 11/01/2066 2,725
2,352 Southern Union Co., 3 mo.
USD LIBOR + 3.0175%(b) 4.39(h) 11/01/2066 2,024
2,300 Tallgrass Energy GP, LP(b),(c) 5.50 9/15/2024 2,398
----------
8,850
----------
Total Energy 9,403
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 21
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
FINANCIALS (3.0%)
-----------------
ASSET MANAGEMENT & CUSTODY BANKS (0.5%)
$ 2,600 Ares Capital Corp.(b) 3.63% 1/19/2022 $ 2,618
9,200 Prospect Capital Corp.(b) 5.00 7/15/2019 9,433
----------
12,051
----------
LIFE & HEALTH INSURANCE (0.3%)
4,800 Prudential Financial, Inc.,
3 mo. USD LIBOR + 3.92% 5.63(h) 6/15/2043 5,208
3,000 StanCorp Financial Group, Inc.,
3 mo. USD LIBOR + 2.51%(b) 3.83(h) 6/01/2067 3,000
----------
8,208
----------
MULTI-LINE INSURANCE (0.4%)
10,510 Nationwide Mutual Insurance Co.,
3 mo. USD LIBOR + 2.29%(b),(c) 3.61(h) 12/15/2024 10,511
----------
MULTI-SECTOR HOLDINGS (0.3%)
5,325 BNSF Funding Trust I,
3 mo. USD LIBOR + 2.35%(b) 6.61(h) 12/15/2055 6,111
----------
PROPERTY & CASUALTY INSURANCE (0.7%)
5,200 Allstate Corp., 3 mo. USD LIBOR + 2.938% 5.75(h) 8/15/2053 5,681
5,479 AmTrust Financial Services, Inc.(a) 6.13 8/15/2023 5,349
4,521 AmTrust Financial Services, Inc.(b) 2.75 12/15/2044 3,275
4,050 HSB Group, Inc., 3 mo. USD LIBOR + 0.91%(b) 2.27(h) 7/15/2027 3,613
----------
17,918
----------
REGIONAL BANKS (0.8%)
1,000 Allfirst Preferred Capital Trust,
3 mo. USD LIBOR + 1.5%(b) 2.86(h) 7/15/2029 956
2,200 Compass Bank(b) 3.88 4/10/2025 2,204
8,000 Cullen/Frost Capital Trust II,
3 mo. USD LIBOR + 1.55%(b) 2.87(h) 3/01/2034 7,142
4,000 First Maryland Capital Trust I,
3 mo. USD LIBOR + 1%(b) 2.36(h) 1/15/2027 3,775
2,000 Huntington Capital Trust II "B",
3 mo. USD LIBOR + 0.625%(b) 1.95(h) 6/15/2028 1,793
5,039 Manufacturers & Traders Trust Co.,
3 mo. USD LIBOR + 0.64%(b) 1.96(h) 12/01/2021 5,013
----------
20,883
----------
Total Financials 75,682
----------
================================================================================
22 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
HEALTH CARE (0.1%)
------------------
HEALTH CARE FACILITIES (0.1%)
$ 5,000 Community Health Systems, Inc.(b) 6.88% 2/01/2022 $ 3,037
----------
INDUSTRIALS (0.0%)
------------------
AIRLINES (0.0%)
402 America West Airlines, Inc.
Pass-Through Trust (INS)(b) 7.93 7/02/2020 413
----------
ELECTRICAL COMPONENTS & EQUIPMENT (0.0%)
800 Artesyn Embedded Technologies, Inc.(b),(c) 9.75 10/15/2020 788
----------
Total Industrials 1,201
----------
REAL ESTATE (0.1%)
------------------
REAL ESTATE DEVELOPMENT (0.0%)
950 Crescent Communities, LLC /
Crescent Ventures, Inc.(b),(c) 8.88 10/15/2021 1,014
----------
REITs - HEALTH CARE (0.1%)
1,000 Sabra Health Care, LP(b) 5.13 8/15/2026 1,018
----------
Total Real Estate 2,032
----------
UTILITIES (0.1%)
----------------
ELECTRIC UTILITIES (0.0%)
500 NextEra Energy Capital Holdings, Inc.,
3 mo. USD LIBOR + 3.348%(b) 4.66(h) 9/01/2067 500
----------
MULTI-UTILITIES (0.1%)
2,300 WEC Energy Group, Inc.,
3 mo. USD LIBOR + 2.1125%(b) 3.53(h) 5/15/2067 2,221
----------
Total Utilities 2,721
----------
Total Corporate Obligations (cost: $100,750) 104,822
----------
CONVERTIBLE SECURITIES (0.2%)
MATERIALS (0.2%)
----------------
GOLD (0.2%)
906 Hycroft Mining Corp.(d),(e),(i),(r) 15.00(s) 10/22/2020 1,259
3,750 Pretium Resources, Inc.(c) 2.25 3/15/2022 3,846
----------
5,105
----------
Total Materials 5,105
----------
Total Convertible Securities (cost: $4,511) 5,105
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 23
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
EURODOLLAR AND YANKEE OBLIGATIONS (0.5%)
ENERGY (0.2%)
-------------
INTEGRATED OIL & GAS (0.1%)
$ 2,850 Petroleos Mexicanos Co.(b),(c) 5.38% 3/13/2022 $ 3,054
----------
OIL & GAS STORAGE & TRANSPORTATION (0.1%)
1,400 TransCanada Trust, 3 mo. USD LIBOR + 3.528%(b) 5.63(h) 5/20/2075 1,484
----------
Total Energy 4,538
----------
FINANCIALS (0.2%)
-----------------
PROPERTY & CASUALTY INSURANCE (0.2%)
5,650 QBE Capital Funding III Ltd., USD Swap
Semi-Annual 30/360 10 YR + 4.05%(b),(c) 7.25(h) 5/24/2041 6,293
----------
MATERIALS (0.1%)
----------------
GOLD (0.1%)
3,000 Newcrest Finance Property Ltd.(b),(c) 4.45 11/15/2021 3,159
----------
Total Eurodollar and Yankee Obligations (cost: $12,696) 13,990
----------
ASSET-BACKED SECURITIES (0.7%)
FINANCIALS (0.7%)
-----------------
ASSET-BACKED FINANCING (0.7%)
2,700 Avis Budget Rental Car Funding AESOP, LLC(c) 2.96 7/20/2020 2,706
1,700 Avis Budget Rental Car Funding AESOP, LLC(c) 3.75 7/20/2020 1,703
780 Napier Park Rail Lease, LLC 3.37 10/21/2047 780
1,600 Navient Student Loan Trust,
1 mo. USD LIBOR + 1.5% 2.83(h) 8/25/2050 1,596
2,385 SCF Equipment Trust, LLC(c) 3.41 12/20/2023 2,384
3,000 SLC Student Loan Trust, 3 mo. USD LIBOR + 0.45% 1.81(h) 7/15/2036 2,860
2,305 SLM Student Loan Trust, 3 mo. USD LIBOR + 0.22% 1.59(h) 1/25/2041 2,144
892 SLM Student Loan Trust, 3 mo. USD LIBOR + 0.55% 1.92(h) 10/25/2065 854
2,374 Synchrony Credit Card Master Note Trust 2.95 5/15/2024 2,381
----------
17,408
----------
Total Financials 17,408
----------
Total Asset-Backed Securities (cost: $16,445) 17,408
----------
COLLATERALIZED MORTGAGE OBLIGATIONS (0.1%)
FINANCIALS (0.1%)
-----------------
739 Sequoia Mortgage Trust, 1 mo. USD LIBOR + 0.9% 2.18(h) 9/20/2033 719
709 Wells Fargo Mortgage Backed Securities Trust 3.30(q) 4/25/2035 670
----------
Total Financials 1,389
----------
Total Collateralized Mortgage Obligations (cost: $1,420) 1,389
----------
================================================================================
24 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
COMMERCIAL MORTGAGE SECURITIES (1.6%)
FINANCIALS (1.6%)
-----------------
COMMERCIAL MORTGAGE-BACKED SECURITIES (1.4%)
$ 113 Banc of America Commercial Mortgage, Inc.(c) 5.60%(q) 12/10/2042 $ 109
5,167 Banc of America Commercial Mortgage, Inc. 5.76 7/10/2044 3,712
3,500 Banc of America Commercial Mortgage, Inc. 6.47(q) 2/10/2051 3,509
2,672 Bear Stearns Commercial Mortgage Securities, Inc.(c) 5.66(q) 9/11/2041 2,695
1,000 Citigroup Commercial Mortgage Trust 6.42(q) 12/10/2049 645
573 Commercial Mortgage Trust 5.38 12/10/2046 577
10,567 Credit Suisse Commercial Mortgage
Pass-Through Trust, 1 mo. USD LIBOR + 0.19% 1.46(h) 2/15/2040 9,949
6,900 FREMF Mortgage Trust(c) 3.68(q) 8/25/2045 7,002
2,030 GE Capital Commercial Mortgage Corp. 5.61(q) 12/10/2049 2,057
333 GMAC Commercial Mortgage Securities, Inc. 4.97 12/10/2041 335
1,000 GMAC Commercial Mortgage Securities, Inc. 4.98(q) 12/10/2041 1,013
2,472 J.P. Morgan Chase Commercial
Mortgage Securities Corp. 5.37 5/15/2047 2,489
1,174 ML-CFC Commercial Mortgage Trust 5.98(q) 8/12/2049 1,181
256 Morgan Stanley Capital I Trust 5.57(q) 3/12/2044 255
----------
35,528
----------
INTEREST-ONLY COMMERCIAL MORTGAGE-BACKED SECURITIES (0.2%)
25,748 CSAIL Commercial Mortgage Trust(d) 1.97(q) 1/15/2049 2,722
21,173 UBS Commercial Mortgage Trust(c),(d) 2.08(q) 5/10/2045 1,557
----------
4,279
----------
Total Financials 39,807
----------
Total Commercial Mortgage Securities (cost: $40,860) 39,807
----------
U.S. GOVERNMENT AGENCY ISSUES (8.5%)(j)
COMMERCIAL MORTGAGE-BACKED SECURITIES (1.4%)
3,750 Fannie Mae(+) 2.15 1/25/2023 3,697
8,000 Freddie Mac(+) 3.51 4/25/2030 8,291
8,400 Freddie Mac(+) 3.33 5/25/2025 8,757
14,000 Freddie Mac(+) 3.00 12/25/2025 14,234
----------
34,979
----------
MORTGAGE-BACKED PASS-THROUGH SECURITIES (7.1%)
6,899 Fannie Mae(+)(b) 4.00 11/01/2045 7,215
13,357 Freddie Mac(+)(b) 3.00 4/01/2046 13,350
32,169 Freddie Mac(+)(b) 3.00 6/01/2046 32,151
4,549 Freddie Mac(+)(b) 3.00 8/01/2046 4,546
13,371 Freddie Mac(+)(b) 3.00 1/01/2047 13,362
38,098 Freddie Mac(+)(b) 3.00 3/01/2047 38,054
================================================================================
PORTFOLIO OF INVESTMENTS | 25
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 8,919 Freddie Mac(+)(b) 3.00% 4/01/2047 $ 8,911
27,092 Freddie Mac(+)(b) 3.00 4/01/2047 27,065
14,705 Freddie Mac(+)(b) 3.00 6/01/2047 14,693
18,612 Freddie Mac(+)(b) 3.50 4/01/2046 19,099
7 Government National Mortgage Assn. I(b) 6.50 4/15/2024 8
----------
178,454
----------
Total U.S. Government Agency Issues (cost: $214,372) 213,433
----------
U.S. TREASURY SECURITIES (12.6%)
BONDS (6.3%)(o)
72,700 3.13%, 8/15/2044 76,916
11,520 3.18%, 8/15/2044 (STRIPS Principal)(k) 5,367
13,000 3.00%, 11/15/2044 13,440
55,500 3.00%, 5/15/2045 57,348
5,000 3.00%, 5/15/2047 5,166
----------
158,237
----------
INFLATION-INDEXED NOTES (1.0%)
24,989 0.13%, 4/15/2021(b) 24,831
----------
NOTES (5.3%)(o)
58,000 1.13%, 2/28/2021(p) 56,475
19,000 1.63%, 4/30/2023 18,453
1,000 2.38%, 8/15/2024 1,004
5,000 2.25%, 11/15/2025 4,958
48,000 1.63%, 2/15/2026 45,305
6,500 2.38%, 5/15/2027 6,473
----------
132,668
----------
Total U.S. Treasury Securities (cost: $311,657) 315,736
----------
------------------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES
------------------------------------------------------------------------------------------------------------------
EXCHANGE-TRADED FUNDS (14.2%)
134,100 iShares 1-3 Year Credit Bond ETF 14,055
174,650 iShares Core U.S. Aggregate Bond ETF 19,051
277,500 PowerShares Fundamental High Yield Corporate Bond Portfolio 5,267
860,900 Vanguard Mortgage-Backed Securities ETF 45,232
739,700 Vanguard Short-Term Bond ETF 58,702
1,924,700 Vanguard Short-Term Corporate Bond ETF 153,264
750,200 Vanguard Total Bond Market ETF 61,149
----------
Total Exchange-Traded Funds (cost: $358,149) 356,720
----------
Total Bonds (cost: $1,060,860) 1,068,410
----------
================================================================================
26 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS (4.1%)
COMMERCIAL PAPER (3.8%)
CONSUMER DISCRETIONARY (0.6%)
-----------------------------
AUTOMOBILE MANUFACTURERS (0.2%)
$ 4,879 Hyundai Capital America(b),(c),(l) 1.48% 1/09/2018 $ 4,871
----------
AUTOMOTIVE RETAIL (0.2%)
5,677 Autozone Inc.(b),(c),(l) 1.43 1/04/2018 5,669
----------
HOME FURNISHINGS (0.2%)
3,495 Leggett & Platt, Inc.(b),(c),(l) 1.36 12/06/2017 3,495
----------
Total Consumer Discretionary 14,035
----------
CONSUMER STAPLES (0.8%)
-----------------------
BREWERS (0.2%)
5,100 Molson Coors Brewing Co.(b),(c),(l) 1.50 12/08/2017 5,098
----------
DISTILLERS & VINTNERS (0.1%)
1,446 Constellation Brands, Inc.(b),(c),(l) 1.50 12/07/2017 1,446
----------
PACKAGED FOODS & MEAT (0.5%)
7,000 Campbell Soup Co.(b),(c),(l) 1.27 12/04/2017 6,999
6,000 Tyson Foods, Inc.(b),(c),(l) 1.31 12/06/2017 5,999
----------
12,998
----------
Total Consumer Staples 19,542
----------
ENERGY (1.3%)
-------------
OIL & GAS DRILLING (0.3%)
7,200 Nabors Industries, Inc.(b),(c),(l) 2.00 1/08/2018 7,181
----------
OIL & GAS EXPLORATION & PRODUCTION (0.1%)
3,398 EOG Resources, Inc.(b),(c),(l) 1.40 12/20/2017 3,396
----------
OIL & GAS STORAGE & TRANSPORTATION (0.9%)
5,000 Enbridge Energy Partners(b),(c),(l) 2.01 12/14/2017 4,996
4,070 Energy Transfer Partners(b),(c),(l) 1.75 12/05/2017 4,069
1,161 Spectra Energy Partners(b),(c),(l) 1.47 12/11/2017 1,161
7,100 Spectra Energy Partners(b),(c),(l) 1.47 12/18/2017 7,095
4,464 Spectra Energy Partners, LP(b),(c),(l) 1.40 12/04/2017 4,464
----------
21,785
----------
Total Energy 32,362
----------
MATERIALS (0.6%)
----------------
DIVERSIFIED CHEMICALS (0.4%)
2,042 Ei Du Pont De Nemours(b),(c),(l) 1.37 12/05/2017 2,042
2,177 Ei Du Pont De Nemours(b),(c),(l) 1.34 12/08/2017 2,176
================================================================================
PORTFOLIO OF INVESTMENTS | 27
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 3,760 Ei Du Pont De Nemours(b),(c),(l) 1.35% 12/12/2017 $ 3,758
3,240 Ei Du Pont De Nemours(b),(c),(l) 1.38 12/19/2017 3,238
----------
11,214
----------
PAPER PACKAGING (0.2%)
5,000 Westrock Co.(b),(c),(l) 1.35 12/07/2017 4,999
----------
Total Materials 16,213
----------
UTILITIES (0.5%)
----------------
ELECTRIC UTILITIES (0.2%)
5,847 Florida Power & Light Co.(b) 1.37 12/29/2017 5,841
----------
GAS UTILITIES (0.3%)
7,100 Southern Co. Gas Capital(b),(c),(l) 1.37 12/12/2017 7,097
----------
Total Utilities 12,938
----------
Total Commercial Paper (cost: $95,090) 95,090
----------
------------------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES
------------------------------------------------------------------------------------------------------------------
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (0.3%)
8,026,615 State Street Institutional Treasury Money Market Fund
Premier Class, 1.02%(b),(m) (cost: $8,026) 8,026
----------
Total Money Market Instruments (cost: $103,116) 103,116
----------
SHORT-TERM INVESTMENTS PURCHASED WITH
CASH COLLATERAL FROM SECURITIES LOANED (0.2%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (0.2%)
65,220 Federated Government Obligations Fund Institutional Class, 0.94%(m) 65
3,411,243 Goldman Sachs Financial Square Government Fund Institutional Class, 0.96%(m) 3,411
2,014,618 Invesco Government & Agency Portfolio Institutional Class, 0.98%(m) 2,015
106,321 Morgan Stanley Institutional Liquidity Funds Government
Portfolio Institutional Class, 0.97%(m) 107
211,117 Western Asset Institutional Government Reserves Institutional Class, 1.00%(m) 211
----------
Total Short-Term Investments Purchased with Cash
Collateral from Securities Loaned (cost: $5,809) 5,809
----------
TOTAL INVESTMENTS (COST: $2,334,470) $2,498,157
==========
================================================================================
28 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
UNREALIZED
NOTIONAL CONTRACT APPRECIATION/
NUMBER OF EXPIRATION AMOUNT VALUE (DEPRECIATION)
CONTRACTS SECURITY DATE (000) (000) (000)
------------------------------------------------------------------------------------------------------------------
FUTURES(n)
LONG FUTURES
EQUITY CONTRACTS
1,170 E-mini S&P 500 12/15/2017 143,972 USD $ 154,902 $10,930
1,853 Euro Stoxx 50 12/15/2017 64,790 EURO 78,804 1,688
363 TOPIX Index 12/07/2017 5,979,724 JPY 57,960 4,828
--------- -------
291,666 17,446
--------- -------
TOTAL LONG FUTURES $ 291,666 $17,446
--------- -------
SHORT FUTURES
INTEREST RATE CONTRACTS
(411) U.S. Treasury Bond 3/20/2018 (63,060) USD $ (62,356) $ 704
--------- -------
EQUITY CONTRACTS
(241) E-mini S&P Midcap 400 12/15/2017 (43,086) USD (45,790) (2,704)
--------- -------
TOTAL SHORT FUTURES $(108,146) $(2,000)
--------- -------
TOTAL FUTURES $ 183,520 $15,446
========= =======
================================================================================
PORTFOLIO OF INVESTMENTS | 29
================================================================================
------------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
------------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------------------------------------------------------------------------------------------------------------------
U.S. Equity Securities:
Common Stocks $ 386,505 $ - $ - $ 386,505
Preferred Stocks - 21,580 750 22,330
Exchange-Traded Funds 181,665 - - 181,665
International Equity Securities:
Common Stocks 2,682 - - 2,682
Exchange-Traded Funds 658,768 - - 658,768
Precious Metals and Commodity-
Related Securities:
Common Stocks 11,914 - 59 11,973
Exchange-Traded Funds 29,627 - - 29,627
Global Real Estate Equity Securities:
Common Stocks 10,302 - - 10,302
Preferred Stocks - 1,534 - 1,534
Exchange-Traded Funds 15,436 - - 15,436
Bonds:
Corporate Obligations - 104,822 - 104,822
Convertible Securities - 3,846 1,259 5,105
Eurodollar and Yankee Obligations - 13,990 - 13,990
Asset-Backed Securities - 17,408 - 17,408
Collateralized Mortgage Obligations - 1,389 - 1,389
Commercial Mortgage Securities - 39,807 - 39,807
U.S. Government Agency Issues - 213,433 - 213,433
U.S. Treasury Securities 310,369 5,367 - 315,736
Exchange-Traded Funds 356,720 - - 356,720
Money Market Instruments:
Commercial Paper - 95,090 - 95,090
Government & U.S. Treasury Money
Market Funds 8,026 - - 8,026
Short-Term Investments Purchased
with Cash Collateral from
Securities Loaned:
Government & U.S. Treasury
Money Market Funds 5,809 - - 5,809
Futures(1) 18,150 - - 18,150
------------------------------------------------------------------------------------------------------------------
Total $1,995,973 $518,266 $2,068 $2,516,307
------------------------------------------------------------------------------------------------------------------
LIABILITIES LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------------------------------------------------------------------------------------------------------------------
Futures(1) $ (2,704) $ - $ - $ (2,704)
------------------------------------------------------------------------------------------------------------------
Total $ (2,704) $ - $ - $ (2,704)
------------------------------------------------------------------------------------------------------------------
(1) Futures are valued at the unrealized appreciation/(depreciation) on the
investment.
================================================================================
30 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
------------------------------------------------------------------------------------------------------------------
RECONCILIATION OF LEVEL 3 INVESTMENTS
------------------------------------------------------------------------------------------------------------------
COMMON PREFERRED CONVERTIBLE
($ IN 000s) STOCKS STOCKS SECURITIES
------------------------------------------------------------------------------------------------------------------
Balance as of May 31, 2017 $ 256 $600 $1,642
Purchases - - 64
Sales - - -
Transfers into Level 3 - - -
Transfers out of Level 3 - - -
Net realized gain (loss) on investments - - -
Change in net unrealized appreciation/(depreciation) of investments (197) 150 (447)
------------------------------------------------------------------------------------------------------------------
Balance as of November 30, 2017 $ 59 $750 $1,259
------------------------------------------------------------------------------------------------------------------
For the period of June 1, 2017, through November 30, 2017, there were no
transfers of securities between levels. The Fund's policy is to recognize any
transfers in and transfers out as of the beginning of the reporting period in
which the event or circumstance that caused the transfer occurred.
------------------------------------------------------------------------------------------------------------------
QUANTITATIVE INFORMATION ABOUT LEVEL 3 FAIR VALUE MEASUREMENTS**
------------------------------------------------------------------------------------------------------------------
FAIR VALUE AT SIGNIFICANT
NOVEMBER 30, 2017 VALUATION UNOBSERVABLE RANGE/
ASSETS ($ IN 000's) TECHNIQUE(S) INPUT(S) VALUE
------------------------------------------------------------------------------------------------------------------
BONDS:
Convertible Securities $1,259 Market Average $58.24
Comparables Value
Per
Recoverable
Ounce(a)
Comparable 40%
Discount
Adjustment(b)
------------------------------------------------------------------------------------------------------------------
(a)Represents amounts used when the reporting entity has determined that
market participants would use such multiples when pricing the security.
(b)Represents amounts used when the reporting entity has determined that
market participants would take into account these discounts when pricing
the security.
** Quantitative Information table includes certain Level 3 securities using
valuation models.
Increases in the earnings before interest, taxes, depreciation, and
amortization (EBITDA), revenue multiples, transaction prices, average value per
recoverable ounce, or earnings per share will increase the value of the
security while an increase in the discount adjustment or a discount for the
lack of marketability will decrease the value of the security.
================================================================================
PORTFOLIO OF INVESTMENTS | 31
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
November 30, 2017 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
Market values of securities are determined by procedures and practices
discussed in Note 1A to the financial statements.
The Portfolio of Investments category percentages shown represent the
percentages of the investments to net assets, and, in total, may not equal
100%. A category percentage of 0.0% represents less than 0.1% of net assets.
Investments in foreign securities were 27.7% of net assets at November 30,
2017.
The Fund may rely on certain Securities and Exchange Commission (SEC)
exemptive orders or rules that permit funds meeting various conditions to
invest in an exchange-traded fund (ETF) in amounts exceeding limits set
forth in the Investment Company Act of 1940, as amended, that would
otherwise be applicable.
o 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
================================================================================
32 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
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 cash flows than regular mortgage
securities, but such cash flows 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.
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
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 33
================================================================================
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. Inflation
adjustments to the face value of these securities are included in interest
income.
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.
LIBOR London Interbank Offered Rate
REIT Real estate investment trust - Dividend distributions from REITs may
be recorded as income and later characterized by the REIT at the end
of the fiscal year as capital gains or a return of capital. Thus, the
fund will estimate the components of distributions from these
securities and revise when actual distributions are known.
STRIPS Separate trading of registered interest and principal of securities
USD U.S. Dollar
CREDIT ENHANCEMENTS - Adds the financial strength of the provider of the
enhancement to support the issuer's ability to repay the principal and
interest payments when due. The enhancement may be provided by a
high-quality bank, insurance company or other corporation, or a collateral
trust. The enhancements do not guarantee the market values of the
securities.
(INS) Principal and interest payments are insured by 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.
================================================================================
34 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
o SPECIFIC NOTES
(a) The security, or a portion thereof, was out on loan as of November
30, 2017.
(b) The security, or a portion thereof, is segregated to cover the value of
open futures contracts at November 30, 2017.
(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) Security deemed illiquid by the Manager, under liquidity guidelines
approved by the Board. The aggregate market value of these securities at
November 30, 2017, was $6,347,000, which represented 0.3% of the Fund's
net assets.
(e) Security was fair valued at November 30, 2017, by the Manager in
accordance with valuation procedures approved by the Board. The total
value of all such securities was $2,068,000, which represented 0.1% of
the Fund's net assets.
(f) Senior loan (loan) - is not registered under the Securities Act of
1933. The loan contains certain restrictions on resale and cannot be
sold publicly. The stated interest rate represents the weighted average
interest rate of all contracts within the loan facility. The interest
rate is adjusted periodically, and the rate disclosed represents the
current rate at November 30, 2017. The weighted average life of the loan
is likely to be shorter than the stated final maturity date due to
mandatory or optional prepayments. The loan is deemed liquid by the
Manager, under liquidity guidelines approved by the Board, unless
otherwise noted as illiquid.
(g) At November 30, 2017, the issuer was in default with respect to
interest and/or principal payments.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 35
================================================================================
(h) Variable-rate security - interest rate is adjusted periodically. The
interest rate disclosed represents the rate at November 30, 2017.
(i) 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.
(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 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(a)(2) Commercial Paper).
Unless this commercial paper is subsequently registered, a
================================================================================
36 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
resale of this commercial paper in the United States must be effected in
a transaction exempt from registration under the Securities Act of 1933.
Section 4(a)(2) Commercial Paper is normally resold to other investors
through or with the assistance of the issuer or an 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, 2017.
(n) The contract value of futures purchased and/or sold as a percentage
of net assets is 7.3%.
(o) Rates for U.S. Treasury notes or bonds represent the stated coupon
payment rate at time of issuance.
(p) Securities with a value of $1,947,000 are segregated as collateral
for initial margin requirements on open futures contracts.
(q) Stated interest rates may change slightly over time as underlying
mortgages pay down.
(r) Security was fair valued at Level 3.
(s) All of the coupon is PIK.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 37
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
November 30, 2017 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value
(including securities on loan of $7,529) (cost of $2,334,470) $2,498,157
Cash denominated in foreign currencies (identified cost of $6,064) 6,518
Receivables:
Capital shares sold 547
Dividends and interest 4,221
Securities sold 835
Other 17
Variation margin on futures contracts 15,468
----------
Total assets 2,525,763
----------
LIABILITIES
Payables:
Upon return of securities loaned 5,809
Securities purchased 629
Capital shares redeemed 908
Bank overdraft 9,791
Accrued management fees 1,208
Accrued transfer agent's fees 95
Other accrued expenses and payables 351
----------
Total liabilities 18,791
----------
Net assets applicable to capital shares outstanding $2,506,972
==========
NET ASSETS CONSIST OF:
Paid-in capital $2,150,386
Accumulated undistributed net investment income 29,496
Accumulated net realized gain on investments and futures transactions 147,536
Net unrealized appreciation of investments and futures contracts 179,133
Net unrealized depreciation of foreign capital gains tax (33)
Net unrealized appreciation of foreign currency translations 454
----------
Net assets applicable to capital shares outstanding $2,506,972
==========
Capital shares outstanding, no par value 90,766
==========
Net asset value, redemption price, and offering price per share $ 27.62
==========
See accompanying notes to financial statements.
================================================================================
38 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended November 30, 2017 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $3) $ 18,098
Interest 13,102
Securities lending (net) 128
--------
Total income 31,328
--------
EXPENSES
Management fees 7,233
Administration and servicing fees 1,839
Transfer agent's fees 2,351
Custody and accounting fees 189
Postage 126
Shareholder reporting fees 63
Trustees' fees 17
Registration fees 23
Professional fees 100
Other 19
--------
Total expenses 11,960
--------
NET INVESTMENT INCOME 19,368
--------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS,
FOREIGN CURRENCY, AND FUTURES CONTRACTS
Net realized gain on:
Investments 98,893
Foreign currency transactions 49
Futures transactions 12,196
Change in net unrealized appreciation/(depreciation) of:
Investments 2,188
Foreign capital gains tax (23)
Foreign currency translations 358
Futures contracts 6,589
--------
Net realized and unrealized gain 120,250
--------
Increase in net assets resulting from operations $139,618
========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 39
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended November 30, 2017 (unaudited), and year ended
May 31, 2017
------------------------------------------------------------------------------------------------------------------
11/30/2017 5/31/2017
------------------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 19,368 $ 41,137
Net realized gain on investments 98,893 64,969
Net realized gain on long-term capital gain distributions
from other investment companies - 200
Net realized gain (loss) on foreign currency transactions 49 (19)
Net realized loss on options - (633)
Net realized gain on futures transactions 12,196 16,216
Change in net unrealized appreciation/(depreciation) of:
Investments 2,188 103,200
Foreign capital gains tax (23) (10)
Foreign currency translations 358 114
Futures contracts 6,589 8,692
-----------------------------
Increase in net assets resulting from operations 139,618 233,866
-----------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income - (46,001)
-----------------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 100,594 216,662
Reinvested dividends - 45,536
Cost of shares redeemed (131,647) (330,418)
-----------------------------
Decrease in net assets from capital share transactions (31,053) (68,220)
-----------------------------
Net increase in net assets 108,565 119,645
NET ASSETS
Beginning of period 2,398,407 2,278,762
-----------------------------
End of period $2,506,972 $2,398,407
=============================
Accumulated undistributed net investment income:
End of period $ 29,496 $ 10,128
=============================
CHANGE IN SHARES OUTSTANDING
Shares sold 3,757 8,677
Shares issued for dividends reinvested - 1,875
Shares redeemed (4,918) (13,252)
-----------------------------
Decrease in shares outstanding (1,161) (2,700)
=============================
See accompanying notes to financial statements.
================================================================================
40 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
November 30, 2017 (unaudited)
--------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company
Act of 1940, as amended (the 1940 Act), is an open-end management investment
company organized as a Delaware statutory trust consisting of 51 separate
funds. Additionally, USAA Cornerstone Moderately Aggressive Fund (the Fund)
qualifies as a registered investment company under Accounting Standards
Codification Topic 946. The information presented in this semiannual report
pertains only to the Fund, which is classified as diversified under the 1940
Act and is authorized to issue an unlimited number of shares. The Fund's
investment objective is to seek 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 41
================================================================================
meetings to review prior actions taken by the Committee and USAA Asset
Management Company (the Manager), an affiliate of the Fund. Among other
things, these monthly meetings include a review and analysis of backtesting
reports, pricing service quotation comparisons, illiquid securities and fair
value determinations, pricing movements, and daily stale price monitoring.
The value of each security is determined (as of the close of trading on the
New York Stock Exchange (NYSE) on each business day the NYSE is open) as set
forth below:
1. Equity securities, including exchange-traded funds (ETFs), except as
otherwise noted, traded primarily on a domestic securities exchange or
the over-the-counter markets, are valued at the last sales price or
official closing price on the exchange or primary market on which they
trade. Securities traded primarily on foreign securities exchanges or
markets are valued at the last quoted sale price, or the most recently
determined official closing price calculated according to local market
convention, available at the time the Fund is valued. If no last sale or
official closing price is reported or available, the average of the bid
and ask prices generally is used. Actively traded equity securities
listed on a domestic exchange generally are categorized in Level 1 of
the fair value hierarchy. Certain preferred and equity securities traded
in inactive markets generally are categorized in Level 2 of the fair
value hierarchy.
2. Equity securities trading in various foreign markets may take place
on days when the NYSE is closed. Further, when the NYSE is open, the
foreign markets may be closed. Therefore, the calculation of the Fund's
net asset value (NAV) may not take place at the same time the prices of
certain foreign securities held by the Fund are determined. In many
cases, events affecting the values of foreign securities that occur
between the time of their last quoted sale or official closing price and
the close of normal trading on the NYSE on a day the Fund's NAV is
calculated will not need to be reflected in the value of the Fund's
foreign securities. However, the Manager will monitor for
================================================================================
42 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
events that would materially affect the value of the Fund's foreign
securities and the Committee will consider such available information
that it deems relevant and will determine a fair value for the affected
foreign securities in accordance with valuation procedures. In addition,
information from an external vendor or other sources may be used to
adjust the foreign market closing prices of foreign equity securities to
reflect what the Committee believes to be the fair value of the
securities as of the close of the NYSE. Fair valuation of affected
foreign equity securities may occur frequently based on an assessment
that events which occur on a fairly regular basis (such as U.S. market
movements) are significant. Such securities are categorized in Level 2
of the fair value hierarchy.
3. Investments in open-end investment companies, commingled, or other
funds, other than ETFs, are valued at their NAV at the end of each
business day and are categorized in Level 1 of the fair value hierarchy.
4. Short-term debt securities with original or remaining maturities of
60 days or less may be valued at amortized cost, provided that amortized
cost represents the fair value of such securities.
5. Debt securities with maturities greater than 60 days are valued each
business day by a pricing service (the Service) approved by the Board.
The Service uses an evaluated mean between quoted bid and ask prices or
the last sales price to value a security when, in the Service's
judgment, these prices are readily available and are representative of
the security's market value. For many securities, such prices are not
readily available. The Service generally prices those securities based
on methods which include consideration of yields or prices of securities
of comparable quality, coupon, maturity, and type; indications as to
values from dealers in securities; and general market conditions.
Generally, debt securities are categorized in Level 2 of the fair value
hierarchy; however, to the extent the valuations include significant
unobservable inputs, the securities would be categorized in Level 3.
6. Repurchase agreements are valued at cost.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 43
================================================================================
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 ask price
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
ask price 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.
================================================================================
44 | 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 a prior tender offer and last quoted 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.
The methods used may include valuation models that rely on significant
assumptions and/or unobservable inputs to determine the fair value
measurement for the securities. A market-based approach may be employed
using related or comparable securities, recent transactions, market
multiples, book values and other relevant information or an income-based
approach may be employed whereby estimated future cash flows are discounted
to determine the fair value. In some cases discounts may be applied due to
market liquidity limitations.
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 | 45
================================================================================
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
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, 2017, did not include master netting provisions.
FUTURES CONTRACTS - The Fund is subject to equity price risk, interest rate
risk, and foreign currency exchange rate risk in the normal course of
pursuing its investment objectives. The Fund may use futures contracts to
gain exposure to, or hedge against, changes in the value of equities,
interest rates, or foreign currencies. A futures contract represents a
commitment for the future purchase or sale of an asset at a specified price
on a specified date. Upon entering into such contracts, the Fund is required
to deposit with the broker in either cash or securities an initial margin in
an amount equal to a certain percentage of the contract amount. Subsequent
payments (variation margin) are made or received by the Fund each day,
depending on the daily fluctuations in the value of the contract, and are
recorded for financial statement purposes as unrealized gains or losses.
When the contract is closed, the Fund records a realized gain or loss equal
to the difference between the value of the contract at the time it was
opened and the value at the time it was closed. Upon entering into such
contracts, the Fund bears the risk of interest or exchange rates or
securities prices moving unexpectedly in an
================================================================================
46 | USAA CORNERSTONE MODERATELY AGGRESSIVE 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, 2017*
(IN THOUSANDS)
ASSET DERIVATIVES LIABILITY DERIVATIVES
---------------------------------------------------------------------------------------------------------
STATEMENT OF STATEMENT OF
DERIVATIVES NOT ASSETS AND ASSETS AND
ACCOUNTED FOR AS LIABILITIES LIABILITIES
HEDGING INSTRUMENTS LOCATION FAIR VALUE LOCATION FAIR VALUE
---------------------------------------------------------------------------------------------------------
Equity contracts Net unrealized $17,446** Net unrealized $2,704**
appreciation of depreciation of
investments and investments and
futures contracts futures contracts
---------------------------------------------------------------------------------------------------------
Interest rate contracts Net unrealized 704** -
appreciation of
investments and
futures contracts
---------------------------------------------------------------------------------------------------------
Total $18,150 $2,704
---------------------------------------------------------------------------------------------------------
*For open derivative instruments as of November 30, 2017, see the Portfolio
of Investments, which also is indicative of activity for the six-month
period ended November 30, 2017.
**Includes cumulative appreciation/(depreciation) of futures as reported on
the Portfolio of Investments. Only the variation margin from the last
business day of the reporting period is reported within the Statement of
Assets and Liabilities.
THE EFFECT OF DERIVATIVE INSTRUMENTS ON THE STATEMENT OF OPERATIONS FOR THE
SIX-MONTH PERIOD ENDED NOVEMBER 30, 2017 (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
---------------------------------------------------------------------------------------------------------
Equity contracts Net realized gain on $13,511 $5,557
Futures transactions /
Change in net unrealized
appreciation/(depreciation)
of Futures contracts
---------------------------------------------------------------------------------------------------------
Interest rate contracts Net realized gain on (1,315) 1,032
Futures transactions/
Change in net unrealized
appreciation/(depreciation)
of Futures contracts
---------------------------------------------------------------------------------------------------------
Total $12,196 $6,589
---------------------------------------------------------------------------------------------------------
================================================================================
NOTES TO FINANCIAL STATEMENTS | 47
================================================================================
D. FEDERAL TAXES - The Fund's policy is to comply with the requirements of
the Internal Revenue Code of 1986, as amended, applicable to regulated
investment companies and to distribute substantially all of its taxable
income and net capital gains, if any, to its shareholders. Therefore, no
federal income tax provision is required.
For the six-month period ended November 30, 2017, the Fund did not incur any
income tax, interest, or penalties, and has recorded no liability for net
unrecognized tax benefits relating to uncertain income tax positions. On an
ongoing basis, the Manager will monitor the Fund's tax basis to determine if
adjustments to this conclusion are necessary. The statute of limitations on
the Fund's tax return filings generally remain open for the three preceding
fiscal reporting year ends and remain subject to examination by the Internal
Revenue Service and state taxing authorities.
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
================================================================================
48 | USAA CORNERSTONE MODERATELY 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 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 49
================================================================================
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 expenses. For the six-month period
ended November 30, 2017, 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, along with other funds of the Trust and USAA ETF Trust
(together, the Trusts), in a joint, short-term, revolving, committed loan
agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate
of the Manager. The purpose of the agreement is to provide temporary or
emergency cash needs, including redemption requests that might otherwise
require the untimely disposition of securities. Subject to availability
(including usage of the facility by other funds of the Trusts), the Fund may
borrow from CAPCO an amount up to 5% of the Fund's total assets at an interest
rate based on the London Interbank Offered Rate (LIBOR), plus 100.0 basis
points.
================================================================================
50 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
The Trusts are also assessed facility fees by CAPCO in the amount of 13.0 basis
points of the amount of the committed loan agreement. Prior to September 30,
2017, the maximum annual facility fee was 12.0 basis points of the amount of
the committed loan agreement. The facility fees are allocated among the funds
of the Trusts based on their respective average net assets for the period.
The Trusts may request an optional increase of the committed loan agreement
from $500 million up to $750 million. If the Trusts increase the committed loan
agreement, the assessed facility fee on the amount of the additional commitment
will be 14.0 basis points.
For the six-month period ended November 30, 2017, the Fund paid CAPCO facility
fees of $9,000, which represents 3.1% of the total fees paid to CAPCO by the
funds of the Trusts. The Fund had no borrowings under this agreement during the
six-month period ended November 30, 2017.
(3) DISTRIBUTIONS
The tax basis of distributions and any accumulated undistributed net investment
income will be determined as of the Fund's tax year-end of May 31, 2018, in
accordance with applicable federal tax law.
Distributions of net investment income and realized gains from security
transactions not offset by capital losses are made annually in the succeeding
fiscal year or as otherwise required to avoid the payment of federal income tax.
At May 31, 2017, the Fund had no capital loss carryforwards, for federal income
tax purposes.
(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, 2017, were
$679,117,000 and $733,463,000, respectively.
As of November 30, 2017, the cost of securities, including short-term
securities, for federal income tax purposes, was approximately the same as the
cost reported in the financial statements.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 51
================================================================================
Gross unrealized appreciation and depreciation of investments as of November
30, 2017, were $205,999,000 and $42,312,000, respectively, resulting in net
unrealized appreciation of $163,687,000.
(5) SECURITIES LENDING
The Fund, through its securities lending agreement with Citibank, N.A.
(Citibank), may lend its securities to qualified financial institutions, such as
certain broker-dealers, to earn additional income. The borrowers are required to
secure their loans continuously with collateral in an amount at least equal to
102% of the fair value of domestic securities and foreign government securities
loaned and 105% of the fair value of foreign securities and all other securities
loaned. Collateral may be cash, U.S. government securities, or other securities
as permitted by SEC guidelines. Cash collateral is invested in high-quality
short-term investments. Collateral requirements are determined daily based on
the prior business day's ending value of securities loaned. Risks to the Fund in
securities-lending transactions are that the borrower may not provide additional
collateral when required or return the securities when due, and that the value
of the short-term investments will be less than the amount of cash collateral
required to be returned to the borrower. The Fund's agreement with Citibank does
not include master netting provisions. Non-cash collateral received by the Fund
may not be sold or re-pledged except to satisfy borrower default. Cash
collateral is listed in the Fund's Portfolio of Investments and Financial
Statements while non-cash collateral is not included.
At November 30, 2017, the Fund's value of outstanding securities on loan and
the value of collateral are as follows:
VALUE OF SECURITIES
ON LOAN NON-CASH COLLATERAL CASH COLLATERAL
----------------------------------------------------------------------------------
$7,529,000 $1,953,000 $5,809,000
(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
================================================================================
52 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
affairs of the Fund, and for directly managing the day-to-day investment of
the Fund's assets, subject to the authority of and supervision by the Board.
The Manager is authorized to select (with approval of the Board and without
shareholder approval) one or more subadvisers to manage the day-to-day
investment of all or a portion of the Fund's assets. For the six-month
period ended November 30, 2017, the Fund had no subadviser(s).
The Fund's investment management fee is accrued daily and paid monthly at an
annualized rate of 0.59% of the Fund's average net assets. For the
six-month period ended November 30, 2017, the Fund incurred management fees,
paid or payable to the Manager, of $7,233,000.
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, 2017, the Fund incurred administration and servicing fees, paid
or payable to the Manager, of $1,839,000.
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, 2017, the Fund reimbursed the
Manager $30,000 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 servicing of
accounts that are held with such intermediaries. For the six-month period
ended November 30, 2017, the Fund incurred transfer agent's fees, paid or
payable to SAS, of $2,351,000.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 53
================================================================================
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.
(7) TRANSACTIONS WITH AFFILIATES
The Manager is indirectly wholly owned by United Services Automobile
Association (USAA), a large, diversified financial services institution.
Certain trustees and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Fund.
(8) SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
During the six-month period ended November 30, 2017, in accordance with
affiliated transaction procedures approved by the Board, purchases and sales of
security transactions were executed between the Fund and the following
affiliated USAA Funds at the then-current market price with no brokerage
commissions incurred.
NET REALIZED
COST TO GAIN (LOSS) TO
SELLER PURCHASER PURCHASER SELLER
--------------------------------------------------------------------------------------------------
Cornerstone Moderately Cornerstone Moderate $ 87,000 $ (-)*
Aggressive
Cornerstone Moderate Cornerstone Moderately 180,000 2,000
Aggressive
Cornerstone Aggressive Cornerstone Moderately 581,000 30,000
Aggressive
* Represents less than $500.
(9) UPCOMING REGULATORY MATTERS
In October 2016, the U.S. Securities and Exchange Commission (SEC) issued Final
Rule Release No. 33-10231, INVESTMENT COMPANY REPORTING MODERNIZATION. In part,
the rules require the filing of new forms N-PORT and N-CEN, and amend
Regulation S-X to require standardized, enhanced disclosure about derivatives
in investment company financial statements, as well as other amendments.
================================================================================
54 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
In October 2016, the SEC issued Final Rule Release No. 33-10233, INVESTMENT
COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS. This rule requires funds to
establish a liquidity risk management program and enhances disclosures regarding
funds' liquidity.
In October 2016, the SEC issued Final Rule Release No. 33-10234, INVESTMENT
COMPANY SWING PRICING. This rule permits certain funds to use swing pricing
during periods of heavy redemptions and requires certain disclosures regarding
the use of swing pricing in forms filed with the SEC.
The Manager continues to evaluate the impact these rules and amendments will
have on the financial statements and other disclosures. The compliance date for
new forms N-PORT and N-CEN is June 1, 2018 (with filing of Form N-PORT beginning
April 30, 2019), with other staggered compliance dates extending through April
30, 2019. The Fund is expected to comply with the June 1, 2018 compliance date
for new forms N-PORT and N-CEN.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 55
================================================================================
(10) 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,
------------------------------------------------------------------------------------------
2017 2017 2016 2015 2014 2013
------------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 26.09 $ 24.08 $ 26.27 $ 26.02 $ 24.17 $ 21.48
------------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .21 .45 .55 .56 .62 .61
Net realized and
unrealized gain (loss) 1.32 2.06 (2.06) .33 1.83 2.69
------------------------------------------------------------------------------------------
Total from investment
operations 1.53 2.51 (1.51) .89 2.45 3.30
------------------------------------------------------------------------------------------
Less distributions from:
Net investment income - (.50) (.56) (.64) (.60) (.61)
Realized capital gains - - (.12) - - -
------------------------------------------------------------------------------------------
Total distributions - (.50) (.68) (.64) (.60) (.61)
------------------------------------------------------------------------------------------
Net asset value at
end of period $ 27.62 $ 26.09 $ 24.08 $ 26.27 $ 26.02 $ 24.17
==========================================================================================
Total return (%)* 5.86 10.59 (5.73) 3.47 10.24 15.49
Net assets at end of
period (000) $2,506,972 $2,398,407 $2,278,762 $2,526,548 $2,491,487 $2,294,760
Ratios to average
net assets:**
Expenses (%)(a) .98(d) 1.06 1.13 1.16 1.18(b) 1.22
Expenses, excluding
reimbursements (%)(a) .98(d) 1.06 1.13 1.16 1.18 1.22
Net investment income (%) 1.58(d) 1.78 2.18 2.14 2.46 2.54
Portfolio turnover (%) 29 69 87(c) 62 57 81
* 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, 2017, average net assets were
$2,446,459,000.
(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%)(+)
(+) 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) 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.
================================================================================
56 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
EXPENSE EXAMPLE
November 30, 2017 (unaudited)
--------------------------------------------------------------------------------
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: direct costs, such
as wire fees, redemption fees, and low balance fees; and indirect costs,
including management fees, transfer agency fees, and other Fund operating
expenses. This example is intended to help you understand your indirect costs,
also referred to as "ongoing costs" (in dollars), of investing in the Fund and
to compare these costs with the ongoing costs of investing in other mutual
funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire six-month period of June 1, 2017, through
November 30, 2017.
ACTUAL EXPENSES
The line labeled "actual" in the table provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested at the beginning of the period, to estimate the
expenses that you paid over the period. Simply divide your account value by
$1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number in the "actual" line under the heading
"Expenses Paid During Period" to estimate the expenses you paid on your account
during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The line labeled "hypothetical" in the table provides information about
hypothetical account values and hypothetical expenses based on the Fund's actual
expense ratio and an assumed rate of return of 5% per year before expenses,
which is not the Fund's actual return. The hypothetical account values and
expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period. You may use this information to
================================================================================
EXPENSE EXAMPLE | 57
================================================================================
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, 2017 -
JUNE 1, 2017 NOVEMBER 30, 2017 NOVEMBER 30, 2017
-------------------------------------------------------------
Actual $1,000.00 $1,058.60 $5.06
Hypothetical
(5% return before expenses) 1,000.00 1,020.16 4.96
*Expenses are equal to the Fund's annualized expense ratio of 0.98%, 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 5.86% for the six-month period of June 1,
2017, through November 30, 2017.
================================================================================
58 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Jefferson C. Boyce
Dawn M. Hawley
Paul L. McNamara
Richard Y. Newton III
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
--------------------------------------------------------------------------------
ADMINISTRATOR AND USAA Asset Management Company
INVESTMENT ADVISER P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
UNDERWRITER AND USAA Investment Management Company
DISTRIBUTOR P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
--------------------------------------------------------------------------------
CUSTODIAN AND State Street Bank and Trust Company
ACCOUNTING AGENT P.O. Box 1713
Boston, Massachusetts 02105
--------------------------------------------------------------------------------
INDEPENDENT Ernst & Young LLP
REGISTERED PUBLIC 100 West Houston St., Suite 1700
ACCOUNTING FIRM San Antonio, Texas 78205
--------------------------------------------------------------------------------
MUTUAL FUND Under "My Accounts" on
SELF-SERVICE 24/7 usaa.com select your mutual fund
AT USAA.COM account and either click the link or
select 'I want to...' and select
OR CALL the desired action.
(800) 531-USAA (8722)
(210) 531-8722
--------------------------------------------------------------------------------
Copies of the Manager's proxy voting policies and procedures, approved by the
Trust's Board of Trustees for use in voting proxies on behalf of the Fund, are
available without charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722;
(ii) at USAA.COM; and (iii) in summary within the Statement of Additional
Information on the SEC's website at HTTP://WWW.SEC.GOV. Information regarding
how the Fund voted proxies relating to portfolio securities during the most
recent 12-month period ended June 30 is available without charge (i) at
USAA.COM; and (ii) on the SEC's website at HTTP://WWW.SEC.GOV.
The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. These Forms N-Q are
available at no charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722;
(ii) at USAA.COM; and (iii) on the SEC's website at HTTP://WWW.SEC.GOV. These
Forms N-Q also may be reviewed and copied at the SEC's Public Reference Room in
Washington, D.C. Information on the operation of the Public Reference Room may
be obtained by calling (800) 732-0330.
================================================================================
--------------
USAA PRSRT STD
9800 Fredericksburg Road U.S. Postage
San Antonio, TX 78288 PAID
USAA
--------------
>> SAVE PAPER AND FUND COSTS
Under MY PROFILE on USAA.COM select MANAGE PREFERENCES
Set your DOCUMENT PREFERENCES to USAA DOCUMENTS ONLINE.
[LOGO OF USAA]
USAA We know what it means to serve.(R)
=============================================================================
27800-0118 (C)2018, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA CORNERSTONE MODERATELY CONSERVATIVE FUND]
==============================================================
SEMIANNUAL REPORT
USAA CORNERSTONE MODERATELY CONSERVATIVE FUND (UCMCX)
NOVEMBER 30, 2017
==============================================================
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
INVESTMENT OVERVIEW 2
FINANCIAL INFORMATION
Portfolio of Investments 4
Notes to Portfolio of Investments 25
Financial Statements 31
Notes to Financial Statements 34
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)2018, USAA. All rights reserved.
================================================================================
================================================================================
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 has 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 Fund's asset allocation is
actively managed by adjusting the Fund's investments among asset classes that
the Fund's manager(s) deems appropriate, using a combination of active security
selection, quantitative investing strategies, and investments in active and
passive exchange-traded funds (ETFs) and futures. The implementation of the
asset allocation may involve the extensive use of equity and fixed- income 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 natural 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
================================================================================
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
o TOP 10 HOLDINGS* - 11/30/17 o
(% of Net Assets)
Vanguard Short-Term
Corporate Bond ETF** ................................................... 5.6%
Vanguard Total Bond Market ETF** ......................................... 4.3%
U.S. Treasury Bond, 3.13%, 8/15/2044 ..................................... 4.3%
U.S. Treasury Note, 1.13%, 2/28/2021 ..................................... 3.5%
Schwab Fundamental International
Large Co. Index ETF** .................................................. 3.1%
U.S. Treasury Note, 2.25%, 11/15/2025 .................................... 2.9%
Freddie Mac, 3.50%, 4/01/2046 ............................................ 2.6%
Freddie Mac, 3.00%, 3/01/2047 ............................................ 2.4%
iShares Core U.S. Aggregate Bond ETF** ................................... 2.1%
Freddie Mac, 3.00%, 6/01/2046 ............................................ 1.9%
*Does not include futures, money market instruments and short-term investments
purchased with cash collateral from securities loaned.
**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 4-24.
================================================================================
2 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
o ASSET ALLOCATION* - 11/30/17 o
[PIE CHART OF ASSET ALLOCATION]
U.S. TREASURY SECURITIES 20.8%
U.S. EQUITY SECURITIES** 18.4%
INTERNATIONAL EQUITY SECURITIES** 17.2%
FIXED INCOME EXCHANGE-TRADED FUNDS** 15.7%
U.S. GOVERNMENT AGENCY ISSUES 12.4%
CORPORATE OBLIGATIONS 5.9%
MONEY MARKET INSTRUMENTS 3.2%
COMMERCIAL MORTGAGE SECURITIES 2.3%
PRECIOUS METALS AND COMMODITY-RELATED SECURITIES 1.2%
ASSET-BACKED SECURITIES 0.7%
CONVERTIBLE SECURITIES 0.6%
GLOBAL REAL ESTATE EQUITY SECURITIES** 0.6%
COLLATERALIZED MORTGAGE OBLIGATIONS 0.4%
EURODOLLAR AND YANKEE OBLIGATIONS 0.3%
[END CHART]
Percentages are of the net assets of the Fund and may not equal 100%.
*Does not include futures and short-term investments purchased with cash
collateral from securities loaned.
**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.
================================================================================
INVESTMENT OVERVIEW | 3
================================================================================
PORTFOLIO OF INVESTMENTS
November 30, 2017 (unaudited)
--------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
U.S. EQUITY SECURITIES (18.4%)
COMMON STOCKS (11.0%)
CONSUMER DISCRETIONARY (1.4%)
-----------------------------
APPAREL RETAIL (0.2%)
3,170 Foot Locker, Inc. $ 136
5,010 Gap, Inc. 162
1,100 TJX Companies, Inc. 83
----------
381
----------
AUTO PARTS & EQUIPMENT (0.1%)
810 Lear Corp. 146
----------
AUTOMOBILE MANUFACTURERS (0.0%)
200 Tesla, Inc.* 62
----------
BROADCASTING (0.1%)
1,201 CBS Corp. "B" 67
6,780 Discovery Communications, Inc. "A"* 129
789 Entercom Communications Corp. "A" 9
----------
205
----------
CABLE & SATELLITE (0.1%)
6,180 Comcast Corp. "A" 232
----------
DEPARTMENT STORES (0.1%)
2,410 Kohl's Corp. 116
5,440 Macy's, Inc. 129
----------
245
----------
GENERAL MERCHANDISE STORES (0.1%)
1,930 Target Corp. 116
----------
HOME IMPROVEMENT RETAIL (0.1%)
1,150 Home Depot, Inc. 207
890 Lowe's Companies, Inc. 74
----------
281
----------
HOMEBUILDING (0.1%)
90 NVR, Inc.* 313
----------
================================================================================
4 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
HOMEFURNISHING RETAIL (0.1%)
5,160 Bed Bath & Beyond, Inc. $ 116
----------
HOTELS, RESORTS & CRUISE LINES (0.2%)
2,800 Carnival Corp. 184
1,080 Marriott International, Inc. "A" 137
1,210 Royal Caribbean Cruises Ltd. 150
----------
471
----------
MOVIES & ENTERTAINMENT (0.0%)
3,390 Viacom, Inc. "B" 96
----------
RESTAURANTS (0.1%)
950 McDonald's Corp. 163
----------
SPECIALTY STORES (0.1%)
3,880 Dick's Sporting Goods, Inc. 114
----------
Total Consumer Discretionary 2,941
----------
CONSUMER STAPLES (0.9%)
-----------------------
AGRICULTURAL PRODUCTS (0.1%)
2,590 Archer-Daniels-Midland Co. 104
890 Ingredion, Inc. 123
----------
227
----------
BREWERS (0.0%)
1,330 Molson Coors Brewing Co."B" 104
----------
DISTILLERS & VINTNERS (0.0%)
1,610 Brown-Forman Corp. "B" 96
----------
DRUG RETAIL (0.1%)
1,480 CVS Health Corp. 113
----------
FOOD RETAIL (0.0%)
3,910 Kroger Co. 101
----------
HOUSEHOLD PRODUCTS (0.2%)
`3,890 Procter & Gamble Co. 350
----------
HYPERMARKETS & SUPER CENTERS (0.1%)
540 Costco Wholesale Corp. 100
1,280 Wal-Mart Stores, Inc. 124
----------
224
----------
PACKAGED FOODS & MEAT (0.1%)
1,130 J.M. Smucker Co. 132
1,680 Tyson Foods, Inc. "A" 138
----------
270
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 5
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
SOFT DRINKS (0.2%)
3,280 Coca-Cola Co. $ 150
790 Dr. Pepper Snapple Group, Inc. 71
1,670 PepsiCo, Inc. 195
----------
416
----------
TOBACCO (0.1%)
1,110 Philip Morris International, Inc. 114
----------
Total Consumer Staples 2,015
----------
ENERGY (0.7%)
-------------
INTEGRATED OIL & GAS (0.1%)
1,080 Chevron Corp. 129
----------
OIL & GAS EXPLORATION & PRODUCTION (0.1%)
3,350 Devon Energy Corp. 129
2,990 Murphy Oil Corp. 84
3,250 Newfield Exploration Co.* 100
----------
313
----------
OIL & GAS REFINING & MARKETING (0.3%)
480 Andeavor 50
3,280 HollyFrontier Corp. 146
2,470 Marathon Petroleum Corp. 155
1,120 Phillips 66 109
1,680 Valero Energy Corp. 144
----------
604
----------
OIL & GAS STORAGE & TRANSPORTATION (0.2%)
1,770 Cheniere Energy, Inc.* 86
4,870 Kinder Morgan, Inc. 84
1,390 ONEOK, Inc. 72
4,970 Plains Group Holdings, LP "A" 102
----------
344
----------
Total Energy 1,390
----------
FINANCIALS (1.6%)
-----------------
ASSET MANAGEMENT & CUSTODY BANKS (0.2%)
470 Ameriprise Financial, Inc. 77
2,890 Franklin Resources, Inc. 125
1,460 SEI Investments Co. 103
1,030 T. Rowe Price Group, Inc. 106
----------
411
----------
CONSUMER FINANCE (0.2%)
1,320 American Express Co. 129
1,180 Capital One Financial Corp. 108
================================================================================
6 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
2,410 Discover Financial Services $ 170
2,837 Synchrony Financial 102
----------
509
----------
DIVERSIFIED BANKS (0.2%)
3,770 Citigroup, Inc. 285
1,310 U.S. Bancorp 72
----------
357
----------
FINANCIAL EXCHANGES & DATA (0.1%)
780 Moody's Corp. 118
760 MSCI, Inc. 98
----------
216
----------
INSURANCE BROKERS (0.1%)
800 Aon plc 112
970 Marsh & McLennan Companies, Inc. 82
----------
194
----------
INVESTMENT BANKING & BROKERAGE (0.0%)
1,710 E*Trade Financial Corp.* 82
----------
LIFE & HEALTH INSURANCE (0.2%)
1,430 AFLAC, Inc. 126
1,420 Athene Holding Ltd. "A"* 68
1,210 Principal Financial Group, Inc. 86
840 Prudential Financial, Inc. 97
----------
377
----------
MULTI-LINE INSURANCE (0.0%)
870 American Financial Group, Inc. 91
----------
MULTI-SECTOR HOLDINGS (0.0%)
250 Berkshire Hathaway, Inc."B"* 48
----------
PROPERTY & CASUALTY INSURANCE (0.1%)
760 Allstate Corp. 78
2,160 Progressive Corp. 115
----------
193
----------
REGIONAL BANKS (0.4%)
2,220 BB&T Corp. 110
770 Comerica, Inc. 64
1,690 East West Bancorp, Inc. 104
5,900 Fifth Third Bancorp 180
6,010 KeyCorp 114
360 M&T Bank Corp. 61
================================================================================
PORTFOLIO OF INVESTMENTS | 7
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
470 PNC Financial Services Group, Inc. $ 66
7,250 Regions Financial Corp. 120
----------
819
----------
REINSURANCE (0.1%)
290 Everest Re Group Ltd. 64
660 Reinsurance Group of America, Inc. 107
----------
171
----------
Total Financials 3,468
----------
HEALTH CARE (1.6%)
------------------
BIOTECHNOLOGY (0.5%)
1,160 AbbVie, Inc. 113
1,450 Amgen, Inc. 255
590 Biogen, Inc.* 190
2,130 Gilead Sciences, Inc. 159
800 United Therapeutics Corp.* 104
860 Vertex Pharmaceuticals, Inc.* 124
----------
945
----------
HEALTH CARE DISTRIBUTORS (0.1%)
1,340 AmerisourceBergen Corp. 114
1,260 Cardinal Health, Inc. 74
530 McKesson Corp. 78
----------
266
----------
HEALTH CARE EQUIPMENT (0.2%)
1,500 Baxter International, Inc. 99
340 C.R. Bard, Inc. 114
430 IDEXX Laboratories, Inc.* 67
390 Intuitive Surgical, Inc.* 156
----------
436
----------
HEALTH CARE FACILITIES (0.0%)
790 Universal Health Services, Inc. "B" 86
----------
HEALTH CARE SERVICES (0.2%)
1,150 DaVita, Inc.* 70
1,910 Express Scripts Holding Co.* 124
1,590 MEDNAX, Inc.* 79
890 Quest Diagnostics, Inc. 88
----------
361
----------
HEALTH CARE SUPPLIES (0.1%)
350 Align Technology, Inc.* 91
340 Cooper Companies, Inc. 82
----------
173
----------
================================================================================
8 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
LIFE SCIENCES TOOLS & SERVICES (0.2%)
250 Mettler-Toledo International, Inc.* $ 157
480 Thermo Fisher Scientific, Inc. 93
650 Waters Corp.* 128
----------
378
----------
MANAGED HEALTH CARE (0.1%)
500 Anthem, Inc. 117
750 Centene Corp.* 77
430 Cigna Corp. 91
----------
285
----------
PHARMACEUTICALS (0.2%)
1,280 Bristol-Myers Squibb Co. 81
3,140 Mallinckrodt plc* 69
2,860 Mylan N.V.* 104
5,630 Pfizer, Inc. 204
----------
458
----------
Total Health Care 3,388
----------
INDUSTRIALS (1.1%)
------------------
AEROSPACE & DEFENSE (0.3%)
610 Boeing Co. 169
240 General Dynamics Corp. 50
490 Huntington Ingalls Industries, Inc. 118
650 L3 Technologies, Inc. 129
540 Rockwell Collins, Inc. 72
----------
538
----------
AIRLINES (0.1%)
1,640 American Airlines Group, Inc. 83
1,890 Delta Air Lines, Inc. 100
1,190 United Continental Holdings, Inc.* 75
----------
258
----------
CONSTRUCTION & ENGINEERING (0.0%)
1,530 Jacobs Engineering Group, Inc. 100
----------
CONSTRUCTION MACHINERY & HEAVY TRUCKS (0.1%)
580 Cummins, Inc. 97
1,480 PACCAR, Inc. 104
----------
201
----------
ELECTRICAL COMPONENTS & EQUIPMENT (0.1%)
1,250 Eaton Corp. plc 97
620 Rockwell Automation, Inc. 120
----------
217
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 9
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
ENVIRONMENTAL & FACILITIES SERVICES (0.1%)
2,390 Republic Services, Inc. $ 155
----------
HUMAN RESOURCE & EMPLOYMENT SERVICES (0.0%)
620 ManpowerGroup, Inc. 80
----------
INDUSTRIAL CONGLOMERATES (0.1%)
260 3M Co. 63
260 Roper Technologies, Inc. 70
----------
133
----------
INDUSTRIAL MACHINERY (0.2%)
910 Illinois Tool Works, Inc. 154
1,080 Ingersoll-Rand plc 94
560 Snap-On, Inc. 95
570 Stanley Black & Decker, Inc. 97
----------
440
----------
TRADING COMPANIES & DISTRIBUTORS (0.1%)
780 United Rentals, Inc.* 124
540 W.W. Grainger, Inc. 120
----------
244
----------
Total Industrials 2,366
----------
INFORMATION TECHNOLOGY (2.8%)
-----------------------------
APPLICATION SOFTWARE (0.2%)
3,280 Cadence Design Systems, Inc.* 144
1,900 Citrix Systems, Inc.* 167
680 Intuit, Inc. 107
----------
418
----------
COMMUNICATIONS EQUIPMENT (0.3%)
360 Arista Networks, Inc.* 84
5,353 Cisco Systems, Inc. 200
620 F5 Networks, Inc.* 83
630 Harris Corp. 91
4,880 Juniper Networks, Inc. 135
----------
593
----------
DATA PROCESSING & OUTSOURCED SERVICES (0.6%)
780 Alliance Data Systems Corp. 187
1,820 Automatic Data Processing, Inc. 208
1,280 Fiserv, Inc.* 168
1,730 MasterCard, Inc. "A" 260
1,430 PayPal Holdings, Inc.* 108
6,510 Sabre Corp. 130
================================================================================
10 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
1,030 Vantiv, Inc. "A"* $ 77
1,230 Visa, Inc. "A" 139
----------
1,277
----------
ELECTRONIC COMPONENTS (0.1%)
1,910 Amphenol Corp."A" 173
----------
HOME ENTERTAINMENT SOFTWARE (0.1%)
1,530 Activision Blizzard, Inc. 96
790 Electronic Arts, Inc.* 84
----------
180
----------
INTERNET SOFTWARE & SERVICES (0.3%)
2,380 Akamai Technologies, Inc.* 133
3,370 eBay, Inc.* 117
1,130 Facebook, Inc. "A"* 200
2,010 VeriSign, Inc.* 231
----------
681
----------
IT CONSULTING & OTHER SERVICES (0.4%)
1,810 Accenture plc"A" 268
2,920 Cognizant Technology Solutions Corp. "A" 211
940 DXC Technology Co. 90
1,720 International Business Machines Corp. 265
----------
834
----------
SEMICONDUCTOR EQUIPMENT (0.1%)
1,600 Applied Materials, Inc. 84
640 KLA-Tencor Corp. 66
750 Lam Research Corp. 144
----------
294
----------
SEMICONDUCTORS (0.3%)
3,170 Intel Corp. 142
950 Microchip Technology, Inc. 83
3,880 Micron Technology, Inc.* 164
310 NVIDIA Corp. 62
1,530 QUALCOMM, Inc. 102
790 Texas Instruments, Inc. 77
----------
630
----------
SYSTEMS SOFTWARE (0.2%)
3,980 CA, Inc. 132
600 Microsoft Corp. 50
3,530 Oracle Corp. 173
----------
355
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 11
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
TECHNOLOGY DISTRIBUTORS (0.0%)
1,320 CDW Corp. $ 92
----------
TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (0.2%)
9,480 Hewlett Packard Enterprise Co. 132
2,000 Seagate Technology plc 77
1,430 Western Digital Corp. 113
4,300 Xerox Corp. 128
----------
450
----------
Total Information Technology 5,977
----------
MATERIALS (0.3%)
----------------
COMMODITY CHEMICALS (0.1%)
1,030 LyondellBasell Industries N.V."A" 108
----------
DIVERSIFIED CHEMICALS (0.0%)
887 DowDuPont, Inc. 64
----------
DIVERSIFIED METALS & MINING (0.0%)
5,580 Freeport-McMoRan, Inc.* 77
----------
METAL & GLASS CONTAINERS (0.1%)
1,890 Crown Holdings, Inc.* 113
----------
PAPER PACKAGING (0.0%)
770 Avery Dennison Corp. 88
----------
SPECIALTY CHEMICALS (0.1%)
860 Celanese Corp. "A" 92
220 Sherwin-Williams Co. 88
----------
180
----------
Total Materials 630
----------
TELECOMMUNICATION SERVICES (0.3%)
---------------------------------
ALTERNATIVE CARRIERS (0.1%)
5,065 CenturyLink, Inc. 74
2,430 Zayo Group Holdings, Inc.* 86
----------
160
----------
INTEGRATED TELECOMMUNICATION SERVICES (0.1%)
4,530 AT&T, Inc. 165
2,370 Verizon Communications, Inc. 121
----------
286
----------
WIRELESS TELECOMMUNICATION SERVICES (0.1%)
2,460 T-Mobile US, Inc.* 150
----------
Total Telecommunication Services 596
----------
================================================================================
12 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
UTILITIES (0.3%)
----------------
GAS UTILITIES (0.0%)
2,070 UGI Corp. $ 101
----------
MULTI-UTILITIES (0.3%)
6,460 Ameren Corp. 413
7,680 CenterPoint Energy, Inc. 231
----------
644
----------
Total Utilities 745
----------
Total Common Stocks (cost: $21,492) 23,516
----------
PREFERRED STOCKS (1.9%)
CONSUMER STAPLES (0.7%)
-----------------------
AGRICULTURAL PRODUCTS (0.7%)
32,000 CHS, Inc., Series B, 7.88%, cumulative redeemable, perpetual 929
5,000 Dairy Farmers of America, Inc., 7.88%, cumulative redeemable, perpetual(a) 519
----------
1,448
----------
Total Consumer Staples 1,448
----------
ENERGY (0.3%)
-------------
OIL & GAS EXPLORATION & PRODUCTION (0.3%)
1,120 Chesapeake Energy Corp., 5.75%, perpetual(a) 648
----------
FINANCIALS (0.7%)
-----------------
LIFE & HEALTH INSURANCE (0.2%)
27,414 Delphi Financial Group, Inc., 4.61%, cumulative redeemable,
3mo. USD LIBOR + 3.19%(i) 558
----------
REGIONAL BANKS (0.5%)
1,035 M&T Bank Corp., 6.38%, cumulative redeemable, perpetual 1,068
----------
Total Financials 1,626
----------
TELECOMMUNICATION SERVICES (0.2%)
---------------------------------
ALTERNATIVE CARRIERS (0.2%)
20,000 Qwest Corp., 6.50% 469
----------
Total Preferred Stocks (cost: $4,438) 4,191
----------
EXCHANGE-TRADED FUNDS (5.5%)
7,900 Consumer Discretionary Select Sector SPDR Fund 764
12,900 Consumer Staples Select Sector SPDR 723
8,800 Health Care Select Sector SPDR Fund 735
10,400 Industrial Select Sector SPDR Fund 775
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
1,200 iShares Core S&P 500 ETF $ 320
11,680 Vanguard S&P 500 ETF 2,842
28,400 Vanguard Small-Cap Value ETF(c) 3,776
12,840 Vanguard Total Stock Market ETF 1,751
----------
Total Exchange-Traded Funds (cost: $9,995) 11,686
----------
Total U.S. Equity Securities (cost: $35,925) 39,393
----------
INTERNATIONAL EQUITY SECURITIES (17.2%)
COMMON STOCKS (0.1%)
CONSUMER DISCRETIONARY (0.1%)
-----------------------------
AUTO PARTS & EQUIPMENT (0.1%)
1,060 Aptiv plc 111
----------
ENERGY (0.0%)
-------------
OIL & GAS EQUIPMENT & SERVICES (0.0%)
2,760 TechnipFMC plc 79
----------
Total Common Stocks (cost: $183) 190
----------
EXCHANGE-TRADED FUNDS (17.1%)
58,265 iShares Core MSCI EAFE ETF 3,836
64,338 iShares Core MSCI Emerging Markets ETF 3,593
35,600 iShares Edge MSCI Minimum Volatility EAFE ETF 2,590
29,900 iShares Edge MSCI Minimum Volatility Emerging Markets ETF 1,770
31,400 PowerShares FTSE RAFI Developed Markets ex-U.S. Portfolio 1,413
87,600 PowerShares FTSE RAFI Emerging Markets Portfolio 1,878
98,700 Schwab Fundamental Emerging Markets Large Co. Index ETF 2,884
216,800 Schwab Fundamental International Large Co. Index ETF 6,626
43,100 Schwab Fundamental International Small Co. Index ETF 1,543
7,496 SPDR S&P Emerging Markets Small Cap ETF 383
22,160 Vanguard FTSE All-World ex-US ETF 1,199
65,200 Vanguard FTSE Developed Markets ETF 2,905
36,000 Vanguard FTSE Emerging Markets ETF 1,601
35,250 Vanguard FTSE Europe ETF 2,065
5,259 WisdomTree Emerging Markets SmallCap Dividend Fund 260
29,552 WisdomTree India Earnings Fund 790
21,720 WisdomTree Japan Hedged Equity Fund 1,273
----------
Total Exchange-Traded Funds (cost: $31,382) 36,609
----------
Total International Equity Securities (cost: $31,565) 36,799
----------
================================================================================
14 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
PRECIOUS METALS AND COMMODITY-RELATED SECURITIES (1.2%)
GOLD (0.0%)
NORTH AMERICAN GOLD COMPANIES (0.0%)
24,262 Hycroft Mining Corp., acquired 9/22/2014 - 6/09/2015;
cost $850*(d),(e),(f) (cost: $850) $ 7
----------
EXCHANGE-TRADED FUNDS (1.2%)
11,700 First Trust Global Tactical Commodity Strategy Fund* 240
35,900 PowerShares DB Commodity Index Tracking Fund* 580
22,900 United States Commodity Index Fund* 939
24,800 VanEck Vectors Gold Miners ETF 557
8,800 VanEck Vectors Junior Gold Miners ETF 279
----------
Total Exchange-Traded Funds (cost: $2,890) 2,595
----------
Total Precious Metals and Commodity-Related Securities (cost: $3,740) 2,602
----------
GLOBAL REAL ESTATE EQUITY SECURITIES (0.6%)
COMMON STOCKS (0.3%)
REAL ESTATE SERVICES (0.1%)
---------------------------
3,350 CBRE Group, Inc. "A"* 145
----------
REITs - RETAIL (0.1%)
---------------------
8,170 Brixmor Property Group, Inc. 148
----------
REITs - SPECIALIZED (0.1%)
--------------------------
1,280 American Tower Corp. 184
670 SBA Communications Corp.* 114
----------
298
----------
Total Common Stocks (cost: $562) 591
----------
PREFERRED STOCKS (0.1%)
REITs - MORTGAGE (0.1%)
-----------------------
8,000 Arbor Realty Trust, Inc., 7.38%* (cost: $200) 204
----------
EXCHANGE-TRADED FUNDS (0.2%)
5,000 Vanguard REIT ETF (cost: $397) 422
----------
Total Global Real Estate Equity Securities (cost: $1,159) 1,217
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 15
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
BONDS (59.1%)
CORPORATE OBLIGATIONS (5.9%)
CONSUMER DISCRETIONARY (0.6%)
-----------------------------
DEPARTMENT STORES (0.2%)
$ 397 Neiman Marcus Group Ltd., LLC,
LIBOR + 3.25%(g) 4.49% 10/25/2020 $ 326
----------
SPECIALTY STORES (0.4%)
598 Academy Ltd., LIBOR + 4%(g) 5.31 7/01/2022 483
400 Guitar Center, Inc.(a) 6.50 4/15/2019 377
----------
860
----------
Total Consumer Discretionary 1,186
----------
CONSUMER STAPLES (0.1%)
-----------------------
FOOD RETAIL (0.1%)
300 BI-LO, LLC & BI-LO Finance Corp.(a) 9.25 2/15/2019 289
----------
ENERGY (1.0%)
-------------
OIL & GAS DRILLING (0.1%)
912 Schahin II Finance Co. SPV Ltd.(a),(h) 5.88 9/25/2023 137
----------
OIL & GAS STORAGE & TRANSPORTATION (0.9%)
650 Enbridge Energy Partners, LP 7.38 10/15/2045 851
400 Energy Transfer Partners, LP, 3 mo. USD
LIBOR + 3.0175% 4.39(i) 11/01/2066 360
200 Martin Midstream Partners, LP & Martin Midstream
Finance Corp. 7.25 2/15/2021 204
200 Southern Union Co., 3 mo. USD LIBOR + 3.0175% 4.39(i) 11/01/2066 172
300 Tallgrass Energy Partners, LP & Tallgrass Energy
Finance Corp.(a) 5.50 9/15/2024 313
----------
1,900
----------
Total Energy 2,037
----------
FINANCIALS (3.5%)
-----------------
ASSET MANAGEMENT & CUSTODY BANKS (0.6%)
350 Ares Capital Corp. 3.63 1/19/2022 353
900 Prospect Capital Corp. 5.00 7/15/2019 923
----------
1,276
----------
LIFE & HEALTH INSURANCE (0.5%)
600 Prudential Financial, Inc., 3 mo. USD
LIBOR + 3.92% 5.63(i) 6/15/2043 651
400 StanCorp Financial Group, Inc., 3 mo. USD
LIBOR + 2.51% 3.83(i) 6/01/2067 400
----------
1,051
----------
================================================================================
16 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
MULTI-LINE INSURANCE (0.5%)
$ 1,100 Nationwide Mutual Insurance Co., 3 mo. USD
LIBOR + 2.29%(a) 3.61%(i) 12/15/2024 $ 1,100
----------
PROPERTY & CASUALTY INSURANCE (1.0%)
700 Allstate Corp., 3 mo. USD LIBOR + 2.938% 5.75(i) 8/15/2053 765
549 AmTrust Financial Services, Inc.(c) 6.13 8/15/2023 536
451 AmTrust Financial Services, Inc. 2.75 12/15/2044 326
550 HSB Group, Inc., 3 mo. USD LIBOR + 0.91% 2.27(i) 7/15/2027 491
----------
2,118
----------
REGIONAL BANKS (0.9%)
100 Compass Bank 3.88 4/10/2025 100
1,000 Cullen/Frost Capital Trust II, 3 mo. USD
LIBOR + 1.55% 2.87(i) 3/01/2034 893
100 First Maryland Capital Trust I, 3 mo. USD
LIBOR + 1% 2.36(i) 1/15/2027 94
1,000 SunTrust Capital I, 3 mo. USD LIBOR + 0.67% 2.09(i) 5/15/2027 923
----------
2,010
----------
Total Financials 7,555
----------
HEALTH CARE (0.2%)
------------------
HEALTH CARE FACILITIES (0.2%)
600 Community Health Systems, Inc. 6.88 2/01/2022 364
----------
INDUSTRIALS (0.1%)
------------------
AIRLINES (0.1%)
163 Continental Airlines, Inc. Pass-Through Trust "B" 6.25 10/11/2021 172
----------
ELECTRICAL COMPONENTS & EQUIPMENT (0.0%)
100 Artesyn Embedded Technologies, Inc.(a) 9.75 10/15/2020 98
----------
Total Industrials 270
----------
REAL ESTATE (0.1%)
------------------
REAL ESTATE DEVELOPMENT (0.1%)
285 Crescent Communities, LLC & Crescent
Ventures, Inc.(a) 8.88 10/15/2021 304
----------
UTILITIES (0.3%)
----------------
ELECTRIC UTILITIES (0.2%)
300 NextEra Energy Capital Holdings, Inc., 3 mo. USD
LIBOR + 3.348% 4.66(i) 9/01/2067 300
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
MULTI-UTILITIES (0.1%)
$ 300 WEC Energy Group, Inc., 3 mo. USD
LIBOR + 2.1125% 3.53%(i) 5/15/2067 $ 290
----------
Total Utilities 590
----------
Total Corporate Obligations (cost: $12,732) 12,595
----------
CONVERTIBLE SECURITIES (0.6%)
MATERIALS (0.6%)
----------------
GOLD (0.6%)
604 Hycroft Mining Corp., acquired 10/21/2015 - 10/02/2017;
cost $583(d),(e),(f),(j) 15.00(k) 10/22/2020 839
500 Pretium Resources, Inc.(a) 2.25 3/15/2022 513
----------
1,352
----------
Total Materials 1,352
----------
Total Convertible Securities (cost: $1,074) 1,352
----------
EURODOLLAR AND YANKEE OBLIGATIONS (0.3%)
FINANCIALS (0.1%)
-----------------
PROPERTY & CASUALTY INSURANCE (0.1%)
250 QBE Capital Funding III Ltd., USD Swap Semi-Annual
30/360 10 YR + 4.05%(a) 7.25(i) 5/24/2041 278
----------
MATERIALS (0.2%)
----------------
GOLD (0.2%)
300 Newcrest Finance Property Ltd.(a) 4.45 11/15/2021 316
----------
Total Eurodollar and Yankee Obligations (cost: $503) 594
----------
ASSET-BACKED SECURITIES (0.7%)
FINANCIALS (0.7%)
-----------------
ASSET-BACKED FINANCING (0.7%)
375 Avis Budget Rental Car Funding AESOP, LLC(a) 2.96 7/20/2020 376
233 Avis Budget Rental Car Funding AESOP, LLC(a) 3.75 7/20/2020 234
105 Napier Park Rail Lease, LLC 3.37 10/21/2047 105
200 Navient Student Loan Trust, 1 mo. USD
LIBOR + 1.5% 2.83(i) 8/25/2050 199
307 SCF Equipment Trust, LLC(a) 3.41 12/20/2023 307
320 Synchrony Credit Card Master Note Trust 2.95 5/15/2024 321
----------
1,542
----------
Total Financials 1,542
----------
Total Asset-Backed Securities (cost: $1,519) 1,542
----------
================================================================================
18 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS (0.4%)
FINANCIALS (0.4%)
-----------------
ASSET-BACKED FINANCING (0.4%)
$ 53 Sequoia Mortgage Trust, 1 mo. USD LIBOR + 0.9% 2.18%(i) 9/20/2033 $ 52
----------
841 Structured Asset Mortgage Investments, Inc., 1 mo.
USD LIBOR + 0.5% 1.78(i) 7/19/2035 781
48 Wells Fargo Mortgage Backed Securities Trust 3.00(l) 4/25/2035 45
----------
878
----------
Total Financials 878
----------
Total Collateralized Mortgage Obligations (cost: $916) 878
----------
COMMERCIAL MORTGAGE SECURITIES (2.3%)
FINANCIALS (2.3%)
-----------------
COMMERCIAL MORTGAGE-BACKED SECURITIES (2.1%)
207 Banc of America Commercial Mortgage, Inc. 5.00 7/10/2044 149
800 Banc of America Commercial Mortgage, Inc. 6.47(l) 2/10/2051 802
1,069 Bear Stearns Commercial Mortgage Securities, Inc.(a) 5.66(l) 9/11/2041 1,078
50 Citigroup Commercial Mortgage Trust 6.42(l) 12/10/2049 32
170 Commercial Mortgage Trust 5.38 12/10/2046 171
548 Credit Suisse Commercial Mortgage Pass-Through
Trust, 1 mo. USD LIBOR + 0.19% 1.46(i) 2/15/2040 516
830 FREMF Mortgage Trust(a) 3.68(l) 8/25/2045 842
225 GE Capital Commercial Mortgage Corp. 5.61(l) 12/10/2049 228
38 GMAC Commercial Mortgage Securities, Inc. 4.97 12/10/2041 38
593 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 5.37 5/15/2047 597
26 Morgan Stanley Capital I Trust 5.57(l) 3/12/2044 26
----------
4,479
----------
INTEREST-ONLY COMMERCIAL MORTGAGE-BACKED SECURITIES (0.2%)
3,231 CSAIL Commercial Mortgage Trust, acquired
5/18/2016; cost $399(d) 1.97(l) 1/15/2049 342
2,789 UBS Commercial Mortgage Trust, acquired
11/01/2016; cost $258(a),(d) 2.27(l) 5/10/2045 205
----------
Total Interest-Only Commercial Mortgage-Backed
Securities 547
----------
Total Financials 5,026
----------
Total Commercial Mortgage Securities (cost: $5,078) 5,026
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY ISSUES (12.4%)(m)
COMMERCIAL MORTGAGE-BACKED SECURITIES (1.3%)
$ 500 Fannie Mae(+) 2.15% 1/25/2023 $ 493
1,100 Freddie Mac(+) 3.33 5/25/2025 1,147
1,000 Freddie Mac(+) 3.51 4/25/2030 1,036
----------
2,676
----------
MORTGAGE-BACKED PASS-THROUGH SECURITIES (11.1%)
1,702 Freddie Mac(+) 3.00 4/01/2046 1,701
4,021 Freddie Mac(+) 3.00 6/01/2046 4,019
1,837 Freddie Mac(+) 3.00 9/01/2046 1,836
926 Freddie Mac(+) 3.00 10/01/2046 925
1,868 Freddie Mac(+) 3.00 11/01/2046 1,866
2,865 Freddie Mac(+) 3.00 1/01/2047 2,863
5,134 Freddie Mac(+) 3.00 3/01/2047 5,128
5,335 Freddie Mac(+) 3.50 4/01/2046 5,475
----------
23,813
----------
Total U.S. Government Agency Issues (cost: $26,846) 26,489
----------
U.S. TREASURY SECURITIES (20.8%)(n)
BONDS (8.4%)
8,700 3.13%, 8/15/2044(b) 9,205
4,000 3.17%, 8/15/2044 (STRIPS Principal)(o) 1,864
2,285 3.00%, 11/15/2044(b) 2,362
300 2.50%, 2/15/2045(b) 281
3,000 3.00%, 5/15/2045(b) 3,100
1,000 3.00%, 5/15/2047(b) 1,033
----------
17,845
----------
NOTES (12.4%)
7,600 1.13%, 2/28/2021(p) 7,400
618 2.00%, 2/15/2023 612
3,800 1.63%, 4/30/2023 3,690
1,500 2.50%, 5/15/2024 1,519
1,500 2.38%, 8/15/2024 1,507
800 2.25%, 11/15/2024(b) 797
6,200 2.25%, 11/15/2025(b) 6,147
2,000 1.63%, 2/15/2026(b) 1,888
1,000 2.25%, 2/15/2027(b) 986
2,000 2.38%, 5/15/2027(b) 1,992
----------
26,538
----------
Total U.S. Treasury Securities (cost: $43,964) 44,383
----------
================================================================================
20 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
EXCHANGE-TRADED FUNDS (15.7%)
7,100 iShares 1-3 Year Credit Bond ETF $ 744
40,730 iShares Core U.S. Aggregate Bond ETF 4,443
27,600 PowerShares Fundamental High Yield Corporate Bond Portfolio 524
53,300 Vanguard Mortgage-Backed Securities ETF 2,800
47,500 Vanguard Short-Term Bond ETF 3,770
151,700 Vanguard Short-Term Corporate Bond ETF 12,080
113,100 Vanguard Total Bond Market ETF 9,219
----------
Total Exchange-Traded Funds (cost: $33,658) 33,580
----------
Total Bonds (cost: $126,290) 126,439
----------
------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON
(000) RATE MATURITY
------------------------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS (3.2%)
COMMERCIAL PAPER (0.5%)
ENERGY (0.5%)
-------------
OIL & GAS DRILLING (0.5%)
$ 1,000 Nabors Industries, Inc.(a),(q) (cost: $997) 2.00% 1/08/2018 997
----------
------------------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES
------------------------------------------------------------------------------------------------------------------
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (2.7%)
5,704,753 State Street Institutional Treasury Money Market Fund Premier
Class, 1.02%(r) (cost:$5,705) 5,705
----------
Total Money Market Instruments (cost: $6,702) 6,702
----------
SHORT-TERM INVESTMENTS PURCHASED WITH CASH
COLLATERAL FROM SECURITIES LOANED (0.8%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (0.8%)
737,800 Federated Government Obligations Fund Institutional
Class, 0.94%(r) 738
1,675 Fidelity Government Portfolio Class I, 0.97%(r) 2
33,600 Goldman Sachs Financial Square Government Fund Institutional
Class, 0.96%(r) 33
================================================================================
PORTFOLIO OF INVESTMENTS | 21
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
941,125 Invesco Government & Agency Portfolio Institutional
Class, 0.98%(r) $ 941
--------
Total Short-Term Investments Purchased with Cash Collateral from
Securities Loaned (cost: $1,714) 1,714
--------
TOTAL INVESTMENTS (COST: $207,095) $214,866
========
------------------------------------------------------------------------------------------------------------------
UNREALIZED
NOTIONAL CONTRACT APPRECIATION/
NUMBER OF EXPIRATION AMOUNT VALUE (DEPRECIATION)
CONTRACTS SECURITY DATE (000) (000) (000)
------------------------------------------------------------------------------------------------------------------
FUTURES(s)
LONG FUTURES
EQUITY CONTRACTS
128 Euro Stoxx 50 12/15/2017 4,475 EURO $ 5,444 $ 117
28 TOPIX Index 12/07/2017 461,054 JPY 4,471 374
58 E-mini S&P 500 12/15/2017 7,137 USD 7,679 542
------- ------
17,594 1,033
------- ------
TOTAL LONG FUTURES 17,594 1,033
======= ======
SHORT FUTURES
INTEREST RATE CONTRACTS
(26) U.S. Treasury Bond 3/20/2018 (3,989) USD $(3,945) $ 44
EQUITY CONTRACTS
(18) E-mini S&P Midcap 400 12/15/2017 (3,228) USD (3,420) (192)
------- ------
TOTAL SHORT FUTURES $(7,365) $ (148)
------- ------
TOTAL FUTURES $10,229 $ 885
======= ======
================================================================================
22 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
------------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------------------------------------------------------------------------------------------------------------------
U.S. Equity Securities:
Common Stocks $ 23,516 $ - $ - $ 23,516
Preferred Stocks - 4,191 - 4,191
Exchange-Traded Funds 11,686 - - 11,686
International Equity Securities:
Common Stocks 190 - - 190
Exchange-Traded Funds 36,609 - - 36,609
Precious Metals and Commodity-Related
Securities:
Common Stocks - - 7 7
Exchange-Traded Funds 2,595 - - 2,595
Global Real Estate Equity Securities:
Common Stocks 591 - - 591
Preferred Stocks - 204 - 204
Exchange-Traded Funds 422 - - 422
Bonds:
Corporate Obligations - 12,595 - 12,595
Convertible Securities - 513 839 1,352
Eurodollar and Yankee Obligations - 594 - 594
Asset-Backed Securities - 1,542 - 1,542
Collateralized Mortgage Obligations - 878 - 878
Commercial Mortgage Securities - 5,026 - 5,026
U.S. Government Agency Issues - 26,489 - 26,489
U.S. Treasury Securities 42,519 1,864 - 44,383
Exchange-Traded Funds 33,580 - - 33,580
Money Market Instruments:
Commercial Paper - 997 - 997
Government & U.S. Treasury Money
Market Funds 5,705 - - 5,705
Short-Term Investments Purchased with
Cash Collateral from Securities Loaned:
Government & U.S. Treasury Money
Market Funds 1,714 - - 1,714
Futures(1) 1,077 - - 1,077
------------------------------------------------------------------------------------------------------------------
Total $160,204 $54,893 $846 $215,943
------------------------------------------------------------------------------------------------------------------
LIABILITIES LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------------------------------------------------------------------------------------------------------------------
Futures(1) $ (192) $ - $ - $ (192)
------------------------------------------------------------------------------------------------------------------
Total $ (192) $ - $ - $ (192)
------------------------------------------------------------------------------------------------------------------
(1)Futures are valued at the unrealized appreciation/(depreciation) on the
investment.
================================================================================
PORTFOLIO OF INVESTMENTS | 23
================================================================================
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
------------------------------------------------------------------------------------------------------------------
RECONCILIATION OF LEVEL 3 INVESTMENTS
------------------------------------------------------------------------------------------------------------------
($ in 000s) COMMON STOCKS CORPORATE OBLIGATIONS
------------------------------------------------------------------------------------------------------------------
Balance as of May 31, 2017 $ 31 $1,094
Purchases - 43
Sales - -
Transfers into Level 3 - -
Transfers out of Level 3 - -
Net realized gain (loss) on investments - -
Change in net unrealized appreciation/(depreciation)
of investments (24) (298)
------------------------------------------------------------------------------------------------------------------
Balance as of November 30, 2016 $ 7 $ 839
------------------------------------------------------------------------------------------------------------------
For the period of June 1, 2017, through November 30, 2017, there were no
transfers of securities between levels. The Fund's policy is to recognize any
transfers in and transfers out as of the beginning of the reporting period in
which the event or circumstance that caused the transfer occurred.
------------------------------------------------------------------------------------------------------------------
QUANTITATIVE INFORMATION ABOUT LEVEL 3 FAIR VALUE MEASUREMENTS**
------------------------------------------------------------------------------------------------------------------
FAIR VALUE AT SIGNIFICANT
NOVEMBER 30, 2017 VALUATION UNOBSERVABLE RANGE/
ASSETS ($ IN 000's) TECHNIQUE(S) INPUT(S) VALUE
------------------------------------------------------------------------------------------------------------------
Bonds:
Convertible Securities $839 Market Average $58.24
Comparables Value
Per
Recoverable
Ounce(a)
Comparable 40%
Discount
Adjustment(b)
------------------------------------------------------------------------------------------------------------------
(a)Represents amounts used when the reporting entity has determined that market
participants would use such multiples when pricing the security.
(b)Represents amounts used when the reporting entity has determined that market
participants would take into account these discounts when pricing the
security.
**Quantitative Information table includes certain Level 3 securities using
valuation models.
Increases in the earnings before interest, taxes, depreciation, and amortization
(EBITDA), revenue multiples, transaction prices, average value per recoverable
ounce, or earnings per share will increase the value of the security while an
increase in the discount adjustment or a discount for the lack of marketability
will decrease the value of the security.
================================================================================
24 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
November 30, 2017 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
Market values of securities are determined by procedures and practices
discussed in Note 1A to the financial statements.
The Portfolio of Investments category percentages shown represent the
percentages of the investments to net assets, and, in total, may not equal
100%. A category percentage of 0.0% represents less than 0.1% of net assets.
Investments in foreign securities were 18.4% of net assets at November 30,
2017.
The Fund may rely on certain Securities and Exchange Commission (SEC)
exemptive orders or rules that permit funds meeting various conditions to
invest in an exchange-traded fund (ETF) in amounts exceeding limits set
forth in the Investment Company Act of 1940, as amended, that would
otherwise be applicable.
o 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 | 25
================================================================================
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 cash flows than regular mortgage
securities, but such cash flows 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.
================================================================================
26 | USAA CORNERSTONE MODERATELY CONSERVATIVE 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.
LIBOR London Interbank Offered Rate
REIT Real estate investment trust - Dividend distributions from REITs may
be recorded as income and later characterized by the REIT at the end
of the fiscal year as capital gains or a return of capital. Thus, the
fund will estimate the components of distributions from these
securities and revise when actual distributions are known.
STRIPS Separate trading of registered interest and principal of securities
USD U.S. Dollar
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, 2017.
(c) The security, or a portion thereof, was out on loan as of November
30, 2017.
(d) Security deemed illiquid by the Manager, under liquidity guidelines
approved by the Board. The aggregate market value of these securities at
November 30, 2017, was $1,393,000, which represented 0.7% of the Fund's
net assets.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 27
================================================================================
(e) Security was fair valued at November 30, 2017, by the Manager in
accordance with valuation procedures approved by the Board. The total
value of all such securities was $846,000, which represented 0.4% of the
Fund's net assets.
(f) Security was fair valued at Level 3.
(g) Senior loan (loan) - is not registered under the Securities Act of
1933. The loan contains certain restrictions on resale and cannot be
sold publicly. The stated interest rate represents the weighted average
interest rate of all contracts within the loan facility and includes
commitment fees on unfunded loan commitments. The interest rate is
adjusted periodically, and the rate disclosed represents the current
rate at November 30, 2017. The weighted average life of the loan is
likely to be shorter than the stated final maturity date due to
mandatory or optional prepayments. The loan is deemed liquid by the
Manager, under liquidity guidelines approved by the Board, unless
otherwise noted as illiquid.
(h) At November 30, 2017, the issuer was in default with respect to
interest and/or principal payments.
(i) Floating-rate security - interest rate is adjusted periodically. The
interest rate disclosed represents the rate at November 30, 2017.
(j) 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.
(k) All of the coupon is PIK.
(l) Stated interest rates may change slightly over time as underlying
mortgages pay down.
(m) 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
================================================================================
28 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
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.
(n) Rates for U.S. Treasury notes or bonds represent the stated coupon
payment rate at time of issuance.
(o) Zero-coupon security. Rate represents the effective yield at the
date of purchase.
(p) Securities with a value of $487,000 are segregated as collateral for
initial margin requirements on open futures contracts.
(q) Commercial paper issued in reliance on the "private placement"
exemption from registration afforded by Section 4(a)(2) of the
Securities Act of 1933, as amended (Section 4(a)(2) Commercial Paper).
Unless this commercial paper is subsequently registered, a resale of
this commercial paper in the United States must be effected in a
transaction exempt from registration under the Securities Act of 1933.
Section 4(a)(2) Commercial Paper is normally resold to other investors
through or with the assistance of the issuer or an investment dealer who
makes a market in this security, and as such
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 29
================================================================================
has been deemed liquid by the Manager under liquidity guidelines
approved by the Board, unless otherwise noted as illiquid.
(r) Rate represents the money market fund annualized seven-day yield at
November 30, 2017.
(s) The contract value of futures purchased and/or sold as a percentage
of net assets is 4.8%.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
30 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
November 30, 2017 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value
(including securities on loan of $1,685) (cost of $207,095) $214,866
Cash denominated in foreign currencies (identified cost of $450) 484
Receivables:
Capital shares sold 176
USAA Asset Management Company (Note 6C) 52
Dividends and interest 477
Securities sold 83
Other 1
Variation margin on futures contracts 886
--------
Total assets 217,025
--------
LIABILITIES
Payables:
Upon return of securities loaned 1,714
Securities purchased 62
Capital shares redeemed 174
Bank overdraft 962
Accrued management fees 87
Accrued transfer agent's fees 23
Other accrued expenses and payables 112
--------
Total liabilities 3,134
--------
Net assets applicable to capital shares outstanding $213,891
========
NET ASSETS CONSIST OF:
Paid-in capital $198,973
Accumulated undistributed net investment income 494
Accumulated net realized gain on investments and futures transactions 5,734
Net unrealized appreciation of investments and futures contracts 8,656
Net unrealized appreciation of foreign currency translations 34
--------
Net assets applicable to capital shares outstanding $213,891
========
Capital shares outstanding, no par value 18,297
========
Net asset value, redemption price, and offering price per share $ 11.69
========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 31
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended November 30, 2017 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends $ 1,295
Interest 1,571
Securities lending (net) 8
-------
Total income 2,874
-------
EXPENSES
Management fees 536
Administration and servicing fees 161
Transfer agent's fees 267
Custody and accounting fees 76
Postage 11
Shareholder reporting fees 11
Trustees' fees 17
Registration fees 15
Professional fees 46
Other 8
-------
Total expenses 1,148
Expenses reimbursed (183)
-------
Net expenses 965
-------
NET INVESTMENT INCOME 1,909
-------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
FOREIGN CURRENCY, AND FUTURES CONTRACTS
Net realized gain on:
Investments 6,329
Foreign currency transactions 3
Futures transactions 672
Change in net unrealized appreciation/(depreciation) of:
Investments (906)
Foreign currency translations 27
Futures contracts 334
-------
Net realized and unrealized gain 6,459
-------
Increase in net assets resulting from operations $ 8,368
=======
See accompanying notes to financial statements.
================================================================================
32 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended November 30, 2017 (unaudited), and year ended
May 31, 2017
------------------------------------------------------------------------------------------------------------------
11/30/2017 5/31/2017
------------------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 1,909 $ 4,240
Net realized gain (loss) on investments 6,329 (488)
Net realized gain on long-term capital gain distributions
from other investment companies - 13
Net realized gain on foreign currency transactions 3 -
Net realized loss on options - (49)
Net realized gain on futures transactions 672 1,231
Change in net unrealized appreciation/(depreciation) of:
Investments (906) 11,002
Foreign currency translations 27 7
Futures contracts 334 534
---------------------------
Increase in net assets resulting from operations 8,368 16,490
---------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (1,814) (4,356)
---------------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 25,137 49,002
Reinvested dividends 1,632 3,904
Cost of shares redeemed (28,702) (50,146)
---------------------------
Increase (decrease) in net assets from capital
share transactions (1,933) 2,760
---------------------------
Net increase in net assets 4,621 14,894
NET ASSETS
Beginning of period 209,270 194,376
---------------------------
End of period $213,891 $209,270
===========================
Accumulated undistributed net investment income:
End of period $ 494 $ 399
===========================
CHANGE IN SHARES OUTSTANDING
Shares sold 2,188 4,478
Shares issued for dividends reinvested 142 361
Shares redeemed (2,493) (4,592)
---------------------------
Increase (decrease) in shares outstanding (163) 247
===========================
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 33
================================================================================
NOTES TO FINANCIAL STATEMENTS
November 30, 2017 (unaudited)
--------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company Act
of 1940, as amended (the 1940 Act), is an open-end management investment company
organized as a Delaware statutory trust consisting of 51 separate funds.
Additionally, USAA Cornerstone Moderately Conservative Fund (the Fund) qualifies
as a registered investment company under Accounting Standards Codification Topic
946. The information presented in this semiannual report pertains only to the
Fund, which is classified as diversified under the 1940 Act and is authorized to
issue an unlimited number of shares. The Fund's investment objective is to seek
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
================================================================================
34 | USAA CORNERSTONE MODERATELY CONSERVATIVE 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 backtesting
reports, pricing service quotation comparisons, illiquid securities and fair
value determinations, pricing movements, and daily stale price monitoring.
The value of each security is determined (as of the close of trading on the
New York Stock Exchange (NYSE) on each business day the NYSE is open) as set
forth below:
1. Equity securities, including exchange-traded funds (ETFs), except as
otherwise noted, traded primarily on a domestic securities exchange or
the over-the-counter markets, are valued at the last sales price or
official closing price on the exchange or primary market on which they
trade. Securities traded primarily on foreign securities exchanges or
markets are valued at the last quoted sale price, or the most recently
determined official closing price calculated according to local market
convention, available at the time the Fund is valued. If no last sale
or official closing price is reported or available, the average of the
bid and ask prices generally is used. Actively traded equity securities
listed on a domestic exchange generally are categorized in Level 1 of
the fair value hierarchy. Certain preferred and equity securities
traded in inactive markets generally are categorized in Level 2 of the
fair value hierarchy.
2. Equity securities trading in various foreign markets may take place
on days when the NYSE is closed. Further, when the NYSE is open, the
foreign markets may be closed. Therefore, the calculation of the Fund's
net asset value (NAV) may not take place at the same time the prices of
certain foreign securities held by the Fund are determined. In many
cases, events affecting the values of foreign securities that occur
between the time of their last quoted sale or official closing price
and the close of normal trading on the NYSE on a day the Fund's NAV is
calculated will not need to be reflected in the value of the Fund's
foreign securities. However, the Manager will monitor for
================================================================================
NOTES TO FINANCIAL STATEMENTS | 35
================================================================================
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. Debt securities with maturities greater than 60 days are valued each
business day by a pricing service (the Service) approved by the Board.
The Service uses an evaluated mean between quoted bid and ask prices or
the last sales price to value a security when, in the Service's
judgment, these prices are readily available and are representative of
the security's market value. For many securities, such prices are not
readily available. The Service generally prices those securities based
on methods which include consideration of yields or prices of securities
of comparable quality, coupon, maturity, and type; indications as to
values from dealers in securities; and general market conditions.
Generally, debt securities are categorized in Level 2 of the fair value
hierarchy; however, to the extent the valuations include significant
unobservable inputs, the securities would be categorized in Level 3.
6. Repurchase agreements are valued at cost.
================================================================================
36 | USAA CORNERSTONE MODERATELY CONSERVATIVE 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 ask price
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
ask price 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 37
================================================================================
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 last quoted 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.
The methods used may include valuation models that rely on significant
assumptions and/or unobservable inputs to determine the fair value
measurement for the securities. A market-based approach may be employed
using related or comparable securities, recent transactions, market
multiples, book values and other relevant information or an income-based
approach may be employed whereby estimated future cash flows are discounted
to determine the fair value. In some cases discounts may be applied due to
market liquidity limitations.
================================================================================
38 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
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 agreements held at November 30, 2017, did
not include master netting provisions.
FUTURES CONTRACTS - The Fund is subject to equity price risk, interest rate
risk, and foreign currency exchange rate risk in the normal course of
pursuing its investment objectives. The Fund may use futures contracts to
gain exposure to, or hedge against, changes in the value of equities,
interest rates, or foreign currencies. A futures contract represents a
commitment for the future purchase or sale of an asset at a specified price
on a specified date. Upon entering into such contracts, the Fund is required
to deposit with the broker in either cash or securities an initial margin in
an amount equal to a certain percentage of the contract amount. Subsequent
payments (variation margin) are made or received by the Fund each day,
depending on the daily fluctuations in the value of the contract, and are
recorded for financial statement purposes as unrealized gains or losses.
When the contract is closed, the Fund records a realized gain or loss equal
to the difference between the value of the contract at the time it was
opened and the value at the time it was closed. Upon entering into such
contracts, the Fund bears the risk of interest or exchange rates or
securities prices moving unexpectedly in an
================================================================================
NOTES TO FINANCIAL STATEMENTS | 39
================================================================================
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, 2017*
(IN THOUSANDS)
ASSET DERIVATIVES LIABILITY DERIVATIVES
------------------------------------------------------------------------------------------------
STATEMENT OF STATEMENT OF
DERIVATIVES NOT ASSETS AND ASSETS AND
ACCOUNTED FOR AS LIABILITIES LIABILITIES
HEDGING INSTRUMENTS LOCATION FAIR VALUE LOCATION FAIR VALUE
------------------------------------------------------------------------------------------------
Interest rate Net unrealized $ 44** - $ -
contracts appreciation of
investments and
futures contracts
------------------------------------------------------------------------------------------------
Equity contracts Net unrealized 1,033** - 192**
appreciation of
investments and
futures contracts
------------------------------------------------------------------------------------------------
Total $1,077 - $192
------------------------------------------------------------------------------------------------
* For open derivative instruments as of November 30, 2017, see the
Portfolio of Investments, which also is indicative of activity for the
six-month period ended November 30, 2017.
** Includes cumulative appreciation/(depreciation) of futures as reported on
the Portfolio of Investments. Only the variation margin from the last
business day of the reporting period is reported within the Statement of
Assets and Liabilities.
THE EFFECT OF DERIVATIVE INSTRUMENTS ON THE STATEMENT OF OPERATIONS FOR THE
YEAR ENDED NOVEMBER 30, 2017 (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) $(81) $ 66
contracts on Futures transactions/
Change in net unrealized
appreciation/(depreciation)
of Futures contracts
------------------------------------------------------------------------------------------------
Equity contracts Net realized gain (loss) on 753 268
Futures transactions/
Change in net unrealized
appreciation/(depreciation)
of Futures contracts
------------------------------------------------------------------------------------------------
Total $672 $334
------------------------------------------------------------------------------------------------
================================================================================
40 | USAA CORNERSTONE MODERATELY CONSERVATIVE 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.
For the six-month period ended November 30, 2017, the Fund did not incur any
income tax, interest, or penalties, and has recorded no liability for net
unrecognized tax benefits relating to uncertain income tax positions. On an
ongoing basis, the Manager will monitor the Fund's tax basis to determine if
adjustments to this conclusion are necessary. The statute of limitations on
the Fund's tax return filings generally remain open for the three preceding
fiscal reporting year ends and remain subject to examination by the Internal
Revenue Service and state taxing authorities.
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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 41
================================================================================
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 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
================================================================================
42 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
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 expenses. For the six-month period
ended November 30, 2017, 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, along with other funds of the Trust and USAA ETF Trust
(together, the Trusts), in a joint, short-term, revolving, committed loan
agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate of
the Manager. The purpose of the agreement is to provide temporary or emergency
cash needs, including redemption requests that might otherwise require the
untimely disposition of securities. Subject to availability (including usage of
the facility by other funds of the Trusts), the
================================================================================
NOTES TO FINANCIAL STATEMENTS | 43
================================================================================
Fund may borrow from CAPCO an amount up to 5% of the Fund's total assets at an
interest rate based on the London Interbank Offered Rate (LIBOR), plus 100.0
basis points.
The Trusts are also assessed facility fees by CAPCO in the amount of 13.0 basis
points of the amount of the committed loan agreement. Prior to September 30,
2017, the maximum annual facility fee was 12.0 basis points of the amount of
the committed loan agreement. The facility fees are allocated among the funds
of the Trusts based on their respective average net assets for the period.
The Trusts may request an optional increase of the committed loan agreement
from $500 million up to $750 million. If the Trusts increase the committed loan
agreement, the assessed facility fee on the amount of the additional commitment
will be 14.0 basis points.
For the six-month period ended November 30, 2017, the Fund paid CAPCO facility
fees of $1,000, which represents 0.3% of the total fees paid to CAPCO by the
funds of the Trusts. The Fund had no borrowings under this agreement during the
six-month period ended November 30, 2017.
(3) DISTRIBUTIONS
The tax basis of distributions and any accumulated undistributed net investment
income will be determined as of the Fund's tax year-end of May 31, 2018, in
accordance with applicable federal tax law.
Distributions of net investment income and realized gains from security
transactions not offset by capital losses are made annually in the succeeding
fiscal year or as otherwise required to avoid the payment of federal income tax.
At May 31, 2017, the Fund had long-term capital loss carryforwards of $816,000,
for federal income tax purposes. It is unlikely that the Board will authorize a
distribution of capital gains realized in the future until the capital loss
carryforwards have been used.
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities, excluding
short-term securities, for the six-month period ended November 30, 2017, were
$52,629,000 and $53,436,000, respectively.
================================================================================
44 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
As of November 30, 2017, 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, 2017, were $11,911,000 and $4,140,000, respectively, resulting in net
unrealized appreciation of $7,771,000.
(5) SECURITIES LENDING
The Fund, through its securities lending agreement with Citibank, N.A.
(Citibank), may lend its securities to qualified financial institutions, such as
certain broker-dealers, to earn additional income. The borrowers are required to
secure their loans continuously with collateral in an amount at least equal to
102% of the fair value of domestic securities and foreign government securities
loaned and 105% of the fair value of foreign securities and all other securities
loaned. Collateral may be cash, U.S. government securities, or other securities
as permitted by SEC guidelines. Cash collateral is invested in high-quality
short-term investments. Collateral requirements are determined daily based on
the prior business day's ending value of securities loaned. Risks to the Fund in
securities-lending transactions are that the borrower may not provide additional
collateral when required or return the securities when due, and that the value
of the short-term investments will be less than the amount of cash collateral
required to be returned to the borrower. The Fund's agreement with Citibank does
not include master netting provisions. Non-cash collateral received by the Fund
may not be sold or re-pledged except to satisfy borrower default. Cash
collateral is listed in the Fund's Portfolio of Investments and Financial
Statements while non-cash collateral is not included.
At November 30, 2017, the Fund's value of outstanding securities on loan
and the value of collateral are as follows:
VALUE OF SECURITIES
ON LOAN NON-CASH COLLATERAL CASH COLLATERAL
----------------------------------------------------------------------------------
$1,685 $- $1,714
================================================================================
NOTES TO FINANCIAL STATEMENTS | 45
================================================================================
(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 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 all or a portion of the Fund's assets. For the six-month
period ended November 30, 2017, 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, 2017, the Fund incurred total management fees,
paid or payable to the Manager, of $536,000.
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, 2017, the Fund incurred administration and servicing fees, paid
or payable to the Manager, of $161,000.
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, 2017, the Fund reimbursed the
Manager $3,000 for these compliance and legal services. These expenses are
included in the professional fees on the Fund's Statement of Operations.
C. EXPENSE LIMITATION - The Manager agreed, through September 30, 2018, to
limit the total annual operating expenses of the Fund to 0.90% of its
average net assets, excluding extraordinary expenses and before
================================================================================
46 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
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, 2018, without
approval of the Board, and may be changed or terminated by the Manager at
any time after that date. For the six-month period ended November 30, 2017,
the Fund incurred reimbursable expenses of $183,000, of which $52,000 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, 2017, the Fund incurred transfer agent's fees, paid or payable to SAS,
of $267,000. At November 30, 2017, the Fund recorded a reclassification of
less than $500 for SAS adjustments to capital gains payable.
E. UNDERWRITING SERVICES - USAA Investment Management Company provides
exclusive underwriting and distribution of the Fund's shares on a continuing
best-efforts basis and receives no fee or other compensation for these
services.
(7) TRANSACTIONS WITH AFFILIATES
The Manager is indirectly wholly owned by United Services Automobile Association
(USAA), a large, diversified financial services institution. At November 30,
2017, USAA and its affiliates owned 890,000 shares, which represents 4.9% 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) SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
During the six-month period ended November 30, 2017, in accordance with
affiliated transaction procedures approved by the Board, purchases and sales
================================================================================
NOTES TO FINANCIAL STATEMENTS | 47
================================================================================
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 $29,000 $1,000
Conservative
(9) UPCOMING REGULATORY MATTERS
In October 2016, the U.S. Securities and Exchange Commission (SEC) issued Final
Rule Release No. 33-10231, INVESTMENT COMPANY REPORTING MODERNIZATION. In part,
the rules require the filing of new forms N-PORT and N-CEN, and amend
Regulation S-X to require standardized, enhanced disclosure about derivatives
in investment company financial statements, as well as other amendments.
In October 2016, the SEC issued Final Rule Release No. 33-10233, INVESTMENT
COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS. This rule requires funds to
establish a liquidity risk management program and enhances disclosures
regarding funds' liquidity.
In October 2016, the SEC issued Final Rule Release No. 33-10234, INVESTMENT
COMPANY SWING PRICING. This rule permits certain funds to use swing pricing
during periods of heavy redemptions and requires certain disclosures regarding
the use of swing pricing in forms filed with the SEC.
The Manager continues to evaluate the impact these rules and amendments will
have on the financial statements and other disclosures. The compliance date for
new forms N-PORT and N-CEN is June 1, 2018 (with filing of Form N-PORT
beginning April 30, 2019), with other staggered compliance dates extending
through April 30, 2019. The Fund is expected to comply with the June 1, 2018
compliance date for new forms N-PORT and N-CEN.
================================================================================
48 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
(10) 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,
------------------------------------------------------------------------------
2017 2017 2016 2015 2014 2013***
------------------------------------------------------------------------------
Net asset value at
beginning of period $ 11.34 $ 10.67 $ 11.42 $ 11.52 $ 11.05 $ 10.00
---------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .10 .23 .28 .26 .25 .28(a)
Net realized and unrealized
gain (loss) .35 .68 (.68) .03 .61 .99(a)
---------------------------------------------------------------------------
Total from investment
operations .45 .91 (.40) .29 .86 1.27(a)
---------------------------------------------------------------------------
Less distributions from:
Net investment income (.10) (.24) (.26) (.27) (.26) (.22)
Realized capital gains - - (.09) (.12) (.13) -
---------------------------------------------------------------------------
Total distributions (.10) (.24) (.35) (.39) (.39) (.22)
---------------------------------------------------------------------------
Net asset value at end
of period $ 11.69 $ 11.34 $ 10.67 $ 11.42 $ 11.52 $ 11.05
===========================================================================
Total return (%)* 3.96 8.65 (3.50) 2.58 8.00 12.81
Net assets at end
of period (000) $213,891 $209,270 $194,376 $204,535 $167,742 $99,683
Ratios to average
net assets:**
Expenses (%)(b) .90(c) .90 .90 .90 .90 .90(c)
Expenses, excluding
reimbursements (%)(b) 1.07(c) 1.09 1.09 1.05 1.08 1.25(c)
Net investment income (%) 1.78(c) 2.12 2.56 2.43 2.40 2.56(c)
Portfolio turnover (%) 26 55 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, 2017, average net assets were
$213,858,000.
*** 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 | 49
================================================================================
EXPENSE EXAMPLE
November 30, 2017 (unaudited)
--------------------------------------------------------------------------------
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: direct costs, such
as wire fees, redemption fees, and low balance fees; and indirect costs,
including management fees, transfer agency fees, and other Fund operating
expenses. This example is intended to help you understand your indirect costs,
also referred to as "ongoing costs" (in dollars), of investing in the Fund and
to compare these costs with the ongoing costs of investing in other mutual
funds.
The example is based on an investment of $1,000 invested at the beginning of
the period and held for the entire six-month period of June 1, 2017, through
November 30, 2017.
ACTUAL EXPENSES
The line labeled "actual" in the table provides information about actual
account values and actual expenses. You may use the information in this line,
together with the amount you invested at the beginning of the period, to
estimate the expenses that you paid over the period. Simply divide your account
value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6),
then multiply the result by the number in the "actual" line under the heading
"Expenses Paid During Period" to estimate the expenses you paid on your account
during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The line labeled "hypothetical" in the table provides information about
hypothetical account values and hypothetical expenses based on the Fund's
actual expense ratio and an assumed rate of return of 5% per year before
expenses, which is not the Fund's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
================================================================================
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, 2017 -
JUNE 1, 2017 NOVEMBER 30, 2017 NOVEMBER 30, 2017
-------------------------------------------------------------
Actual $1,000.00 $1,039.60 $4.60
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 3.96% for the six-month period of June 1,
2017, through November 30, 2017.
================================================================================
EXPENSE EXAMPLE | 51
================================================================================
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Jefferson C. Boyce
Dawn M. Hawley
Paul L. McNamara
Richard Y. Newton III
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
--------------------------------------------------------------------------------
ADMINISTRATOR AND USAA Asset Management Company
INVESTMENT ADVISER P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
UNDERWRITER AND USAA Investment Management Company
DISTRIBUTOR P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
--------------------------------------------------------------------------------
CUSTODIAN AND State Street Bank and Trust Company
ACCOUNTING AGENT P.O. Box 1713
Boston, Massachusetts 02105
--------------------------------------------------------------------------------
INDEPENDENT Ernst & Young LLP
REGISTERED PUBLIC 100 West Houston St., Suite 1700
ACCOUNTING FIRM San Antonio, Texas 78205
--------------------------------------------------------------------------------
MUTUAL FUND Under "My Accounts" on
SELF-SERVICE 24/7 usaa.com select your mutual fund
AT USAA.COM account and either click the link or
select 'I want to...' and select
OR CALL the desired action.
(800) 531-USAA (8722)
(210) 531-8722
--------------------------------------------------------------------------------
Copies of the Manager's proxy voting policies and procedures, approved by the
Trust's Board of Trustees for use in voting proxies on behalf of the Fund, are
available without charge (i) by calling (800) 531-USAA (8722) or (210)
531-8722; (ii) at USAA.COM; and (iii) in summary within the Statement of
Additional Information on the SEC's website at HTTP://WWW.SEC.GOV. Information
regarding how the Fund voted proxies relating to portfolio securities during
the most recent 12-month period ended June 30 is available without charge (i)
at USAA.COM; and (ii) on the SEC's website at HTTP://WWW.SEC.GOV.
The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. These Forms N-Q are
available at no charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722;
(ii) at USAA.COM; and (iii) on the SEC's website at HTTP://WWW.SEC.GOV. These
Forms N-Q also may be reviewed and copied at the SEC's Public Reference Room
in Washington, D.C. Information on the operation of the Public Reference Room
may be obtained by calling (800) 732-0330.
================================================================================
--------------
USAA PRSRT STD
9800 Fredericksburg Road U.S. Postage
San Antonio, TX 78288 PAID
USAA
--------------
>> SAVE PAPER AND FUND COSTS
Under MY PROFILE on USAA.COM select MANAGE PREFERENCES
Set your DOCUMENT PREFERENCES to USAA DOCUMENTS ONLINE.
[LOGO OF USAA]
USAA We know what it means to serve.(R)
=============================================================================
97451-0118 (C)2018, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA CORNERSTONE MODERATE FUND]
==============================================================
SEMIANNUAL REPORT
USAA CORNERSTONE MODERATE FUND (USBSX)
NOVEMBER 30, 2017
==============================================================
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
INVESTMENT OVERVIEW 2
FINANCIAL INFORMATION
Portfolio of Investments 4
Notes to Portfolio of Investments 31
Financial Statements 37
Notes to Financial Statements 40
EXPENSE EXAMPLE 56
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)2018, USAA. All rights reserved.
================================================================================
================================================================================
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 Fund's asset allocation is
actively managed by adjusting the Fund's investments among asset classes that
the Fund's manager(s) deems appropriate, using a combination of active security
selection, quantitative investing strategies, and investments in active and
passive exchange-traded funds (ETFs) and futures. The implementation of the
asset allocation may involve the extensive use of equity and fixed-income 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
================================================================================
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
o TOP 10 HOLDINGS* - 11/30/17 o
(% of Net Assets)
Vanguard Short-Term Corporate Bond ETF** .................................. 5.6%
U.S. Treasury Bond, 3.13%, 8/15/2044 ...................................... 4.0%
Schwab Fundamental International Large Co.
Index ETF** ............................................................. 3.6%
U.S. Treasury Bond, 3.00%, 5/15/2045 ...................................... 3.4%
Vanguard FTSE Developed Markets ETF** ..................................... 3.0%
Vanguard Total Bond Market ETF** .......................................... 2.7%
iShares Core MSCI EAFE ETF** .............................................. 2.4%
U.S. Treasury Note, 1.13%, 2/28/2021 ...................................... 2.4%
iShares Core MSCI Emerging Markets ETF** .................................. 2.2%
U.S. Treasury Note, 1.63%, 2/15/2026 ...................................... 2.0%
* Does not include futures, money market instruments, and short-term
investments purchased with cash collateral from securities loaned.
** 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 4-30.
================================================================================
2 | USAA CORNERSTONE MODERATE FUND
================================================================================
o ASSET ALLOCATION* - 11/30/17 o
[PIE CHART OF ASSET ALLOCATION]
INTERNATIONAL EQUITY SECURITIES** 22.2%
U.S. EQUITY SECURITIES** 20.1%
U.S. TREASURY SECURITIES 16.0%
FIXED INCOME EXCHANGE-TRADED FUNDS** 13.6%
U.S. GOVERNMENT AGENCY ISSUES 11.0%
CORPORATE OBLIGATIONS 6.5%
MONEY MARKET INSTRUMENTS 4.4%
COMMERCIAL MORTGAGE SECURITIES 2.1%
PRECIOUS METALS AND COMMODITY-RELATED SECURITIES** 1.0%
ASSET-BACKED SECURITIES 0.8%
GLOBAL REAL ESTATE EQUITY SECURITIES** 0.8%
EURODOLLAR AND YANKEE OBLIGATIONS 0.6%
COLLATERALIZED MORTGAGE OBLIGATIONS 0.2%
CONVERTIBLE SECURITIES 0.2%
[END CHART]
Percentages are of the net assets of the Fund and may not equal 100%.
* Does not include futures and short-term investments purchased with cash
collateral from securities loaned.
** 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 4-30.
================================================================================
INVESTMENT OVERVIEW | 3
================================================================================
PORTFOLIO OF INVESTMENTS
November 30, 2017 (unaudited)
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
U.S. EQUITY SECURITIES (20.1%)
COMMON STOCKS (11.4%)
CONSUMER DISCRETIONARY (1.6%)
-----------------------------
APPAREL RETAIL (0.2%)
9,230 American Eagle Outfitters, Inc. $ 148
11,280 Buckle, Inc.(a) 251
4,880 Caleres, Inc. 159
13,730 Foot Locker, Inc. 588
21,710 Gap, Inc. 702
4,790 TJX Companies, Inc. 362
----------
2,210
----------
AUTO PARTS & EQUIPMENT (0.1%)
8,810 American Axle & Manufacturing Holdings, Inc.* 158
1,650 Cooper-Standard Holdings, Inc.* 208
11,570 Gentex Corp. 237
1,760 LCI Industries 231
3,490 Lear Corp. 631
----------
1,465
----------
AUTOMOBILE MANUFACTURERS (0.1%)
910 Tesla, Inc.* 281
1,950 Thor Industries, Inc. 299
----------
580
----------
AUTOMOTIVE RETAIL (0.0%)
2,280 Asbury Automotive Group, Inc.* 150
1,900 Group 1 Automotive, Inc. 154
1,500 Lithia Motors, Inc. "A" 176
----------
480
----------
BROADCASTING (0.1%)
5,225 CBS Corp. "B" 293
29,290 Discovery Communications, Inc. "A"* 557
3,436 Entercom Communications Corp. "A" 40
14,470 Gray Television, Inc.* 208
6,610 Sinclair Broadcast Group, Inc. "A"(a) 225
----------
1,323
----------
================================================================================
4 | USAA CORNERSTONE MODERATE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
CABLE & SATELLITE (0.1%)
26,840 Comcast Corp. "A" $ 1,008
----------
COMPUTER & ELECTRONICS RETAIL (0.0%)
5,680 GameStop Corp. "A"(a) 107
----------
DEPARTMENT STORES (0.1%)
10,470 Kohl's Corp. 502
23,550 Macy's, Inc. 561
----------
1,063
----------
EDUCATION SERVICES (0.1%)
3,580 Adtalem Global Education, Inc. 148
2,140 Capella Education Co. 183
400 Graham Holdings Co. "B" 233
----------
564
----------
GENERAL MERCHANDISE STORES (0.1%)
2,860 Big Lots, Inc. 169
8,400 Target Corp. 503
----------
672
----------
HOME IMPROVEMENT RETAIL (0.1%)
4,970 Home Depot, Inc. 894
3,860 Lowe's Companies, Inc. 322
----------
1,216
----------
HOMEBUILDING (0.2%)
410 NVR, Inc.* 1,425
6,630 Toll Brothers, Inc. 334
14,200 TRI Pointe Group, Inc.* 257
----------
2,016
----------
HOMEFURNISHING RETAIL (0.0%)
22,320 Bed Bath & Beyond, Inc. 500
----------
HOTELS, RESORTS & CRUISE LINES (0.2%)
12,100 Carnival Corp. 794
8,880 ILG, Inc. 250
4,680 Marriott International, Inc. "A" 594
1,760 Marriott Vacations Worldwide Corp. 236
5,200 Royal Caribbean Cruises Ltd. 644
----------
2,518
----------
MOVIES & ENTERTAINMENT (0.0%)
14,630 Viacom, Inc. "B" 414
----------
PUBLISHING (0.0%)
2,920 Meredith Corp. 199
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 5
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
RESTAURANTS (0.1%)
3,880 Cheesecake Factory, Inc.(a) $ 190
4,320 DineEquity, Inc. 198
4,150 McDonald's Corp. 714
----------
1,102
----------
SPECIALTY STORES (0.1%)
16,840 Dick's Sporting Goods, Inc. 496
16,610 Hibbett Sports, Inc.* 331
24,730 Office Depot, Inc. 81
----------
908
----------
TIRES & RUBBER (0.0%)
4,220 Cooper Tire & Rubber Co. 155
----------
Total Consumer Discretionary 18,500
----------
CONSUMER STAPLES (0.9%)
-----------------------
AGRICULTURAL PRODUCTS (0.1%)
11,250 Archer-Daniels-Midland Co. 448
3,890 Ingredion, Inc. 539
----------
987
----------
BREWERS (0.0%)
5,790 Molson Coors Brewing Co. "B" 452
----------
DISTILLERS & VINTNERS (0.0%)
6,980 Brown-Forman Corp. "B" 417
----------
DRUG RETAIL (0.1%)
6,340 CVS Health Corp. 486
----------
FOOD DISTRIBUTORS (0.0%)
3,480 Spartannash Co. 88
----------
FOOD RETAIL (0.0%)
17,000 Kroger Co. 440
----------
HOUSEHOLD PRODUCTS (0.1%)
16,870 Procter & Gamble Co. 1,518
----------
HYPERMARKETS & SUPER CENTERS (0.1%)
2,310 Costco Wholesale Corp. 426
5,530 Wal-Mart Stores, Inc. 538
----------
964
----------
PACKAGED FOODS & MEAT (0.2%)
4,910 J.M. Smucker Co. 573
1,770 Lancaster Colony Corp. 236
2,100 Sanderson Farms, Inc. 356
================================================================================
6 | USAA CORNERSTONE MODERATE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
7,280 Tyson Foods, Inc. "A" $ 599
----------
1,764
----------
PERSONAL PRODUCTS (0.0%)
5,320 USANA Health Sciences, Inc.* 382
----------
SOFT DRINKS (0.2%)
14,250 Coca-Cola Co. 652
3,430 Dr. Pepper Snapple Group, Inc. 310
7,220 PepsiCo, Inc. 841
----------
1,803
----------
TOBACCO (0.1%)
4,820 Philip Morris International, Inc. 495
----------
Total Consumer Staples 9,796
----------
ENERGY (0.7%)
-------------
INTEGRATED OIL & GAS (0.1%)
4,660 Chevron Corp. 555
----------
OIL & GAS DRILLING (0.0%)
18,020 Rowan Companies plc "A"* 261
----------
OIL & GAS EQUIPMENT & SERVICES (0.0%)
2,480 Dril-Quip, Inc.* 119
----------
OIL & GAS EXPLORATION & PRODUCTION (0.2%)
21,800 California Resources Corp.*(a) 343
71,150 Denbury Resources, Inc.* 124
14,470 Devon Energy Corp. 558
12,970 Murphy Oil Corp. 362
14,150 Newfield Exploration Co.* 438
5,920 WPX Energy, Inc.* 75
----------
1,900
----------
OIL & GAS REFINING & MARKETING (0.3%)
3,120 Andeavor 329
14,230 HollyFrontier Corp. 633
10,720 Marathon Petroleum Corp. 671
9,210 PBF Energy, Inc. "A" 298
4,840 Phillips 66 472
1,760 REX American Resources Corp.* 161
7,270 Valero Energy Corp. 623
----------
3,187
----------
OIL & GAS STORAGE & TRANSPORTATION (0.1%)
7,680 Cheniere Energy, Inc.* 371
21,110 Kinder Morgan, Inc. 364
6,040 ONEOK, Inc. 313
================================================================================
PORTFOLIO OF INVESTMENTS | 7
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
21,550 Plains Group Holdings, LP "A" $ 444
----------
1,492
----------
Total Energy 7,514
----------
FINANCIALS (1.9%)
-----------------
ASSET MANAGEMENT & CUSTODY BANKS (0.2%)
2,050 Ameriprise Financial, Inc. 335
12,530 Franklin Resources, Inc. 543
6,340 SEI Investments Co. 446
4,450 T. Rowe Price Group, Inc. 458
13,450 Waddell & Reed Financial, Inc. "A" 273
----------
2,055
----------
CONSUMER FINANCE (0.2%)
5,740 American Express Co. 561
5,130 Capital One Financial Corp. 472
10,450 Discover Financial Services 738
2,860 Encore Capital Group, Inc.* 131
16,120 Enova International, Inc.* 239
11,970 SLM Corp.* 139
12,322 Synchrony Financial 442
1,360 World Acceptance Corp.* 113
----------
2,835
----------
DIVERSIFIED BANKS (0.1%)
16,333 Citigroup, Inc. 1,233
5,670 U.S. Bancorp 313
----------
1,546
----------
FINANCIAL EXCHANGES & DATA (0.1%)
3,380 Moody's Corp. 513
3,320 MSCI, Inc. 427
----------
940
----------
INSURANCE BROKERS (0.1%)
3,500 Aon plc 491
4,230 Marsh & McLennan Companies, Inc. 355
----------
846
----------
INVESTMENT BANKING & BROKERAGE (0.1%)
7,380 E*Trade Financial Corp.* 355
16,390 Greenhill & Co., Inc.(a) 333
2,440 Raymond James Financial, Inc. 215
----------
903
----------
LIFE & HEALTH INSURANCE (0.2%)
6,200 AFLAC, Inc. 543
================================================================================
8 | USAA CORNERSTONE MODERATE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
6,130 Athene Holding Ltd. "A"* $ 295
1,880 Primerica, Inc. 195
5,240 Principal Financial Group, Inc. 371
3,640 Prudential Financial, Inc. 422
----------
1,826
----------
MULTI-LINE INSURANCE (0.0%)
3,800 American Financial Group, Inc. 399
----------
MULTI-SECTOR HOLDINGS (0.0%)
1,060 Berkshire Hathaway, Inc. "B"* 205
----------
PROPERTY & CASUALTY INSURANCE (0.2%)
3,260 Allstate Corp. 335
4,820 Employers Holdings, Inc. 236
6,320 First American Financial Corp. 351
14,460 Old Republic International Corp. 303
9,320 Progressive Corp. 496
4,790 W.R. Berkley Corp. 331
----------
2,052
----------
REGIONAL BANKS (0.4%)
3,020 Bank of Hawaii Corp. 256
9,630 BB&T Corp. 476
3,350 Comerica, Inc. 279
10,790 East West Bancorp, Inc. 664
25,530 Fifth Third Bancorp 779
7,860 First Financial Bancorp 223
26,000 KeyCorp 494
1,540 M&T Bank Corp. 260
2,000 PNC Financial Services Group, Inc. 281
31,370 Regions Financial Corp. 520
11,700 TCF Financial Corp. 238
----------
4,470
----------
REINSURANCE (0.1%)
1,240 Everest Re Group Ltd. 272
14,060 Maiden Holdings Ltd. 91
5,310 Reinsurance Group of America, Inc. 861
----------
1,224
----------
THRIFTS & MORTGAGE FINANCE (0.2%)
10,290 BofI Holding, Inc.*(a) 284
3,630 Farmer Mac "C" 270
7,160 Homestreet, Inc.* 218
2,480 Meta Financial Group, Inc. 233
13,140 Nationstar Mortgage Holdings, Inc.* 238
23,660 NMI Holdings, Inc. "A"* 403
================================================================================
PORTFOLIO OF INVESTMENTS | 9
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
9,340 Provident Financial Services, Inc. $ 255
17,850 Radian Group, Inc. 366
3,560 Walker & Dunlop, Inc.* 176
7,590 Washington Federal, Inc. 264
----------
2,707
----------
Total Financials 22,008
----------
HEALTH CARE (1.5%)
------------------
BIOTECHNOLOGY (0.4%)
5,020 AbbVie, Inc. 486
6,280 Amgen, Inc. 1,103
2,570 Biogen, Inc.* 828
2,960 Eagle Pharmaceuticals, Inc.* 175
9,170 Gilead Sciences, Inc. 686
7,790 Myriad Genetics, Inc.* 270
4,370 United Therapeutics Corp.* 568
3,720 Vertex Pharmaceuticals, Inc.* 537
----------
4,653
----------
HEALTH CARE DISTRIBUTORS (0.1%)
5,800 AmerisourceBergen Corp. 492
5,430 Cardinal Health, Inc. 322
2,310 McKesson Corp. 341
----------
1,155
----------
HEALTH CARE EQUIPMENT (0.2%)
6,520 Baxter International, Inc. 427
1,460 C.R. Bard, Inc. 490
6,140 Globus Medical, Inc. "A"* 233
1,820 IDEXX Laboratories, Inc.* 285
1,710 Intuitive Surgical, Inc.* 684
2,680 Masimo Corp.* 238
----------
2,357
----------
HEALTH CARE FACILITIES (0.1%)
5,130 HealthSouth Corp. 256
10,540 Select Medical Holdings Corp.* 186
3,430 Universal Health Services, Inc. "B" 372
----------
814
----------
HEALTH CARE SERVICES (0.2%)
3,180 AMN Healthcare Services, Inc.* 160
1,340 Chemed Corp. 330
4,980 DaVita, Inc.* 304
8,260 Express Scripts Holding Co.* 538
10,270 MEDNAX, Inc.* 511
================================================================================
10 | USAA CORNERSTONE MODERATE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
3,880 Quest Diagnostics, Inc. $ 382
----------
2,225
----------
HEALTH CARE SUPPLIES (0.1%)
1,490 Align Technology, Inc.* 388
1,500 Cooper Companies, Inc. 362
----------
750
----------
LIFE SCIENCES TOOLS & SERVICES (0.1%)
3,840 Cambrex Corp.* 188
3,580 INC Research Holdings, Inc. "A"* 137
1,060 Mettler-Toledo International, Inc.* 667
2,080 Thermo Fisher Scientific, Inc. 401
2,830 Waters Corp.* 558
----------
1,951
----------
MANAGED HEALTH CARE (0.1%)
2,150 Anthem, Inc. 505
3,260 Centene Corp.* 333
1,850 Cigna Corp. 392
----------
1,230
----------
PHARMACEUTICALS (0.2%)
5,570 Bristol-Myers Squibb Co. 352
14,870 Corcept Therapeutics, Inc.* 267
13,440 Mallinckrodt plc* 293
12,360 Mylan N.V.* 452
24,360 Pfizer, Inc. 883
5,380 Phibro Animal Health Corp. "A" 187
18,460 Sucampo Pharmaceuticals, Inc. "A"* 234
3,580 Supernus Pharmaceuticals, Inc.* 135
----------
2,803
----------
Total Health Care 17,938
----------
INDUSTRIALS (1.3%)
------------------
AEROSPACE & DEFENSE (0.2%)
2,610 Boeing Co. 722
1,070 General Dynamics Corp. 222
2,120 Huntington Ingalls Industries, Inc. 512
2,810 L3 Technologies, Inc. 558
2,320 Moog, Inc. "A"* 195
2,350 Rockwell Collins, Inc. 311
1,780 Teledyne Technologies, Inc.* 332
----------
2,852
----------
AIRLINES (0.1%)
7,100 American Airlines Group, Inc. 359
================================================================================
PORTFOLIO OF INVESTMENTS | 11
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
8,180 Delta Air Lines, Inc. $ 433
7,940 JetBlue Airways Corp.* 170
3,730 SkyWest, Inc. 194
5,130 United Continental Holdings, Inc.* 325
----------
1,481
----------
BUILDING PRODUCTS (0.0%)
14,850 NCI Building Systems, Inc.* 248
----------
COMMERCIAL PRINTING (0.0%)
3,000 Deluxe Corp. 213
5,548 LSC Communications, Inc. 91
----------
304
----------
CONSTRUCTION & ENGINEERING (0.1%)
3,420 EMCOR Group, Inc. 276
6,640 Jacobs Engineering Group, Inc. 436
8,390 KBR, Inc. 157
----------
869
----------
CONSTRUCTION MACHINERY & HEAVY TRUCKS (0.1%)
2,510 Cummins, Inc. 420
2,470 Greenbrier Companies, Inc.(a) 123
6,420 PACCAR, Inc. 452
6,600 Wabash National Corp. 133
----------
1,128
----------
DIVERSIFIED SUPPORT SERVICES (0.1%)
8,940 Copart, Inc.* 386
4,380 Viad Corp. 252
----------
638
----------
ELECTRICAL COMPONENTS & EQUIPMENT (0.1%)
10,550 Atkore International Group, Inc.* 224
5,420 Eaton Corp. plc 422
2,070 EnerSys 143
2,440 Regal-Beloit Corp. 188
2,710 Rockwell Automation, Inc. 523
----------
1,500
----------
ENVIRONMENTAL & FACILITIES SERVICES (0.1%)
10,370 Republic Services, Inc. 674
----------
HUMAN RESOURCE & EMPLOYMENT SERVICES (0.1%)
4,750 ManpowerGroup, Inc. 612
----------
INDUSTRIAL CONGLOMERATES (0.1%)
1,150 3M Co. 280
================================================================================
12 | USAA CORNERSTONE MODERATE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
1,150 Roper Technologies, Inc. $ 307
----------
587
----------
INDUSTRIAL MACHINERY (0.2%)
4,070 Barnes Group, Inc. 270
2,750 Crane Co. 235
3,960 Illinois Tool Works, Inc. 670
4,710 Ingersoll-Rand plc 413
1,470 Nordson Corp. 188
2,430 Snap-On, Inc. 412
2,500 Stanley Black & Decker, Inc. 424
----------
2,612
----------
OFFICE SERVICES & SUPPLIES (0.0%)
5,680 Herman Miller, Inc. 203
----------
RESEARCH & CONSULTING SERVICES (0.0%)
9,030 Navigant Consulting, Inc.* 173
----------
TRADING COMPANIES & DISTRIBUTORS (0.1%)
2,820 GATX Corp. 178
3,340 United Rentals, Inc.* 533
2,350 W.W. Grainger, Inc. 520
----------
1,231
----------
TRUCKING (0.0%)
2,270 Old Dominion Freight Line, Inc. 294
----------
Total Industrials 15,406
----------
INFORMATION TECHNOLOGY (2.6%)
-----------------------------
APPLICATION SOFTWARE (0.2%)
14,210 Cadence Design Systems, Inc.* 624
8,190 Citrix Systems, Inc.* 717
2,950 Intuit, Inc. 464
----------
1,805
----------
COMMUNICATIONS EQUIPMENT (0.2%)
1,560 Arista Networks, Inc.* 364
23,196 Cisco Systems, Inc. 865
2,690 F5 Networks, Inc.* 361
2,770 Harris Corp. 400
1,880 InterDigital, Inc. 143
21,140 Juniper Networks, Inc. 587
3,180 Plantronics, Inc. 166
----------
2,886
----------
DATA PROCESSING & OUTSOURCED SERVICES (0.5%)
3,390 Alliance Data Systems Corp. 811
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
7,910 Automatic Data Processing, Inc. $ 905
9,650 Convergys Corp. 238
4,850 CSG Systems International, Inc. 223
5,570 Fiserv, Inc.* 732
7,510 MasterCard, Inc. "A" 1,130
2,850 MAXIMUS, Inc. 197
6,200 PayPal Holdings, Inc.* 470
28,230 Sabre Corp. 562
4,470 Vantiv, Inc. "A"* 335
5,320 Visa, Inc. "A" 599
----------
6,202
----------
ELECTRONIC COMPONENTS (0.1%)
8,310 Amphenol Corp. "A" 753
----------
ELECTRONIC EQUIPMENT & INSTRUMENTS (0.0%)
5,100 Keysight Technologies, Inc.* 222
----------
ELECTRONIC MANUFACTURING SERVICES (0.0%)
6,870 Benchmark Electronics, Inc.* 209
6,690 Jabill, Inc. 193
3,730 Sanmina Corp.* 127
----------
529
----------
HOME ENTERTAINMENT SOFTWARE (0.1%)
6,630 Activision Blizzard, Inc. 414
3,440 Electronic Arts, Inc.* 366
----------
780
----------
INTERNET SOFTWARE & SERVICES (0.3%)
10,310 Akamai Technologies, Inc.* 575
14,610 eBay, Inc.* 507
4,920 Facebook, Inc. "A"* 872
8,710 VeriSign, Inc.* 1,002
----------
2,956
----------
IT CONSULTING & OTHER SERVICES (0.4%)
7,850 Accenture plc "A" 1,162
1,420 CACI International, Inc. "A"* 187
12,640 Cognizant Technology Solutions Corp. "A" 914
4,060 DXC Technology Co. 390
13,190 Hackett Group, Inc. 215
7,470 International Business Machines Corp. 1,150
2,180 Science Applications International Corp. 162
8,260 Teradata Corp.* 314
----------
4,494
----------
================================================================================
14 | USAA CORNERSTONE MODERATE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT (0.2%)
3,590 Advanced Energy Industries, Inc.* $ 269
6,950 Applied Materials, Inc. 367
3,090 Cabot Microelectronics Corp. 298
2,770 KLA-Tencor Corp. 283
3,250 Lam Research Corp. 625
7,050 Teradyne, Inc. 285
5,080 Xperi Corp. 98
----------
2,225
----------
SEMICONDUCTORS (0.2%)
3,200 Cirrus Logic, Inc.* 177
13,750 Intel Corp. 616
4,100 Microchip Technology, Inc. 357
16,790 Micron Technology, Inc.* 712
1,350 NVIDIA Corp. 271
6,650 QUALCOMM, Inc. 441
3,410 Texas Instruments, Inc. 332
----------
2,906
----------
SYSTEMS SOFTWARE (0.1%)
17,220 CA, Inc. 570
2,580 Microsoft Corp. 217
15,330 Oracle Corp. 752
----------
1,539
----------
TECHNOLOGY DISTRIBUTORS (0.1%)
2,920 Arrow Electronics, Inc.* 236
5,450 Avnet, Inc. 226
5,700 CDW Corp. 399
2,660 ePlus, Inc.* 216
3,220 Insight Enterprises, Inc.* 125
1,740 Tech Data Corp.* 168
----------
1,370
----------
TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (0.2%)
41,040 Hewlett Packard Enterprise Co. 573
8,690 Seagate Technology plc 335
6,230 Western Digital Corp. 491
18,670 Xerox Corp. 554
----------
1,953
----------
Total Information Technology 30,620
----------
MATERIALS (0.4%)
----------------
COMMODITY CHEMICALS (0.1%)
4,500 LyondellBasell Industries N.V. "A" 471
================================================================================
PORTFOLIO OF INVESTMENTS | 15
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
3,650 Trinseo S.A. $ 269
----------
740
----------
DIVERSIFIED CHEMICALS (0.0%)
3,810 DowDuPont, Inc. 274
----------
DIVERSIFIED METALS & MINING (0.0%)
24,200 Freeport-McMoRan, Inc.* 337
----------
METAL & GLASS CONTAINERS (0.0%)
8,210 Crown Holdings, Inc.* 490
----------
PAPER PACKAGING (0.1%)
3,370 Avery Dennison Corp. 385
5,570 Sonoco Products Co. 298
----------
683
----------
PAPER PRODUCTS (0.1%)
3,280 Neenah Paper, Inc. 293
4,740 Schweitzer-Mauduit International, Inc. 215
----------
508
----------
SPECIALTY CHEMICALS (0.1%)
3,730 Celanese Corp. "A" 400
2,690 Innospec, Inc. 192
4,500 Kraton Corp.* 212
1,810 Minerals Technologies, Inc. 131
5,620 Rayonier Advanced Materials, Inc. 106
960 Sherwin-Williams Co. 383
2,190 Stepan Co. 182
----------
1,606
----------
STEEL (0.0%)
19,360 SunCoke Energy, Inc.* 221
2,920 Worthington Industries, Inc. 121
----------
342
----------
Total Materials 4,980
----------
TELECOMMUNICATION SERVICES (0.2%)
---------------------------------
ALTERNATIVE CARRIERS (0.1%)
21,915 CenturyLink, Inc. 320
10,530 Zayo Group Holdings, Inc.* 372
----------
692
----------
INTEGRATED TELECOMMUNICATION SERVICES (0.1%)
19,660 AT&T, Inc. 715
10,270 Verizon Communications, Inc. 523
----------
1,238
----------
================================================================================
16 | USAA CORNERSTONE MODERATE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES (0.0%)
10,660 T-Mobile US, Inc.* $ 651
----------
Total Telecommunication Services 2,581
----------
UTILITIES (0.3%)
----------------
ELECTRIC UTILITIES (0.1%)
9,400 Hawaiian Electric Industries, Inc. 361
21,550 Spark Energy, Inc. "A"(a) 269
----------
630
----------
GAS UTILITIES (0.0%)
8,960 UGI Corp. 439
----------
MULTI-UTILITIES (0.2%)
27,990 Ameren Corp. 1,790
33,310 CenterPoint Energy, Inc. 1,000
----------
2,790
----------
Total Utilities 3,859
----------
Total Common Stocks (cost: $119,580) 133,202
----------
PREFERRED STOCKS (1.4%)
CONSUMER STAPLES (0.7%)
-----------------------
AGRICULTURAL PRODUCTS (0.7%)
161,682 CHS, Inc., Series B, 7.88%, cumulative redeemable, perpetual(b) 4,693
28,000 Dairy Farmers of America, Inc., 7.88%, cumulative redeemable, perpetual(b),(c) 2,906
----------
7,599
----------
Total Consumer Staples 7,599
----------
ENERGY (0.2%)
-------------
OIL & GAS EXPLORATION & PRODUCTION (0.2%)
4,900 Chesapeake Energy Corp., 5.75%, perpetual(b),(c) 2,833
----------
FINANCIALS (0.3%)
-----------------
LIFE & HEALTH INSURANCE (0.3%)
167,198 Delphi Financial Group, Inc., 4.61%, cumulative redeemable,
3 mo. USD LIBOR + 3.19%(h) 3,404
----------
REINSURANCE (0.0%)
1,500 American Overseas Group Ltd., 5.12%, non-cumulative,
3 mo. USD LIBOR + 3.56%*(d),(e),(h),(s) 375
----------
Total Financials 3,779
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES (0.2%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (0.2%)
112,000 Qwest Corp., 6.50%(b) $ 2,628
----------
Total Preferred Stocks (cost: $18,548) 16,839
----------
EXCHANGE-TRADED FUNDS (7.3%)
121,700 Consumer Discretionary Select Sector SPDR Fund 11,762
198,400 Consumer Staples Select Sector SPDR 11,120
134,900 Health Care Select Sector SPDR Fund 11,260
160,400 Industrial Select Sector SPDR Fund 11,952
36,600 iShares Core S&P 500 ETF 9,768
83,760 Vanguard S&P 500 ETF 20,383
71,680 Vanguard Total Stock Market ETF 9,773
----------
Total Exchange-Traded Funds (cost: $76,080) 86,018
----------
Total U.S. Equity Securities (cost: $214,208) 236,059
----------
INTERNATIONAL EQUITY SECURITIES (22.2%)
COMMON STOCKS (0.1%)
CONSUMER DISCRETIONARY (0.1%)
-----------------------------
AUTO PARTS & EQUIPMENT (0.1%)
4,610 Delphi Automotive plc 482
----------
ENERGY (0.0%)
-------------
OIL & GAS EQUIPMENT & SERVICES (0.0%)
11,970 TechnipFMC plc 343
----------
Total Common Stocks (cost: $797) 825
----------
EXCHANGE-TRADED FUNDS (22.1%)
424,860 iShares Core MSCI EAFE ETF 27,968
469,500 iShares Core MSCI Emerging Markets ETF 26,222
167,400 iShares Edge MSCI Min Volatility Emerging Markets ETF 9,910
274,500 iShares Edge MSCI Minimum Volatility EAFE ETF 19,973
224,400 PowerShares FTSE RAFI Developed Markets ex-U.S. Portfolio 10,098
597,600 PowerShares FTSE RAFI Emerging Markets Portfolio 12,813
599,200 Schwab Fundamental Emerging Markets Large Co. Index ETF 17,509
1,389,900 Schwab Fundamental International Large Co. Index ETF 42,475
231,700 Schwab Fundamental International Small Co. Index ETF 8,295
34,497 SPDR S&P Emerging Markets Small Cap ETF 1,763
128,620 Vanguard FTSE All-World ex-US ETF 6,956
788,000 Vanguard FTSE Developed Markets ETF 35,113
229,780 Vanguard FTSE Emerging Markets ETF 10,221
231,430 Vanguard FTSE Europe ETF 13,555
================================================================================
18 | USAA CORNERSTONE MODERATE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
59,797 WisdomTree Emerging Markets SmallCap Dividend Fund $ 2,957
223,351 WisdomTree India Earnings Fund 5,972
134,370 WisdomTree Japan Hedged Equity Fund 7,875
----------
Total Exchange-Traded Funds (cost: $223,463) 259,675
----------
Total International Equity Securities (cost: $224,260) 260,500
----------
PRECIOUS METALS AND COMMODITY-RELATED SECURITIES (1.0%)
GOLD (0.0%)
NORTH AMERICAN GOLD COMPANIES (0.0%)
110,164 Hycroft Mining Corp.*(d),(e),(s) (cost: $3,919) 33
----------
EXCHANGE-TRADED FUNDS (1.0%)
65,300 First Trust Global Tactical Commodity Strategy Fund* 1,340
114,500 PowerShares DB Commodity Index Tracking Fund*(a) 1,851
114,300 United States Commodity Index Fund* 4,685
81,400 VanEck Vectors Gold Miners ETF 1,829
47,200 VanEck Vectors Junior Gold Miners ETF 1,494
----------
Total Exchange-Traded Funds (cost: $12,267) 11,199
----------
Total Precious Metals and Commodity-Related Securities (cost: $16,186) 11,232
----------
GLOBAL REAL ESTATE EQUITY SECURITIES (0.8%)
COMMON STOCKS (0.3%)
REAL ESTATE SERVICES (0.1%)
14,440 CBRE Group, Inc. "A"* 626
11,470 HFF, Inc. "A" 518
----------
1,144
----------
REITs - HEALTH CARE (0.0%)
13,320 Sabra Health Care REIT, Inc. 256
----------
REITs - HOTEL & RESORT (0.0%)
16,350 RLJ Lodging Trust 354
----------
REITs - RETAIL (0.1%)
35,420 Brixmor Property Group, Inc. 640
----------
REITs - SPECIALIZED (0.1%)
5,540 American Tower Corp. 798
2,900 SBA Communications Corp.* 492
----------
1,290
----------
Total Common Stocks (cost: $3,493) 3,684
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
PREFERRED STOCKS (0.1%)
REITs - MORTGAGE (0.1%)
24,000 Arbor Realty Trust, Inc., 7.38%*(b) (cost: $600) $ 614
----------
EXCHANGE-TRADED FUNDS (0.4%)
69,100 Vanguard REIT ETF (cost: $5,671) 5,831
----------
Total Global Real Estate Equity Securities (cost: $9,764) 10,129
----------
------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON
(000) RATE MATURITY
------------------------------------------------------------------------------------------------------------------
BONDS (51.0%)
CORPORATE OBLIGATIONS (6.5%)
CONSUMER DISCRETIONARY (0.5%)
-----------------------------
DEPARTMENT STORES (0.1%)
$ 1,588 Neiman Marcus Group Ltd., LLC, LIBOR + 3.25%(f) 4.49% 10/25/2020 1,301
----------
SPECIALTY STORES (0.4%)
2,887 Academy Ltd., LIBOR + 4%(f) 5.31 7/01/2022 2,332
2,050 Guitar Center, Inc.(a),(c) 6.50 4/15/2019 1,935
----------
4,267
----------
Total Consumer Discretionary 5,568
----------
CONSUMER STAPLES (0.1%)
-----------------------
FOOD RETAIL (0.1%)
1,200 BI-LO, LLC & BI-LO Finance Corp.(a),(c) 9.25 2/15/2019 1,155
----------
ENERGY (1.0%)
-------------
OIL & GAS DRILLING (0.0%)
1,407 Schahin II Finance Co. SPV Ltd.(c),(g) 5.88 9/25/2023 211
----------
OIL & GAS STORAGE & TRANSPORTATION (1.0%)
2,950 Enbridge Energy Partners, LP(b) 7.38 10/15/2045 3,865
1,900 Energy Transfer Partners, LP, 3 mo.
USD LIBOR + 3.0175%(a) 4.39(h) 11/01/2066 1,709
2,500 Enterprise TE Partners, 3 mo. USD
LIBOR + 2.7775%(b) 4.09(h) 6/01/2067 2,450
800 Martin Midstream Partners, LP & Martin Midstream
Finance Corp.(b) 7.25 2/15/2021 818
1,000 Southern Union Co., 3 mo. USD LIBOR + 3.0175%(b) 4.39(h) 11/01/2066 861
================================================================================
20 | USAA CORNERSTONE MODERATE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 1,400 Tallgrass Energy Partners, LP & Tallgrass Energy
Finance Corp.(b),(c) 5.50% 9/15/2024 $ 1,459
----------
11,162
----------
Total Energy 11,373
----------
FINANCIALS (4.3%)
-----------------
ASSET MANAGEMENT & CUSTODY BANKS (0.6%)
1,600 Ares Capital Corp.(b) 3.63 1/19/2022 1,611
----------
6,000 Prospect Capital Corp.(b) 5.00 7/15/2019 6,152
----------
7,763
----------
LIFE & HEALTH INSURANCE (0.4%)
2,800 Prudential Financial, Inc., 3 mo. USD
LIBOR + 3.92%(b) 5.63(h) 6/15/2043 3,038
1,885 StanCorp Financial Group, Inc., 3 mo. USD
LIBOR + 2.51%(b) 3.83(h) 6/01/2067 1,885
----------
4,923
----------
MULTI-LINE INSURANCE (0.5%)
5,670 Nationwide Mutual Insurance Co., 3 mo. USD
LIBOR + 2.29%(b),(c) 3.61(h) 12/15/2024 5,670
----------
MULTI-SECTOR HOLDINGS (0.3%)
3,000 BNSF Funding Trust I, 3 mo. USD LIBOR + 2.35%(b) 6.61(h) 12/15/2055 3,443
----------
PROPERTY & CASUALTY INSURANCE (0.9%)
3,200 Allstate Corp., 3 mo. USD LIBOR + 2.938%(b) 5.75(h) 8/15/2053 3,496
3,179 AmTrust Financial Services, Inc.(a) 6.13 8/15/2023 3,103
2,621 AmTrust Financial Services, Inc.(b) 2.75 12/15/2044 1,899
2,575 HSB Group, Inc., 3 mo. USD LIBOR + 0.91%(b) 2.27(h) 7/15/2027 2,298
----------
10,796
----------
REGIONAL BANKS (1.6%)
1,000 Allfirst Preferred Capital Trust, 3 mo. USD
LIBOR + 1.5%(b) 2.86(h) 7/15/2029 956
2,000 Compass Bank(b) 3.88 4/10/2025 2,004
4,000 Cullen/Frost Capital Trust II, 3 mo. USD
LIBOR + 1.55%(b) 2.87(h) 3/01/2034 3,571
2,850 First Maryland CapitalTrust I, 3 mo. USD
LIBOR + 1%(b) 2.36(h) 1/15/2027 2,690
2,000 Huntington CapitalTrust II "B", 3 mo. USD
LIBOR + 0.625%(b) 1.95(h) 6/15/2028 1,792
2,000 Manufacturers & Traders Trust Co., 3 mo. USD
LIBOR + 0.64%(b) 1.96(h) 12/01/2021 1,990
6,000 Sun Trust Capital I, 3 mo. USD LIBOR + 0.67%(b) 2.09(h) 5/15/2027 5,537
----------
18,540
----------
Total Financials 51,135
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 21
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
HEALTH CARE (0.1%)
------------------
HEALTH CARE FACILITIES (0.1%)
$ 3,000 Community Health Systems, Inc.(a) 6.88% 2/01/2022 $ 1,822
----------
INDUSTRIALS (0.1%)
------------------
AIRLINES (0.0%)
322 America West Airlines, Inc. Pass-Through Trust (INS)(b) 7.93 7/02/2020 330
----------
ELECTRICAL COMPONENTS & EQUIPMENT (0.1%)
500 Artesyn Embedded Technologies, Inc.(b),(c) 9.75 10/15/2020 493
----------
Total Industrials 823
----------
REAL ESTATE (0.1%)
------------------
REAL ESTATE DEVELOPMENT (0.0%)
599 Crescent Communities, LLC & Crescent
Ventures, Inc.(b),(c) 8.88 10/15/2021 640
----------
REITs - HEALTH CARE (0.1%)
1,000 Sabra Health Care, LP(b) 5.13 8/15/2026 1,018
----------
Total Real Estate 1,658
----------
UTILITIES (0.3%)
----------------
ELECTRIC UTILITIES (0.2%)
2,150 NextEra Energy Capital Holdings, Inc., 3 mo.
USD LIBOR + 3.348%(b) 4.66(h) 9/01/2067 2,150
----------
MULTI-UTILITIES (0.1%)
1,300 WEC Energy Group, Inc., 3 mo. USD
LIBOR + 2.1125%(b) 3.53(h) 5/15/2067 1,255
----------
Total Utilities 3,405
----------
Total Corporate Obligations (cost: $73,199) 76,939
----------
CONVERTIBLE SECURITIES (0.2%)
MATERIALS (0.2%)
----------------
GOLD (0.2%)
317 Hycroft Mining Corp.(d),(e),(i),(s) 15.00(p) 10/22/2020 441
2,500 Pretium Resources, Inc.(c) 2.25 3/15/2022 2,564
----------
3,005
----------
Total Materials 3,005
----------
Total Convertible Securities (cost: $2,727) 3,005
----------
================================================================================
22 | USAA CORNERSTONE MODERATE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
EURODOLLAR AND YANKEE OBLIGATIONS (0.6%)
ENERGY (0.1%)
-------------
OIL & GAS STORAGE & TRANSPORTATION (0.1%)
$ 600 TransCanada Trust, 3 mo. USD LIBOR + 3.528%(b) 5.63%(h) 5/20/2075 $ 636
----------
FINANCIALS (0.3%)
-----------------
PROPERTY & CASUALTY INSURANCE (0.3%)
3,430 QBE Capital Funding III Ltd., USD Swap
Semi-Annual 30/360 10 YR + 4.05%(b),(c) 7.25(h) 5/24/2041 3,820
----------
MATERIALS (0.2%)
----------------
GOLD (0.2%)
2,285 Newcrest Finance Property Ltd.(b),(c) 4.45 11/15/2021 2,407
----------
Total Eurodollar and Yankee Obligations (cost: $6,166) 6,863
----------
ASSET-BACKED SECURITIES (0.8%)
FINANCIALS (0.8%)
-----------------
ASSET-BACKED FINANCING (0.8%)
1,700 Avis Budget Rental Car Funding AESOP, LLC(c) 2.96 7/20/2020 1,704
933 Avis Budget Rental Car Funding AESOP, LLC(c) 3.75 7/20/2020 935
480 Napier Park Rail Lease, LLC 3.37 10/21/2047 480
950 Navient Student Loan Trust, 1 mo. USD
LIBOR + 1.5% 2.83(h) 8/25/2050 947
1,499 SCF Equipment Trust, LLC(c) 3.41 12/20/2023 1,499
2,000 SLC Student Loan Trust, 3 mo. USD LIBOR + 0.45% 1.81(h) 7/15/2036 1,907
446 SLM Student Loan Trust, 3 mo. USD LIBOR + 0.55% 1.92(h) 10/25/2065 427
1,461 Synchrony Credit Card Master Note Trust 2.95 5/15/2024 1,465
----------
9,364
----------
Total Financials 9,364
----------
Total Asset-Backed Securities (cost: $8,819) 9,364
----------
COLLATERALIZED MORTGAGE OBLIGATIONS (0.2%)
FINANCIALS (0.2%)
-----------------
264 Sequoia Mortgage Trust, 1 mo. USD LIBOR + 0.9% 2.18(h) 9/20/2033 257
2,440 Structured Asset Mortgage Investments, Inc., 1
mo. USD LIBOR + 0.5% 1.78(h) 7/19/2035 2,265
279 Wells Fargo Mortgage Backed Securities Trust 3.00(r) 4/25/2035 264
----------
Total Financials 2,786
----------
Total Collateralized Mortgage Obligations (cost: $2,899) 2,786
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 23
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
COMMERCIAL MORTGAGE SECURITIES (2.1%)
FINANCIALS (2.1%)
-----------------
COMMERCIAL MORTGAGE-BACKED SECURITIES (1.9%)
$ 1,673 Banc of America Commercial Mortgage, Inc. 5.00% 7/10/2044 $ 1,202
4,000 Banc of America Commercial Mortgage, Inc. 6.47(r) 2/10/2051 4,011
3,593 Bear Stearns Commercial Mortgage Securities, Inc.(c) 5.66(r) 9/11/2041 3,624
400 Citigroup Commercial Mortgage Trust 6.42(r) 12/10/2049 258
424 Commercial Mortgage Trust 5.38 12/10/2046 427
4,768 Credit Suisse Commercial Mortgage Pass-Through
Trust, 1 mo. USD LIBOR + 0.19% 1.46(h) 2/15/2040 4,489
4,200 FREMF Mortgage Trust(c) 3.68(r) 8/25/2045 4,262
275 GE Capital Commercial Mortgage Corp. 5.61(r) 12/10/2049 278
190 GMAC Commercial Mortgage Securities, Inc. 4.97 12/10/2041 192
500 GMAC Commercial Mortgage Securities, Inc. 4.98(r) 12/10/2041 507
45 GMAC Commercial Mortgage Securities, Inc. 4.81 5/10/2043 46
1,483 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 5.37 5/15/2047 1,493
587 ML-CFC Commercial Mortgage Trust 5.98(r) 8/12/2049 590
205 Morgan Stanley Capital I Trust 5.57(r) 3/12/2044 204
----------
21,583
----------
INTEREST-ONLY COMMERCIAL MORTGAGE-BACKED SECURITIES (0.2%)
15,310 CSAIL Commercial Mortgage Trust(d) 1.97(r) 1/15/2049 1,619
12,975 US Commercial Mortgage Trust(c),(d) 2.27(r) 5/10/2045 954
----------
2,573
----------
Total Financials 24,156
----------
Total Commercial Mortgage Securities (cost: $24,559) 24,156
----------
U.S. GOVERNMENT AGENCY ISSUES (11.0%)(j)
MORTGAGE-BACKED PASS-THROUGH SECURITIES (11.0%)
2,250 Fannie Mae(+) 2.15 1/25/2023 2,218
3,450 Fannie Mae(+) 4.00 11/01/2045 3,607
8,300 Freddie Mac(+) 3.00 12/25/2025 8,439
8,253 Freddie Mac(+) 3.00 4/01/2046 8,248
11,617 Freddie Mac(+) (b) 3.00 6/01/2046 11,610
9,098 Freddie Mac(+) (b) 3.00 8/01/2046 9,093
16,236 Freddie Mac(+) (b) 3.00 1/01/2047 16,225
17,274 Freddie Mac(+) (b) 3.00 3/01/2047 17,254
22,254 Freddie Mac(+) (b) 3.00 4/01/2047 22,231
9,825 Freddie Mac(+) (b) 3.00 8/01/2047 9,815
5,200 Freddie Mac(+) 3.33 5/25/2025 5,421
================================================================================
24 | USAA CORNERSTONE MODERATE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 9,296 Freddie Mac(+) 3.50% 4/01/2046 $ 9,539
5,000 Freddie Mac(+) 3.51 4/25/2030 5,182
----------
128,882
----------
Total U.S. Government Agency Issues (cost: $129,404) 128,882
----------
U.S. TREASURY SECURITIES (16.0%)
BONDS (8.2%)(q)
250 3.18%, 8/15/2044 (STRIPS Principal)(l) 116
44,100 3.13%, 8/15/2044 46,657
6,000 3.00%, 11/15/2044 6,204
38,200 3.00%, 5/15/2045 39,472
4,000 3.00%, 5/15/2047 4,133
----------
96,582
----------
INFLATION-INDEXED NOTES (1.0%)
11,453 0.13%, 4/15/2021 11,381
----------
NOTES (6.8%)(q)
28,500 1.13%, 2/28/2021(k) 27,751
17,000 1.63%, 4/30/2023 16,510
2,000 2.25%, 11/15/2024 1,992
5,000 2.25%, 11/15/2025 4,957
25,000 1.63%, 2/15/2026 23,596
5,000 2.25%, 2/15/2027 4,930
----------
79,736
----------
Total U.S. Treasury Securities (cost: $184,901) 187,699
----------
------------------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES
------------------------------------------------------------------------------------------------------------------
EXCHANGE-TRADED FUNDS (13.6%)
62,400 iShares 1-3 Year Credit Bond ETF 6,540
156,930 iShares Core U.S. Aggregate Bond ETF 17,118
44,400 PowerShares Fundamental High Yield Corporate Bond Portfolio 843
297,800 Vanguard Mortgage-Backed Securities ETF 15,647
273,400 Vanguard Short-Term Bond ETF 21,697
831,800 Vanguard Short-Term Corporate Bond ETF 66,236
382,800 Vanguard Total Bond Market ETF 31,202
----------
Total Exchange-Traded Funds (cost: $159,669) 159,283
----------
Total Bonds (cost: $592,343) 598,977
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 25
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS (4.4%)
COMMERCIAL PAPER (4.2%)
CONSUMER DISCRETIONARY (0.7%)
-----------------------------
AUTOMOBILE MANUFACTURERS (0.4%)
$ 4,400 Hyundai Capital America(c),(m) 1.37% 12/04/2017 $ 4,399
----------
AUTOMOTIVE RETAIL (0.3%)
4,000 Autozone Inc.(c),(m) 1.43 1/04/2018 3,995
----------
Total Consumer Discretionary 8,394
----------
CONSUMER STAPLES (0.4%)
-----------------------
BREWERS (0.4%)
4,400 Molson Coors Brewing Co.(c),(m) 1.55 12/07/2017 4,399
----------
ENERGY (1.3%)
-------------
OIL & GAS DRILLING (0.4%)
4,500 Nabors Industries, Inc.(c),(m) 2.00 1/08/2018 4,488
----------
OIL & GAS EXPLORATION & PRODUCTION (0.3%)
3,510 Canadian Natural Resources(c),(m) 1.61 12/21/2017 3,507
----------
OIL & GAS STORAGE & TRANSPORTATION (0.6%)
2,500 Energy Transfer Partners, LP(c),(m) 2.05 12/20/2017 2,498
4,000 Spectra Energy Partners(c),(m) 1.40 12/06/2017 3,999
----------
6,497
----------
Total Energy 14,492
----------
MATERIALS (0.7%)
----------------
COMMODITY CHEMICALS (0.1%)
1,646 Cabot Corp.(c),(m) 1.36 12/05/2017 1,646
----------
DIVERSIFIED CHEMICALS (0.3%)
3,834 Ei Dupont De Nemours(c),(m) 1.38 12/19/2017 3,831
----------
PAPER PACKAGING (0.3%)
2,930 Westrock Co.(c),(m) 1.36 12/12/2017 2,929
----------
Total Materials 8,406
----------
UTILITIES (1.1%)
----------------
ELECTRIC UTILITIES (0.0%)
571 Southern California Edison Co.(c),(m) 1.24 12/04/2017 571
----------
GAS UTILITIES (0.9%)
4,000 Spire, Inc.(c),(m) 1.43 12/14/2017 3,998
4,034 Southern Co. Gas Capital(c),(m) 1.38 12/18/2017 4,031
================================================================================
26 | USAA CORNERSTONE MODERATE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 2,500 Southern Co. Gas Capital(c),(m) 1.40% 12/14/2017 $ 2,499
----------
10,528
----------
MULTI-UTILITIES (0.2%)
2,210 Public Service Co. of North Carolina 1.70 12/22/2017 2,208
----------
Total Utilities 13,307
----------
Total Commercial Paper (cost: $48,998) 48,998
----------
------------------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES
------------------------------------------------------------------------------------------------------------------
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (0.2%)
2,529,363 State Street Institutional Treasury Money Market Fund Premier
Class, 1.02%(b),(n) (cost: $2,529) 2,529
----------
Total Money Market Instruments (cost: $51,527) 51,527
----------
SHORT-TERM INVESTMENTS PURCHASED WITH CASH
COLLATERAL FROM SECURITIES LOANED (0.5%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (0.5%)
977,889 Federated Government Obligations Fund
Institutional Class, 0.94%(n) 978
607,171 Fidelity Government Portfolio Class I, 0.97%(n) 607
824,616 Goldman Sachs Financial Square Government Fund
Institutional Class, 0.96%(n) 825
2,076,719 Invesco Government & Agency Portfolio Institutional Class, 0.98%(n) 2,077
113,576 Morgan Stanley Institutional Liquidity Funds Government Portfolio
Institutional Class, 0.97%(n) 113
1,713,947 Western Asset Institutional Government Reserves
Institutional Class, 1.00%(n) 1,714
----------
Total Short-Term Investments Purchased with Cash Collateral from
Securities Loaned (cost: $6,314) 6,314
----------
TOTAL INVESTMENTS (COST: $1,114,602) $1,174,738
==========
================================================================================
PORTFOLIO OF INVESTMENTS | 27
================================================================================
------------------------------------------------------------------------------------------------------------------
UNREALIZED
APPRECIATION/
NUMBER OF EXPIRATION NOTIONAL CONTRACT (DEPRECIATION)
CONTRACTS SECURITY DATE AMOUNT (000) VALUE (000) (000)
------------------------------------------------------------------------------------------------------------------
FUTURES(o)
LONG FUTURES
EQUITY CONTRACTS
472 E-mini S&P 500 12/15/2017 58,081 USD $ 62,490 $4,409
781 Euro Stoxx 50 12/15/2017 27,308 EURO 33,214 711
161 TOPIX Index 12/07/2017 2,656,085 JPY 25,707 2,107
-------- ------
TOTAL LONG FUTURES $121,411 $7,227
-------- ------
SHORT FUTURES
INTEREST RATE CONTRACTS
(219) U.S. Treasury Bond 3/20/2018 (33,601) USD (33,226) 375
-------- ------
EQUITY CONTRACTS
(66) E-mini S&P Midcap 400 12/15/2017 (11,714) USD (12,540) (826)
-------- ------
TOTAL SHORT FUTURES $(45,766) $ (451)
-------- ------
TOTAL FUTURES $ 75,645 $6,776
======== ======
================================================================================
28 | USAA CORNERSTONE MODERATE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
------------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------------------------------------------------------------------------------------------------------------------
U.S. Equity Securities:
Common Stocks $133,202 $ - $ - $ 133,202
Preferred Stocks - 16,464 375 16,839
Exchange-Traded Funds 86,018 - - 86,018
International Equity Securities:
Common Stocks 825 - - 825
Exchange-Traded Funds 259,675 - - 259,675
Precious Metals and Commodity-Related
Securities:
Common Stocks - - 33 33
Exchange-Traded Funds 11,199 - - 11,199
Global Real Estate Equity Securities:
Common Stocks 3,684 - - 3,684
Preferred Stocks - 614 - 614
Exchange-Traded Funds 5,831 - - 5,831
Bonds:
Corporate Obligations - 76,939 - 76,939
Convertible Securities - 2,564 441 3,005
Eurodollar and Yankee Obligations - 6,863 - 6,863
Asset-Backed Securities - 9,364 - 9,364
Collateralized Mortgage Obligations - 2,786 - 2,786
Commercial Mortgage Securities - 24,156 - 24,156
U.S. Government Agency Issues - 128,882 - 128,882
U.S. Treasury Securities 187,583 116 - 187,699
Exchange-Traded Funds 159,283 - - 159,283
Money Market Instruments:
Commercial Paper - 48,998 - 48,998
Government & U.S. Treasury
Money Market Funds 2,529 - - 2,529
Short-Term Investments Purchased with
Cash Collateral from Securities Loaned:
Government & U.S. Treasury Money
Market Funds 6,314 - - 6,314
Futures(1) 7,602 - - 7,602
------------------------------------------------------------------------------------------------------------------
Total $863,745 $317,746 $849 $1,182,340
------------------------------------------------------------------------------------------------------------------
LIABILITIES LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------------------------------------------------------------------------------------------------------------------
Futures(1) $ (826) $ - $ - $ (826)
------------------------------------------------------------------------------------------------------------------
Total $ (826) $ - $ - $ (826)
------------------------------------------------------------------------------------------------------------------
(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 | 29
================================================================================
------------------------------------------------------------------------------------------------------------------
RECONCILIATION OF LEVEL 3 INVESTMENTS
------------------------------------------------------------------------------------------------------------------
COMMON PREFERRED CONVERTIBLE
($ IN 000s) STOCKS STOCKS SECURITIES
------------------------------------------------------------------------------------------------------------------
Balance as of May 31, 2017 $ 143 $300 $ 574
Purchases - - 23
Sales - - -
Transfers into Level 3 - - -
Transfers out of Level 3 - - -
Net realized gain (loss) on investments - - -
Change in net unrealized appreciation/
(depreciation) of investments (110) 75 (156)
------------------------------------------------------------------------------------------------------------------
Balance as of November 30, 2017 $ 33 $375 $ 441
------------------------------------------------------------------------------------------------------------------
For the period of June 1, 2017, through November 30, 2017, there were no
transfers of securities between levels. The Fund's policy is to recognize any
transfers in and transfers out as of the beginning of the reporting period in
which the event or circumstance that caused the transfer occurred.
------------------------------------------------------------------------------------------------------------------
QUANTITATIVE INFORMATION ABOUT LEVEL 3 FAIR VALUE MEASUREMENTS**
------------------------------------------------------------------------------------------------------------------
FAIR VALUE AT SIGNIFICANT
NOVEMBER 30, 2017 VALUATION UNOBSERVABLE RANGE/
ASSETS ($ IN 000's) TECHNIQUE(S) INPUT(S) VALUE
------------------------------------------------------------------------------------------------------------------
BONDS:
Convertible Securities $441 Market Average $58.24
Comparables Value
Per
Recoverable
Ounce(a)
Comparable 40%
Discount
Adjustment(b)
------------------------------------------------------------------------------------------------------------------
(a) Represents amounts used when the reporting entity has determined that
market participants would use such multiples when pricing the security.
(b) Represents amounts used when the reporting entity has determined that
market participants would take into account these discounts when pricing
the security.
** Quantitative Information table includes certain Level 3 securities using
valuation models.
Increases in the earnings before interest, taxes, depreciation, and amortization
(EBITDA), revenue multiples, transaction prices, average value per recoverable
ounce, or earnings per share will increase the value of the security while an
increase in the discount adjustment or a discount for the lack of marketability
will decrease the value of the security.
================================================================================
30 | USAA CORNERSTONE MODERATE FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
November 30, 2017 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
Market values of securities are determined by procedures and practices
discussed in Note 1A to the financial statements.
The Portfolio of Investments category percentages shown represent the
percentages of the investments to net assets, and, in total, may not equal
100%. A category percentage of 0.0% represents less than 0.1% of net assets.
Investments in foreign securities were 23.7% of net assets at November 30,
2017.
The Fund may rely on certain Securities and Exchange Commission (SEC)
exemptive orders or rules that permit funds meeting various conditions to
invest in an exchange-traded fund (ETF) in amounts exceeding limits set forth
in the Investment Company Act of 1940, as amended, that would otherwise be
applicable.
o 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 | 31
================================================================================
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 cash flows than regular mortgage securities,
but such cash flows 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.
================================================================================
32 | USAA CORNERSTONE MODERATE FUND
================================================================================
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. Inflation
adjustments to the face value of these securities are included in interest
income.
o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS
LIBOR London Interbank Offered Rate
REIT Real estate investment trust - Dividend distributions from REITs may
be recorded as income and later characterized by the REIT at the end
of the fiscal year as capital gains or a return of capital. Thus,
the fund will estimate the components of distributions from these
securities and revise when actual distributions are known.
STRIPS Separate trading of registered interest and principal of securities
USD U.S. Dollar
CREDIT ENHANCEMENTS - Adds the financial strength of the provider of the
enhancement to support the issuer's ability to repay the principal and
interest payments when due. The enhancement may be provided by a high-quality
bank, insurance company or other corporation, or a collateral trust. The
enhancements do not guarantee the market values of the securities.
(INS) Principal and interest payments are insured by 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.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 33
================================================================================
o SPECIFIC NOTES
(a) The security, or a portion thereof, was out on loan as of November 30,
2017.
(b) The security, or a portion thereof, is segregated to cover the value of
open futures contracts at November 30, 2017.
(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) Security deemed illiquid by the Manager, under liquidity guidelines
approved by the Board. The aggregate market value of these securities at
November 30, 2017, was $3,422,000, which represented 0.3% of the Fund's
net assets.
(e) Security was fair valued at November 30, 2017, by the Manager in
accordance with valuation procedures approved by the Board. The total
value of all such securities was $849,000, which represented 0.1% of the
Fund's net assets.
(f) Senior loan (loan) - is not registered under the Securities Act of 1933.
The loan contains certain restrictions on resale and cannot be sold
publicly. The stated interest rate represents the weighted average
interest rate of all contracts within the loan facility. The interest
rate is adjusted periodically, and the rate disclosed represents the
current rate at November 30, 2017. The weighted average life of the loan
is likely to be shorter than the stated final maturity date due to
mandatory or optional prepayments. The loan is deemed liquid by the
Manager, under liquidity guidelines approved by the Board, unless
otherwise noted as illiquid.
(g) At November 30, 2017, the issuer was in default with respect to interest
and/or principal payments.
================================================================================
34 | USAA CORNERSTONE MODERATE FUND
================================================================================
(h) Variable-rate security - interest rate is adjusted periodically. The
interest rate disclosed represents the rate at November 30, 2017.
(i) 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.
(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 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) Securities with a value of $1,947,000 are segregated as collateral for
initial margin requirements on open futures contracts.
(l) Zero-coupon security. Rate represents the effective yield at the date of
purchase.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 35
================================================================================
(m) Commercial paper issued in reliance on the "private placement" exemption
from registration afforded by Section 4(a)(2) of the Securities Act of
1933, as amended (Section 4(a)(2) Commercial Paper). Unless this
commercial paper is subsequently registered, a resale of this commercial
paper in the United States must be effected in a transaction exempt from
registration under the Securities Act of 1933. Section 4(a)(2) Commercial
Paper is normally resold to other investors through or with the
assistance of the issuer or an 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.
(n) Rate represents the money market fund annualized seven-day yield at
November 30, 2017.
(o) The contract value of futures purchased and/or sold as a percentage of
net assets is 6.4%.
(p) All of the coupon is PIK.
(q) Rates for U.S. Treasury notes and bonds represent the stated coupon
payment rate at time of issuance.
(r) Stated interest rates may change slightly over time as underlying
mortgages pay down.
(s) Security was fair valued at Level 3.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
36 | USAA CORNERSTONE MODERATE FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
November 30, 2017 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (including securities on
loan of $6,073) (cost of $1,114,602) $1,174,738
Cash denominated in foreign currencies (identified cost of $2,694) 2,898
Receivables:
Capital shares sold 529
USAA Asset Management Company (Note 6C) 35
Dividends and interest 2,421
Securities sold 485
Other 9
Variation margin on futures contracts 6,787
----------
Total assets 1,187,902
----------
LIABILITIES
Payables:
Upon return of securities loaned 6,314
Securities purchased 365
Capital shares redeemed 360
Bank overdraft 5,237
Accrued management fees 567
Accrued transfer agent's fees 62
Other accrued expenses and payables 218
----------
Total liabilities 13,123
----------
Net assets applicable to capital shares outstanding $1,174,779
==========
NET ASSETS CONSIST OF:
Paid-in capital $1,048,620
Accumulated undistributed net investment income 1,872
Accumulated net realized gain on investments and
futures transactions 57,171
Net unrealized appreciation of investments and futures contracts 66,912
Net unrealized appreciation of foreign currency translations 204
----------
Net assets applicable to capital shares outstanding $1,174,779
==========
Capital shares outstanding, no par value 74,916
==========
Net asset value, redemption price, and offering price per share $ 15.68
==========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 37
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended November 30, 2017 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends $ 7,430
Interest 7,809
Securities lending (net) 62
-------
Total income 15,301
-------
EXPENSES
Management fees 3,388
Administration and servicing fees 862
Transfer agent's fees 1,338
Custody and accounting fees 131
Postage 76
Shareholder reporting fees 38
Trustees' fees 18
Registration fees 20
Professional fees 64
Other 14
-------
Total expenses 5,949
Expenses reimbursed (206)
-------
Net expenses 5,743
-------
NET INVESTMENT INCOME 9,558
-------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS,
FOREIGN CURRENCY, AND FUTURES CONTRACTS
Net realized gain on:
Unaffiliated transactions 37,085
Affiliated transactions (Note 8) 2
Foreign currency transactions 21
Futures transactions 5,088
Change in net unrealized appreciation/(depreciation) of:
Investments 1,468
Foreign currency translations 158
Futures contracts 2,918
-------
Net realized and unrealized gain 46,740
-------
Increase in net assets resulting from operations $56,298
=======
See accompanying notes to financial statements.
================================================================================
38 | USAA CORNERSTONE MODERATE FUND
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended November 30, 2017 (unaudited), and year ended
May 31, 2017
------------------------------------------------------------------------------------------------------------------
11/30/2017 5/31/2017
------------------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 9,558 $ 23,126
Net realized gain on investments 37,087 22,733
Net realized gain on long-term capital gain
distributions from other investment companies - 83
Net realized gain (loss) on foreign currency transactions 21 (3)
Net realized loss on options - (292)
Net realized gain on futures transactions 5,088 6,560
Change in net unrealized appreciation/(depreciation) of:
Investments 1,468 46,605
Foreign currency translations 158 48
Futures contracts 2,918 3,745
---------------------------
Increase in net assets resulting from operations 56,298 102,605
---------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (9,426) (24,373)
---------------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 70,216 134,055
Reinvested dividends 9,372 24,223
Cost of shares redeemed (71,175) (174,676)
---------------------------
Increase (decrease) in net assets from capital
share transactions 8,413 (16,398)
---------------------------
Capital contribution from USAA Transfer Agency
Company - 1
---------------------------
Net increase in net assets 55,285 61,835
NET ASSETS
Beginning of period 1,119,494 1,057,659
---------------------------
End of period $1,174,779 $1,119,494
===========================
Accumulated undistributed net investment income:
End of period $ 1,872 $ 1,740
===========================
CHANGE IN SHARES OUTSTANDING
Shares sold 4,583 9,288
Shares issued for dividends reinvested 616 1,705
Shares redeemed (4,644) (12,117)
---------------------------
Increase (decrease) in shares outstanding 555 (1,124)
===========================
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 39
================================================================================
NOTES TO FINANCIAL STATEMENTS
November 30, 2017 (unaudited)
--------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company Act
of 1940, as amended (the 1940 Act), is an open-end management investment
company organized as a Delaware statutory trust consisting of 51 separate funds.
Additionally, USAA Cornerstone Moderate Fund (the Fund) qualifies as a
registered investment company under Accounting Standards Codification Topic 946.
The information presented in this semiannual report pertains only to the Fund,
which is classified as diversified under the 1940 Act and is authorized to issue
an unlimited number of shares. The Fund's investment objective is to seek 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 Asset Management Company
(the Manager), an affiliate of the Fund.
================================================================================
40 | USAA CORNERSTONE MODERATE FUND
================================================================================
Among other things, these monthly meetings include a review and analysis of
backtesting reports, pricing service quotation comparisons, illiquid
securities and fair value determinations, pricing movements, and daily stale
price monitoring.
The value of each security is determined (as of the close of trading on the
New York Stock Exchange (NYSE) on each business day the NYSE is open) as set
forth below:
1. Equity securities, including exchange-traded funds (ETFs), except as
otherwise noted, traded primarily on a domestic securities exchange or the
over-the-counter markets, are valued at the last sales price or official
closing price on the exchange or primary market on which they trade.
Securities traded primarily on foreign securities exchanges or markets are
valued at the last quoted sale price, or the most recently determined
official closing price calculated according to local market convention,
available at the time the Fund is valued. If no last sale or official
closing price is reported or available, the average of the bid and ask
prices generally is used. Actively traded equity securities listed on a
domestic exchange generally are categorized in Level 1 of the fair value
hierarchy. Certain preferred and equity securities traded in inactive
markets generally are categorized in Level 2 of the fair value hierarchy.
2. Equity securities trading in various foreign markets may take place on
days when the NYSE is closed. Further, when the NYSE is open, the foreign
markets may be closed. Therefore, the calculation of the Fund's net asset
value (NAV) may not take place at the same time the prices of certain
foreign securities held by the Fund are determined. In many cases, events
affecting the values of foreign securities that occur between the time of
their last quoted sale or official closing price and the close of normal
trading on the NYSE on a day the Fund's NAV is calculated will not need to
be reflected in the value of 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 41
================================================================================
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 ask prices or
the last sales price to value a security when, in the Service's judgment,
these prices are readily available and are representative of the
security's market value. For many securities, such prices are not readily
available. The Service generally prices those securities based on methods
which include consideration of yields or prices of securities of
comparable quality, coupon, maturity, and type; indications as to values
from dealers in securities; and general market conditions. Generally,
debt securities are categorized in Level 2 of the fair value hierarchy;
however, to the extent the valuations include significant unobservable
inputs, the securities would be categorized in Level 3.
6. Repurchase agreements are valued at cost.
7. Futures are valued at the settlement price at the close of market on the
principal exchange on which they are traded or, in the absence of any
transactions that day, the settlement price on the prior trading date if
it is within the spread between the closing bid and ask price closest to
the last reported sale price.
================================================================================
42 | USAA CORNERSTONE MODERATE 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
ask price 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
three-level valuation hierarchy disclosed in the Portfolio of Investments is
based upon the transparency of inputs to the valuation of an asset or
liability as of the measurement date. The three levels are defined as
follows:
Level 1 - inputs to the valuation methodology are quoted prices (unadjusted)
in active markets for identical securities.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 43
================================================================================
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 a prior tender offer and last quoted 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.
The methods used may include valuation models that rely on significant
assumptions and/or unobservable inputs to determine the fair value
measurement for the securities. A market-based approach may be employed using
related or comparable securities, recent transactions, market multiples, book
values and other relevant information or an income-based approach may be
employed whereby estimated future cash flows are discounted to determine the
fair value. In some cases discounts may be applied due to market liquidity
limitations.
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
================================================================================
44 | USAA CORNERSTONE MODERATE 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, 2017, did not include
master netting provisions.
FUTURES CONTRACTS - The Fund is subject to equity price risk, interest rate
risk, and foreign currency exchange rate risk in the normal course of
pursuing its investment objectives. The Fund may use futures contracts to
gain exposure to, or hedge against, changes in the value of equities,
interest rates, or foreign currencies. A futures contract represents a
commitment for the future purchase or sale of an asset at a specified price
on a specified date. Upon entering into such contracts, the Fund is required
to deposit with the broker in either cash or securities an initial margin in
an amount equal to a certain percentage of the contract amount. Subsequent
payments (variation margin) are made or received by the Fund each day,
depending on the daily fluctuations in the value of the contract, and are
recorded for financial statement purposes as unrealized gains or losses. When
the contract is closed, the Fund records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and
the value at the time it was closed. Upon entering into such contracts, the
Fund bears the risk of interest or exchange rates or securities prices moving
unexpectedly in an unfavorable direction, in which case, the Fund may not
achieve the anticipated benefits of the futures contracts.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 45
================================================================================
FAIR VALUES OF DERIVATIVE INSTRUMENTS AS OF NOVEMBER 30, 2017*
(IN THOUSANDS)
ASSET DERIVATIVES LIABILITY DERIVATIVES
--------------------------------------------------------------------------------------------------
STATEMENT OF STATEMENT OF
DERIVATIVES NOT ASSETS AND ASSETS AND
ACCOUNTED FOR AS LIABILITIES LIABILITIES
HEDGING INSTRUMENTS LOCATION FAIR VALUE LOCATION FAIR VALUE
--------------------------------------------------------------------------------------------------
Equity contracts Net unrealized $7,227** Net unrealized $826**
appreciation of depreciation of
investments and investments and
futures contracts futures contracts
--------------------------------------------------------------------------------------------------
Interest rate contracts Net unrealized 375** -
appreciation of
investments and
futures contracts
--------------------------------------------------------------------------------------------------
Total $7,602 $826
--------------------------------------------------------------------------------------------------
* For open derivative instruments as of November 30, 2017, see the Portfolio
of Investments, which also is indicative of activity for the six-month
period ended November 30, 2017.
** Includes cumulative appreciation/(depreciation) of futures as reported on
the Portfolio of Investments. Only the variation margin from the last
business day of the reporting period is reported within the Statement of
Assets and Liabilities.
THE EFFECT OF DERIVATIVE INSTRUMENTS ON THE STATEMENT OF OPERATIONS FOR THE
SIX-MONTH PERIOD ENDED NOVEMBER 30, 2017 (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 Futures $5,789 $2,356
transactions/ Change in net
unrealized appreciation/
(depreciation) of Futures contracts
---------------------------------------------------------------------------------------------------------------
Interest rate contracts Net realized gain on Futures (701) 562
transactions/ Change in net
unrealized appreciation/
(depreciation) of Futures contracts
---------------------------------------------------------------------------------------------------------------
Total $5,088 $2,918
---------------------------------------------------------------------------------------------------------------
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.
================================================================================
46 | USAA CORNERSTONE MODERATE FUND
================================================================================
For the six-month period ended November 30, 2017, the Fund did not incur any
income tax, interest, or penalties, and has recorded no liability for net
unrecognized tax benefits relating to uncertain income tax positions. On an
ongoing basis, the Manager will monitor the Fund's tax basis to determine if
adjustments to this conclusion are necessary. The statute of limitations on
the Fund's tax return filings generally remain open for the three preceding
fiscal reporting year ends and remain subject to examination by the Internal
Revenue Service and state taxing authorities.
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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 47
================================================================================
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 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.
================================================================================
48 | USAA CORNERSTONE MODERATE FUND
================================================================================
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, 2017, 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, along with other funds of the Trust and USAA ETF Trust
(together, the Trusts), in a joint, short-term, revolving, committed loan
agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate of
the Manager. The purpose of the agreement is to provide temporary or emergency
cash needs, including redemption requests that might otherwise require the
untimely disposition of securities. Subject to availability (including usage of
the facility by other funds of the Trusts), the Fund may borrow from CAPCO an
amount up to 5% of the Fund's total assets at an interest rate based on the
London Interbank Offered Rate (LIBOR), plus 100.0 basis points.
The Trusts are also assessed facility fees by CAPCO in the amount of 13.0 basis
points of the amount of the committed loan agreement. Prior to September 30,
2017, the maximum annual facility fee was 12.0 basis points
================================================================================
NOTES TO FINANCIAL STATEMENTS | 49
================================================================================
of the amount of the committed loan agreement. The facility fees are allocated
among the funds of the Trusts based on their respective average net assets for
the period.
The Trusts may request an optional increase of the committed loan agreement from
$500 million up to $750 million. If the Trusts increase the committed loan
agreement, the assessed facility fee on the amount of the additional commitment
will be 14.0 basis points.
For the six-month period ended November 30, 2017, the Fund paid CAPCO facility
fees of $4,000, which represents 1.5% of the total fees paid to CAPCO by the
funds of the Trusts. The Fund had no borrowings under this agreement during the
six-month period ended November 30, 2017.
(3) DISTRIBUTIONS
The tax basis of distributions and any accumulated undistributed net investment
income will be determined as of the Fund's tax year-end of May 31, 2018, in
accordance with applicable federal tax law.
Distributions of net investment income are made quarterly. Distributions of
realized gains from security transactions not offset by capital losses are made
annually in the succeeding fiscal year or as otherwise required to avoid the
payment of federal income tax.
At May 31, 2017, the Fund had no capital loss carryforwards, for federal income
tax purposes.
(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, 2017, were
$279,866,000 and $297,228,000, respectively.
As of November 30, 2017, the cost of securities, including short-term
securities, for federal income tax purposes, was approximately the same as the
cost reported in the financial statements.
Gross unrealized appreciation and depreciation of investments as of November 30,
2017, were $78,480,000 and $18,344,000, respectively, resulting in net
unrealized appreciation of $60,136,000.
================================================================================
50 | USAA CORNERSTONE MODERATE FUND
================================================================================
(5) SECURITIES LENDING
The Fund, through its securities lending agreement with Citibank, N.A.
(Citibank), may lend its securities to qualified financial institutions, such as
certain broker-dealers, to earn additional income. The borrowers are required to
secure their loans continuously with collateral in an amount at least equal to
102% of the fair value of domestic securities and foreign government securities
loaned and 105% of the fair value of foreign securities and all other securities
loaned. Collateral may be cash, U.S. government securities, or other securities
as permitted by SEC guidelines. Cash collateral is invested in high-quality
short-term investments. Collateral requirements are determined daily based on
the prior business day's ending value of securities loaned. Risks to the Fund in
securities-lending transactions are that the borrower may not provide additional
collateral when required or return the securities when due, and that the value
of the short-term investments will be less than the amount of cash collateral
required to be returned to the borrower. The Fund's agreement with Citibank does
not include master netting provisions. Non-cash collateral received by the Fund
may not be sold or re-pledged except to satisfy borrower default. Cash
collateral is listed in the Fund's Portfolio of Investments and Financial
Statements while non-cash collateral is not included.
At November 30, 2017, the Fund's value of outstanding securities on loan
and the value of collateral are as follows:
VALUE OF SECURITIES
ON LOAN NON-CASH COLLATERAL CASH COLLATERAL
----------------------------------------------------------------------------------
$6,073,000 $- $6,314,000
(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 | 51
================================================================================
the day-to-day investment of all or a portion of the Fund's assets. For the
six-month period ended November 30, 2017, the Fund had no subadviser(s).
The Fund's investment management fee is accrued daily and paid monthly at an
annualized rate of 0.59% of the Fund's average net assets. For the six-month
period ended November 30, 2017, the Fund incurred management fees, paid or
payable to the Manager, of $3,388,000.
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, 2017, the Fund incurred administration and servicing fees, paid
or payable to the Manager, of $862,000.
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, 2017, the Fund reimbursed the Manager
$14,000 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, 2018, 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, 2018, without approval of the Board, and
may be changed or terminated by the Manager at any time after that date. For
the six-month period ended November 30, 2017, the Fund incurred reimbursable
expenses of $206,000, of which $35,000 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,
================================================================================
52 | USAA CORNERSTONE MODERATE FUND
================================================================================
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, 2017, the Fund incurred transfer agent's fees, paid or
payable to SAS, of $1,338,000.
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.
(7) TRANSACTIONS WITH AFFILIATES
The Manager is indirectly wholly owned by United Services Automobile Association
(USAA), a large, diversified financial services institution.
Certain trustees and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Fund.
(8) SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
During the six-month period ended November 30, 2017, in accordance with
affiliated transaction procedures approved by the Board, purchases and sales of
security transactions were executed between the Fund and the following
affiliated USAA Funds at the then-current market price with no brokerage
commissions incurred.
NET REALIZED
COST TO GAIN (LOSS)
SELLER PURCHASER PURCHASER TO SELLER
----------------------------------------------------------------------------------
Cornerstone Moderate Cornerstone Moderately $180,000 $2,000
Aggressive
Cornerstone Moderately Cornerstone Moderate 87,000 (-)*
Aggressive
Cornerstone Aggressive Cornerstone Moderate 219,000 4,000
* Represents less than $500.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 53
================================================================================
(9) UPCOMING REGULATORY MATTERS
In October 2016, the U.S. Securities and Exchange Commission (SEC) issued Final
Rule Release No. 33-10231, INVESTMENT COMPANY REPORTING MODERNIZATION. In part,
the rules require the filing of new forms N-PORT and N-CEN, and amend Regulation
S-X to require standardized, enhanced disclosure about derivatives in investment
company financial statements, as well as other amendments.
In October 2016, the SEC issued Final Rule Release No. 33-10233, INVESTMENT
COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS. This rule requires funds to
establish a liquidity risk management program and enhances disclosures regarding
funds' liquidity.
In October 2016, the SEC issued Final Rule Release No. 33-10234, INVESTMENT
COMPANY SWING PRICING. This rule permits certain funds to use swing pricing
during periods of heavy redemptions and requires certain disclosures regarding
the use of swing pricing in forms filed with the SEC.
The Manager continues to evaluate the impact these rules and amendments will
have on the financial statements and other disclosures. The compliance date for
new forms N-PORT and N-CEN is June 1, 2018 (with filing of Form N-PORT beginning
April 30, 2019), with other staggered compliance dates extending through April
30, 2019. The Fund is expected to comply with the June 1, 2018 compliance date
for new forms N-PORT and N-CEN.
================================================================================
54 | USAA CORNERSTONE MODERATE FUND
================================================================================
(10) 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,
-------------------------------------------------------------------------------------------
2017 2017 2016 2015 2014 2013
-------------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 15.05 $ 14.01 $ 15.43 $ 15.46 $ 14.49 $ 13.07
-------------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .13 .31 .39 .37 .38 .40
Net realized and
unrealized gain (loss) .63 1.06 (1.15) .10 .98 1.42
-------------------------------------------------------------------------------------------
Total from investment
operations .76 1.37 (.76) .47 1.36 1.82
-------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.13) (.33) (.38) (.38) (.39) (.40)
Realized capital gains - - (.28) (.12) - -
-------------------------------------------------------------------------------------------
Total distributions (.13) (.33) (.66) (.50) (.39) (.40)
-------------------------------------------------------------------------------------------
Net asset value at
end of period $ 15.68 $ 15.05 $ 14.01 $ 15.43 $ 15.46 $ 14.49
===========================================================================================
Total return (%)* 5.05 9.91 (4.89) 3.10 9.60 14.17
Net assets at end of
period (000) $1,174,779 $1,119,494 $1,057,659 $1,150,798 $1,093,783 $944,828
Ratios to average
net assets:**
Expenses (%)(a) 1.00(b) 1.00 1.00 1.00 1.00 1.00
Expenses, excluding
reimbursements (%)(a) 1.04(b) 1.10 1.16 1.19 1.22 1.30
Net investment
income (%) 1.66(b) 2.14 2.72 2.46 2.60 2.87
Portfolio turnover (%) 26 66 70(c) 44 46 66
* 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, 2017, average net assets were
$1,146,062,000.
(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%)(+)
(+) 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 trading activity due to changes in asset allocation
strategies.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 55
================================================================================
EXPENSE EXAMPLE
November 30, 2017 (unaudited)
--------------------------------------------------------------------------------
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: direct costs, such
as wire fees, redemption fees, and low balance fees; and indirect costs,
including management fees, transfer agency fees, and other Fund operating
expenses. This example is intended to help you understand your indirect costs,
also referred to as "ongoing costs" (in dollars), of investing in the Fund and
to compare these costs with the ongoing costs of investing in other mutual
funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire six-month period of June 1, 2017, through
November 30, 2017.
ACTUAL EXPENSES
The line labeled "actual" in the table provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested at the beginning of the period, to estimate the
expenses that you paid over the period. Simply divide your account value by
$1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number in the "actual" line under the heading
"Expenses Paid During Period" to estimate the expenses you paid on your account
during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The line labeled "hypothetical" in the table provides information about
hypothetical account values and hypothetical expenses based on the Fund's actual
expense ratio and an assumed rate of return of 5% per year before expenses,
which is not the Fund's actual return. The hypothetical account values and
expenses may not be used to estimate the actual ending account
================================================================================
56 | 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, 2017 -
JUNE 1, 2017 NOVEMBER 30, 2017 NOVEMBER 30, 2017
---------------------------------------------------------------
Actual $1,000.00 $1,050.50 $5.14
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 5.05% for the six-month period of June 1,
2017, through November 30, 2017.
================================================================================
EXPENSE EXAMPLE | 57
================================================================================
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Jefferson C. Boyce
Dawn M. Hawley
Paul L. McNamara
Richard Y. Newton III
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
--------------------------------------------------------------------------------
ADMINISTRATOR AND USAA Asset Management Company
INVESTMENT ADVISER P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
UNDERWRITER AND USAA Investment Management Company
DISTRIBUTOR P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
--------------------------------------------------------------------------------
CUSTODIAN AND State Street Bank and Trust Company
ACCOUNTING AGENT P.O. Box 1713
Boston, Massachusetts 02105
--------------------------------------------------------------------------------
INDEPENDENT Ernst & Young LLP
REGISTERED PUBLIC 100 West Houston St., Suite 1700
ACCOUNTING FIRM San Antonio, Texas 78205
--------------------------------------------------------------------------------
MUTUAL FUND Under "My Accounts" on
SELF-SERVICE 24/7 usaa.com select your mutual fund
AT USAA.COM account and either click the link or
select 'I want to...' and select
OR CALL the desired action.
(800) 531-USAA (8722)
(210) 531-8722
--------------------------------------------------------------------------------
Copies of the Manager's proxy voting policies and procedures, approved by the
Trust's Board of Trustees for use in voting proxies on behalf of the Fund, are
available without charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722;
(ii) at USAA.COM; and (iii) in summary within the Statement of Additional
Information on the SEC's website at HTTP://WWW.SEC.GOV. Information regarding
how the Fund voted proxies relating to portfolio securities during the most
recent 12-month period ended June 30 is available without charge (i) at
USAA.COM; and (ii) on the SEC's website at HTTP://WWW.SEC.GOV.
The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. These Forms N-Q are
available at no charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722;
(ii) at USAA.COM; and (iii) on the SEC's website at HTTP://WWW.SEC.GOV. These
Forms N-Q also may be reviewed and copied at the SEC's Public Reference Room in
Washington, D.C. Information on the operation of the Public Reference Room may
be obtained by calling (800) 732-0330.
================================================================================
--------------
USAA PRSRT STD
9800 Fredericksburg Road U.S. Postage
San Antonio, TX 78288 PAID
USAA
--------------
>> SAVE PAPER AND FUND COSTS
Under MY PROFILE on USAA.COM select MANAGE PREFERENCES
Set your DOCUMENT PREFERENCES to USAA DOCUMENTS ONLINE.
[LOGO OF USAA]
USAA We know what it means to serve.(R)
=============================================================================
27804-0118 (C)2018, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA EMERGING MARKETS FUND]
==============================================================
SEMIANNUAL REPORT
USAA EMERGING MARKETS FUND
FUND SHARES (USEMX) o INSTITUTIONAL SHARES (UIEMX)
o ADVISER SHARES (UAEMX)
NOVEMBER 30, 2017
==============================================================
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
INVESTMENT OVERVIEW 2
FINANCIAL INFORMATION
Portfolio of Investments 4
Notes to Portfolio of Investments 17
Financial Statements 19
Notes to Financial Statements 23
EXPENSE EXAMPLE 44
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE
RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY
USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN
PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS
ABOUT THE FUND.
(C)2018, USAA. All rights reserved.
================================================================================
================================================================================
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
================================================================================
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
o TOP 10 INDUSTRIES - 11/30/17 o
(% of Net Assets)
Diversified Banks ........................................................ 18.8%
Internet Software & Services ............................................. 7.8%
Integrated Oil & Gas ..................................................... 4.7%
Semiconductors ........................................................... 4.4%
Technology Hardware, Storage, & Peripherals .............................. 3.8%
Wireless Telecommunication Services ...................................... 3.7%
Auto Parts & Equipment ................................................... 3.2%
Automobile Manufacturers ................................................. 3.0%
Education Services ....................................................... 2.2%
IT Consulting & Other Services ........................................... 2.0%
o TOP 10 EQUITY HOLDINGS - 11/30/17 o
(% of Net Assets)
Sberbank of Russia PJSC .................................................. 3.3%
Samsung Electronics Co. Ltd. ............................................. 3.2%
Baidu, Inc. ADR .......................................................... 2.9%
Alibaba Group Holding Ltd. ADR ........................................... 2.3%
Bank Rakyat Indonesia (Persero) Tbk PT ................................... 1.8%
Ping An Insurance (Group) Co. of China Ltd. "H" .......................... 1.8%
ICICI Bank Ltd. ADR ...................................................... 1.7%
YPF S.A. ADR ............................................................. 1.7%
New Oriental Education & Technology Group, Inc. ADR ...................... 1.5%
NetEase, Inc. ADR ........................................................ 1.5%
You will find a complete list of securities that the Fund owns on pages 4-16.
================================================================================
2 | USAA EMERGING MARKETS FUND
================================================================================
o COUNTRY ALLOCATION - 11/30/17 o
[PIE CHART OF COUNTRY ALLOCATION]
CHINA 24.7%
OTHER* 15.7%
INDIA 11.1%
SOUTH KOREA 10.1%
RUSSIA 8.4%
BRAZIL 7.6%
TAIWAN 7.3%
TURKEY 4.2%
INDONESIA 4.1%
HONG KONG 3.9%
MEXICO 3.6%
[END CHART]
*Includes countries with less than 3% of portfolio, money market instruments
and short-term investments purchased with cash collateral from securities
loaned.
Percentages are of the net assets of the Fund and may not equal 100%.
================================================================================
INVESTMENT OVERVIEW | 3
================================================================================
PORTFOLIO OF INVESTMENTS
November 30, 2017 (unaudited)
-----------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-----------------------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (96.4%)
COMMON STOCKS (94.5%)
CONSUMER DISCRETIONARY (15.2%)
------------------------------
ADVERTISING (0.5%)
36,276 Innocean Worldwide, Inc. $ 2,593
845,828 ITE Group plc 2,105
----------
4,698
----------
APPAREL, ACCESSORIES & LUXURY GOODS (0.8%)
26,624,000 Bosideng International Holdings Ltd. 2,318
660,600 Samsonite International S.A. 2,745
333,000 Shenzhou International Group 3,006
----------
8,069
----------
AUTO PARTS & EQUIPMENT (3.2%)
395,000 Global PMX Co. Ltd. 2,252
414,958 Hota Industrial Manufacturing Co. Ltd. 1,833
47,173 Hyundai Mobis Co. Ltd. 11,856
7,274 Mando Corp. 2,209
1,818,000 Minth Group Ltd. 10,149
1,641,000 Nexteer Automotive Group Ltd. 3,530
301,990 Sundram Fasteners Ltd. 2,337
----------
34,166
----------
AUTOMOBILE MANUFACTURERS (2.7%)
4,695,309 Brilliance China Automotive Holdings Ltd. 12,324
2,712,000 Dongfeng Motor Group Co. Ltd. "H" 3,410
72,060 KIA Motors Corp. 2,228
270,526 Tata Motors Ltd. ADR* 8,438
278,710 Tofas Tu[UMLAUT]rk Otomobil Fabrikasi A.S. 2,221
----------
28,621
----------
CABLE & SATELLITE (0.4%)
328,659 Cyfrowy Polsat S.A. 2,322
1,550,651 Dish TV India Ltd.* 1,962
----------
4,284
----------
CASINOS & GAMING (0.1%)
708,900 Genting Berhad 1,526
----------
================================================================================
4 | USAA EMERGING MARKETS FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-----------------------------------------------------------------------------------------------------------------------
CONSUMER ELECTRONICS (0.2%)
826,000 Q Technology Group Co. Ltd.(a) $ 1,787
----------
DEPARTMENT STORES (0.4%)
2,339,500 Lifestyle China Group Ltd.* 779
1,959,500 Lifestyle International Holdings Ltd. 2,685
31,000 Poya International Co. Ltd. 384
----------
3,848
----------
EDUCATION SERVICES (2.2%)
359,200 Estacio Participacoes S.A. 3,363
374,100 Kroton Educacional S.A. 2,071
186,549 New Oriental Education & Technology Group, Inc. ADR 15,830
220,200 Ser Educacional S.A. 1,984
----------
23,248
----------
FOOTWEAR (0.1%)
332,000 Yue Yuen Industrial Holdings Ltd. 1,186
----------
HOME FURNISHINGS (0.1%)
7,082 Hanssem Co. Ltd. 1,194
----------
HOME IMPROVEMENT RETAIL (0.1%)
12,380,400 ACE Hardware Indonesia 1,089
----------
HOMEBUILDING (0.1%)
1,496,390 URBI, Desarrollos Urbanos, S.A. de C.V.*(a),(b) 544
----------
HOTELS, RESORTS & CRUISE LINES (0.2%)
186,500 CVC Brasil Operadora e Agencia de Viagens S.A. 2,562
----------
HOUSEHOLD APPLIANCES (1.6%)
570,000 Basso Industry Corp. 1,519
2,669,500 Techtronic Industries Co. Ltd. 15,432
----------
16,951
----------
MOTORCYCLE MANUFACTURERS (0.6%)
117,384 Bajaj Auto Ltd. 6,071
----------
MOVIES & ENTERTAINMENT (0.2%)
5,776,400 mm2 Asia Ltd.*(a) 2,313
----------
RESTAURANTS (0.7%)
661,500 Alsea S.A.B. de C.V. 2,187
1,152,400 International Meal Co. Alimentacao S.A. "A" 2,982
6,366,300 Shakey's Pizza Asia Ventures, Inc.(c) 1,629
----------
6,798
----------
SPECIALTY STORES (0.2%)
576,000 Luk Fook Holdings International Ltd. 2,515
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 5
================================================================================
-----------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-----------------------------------------------------------------------------------------------------------------------
TEXTILES (0.8%)
1,848,000 Best Pacific International Holdings Ltd. "H"(a) $ 1,169
181,000 Eclat Textile Co. Ltd. 1,620
450,492 Himatsingka Seide Ltd. 2,296
541,000 Taiwan Paiho Ltd. 2,065
1,769,000 Weiqiao Textile Co. Ltd. "H" 875
----------
8,025
----------
Total Consumer Discretionary 159,495
----------
CONSUMER STAPLES (3.6%)
-----------------------
BREWERS (0.5%)
867,600 Ambev S.A. ADR 5,371
----------
FOOD RETAIL (1.0%)
293,655 X5 Retail Group N.V. GDR* 10,895
----------
HOUSEHOLD PRODUCTS (0.4%)
2,258,100 Kimberly-Clark de Mexico S.A. de C.V. "A" 4,047
----------
HYPERMARKETS & SUPER CENTERS (0.5%)
228,225 Cia Brasileira de Distribuicao* 4,880
----------
PACKAGED FOODS & MEAT (0.6%)
71,036 Adecoagro S.A.* 695
19,121 Binggrae Co. Ltd. 1,183
308,360 Manpasand Beverages Ltd. 1,889
1,320,436 Marfrig Global Foods S.A.* 2,763
----------
6,530
----------
TOBACCO (0.6%)
58,418 KT&G Corp. 6,549
----------
Total Consumer Staples 38,272
----------
ENERGY (5.8%)
-------------
COAL & CONSUMABLE FUELS (0.8%)
2,440,000 China Shenhua Energy Co. Ltd. "H" 6,004
918,000 United Tractors Tbk PT 2,274
----------
8,278
----------
INTEGRATED OIL & GAS (3.4%)
591,211 Gazprom PAO ADR 2,642
579,622 Gazprom PAO ADR 2,603
191,508 Lukoil PJSC ADR 10,715
429,100 Petroleo Brasileiro S.A.* 2,016
766,126 YPF S.A. ADR 17,383
----------
35,359
----------
================================================================================
6 | USAA EMERGING MARKETS FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-----------------------------------------------------------------------------------------------------------------------
OIL & GAS EXPLORATION & PRODUCTION (0.4%)
2,772,000 CNOOC Ltd. $ 3,755
----------
OIL & GAS REFINING & MARKETING (1.2%)
882,419 Reliance Industries Ltd. 12,625
----------
Total Energy 60,017
----------
FINANCIALS (22.8%)
------------------
ASSET MANAGEMENT & CUSTODY BANKS (0.2%)
503,962 Edelweiss Financial Services Ltd. 2,289
----------
CONSUMER FINANCE (0.9%)
622,250 Aeon Credit Service M Berhad 2,069
21,753 Kruk S.A. 1,738
2,366,400 Muangthai Leasing PCL NVDR 2,808
806,888 Unifin Financiera, S.A.P.I. DE C.V., SOFOM, E.N.R. 2,641
----------
9,256
----------
DIVERSIFIED BANKS (18.7%)
648,371 Akbank T.A.S. 1,489
321,469 Axis Bank Ltd. GDR 13,196
673,723 Banco del Bajio S.A.*(b) 1,242
829,495 Banco do Brasil S.A. 7,584
53,137 Banco Latinoamericano de Exportaciones S.A. "E" 1,560
154,676 Bancolombia S.A. ADR 5,972
463,400 Bangkok Bank Public Co. Ltd. NVDR 2,831
14,521,490 Bank Mandiri (Persero) Tbk PT 7,945
81,209,000 Bank Rakyat Indonesia (Persero) Tbk PT 19,273
253,998 Barclays Africa Group Ltd. 2,922
15,722,000 China Construction Bank Corp. "H" 13,709
743,714 Commercial International Bank GDR 3,231
43,800 Credicorp Ltd. 9,243
17,952 Erste Group Bank AG 783
255,570 Grupo Aval Acciones Y Valores ADR 2,083
390,965 Grupo Aval Acciones Y Valores S.A. 160
974,900 Grupo Financiero Banorte S.A. "O" 5,726
1,839,890 ICICI Bank Ltd. ADR 17,553
4,304,900 Jasmine Broadband Internet Infrastructure Fund(d) 1,555
910,860 Metropolitan Bank & Trust Co.(c) 1,739
145,459 OTP Bank plc 5,560
248,434 RBL Bank Ltd. 2,002
9,056,217 Sberbank of Russia PJSC(d) 34,513
15,331 Sberbank of Russia PJSC ADR 254
184,194 Shinhan Financial Group Co. Ltd. 8,192
252,600 Siam Commercial Bank PCL(d) 1,179
================================================================================
PORTFOLIO OF INVESTMENTS | 7
================================================================================
-----------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-----------------------------------------------------------------------------------------------------------------------
440,821 Standard Bank Group Ltd. $ 5,560
158,064 TBC Bank Group plc 3,380
4,768,279 Turkiye Garanti Bankasi A.S. 11,702
2,129,599 Turkiye Is Bankasi "C" 3,355
1,018,165 Turkiye Vakiflar Bankasi T.A.O. "D" 1,505
----------
196,998
----------
INVESTMENT BANKING & BROKERAGE (0.3%)
1,371,595 JM Financial Ltd. 3,204
----------
LIFE & HEALTH INSURANCE (2.0%)
326,752 Hanwha Life Insurance Co. Ltd. 2,240
1,927,500 Ping An Insurance (Group) Co. of China Ltd. "H" 19,003
----------
21,243
----------
MULTI-SECTOR HOLDINGS (0.3%)
3,554,000 First Pacific Co. Ltd. 2,657
----------
REGIONAL BANKS (0.2%)
9,995,300 Bank Tabungan Negara Persero Tbk PT 2,365
----------
SPECIALIZED FINANCE (0.2%)
817,000 Chailease Holding Co. Ltd. 2,370
----------
Total Financials 240,382
----------
HEALTH CARE (2.1%)
------------------
BIOTECHNOLOGY (0.5%)
295,234 Biocon Ltd. 1,990
5,449 Hugel, Inc.* 2,399
149,598 ISU ABXIS Co. Ltd.* 1,226
----------
5,615
----------
HEALTH CARE SERVICES (0.2%)
1,994,500 Universal Medical Financial & Technical Advisory Services Co. Ltd.(a),(b) 1,852
----------
PHARMACEUTICALS (1.4%)
1,673,000 China Animal Healthcare Ltd.*(d),(e),(g) 111
6,731,000 China Medical System Holdings Ltd. 14,065
----------
14,176
----------
Total Health Care 21,643
----------
INDUSTRIALS (7.7%)
------------------
AEROSPACE & DEFENSE (0.6%)
222,265 Embraer S.A. ADR 4,254
41,584 Korea Aerospace Industries Ltd. 1,915
----------
6,169
----------
================================================================================
8 | USAA EMERGING MARKETS FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-----------------------------------------------------------------------------------------------------------------------
AGRICULTURAL & FARM MACHINERY (0.1%)
86,969 Turk Traktor ve Ziraat Makineleri A.S. $ 1,632
----------
AIR FREIGHT & LOGISTICS (1.2%)
829,400 ZTO Express (Cayman), Inc. ADR* 13,320
----------
AIRPORT SERVICES (0.1%)
226,646 Grupo Aeroportuario del Centro Norte S.A.B. de C.V. 1,145
----------
BUILDING PRODUCTS (0.4%)
292,316 Asian Granito India Ltd. 2,317
3,647,394 National Central Cooling Co. PJSC(c) 1,826
----------
4,143
----------
CONSTRUCTION & ENGINEERING (2.0%)
11,886,538 China State Construction International Holdings Ltd. 15,433
693,553 Gayatri Projects Ltd.* 2,243
637,058 KEC International Ltd. 3,201
----------
20,877
----------
CONSTRUCTION MACHINERY & HEAVY TRUCKS (0.1%)
52,763 China Yuchai International Ltd. 1,385
----------
DIVERSIFIED SUPPORT SERVICES (0.4%)
1,468,487 Blue Label Telecoms Ltd. 1,702
2,188,200 JMT Network Services PCL NVDR 2,211
----------
3,913
----------
ELECTRICAL COMPONENTS & EQUIPMENT (0.2%)
4,916,000 Ten Pao Group Holdings Ltd. 1,007
112,921 Vitzrocell Co. Ltd.*(d),(e),(g) 1,053
----------
2,060
----------
HIGHWAYS & RAILTRACKS (0.6%)
1,255,400 CCR S.A. 6,071
----------
INDUSTRIAL CONGLOMERATES (0.8%)
161,071 Bidvest Group Ltd. 2,247
287,480 Koc Holding A.S. ADR 6,063
----------
8,310
----------
INDUSTRIAL MACHINERY (0.2%)
218,940 Hiwin Technologies Corp. 2,413
----------
SECURITY & ALARM SERVICES (0.2%)
19,490 S-1 Corp. 1,791
----------
TRADING COMPANIES & DISTRIBUTORS (0.2%)
3,831,300 AKR Corporindo Tbk PT 1,799
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 9
================================================================================
-----------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-----------------------------------------------------------------------------------------------------------------------
TRUCKING (0.6%)
1,076,997 Localiza Rent a Car S.A. $ 6,590
----------
Total Industrials 81,618
----------
INFORMATION TECHNOLOGY (23.8%)
------------------------------
APPLICATION SOFTWARE (0.2%)
127,731 Logo Yazilim Sanayi Ve Ticaret A.S.* 1,830
----------
COMMUNICATIONS EQUIPMENT (0.4%)
865,307 Sterlite Technologies Ltd. 3,732
----------
DATA PROCESSING & OUTSOURCED SERVICES (0.8%)
1,039,820 Cielo S.A. ADR 7,341
2,094,700 My E.G. Services Berhad 1,086
----------
8,427
----------
ELECTRONIC COMPONENTS (1.8%)
437,637 Flexium Interconnect, Inc. 1,795
61,406 Largan Precision Co. Ltd. 10,523
749,000 SINBON Electronics Co. Ltd. 2,143
879,000 Taiwan Union Technology Corp. 2,520
8,710,000 Tongda Group Holdings Ltd.(a) 2,308
----------
19,289
----------
ELECTRONIC MANUFACTURING SERVICES (0.6%)
656,843 Hon Hai Precision Industry Co. Ltd. GDR "S" 4,394
2,907,100 V.S. Industry Berhad 2,247
----------
6,641
----------
HOME ENTERTAINMENT SOFTWARE (0.7%)
2,573,000 Kingsoft Corp. Ltd.(a) 7,314
----------
INTERNET SOFTWARE & SERVICES (7.8%)
134,840 Alibaba Group Holding Ltd. ADR* 23,877
128,561 Baidu, Inc. ADR* 30,672
409,157 Mail.Ru Group Ltd. GDR* 12,009
47,905 NetEase, Inc. ADR 15,747
----------
82,305
----------
IT CONSULTING & OTHER SERVICES (2.0%)
3,482,000 Chinasoft International Ltd.(a) 2,252
397,972 HCL Technologies Ltd. 5,222
156,750 Infosys Ltd. 2,364
198,901 Tata Consultancy Services Ltd. 8,128
470,809 Tech Mahindra Ltd. 3,582
----------
21,548
----------
================================================================================
10 | USAA EMERGING MARKETS FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-----------------------------------------------------------------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT (0.9%)
87,355 Jusung Engineering Co. Ltd.* $ 1,064
44,905 Koh Young Technology, Inc. 3,610
718,000 SDI Corp. 2,097
91,564 Wonik IPS Co. Ltd.* 2,911
----------
9,682
----------
SEMICONDUCTORS (4.4%)
1,690,000 King Yuan Electronics Co. Ltd. 1,752
576,000 MediaTek, Inc. 6,260
462,000 Richwave Technology Corp. 1,679
126,000 Silergy Corp. 2,672
144,095 Silicon Motion Technology Corp. ADR 7,458
161,630 SK Hynix, Inc. 11,407
385,000 Taiwan Semiconductor Manufacturing Co. Ltd. ADR 15,246
----------
46,474
----------
SYSTEMS SOFTWARE (0.3%)
66,477 Douzone Bizon Co. Ltd. 2,095
39,692 I Controls, Inc. 624
79,765 NIIT Technologies Ltd. 789
----------
3,508
----------
TECHNOLOGY DISTRIBUTORS (0.1%)
166,404 DataTec Ltd. 685
----------
TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (3.8%)
623,000 Catcher Technology Co. Ltd. 6,709
14,412 Samsung Electronics Co. Ltd. 33,638
----------
40,347
----------
Total Information Technology 251,782
----------
MATERIALS (3.9%)
----------------
COMMODITY CHEMICALS (0.4%)
792,228 Bodal Chemicals Ltd. 2,092
1,141,652 Petkim Petrokimya Holding A.S. 1,901
----------
3,993
----------
CONSTRUCTION MATERIALS (1.7%)
2,988,500 Anhui Conch Cement Co. Ltd. "H" 14,349
483,253 Cemex S.A.B. de C.V. ADR* 3,668
----------
18,017
----------
DIVERSIFIED METALS & MINING (1.1%)
754,024 First Quantum Minerals Ltd. 8,667
841,700 Grupo Mexico S.A.B. de C.V. "B" 2,633
----------
11,300
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 11
================================================================================
-----------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-----------------------------------------------------------------------------------------------------------------------
FOREST PRODUCTS (0.2%)
509,253 Century Plyboards (India) Ltd. $ 2,496
----------
METAL & GLASS CONTAINERS (0.1%)
220,880 Vitro S.A.B. "A" 830
----------
SPECIALTY CHEMICALS (0.2%)
182,524 Aarti Industries Ltd. 2,576
----------
STEEL (0.2%)
5,308 POSCO 1,634
----------
Total Materials 40,846
----------
REAL ESTATE (2.0%)
------------------
REAL ESTATE DEVELOPMENT (0.1%)
8,973,000 Megaworld Corp.(c) 956
----------
REAL ESTATE OPERATING COMPANIES (0.2%)
593,385 BR Malls Participacoes S.A. 2,192
----------
REITs - DIVERSIFIED (0.2%)
1,685,434 Fibra Uno Administracion S.A. 2,635
----------
REITs - INDUSTRIAL (0.7%)
2,806,815 Macquarie Mexico Real Estate Management S.A de C.V. 3,386
2,171,105 Pla Administradora Industria 3,586
----------
6,972
----------
REITs - RESIDENTIAL (0.8%)
14,142,918 Emlak Konut Gayrimenkul Yatirim Ortakligi A.S.* 8,885
----------
Total Real Estate 21,640
----------
TELECOMMUNICATION SERVICES (5.1%)
---------------------------------
ALTERNATIVE CARRIERS (0.2%)
823,400 TIME dotCom Berhad 1,842
----------
INTEGRATED TELECOMMUNICATION SERVICES (1.2%)
156,283 02 Czech Republic A.S. 1,951
129,738 Hellenic Telecommunications Organization S.A. 1,568
1,436,000 HKBN Ltd. 1,730
451,329 Magyar Telekom Telecommunications plc 808
204,300 Telekomunikasi Indonesia (Persero) Tbk PT ADR 6,350
----------
12,407
----------
WIRELESS TELECOMMUNICATION SERVICES (3.7%)
227,836 America Movil S.A.B. de C.V. ADR "L" 3,896
380,100 China Mobile Ltd. 3,857
177,365 China Mobile Ltd. ADR 9,017
================================================================================
12 | USAA EMERGING MARKETS FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-----------------------------------------------------------------------------------------------------------------------
103,364 Empresa Nacional de Telecomunicaciones S.A. $ 1,017
228,618 MegaFon PJSC(d) 2,119
583,400 Mobile TeleSystems ADR 6,050
727,536 Mobile TeleSystems PJSC(d) 3,466
65,980 PLDT Inc. ADR 1,926
172,956 Sistema PJSC GDR 622
434,200 Turkcell Iletisim Hizmetleri A.S. ADR(a) 4,160
10,834,562 XL Axiata Tbk PT* 2,467
----------
38,597
----------
Total Telecommunication Services 52,846
----------
UTILITIES (2.5%)
----------------
ELECTRIC UTILITIES (0.6%)
22,651 Companhia Paranaense de Energia ADR 158
46,400 Companhia Paranaense de Energia-Copel 280
149,600 Companhia Paranaense de Energia-Copel 1,054
23,236,212 Enel Chile S.A. 2,514
175,889 Reliance Infrastructure Ltd. 1,195
59,304 Reliance Infrastructure Ltd. GDR 1,214
----------
6,415
----------
GAS UTILITIES (0.9%)
2,902,000 China Gas Holdings Ltd. 8,918
----------
RENEWABLE ELECTRICITY (0.1%)
202,200 AES Tiete Energia S.A. 809
----------
WATER UTILITIES (0.9%)
12,564,000 Beijing Enterprises Water Group Ltd. 9,813
----------
Total Utilities 25,955
----------
Total Common Stocks (cost: $766,726) 994,496
----------
PREFERRED STOCKS (1.9%)
CONSUMER DISCRETIONARY (0.3%)
-----------------------------
AUTOMOBILE MANUFACTURERS (0.3%)
33,855 Hyundai Motor Co. Ltd. 3,033
----------
ENERGY (1.4%)
-------------
INTEGRATED OIL & GAS (1.4%)
1,370,034 Petroleo Brasileiro S.A. ADR* 12,851
4,440,849 Surgutneftegas(d) 2,155
----------
15,006
----------
Total Energy 15,006
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
-----------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-----------------------------------------------------------------------------------------------------------------------
FINANCIALS (0.1%)
-----------------
DIVERSIFIED BANKS (0.1%)
84,157 Banco Bradesco S.A. $ 840
----------
TELECOMMUNICATION SERVICES (0.1%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (0.1%)
103,686 Telefonica Brasil S.A. ADR 1,510
----------
Total Preferred Stocks (cost: $20,821) 20,389
----------
RIGHTS (0.0%)
ENERGY (0.0%)
-------------
INTEGRATED OIL & GAS (0.0%)
69,954 Gazprom PJSC(d) (cost: $168) 158
----------
Total Equity Securities (cost: $787,715) 1,015,043
----------
MONEY MARKET INSTRUMENTS (3.5%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (3.5%)
37,599,030 State Street Institutional Treasury Money Market Fund Premier Class, 1.02%(f)
(cost: $37,599) 37,599
----------
SHORT-TERM INVESTMENTS PURCHASED WITH CASH COLLATERAL FROM SECURITIES LOANED (0.8%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (0.8%)
94,206 Federated Government Obligations Fund Institutional Class, 0.94%(f) 94
359,521 Fidelity Government Portfolio Class I, 0.97%(f) 359
157,917 Goldman Sachs Financial Square Government Fund Institutional Class, 0.96%(f) 158
7,268,647 Invesco Government & Agency Portfolio Institutional Class, 0.98%(f) 7,269
187,329 Morgan Stanley Institutional Liquidity Funds Government Portfolio Institutional
Class, 0.97%(f) 187
12,936 Western Asset Institutional Government Reserves Institutional Class, 1.00%(f) 13
----------
Total Short-Term Investments Purchased with Cash Collateral from Securities Loaned
(cost: $8,080) 8,080
----------
TOTAL INVESTMENTS (COST: $833,394) $1,060,722
==========
================================================================================
14 | USAA EMERGING MARKETS FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
-----------------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
-----------------------------------------------------------------------------------------------------------------------
Equity Securities:
Common Stocks $ 944,350 $48,982 $1,164 $ 994,496
Preferred Stocks 18,234 2,155 - 20,389
Rights - 158 - 158
Money Market Instruments:
Government & U.S. Treasury Money Market Funds 37,599 - - 37,599
Short-Term Investments Purchased with Cash Collateral
from Securities Loaned:
Government & U.S. Treasury Money Market Funds 8,080 - - 8,080
-----------------------------------------------------------------------------------------------------------------------
TOTAL $1,008,263 $51,295 $1,164 $1,060,722
-----------------------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
-----------------------------------------------------------------------------------------------------------------------
RECONCILIATION OF LEVEL 3 INVESTMENTS
-----------------------------------------------------------------------------------------------------------------------
COMMON
($ IN 000s) STOCKS
-----------------------------------------------------------------------------------------------------------------------
Balance as of May 31, 2017 $ 2,570
Purchases -
Sales -
Transfers into Level 3 -
Transfers out of Level 3 (1,267)
Net realized gain (loss) on investments -
Change in net unrealized appreciation/(depreciation) of investments (139)
-----------------------------------------------------------------------------------------------------------------------
Balance as of November 30, 2017 $ 1,164
-----------------------------------------------------------------------------------------------------------------------
================================================================================
PORTFOLIO OF INVESTMENTS | 15
================================================================================
--------------------------------------------------------------------------------
FAIR VALUE LEVEL TRANSFERS
--------------------------------------------------------------------------------
For the period of June 1, 2017, through November 30, 2017, the table below shows
the transfers between Level 1, Level 2, and Level 3. The Fund's policy is to
recognize any transfers in and transfers out as of the beginning of the
reporting period in which the event or circumstance that caused the transfer
occurred.
-----------------------------------------------------------------------------------------------------------------------
TRANSFERS INTO TRANSFERS INTO TRANSFERS INTO
(OUT OF) (OUT OF) (OUT OF)
ASSETS ($ IN 000s) LEVEL 1 LEVEL 2 LEVEL 3
-----------------------------------------------------------------------------------------------------------------------
Common Stocks(I),(II) $(4,022) $4,022 $ -
Common Stocks(III) 1,267 - (1,267)
-----------------------------------------------------------------------------------------------------------------------
Total $(2,755) $4,022 $(1,267)
-----------------------------------------------------------------------------------------------------------------------
(I) Transferred from Level 1 to Level 2 due to an assessment of events at the
end of the current reporting period, these securities had adjustments to
their foreign market closing prices to reflect changes in value that
occurred after the close of foreign markets and prior to the close of the
U.S. securities markets.
(II) Transferred from Level 1 to Level 2 due to valuation using alternative
exchange price.
(III) Transferred from Level 3 to Level 1 due to the availability of significant
observable valuation inputs once the securities began actively trading.
-----------------------------------------------------------------------------------------------------------------------
QUANTITATIVE INFORMATION ABOUT LEVEL 3 FAIR VALUE MEASUREMENTS**
-----------------------------------------------------------------------------------------------------------------------
FAIR VALUE AT SIGNIFICANT
NOVEMBER 30, 2017 VALUATION UNOBSERVABLE RANGE/
ASSETS ($ IN 000's) TECHNIQUE(S) INPUT(S) VALUE
-----------------------------------------------------------------------------------------------------------------------
EQUITY SECURITIES:
Common Stocks $ 111 Discounted Discount 90%
Transaction for lack of
Price marketability(a)
Common Stocks 1,053 Discounted Discount 30%
Transaction for lack of
Price marketability(a)
-----------------------------------------------------------------------------------------------------------------------
(a) Represents amounts used when the reporting entity has determined that market
participants would take into account these discounts when pricing the
security.
**Quantitative Information table includes certain Level 3 securities using
valuation models.
An increase in the discount for the lack of marketability will decrease the
value of the security.
================================================================================
16 | USAA EMERGING MARKETS FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
November 30, 2017 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
Market values of securities are determined by procedures and practices
discussed in Note 1A to the financial statements.
The Portfolio of Investments category percentages shown represent the
percentages of the investments to net assets, and, in total, may not equal
100%. A category percentage of 0.0% represents less than 0.1% of net assets.
o 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.
NVDR Non-voting depositary receipts are receipts issued by Thai NVDR
Company Limited.
REIT Real estate investment trust - Dividend distributions from REITs may
be recorded as income and later characterized by the REIT at the end
of the fiscal year as capital gains or a
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 17
================================================================================
return of capital. Thus, the fund will estimate the components of
distributions from these securities and revise when actual
distributions are known.
o SPECIFIC NOTES
(a) The security, or a portion thereof, was out on loan as of November
30, 2017.
(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) Securities with a value of $6,150,000, which represented 0.6% of the
Fund's net assets, were classified as Level 2 at November 30, 2017, due
to the prices being adjusted to take into account significant market
movements following the close of local trading.
(d) Security was fair valued at November 30, 2017, by the Manager in
accordance with valuation procedures approved by the Board. The total
value of all such securities was $46,309,000, which represented 4.4% of
the Fund's net assets.
(e) Security deemed illiquid by the Manager, under liquidity guidelines
approved by the Board. The aggregate market value of these securities at
November 30, 2017, was $1,164,000, which represented 0.1% of the Fund's
net assets.
(f) Rate represents the money market fund annualized seven-day yield at
November 30, 2017.
(g) Security was fair valued at Level 3.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
18 | USAA EMERGING MARKETS FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
November 30, 2017 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (including securities on
loan of $8,879) (cost of $833,394) $1,060,722
Cash 30
Cash denominated in foreign currencies (identified cost of $908) 920
Receivables:
Capital shares sold 1,220
Dividends and interest 1,245
Securities sold 329
Other 32
----------
Total assets 1,064,498
----------
LIABILITIES
Payables:
Upon return of securities loaned 8,080
Securities purchased 927
Capital shares redeemed 599
Accrued management fees 877
Accrued transfer agent's fees 29
Other accrued expenses and payables 1,044
----------
Total liabilities 11,556
----------
Net assets applicable to capital shares outstanding $1,052,942
==========
NET ASSETS CONSIST OF:
Paid-in capital $ 983,276
Accumulated undistributed net investment income 4,267
Accumulated net realized loss on investments (161,384)
Net unrealized appreciation of investments 227,328
Net unrealized depreciation of foreign capital gains tax (578)
Net unrealized appreciation of foreign currency translations 33
----------
Net assets applicable to capital shares outstanding $1,052,942
==========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $418,431/21,403 capital shares
outstanding, no par value) $ 19.55
==========
Institutional Shares (net assets of $629,106/32,232
capital shares outstanding, no par value) $ 19.52
==========
Adviser Shares (net assets of $5,405/277 capital shares
outstanding, no par value) $ 19.47
==========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 19
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended November 30, 2017 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $1,549) $ 13,979
Interest 149
Securities lending (net) 148
--------
Total income 14,276
--------
EXPENSES
Management fees 5,058
Administration and servicing fees:
Fund Shares 303
Institutional Shares 312
Adviser Shares 4
Transfer agent's fees:
Fund Shares 477
Institutional Shares 312
Distribution and service fees (Note 7F):
Adviser Shares 7
Custody and accounting fees:
Fund Shares 144
Institutional Shares 224
Adviser Shares 2
Postage:
Fund Shares 28
Institutional Shares 22
Shareholder reporting fees:
Fund Shares 13
Institutional Shares 7
Trustees' fees 18
Registration fees:
Fund Shares 18
Institutional Shares 18
Adviser Shares 12
Professional fees 82
Other 13
--------
Total expenses 7,074
================================================================================
20 | USAA EMERGING MARKETS FUND
================================================================================
Expenses paid indirectly:
Fund Shares $ (1)
Institutional Shares (1)
Expenses reimbursed:
Adviser Shares (7)
--------
Net expenses 7,065
--------
NET INVESTMENT INCOME 7,211
---------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY
Net realized gain (loss) on:
Investments (net of foreign taxes withheld of $43) 75,250
Foreign currency transactions (175)
Change in net unrealized appreciation/(depreciation) of:
Investments 25,643
Foreign capital gains tax (235)
Foreign currency translations 11
--------
Net realized and unrealized gain 100,494
--------
Increase in net assets resulting from operations $107,705
========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 21
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended November 30, 2017 (unaudited), and year ended
May 31, 2017
------------------------------------------------------------------------------------------------------------
11/30/2017 5/31/2017
------------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 7,211 $ 6,270
Net realized gain on investments 75,250 6,040
Net realized loss on foreign currency transactions (175) (367)
Change in net unrealized appreciation/(depreciation) of:
Investments 25,643 197,727
Foreign capital gains tax (235) 389
Foreign currency translations 11 33
----------------------------
Increase in net assets resulting from operations 107,705 210,092
----------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares - (2,861)
Institutional Shares - (6,709)
Adviser Shares - (32)
----------------------------
Distributions to shareholders - (9,602)
----------------------------
NET DECREASE IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS (NOTE 6)
Fund Shares 2,751 1,438
Institutional Shares (21,983) (147,397)
Adviser Shares 7 7
----------------------------
Total net decrease in net assets from
capital share transactions (19,225) (145,952)
----------------------------
Net increase in net assets 88,480 54,538
NET ASSETS
Beginning of period 964,462 909,924
----------------------------
End of period $1,052,942 $ 964,462
============================
Accumulated undistributed (overdistribution of) net investment income:
End of period $ 4,267 $ (2,944)
============================
See accompanying notes to financial statements.
================================================================================
22 | USAA EMERGING MARKETS FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
November 30, 2017 (unaudited)
--------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company Act
of 1940, as amended (the 1940 Act), is an open-end management investment company
organized as a Delaware statutory trust consisting of 51 separate funds.
Additionally, USAA Emerging Markets Fund (the Fund) qualifies as a registered
investment company under Accounting Standards Codification Topic 946. The
information presented in this semiannual report pertains only to the Fund, which
is classified as diversified under the 1940 Act. The Fund's investment objective
is to seek 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 plans, endowments,
================================================================================
NOTES TO FINANCIAL STATEMENTS | 23
================================================================================
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 backtesting reports,
pricing service quotation comparisons, illiquid securities and fair value
determinations, pricing movements, and daily stale price monitoring.
The value of each security is determined (as of the close of trading on the
New York Stock Exchange (NYSE) on each business day the NYSE is open) as set
forth below:
1. Equity securities, including exchange-traded funds (ETFs),
exchange-traded notes (ETNs), and equity-linked structured notes,
================================================================================
24 | USAA EMERGING MARKETS FUND
================================================================================
except as otherwise noted, traded primarily on a domestic securities
exchange or the over-the-counter markets, are valued at the last sales
price or official closing price on the exchange or primary market on
which they trade. Securities traded primarily on foreign securities
exchanges or markets are valued at the last quoted sale price, or the
most recently determined official closing price calculated according to
local market convention, available at the time the Fund is valued. If
no last sale or official closing price is reported or available, the
average of the bid and ask prices generally is used. Actively traded
equity securities listed on a domestic exchange generally are
categorized in Level 1 of the fair value hierarchy. Certain preferred
and equity securities traded in inactive markets generally are
categorized in Level 2 of the fair value hierarchy.
2. Equity securities trading in various foreign markets may take place on
days when the NYSE is closed. Further, when the NYSE is open, the
foreign markets may be closed. Therefore, the calculation of the Fund's
net asset value (NAV) may not take place at the same time the prices of
certain foreign securities held by the Fund are determined. In many
cases, events affecting the values of foreign securities that occur
between the time of their last quoted sale or official closing price and
the close of normal trading on the NYSE on a day the Fund's NAV is
calculated will not need to be reflected in the value of 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 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 25
================================================================================
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 ask prices or
the last sales price to value a security when, in the Service's
judgment, these prices are readily available and are representative of
the security's market value. For many securities, such prices are not
readily available. The Service generally prices those securities based
on methods which include consideration of yields or prices of securities
of comparable quality, coupon, maturity, and type; indications as to
values from dealers in securities; and general market conditions.
Generally, debt securities are categorized in Level 2 of the fair value
hierarchy; however, to the extent the valuations include significant
unobservable inputs, the securities would be categorized in Level 3.
5. Short-term debt securities with original or remaining maturities of 60
days or less may be valued at amortized cost, provided that amortized
cost represents the fair value of such securities.
6. Repurchase agreements are valued at cost.
7. In the event that price quotations or valuations are not readily
available, are not reflective of market value, or a significant event
has been recognized in relation to a security or class of securities,
the securities are valued in good faith by the Committee in accordance
with valuation procedures approved by the Board. The effect of fair
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
================================================================================
26 | USAA EMERGING MARKETS FUND
================================================================================
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.
B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The
three-level valuation hierarchy disclosed in the Portfolio of Investments is
based upon the transparency of inputs to the valuation of an asset or
liability as of the measurement date. The three levels are defined as
follows:
Level 1 - inputs to the valuation methodology are quoted prices (unadjusted)
in active markets for identical securities.
Level 2 - inputs to the valuation methodology are other significant
observable inputs, including quoted prices for similar securities, inputs
that are observable for the securities, either directly or indirectly, and
market-corroborated inputs such as market indexes.
Level 3 - inputs to the valuation methodology are unobservable and
significant to the fair value measurement, including the Manager's own
assumptions in determining the fair value.
The inputs or methodologies used for valuing securities are not necessarily
an indication of the risks associated with investing in those securities.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 27
================================================================================
The valuation of securities falling in the Level 3 category are primarily
supported by last discounted quoted 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.
The methods used may include valuation models that rely on significant
assumptions and/or unobservable inputs to determine the fair value
measurement for the securities. A market-based approach may be employed
using related or comparable securities, recent transactions, market
multiples, book values and other relevant information or an income-based
approach may be employed whereby estimated future cash flows are discounted
to determine the fair value. In some cases discounts may be applied due to
market liquidity limitations.
The valuation methodology applied to certain Level 3 securities changed
during the period. Securities that were previously valued at last direct
quoted price are now being valued using valuation models as a result of
recent relevant company information.
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.
For the six-month period ended November 30, 2017, the Fund did not incur any
income tax, interest, or penalties, and has recorded no liability for net
unrecognized tax benefits relating to uncertain income tax positions. On an
ongoing basis, the Manager will monitor the Fund's tax basis to determine if
adjustments to this conclusion are necessary. The statute of limitations on
the Fund's tax return filings generally remain open for the three preceding
fiscal reporting year ends and remain subject to examination by the Internal
Revenue Service and state taxing authorities.
================================================================================
28 | USAA EMERGING MARKETS FUND
================================================================================
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.
Separately, net realized foreign currency gains/losses may arise from sales
of foreign currency, currency gains/losses realized between the trade and
================================================================================
NOTES TO FINANCIAL STATEMENTS | 29
================================================================================
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 - 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, 2017, brokerage
commission recapture credits reduced the expenses of the Fund Shares,
Institutional Shares and Adviser Shares by $1,000, $1,000, and less than
$500, respectively. For the six-month period ended November 30, 2017, 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. Effective October 1, 2017, the
Adviser Shares no longer charge redemptions fees. For the six-month period
ended November 30, 2017, 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
================================================================================
30 | USAA EMERGING MARKETS FUND
================================================================================
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, along with other funds of the Trust and USAA ETF Trust
(together, the Trusts), in a joint, short-term, revolving, committed loan
agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate of
the Manager. The purpose of the agreement is to provide temporary or emergency
cash needs, including redemption requests that might otherwise require the
untimely disposition of securities. Subject to availability (including usage of
the facility by other funds of the Trusts), the Fund may borrow from CAPCO an
amount up to 5% of the Fund's total assets at an interest rate based on the
London Interbank Offered Rate (LIBOR), plus 100.0 basis points.
The Trusts are also assessed facility fees by CAPCO in the amount of 13.0 basis
points of the amount of the committed loan agreement. Prior to September 30,
2017, the maximum annual facility fee was 12.0 basis points of the amount of the
committed loan agreement. The facility fees are allocated among the funds of the
Trusts based on their respective average net assets for the period.
The Trusts may request an optional increase of the committed loan agreement from
$500 million up to $750 million. If the Trusts increase the committed loan
agreement, the assessed facility fee on the amount of the additional commitment
will be 14.0 basis points.
For the six-month period ended November 30, 2017, the Fund paid CAPCO facility
fees of less than $4,000, which represents 1.3% of the total fees paid
================================================================================
NOTES TO FINANCIAL STATEMENTS | 31
================================================================================
to CAPCO by the funds of the Trusts. The Fund had no borrowings under this
agreement during the six-month period ended November 30, 2017.
(3) DISTRIBUTIONS
The tax basis of distributions and any accumulated undistributed net investment
income will be determined as of the Fund's tax year-end of May 31, 2018, in
accordance with applicable federal tax law.
Distributions of net investment income and realized gains from security
transactions not offset by capital losses are made annually in the succeeding
fiscal year or as otherwise required to avoid the payment of federal income tax.
At May 31, 2017, the Fund had net capital loss carryforwards of $222,144,000,
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 $ 64,127,000
Long-Term 158,017,000
------------
Total $222,144,000
============
(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, 2017, were
$294,752,000 and $306,456,000, respectively.
As of November 30, 2017, the cost of securities, including short-term
securities, for federal income tax purposes, was approximately the same as the
cost reported in the financial statements.
Gross unrealized appreciation and depreciation of investments as of November 30,
2017, were $270,234,000 and $42,906,000, respectively, resulting in net
unrealized appreciation of $227,328,000.
================================================================================
32 | USAA EMERGING MARKETS FUND
================================================================================
(5) SECURITIES LENDING
The Fund, through its securities lending agreement with Citibank, N.A.
(Citibank), may lend its securities to qualified financial institutions, such as
certain broker-dealers, to earn additional income. The borrowers are required to
secure their loans continuously with collateral in an amount at least equal to
102% of the fair value of domestic securities and foreign government securities
loaned and 105% of the fair value of foreign securities and all other securities
loaned. Collateral may be cash, U.S. government securities, or other securities
as permitted by SEC guidelines. Cash collateral is invested in high-quality
short-term investments. Collateral requirements are determined daily based on
the prior business day's ending value of securities loaned. Risks to the Fund in
securities-lending transactions are that the borrower may not provide additional
collateral when required or return the securities when due, and that the value
of the short-term investments will be less than the amount of cash collateral
required to be returned to the borrower. The Fund's agreement with Citibank does
not include master netting provisions. Non-cash collateral received by the Fund
may not be sold or re-pledged except to satisfy borrower default. Cash
collateral is listed in the Fund's Portfolio of Investments and Financial
Statements while non-cash collateral is not included.
At November 30, 2017, the Fund's value of outstanding securities on loan and the
value of collateral are as follows:
VALUE OF SECURITIES
ON LOAN NON-CASH COLLATERAL CASH COLLATERAL
--------------------------------------------------------------------------------
$8,879,000 $1,313,000 $8,080,000
(6) CAPITAL SHARE TRANSACTIONS
At November 30, 2017, there were an unlimited number of shares of capital stock
at no par value authorized for the Fund.
Capital share transactions for the Institutional Shares resulted from purchases
and sales by the affiliated USAA fund-of-funds as well as other
================================================================================
NOTES TO FINANCIAL STATEMENTS | 33
================================================================================
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, 2017 MAY 31, 2017
------------------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------
FUND SHARES:
Shares sold 2,003 $ 37,940 4,525 $ 72,724
Shares issued from reinvested
dividends - - 183 2,824
Shares redeemed (1,858) (35,189) (4,652) (74,110)
--------------------------------------------------
Net increase from
capital share transactions 145 $ 2,751 56 $ 1,438
==================================================
INSTITUTIONAL SHARES:
Shares sold 2,248 $ 41,896 4,745 $ 75,415
Shares issued from
reinvested dividends - - 415 6,398
Shares redeemed (3,368) (63,879) (14,298) (229,210)
--------------------------------------------------
Net decrease from
capital share transactions (1,120) $(21,983) (9,138) $(147,397)
==================================================
ADVISER SHARES:
Shares sold -* $ 8 1 $ 26
Shares issued from
reinvested dividends - - -* -*
Shares redeemed (-)* (1) (1) (19)
--------------------------------------------------
Net increase from
capital share transactions -* $ 7 -* $ 7
==================================================
*Represents less than 500 shares or $500.
(7) 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 all
or a portion of the Fund's assets.
================================================================================
34 | 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 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
overperformance), or subtracted from (in the case of underperformance) the
base fee.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 35
================================================================================
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, 2017, the Fund incurred total
management fees, paid or payable to the Manager, of $5,058,000, which
included a performance adjustment for the Fund Shares, Institutional Shares,
and Adviser Shares of $(54,000), $(61,000), and $(1,000), respectively. For
the Fund Shares, Institutional Shares, and Adviser Shares, the performance
adjustments were (0.03)%, (0.02)%, and (0.03)%, respectively.
B. SUBADVISORY ARRANGEMENT(S) - The Manager entered into Investment Subadvisory
Agreements with Brandes Investment Partners, L.P. (Brandes), Lazard Asset
Management LLC (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, 2017, the Manager incurred subadvisory
fees with respect to the Fund, paid or payable to Brandes, of $580,000.
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, 2017, the Manager incurred subadvisory fees with respect to the
Fund, paid or payable to Lazard, of $2,449,000.
================================================================================
36 | 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, 2017, the Manager incurred
subadvisory fees with respect to the Fund, paid or payable to Victory
Capital, of $638,000.
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, 2017, the Fund Shares, Institutional Shares, and
Adviser Shares incurred administration and servicing fees, paid or payable
to the Manager, of $303,000, $312,000, 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, 2017, the Fund reimbursed the
Manager $12,000 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, 2018,
to limit the total annual operating expenses of the Adviser Shares to
1.75% 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 September 30, 2018,
without approval of the Board, and may be changed or terminated by the
Manager at any time after that date. Prior to October 1, 2017, the Adviser
Shares' expense limitation was 1.65% of its average net assets. For the
six-month period ended November 30, 2017,
================================================================================
NOTES TO FINANCIAL STATEMENTS | 37
================================================================================
the Adviser Shares incurred reimbursable expenses of $7,000, of which less
than $500 was receivable from 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, 2017, the Fund Shares,
Institutional Shares, and Adviser Shares incurred transfer agent's fees,
paid or payable to SAS, of $477,000, $312,000, 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, 2017, the Adviser Shares incurred distribution and service (12b-1) fees
of $7,000.
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.
(8) TRANSACTIONS WITH AFFILIATES
The Fund offers its Institutional Shares for investment by other USAA Funds and
is one of 19 USAA mutual funds in which the affiliated USAA
================================================================================
38 | USAA EMERGING MARKETS FUND
================================================================================
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,
2017, 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 1.5
Target Retirement Income 0.6
Target Retirement 2020 0.7
Target Retirement 2030 1.2
Target Retirement 2040 2.0
Target Retirement 2050 1.3
Target Retirement 2060 0.1
The Manager is indirectly wholly owned by United Services Automobile Association
(USAA), a large, diversified financial services institution. At November 30,
2017, USAA and its affiliates owned 271,000 Adviser Shares, which represents
97.7% of the Adviser Shares outstanding and 0.5% 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.
(9) UPCOMING REGULATORY MATTERS
In October 2016, the U.S. Securities and Exchange Commission (SEC) issued Final
Rule Release No. 33-10231, INVESTMENT COMPANY REPORTING MODERNIZATION. In part,
the rules require the filing of new forms N-PORT and N-CEN, and amend Regulation
S-X to require standardized, enhanced disclosure about derivatives in investment
company financial statements, as well as other amendments.
In October 2016, the SEC issued Final Rule Release No. 33-10233, INVESTMENT
COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS. This rule requires funds to
establish a liquidity risk management program and enhances disclosures regarding
funds' liquidity.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 39
================================================================================
In October 2016, the SEC issued Final Rule Release No. 33-10234, INVESTMENT
COMPANY SWING PRICING. This rule permits certain funds to use swing pricing
during periods of heavy redemptions and requires certain disclosures regarding
the use of swing pricing in forms filed with the SEC.
The Manager continues to evaluate the impact these rules and amendments will
have on the financial statements and other disclosures. The compliance date for
new forms N-PORT and N-CEN is June 1, 2018 (with filing of Form N-PORT beginning
April 30, 2019), with other staggered compliance dates extending through April
30, 2019. The Fund is expected to comply with the June 1, 2018 compliance date
for new forms N-PORT and N-CEN.
================================================================================
40 | USAA EMERGING MARKETS FUND
================================================================================
(10) 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,
------------------------------------------------------------------------------
2017 2017 2016 2015 2014 2013
------------------------------------------------------------------------------
Net asset value at
beginning of period $ 17.60 $ 14.24 $ 16.46 $ 18.14 $ 17.44 $ 15.45
------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .12 .07 .11(a) .08 .14 .17(a)
Net realized and unrealized
gain (loss) 1.83 3.43 (2.22)(a) (1.52) .65 1.96(a)
------------------------------------------------------------------------------
Total from investment operations 1.95 3.50 (2.11)(a) (1.44) .79 (2.13)(a)
------------------------------------------------------------------------------
Less distributions from:
Net investment income - (.14) (.11) (.24) (.09) (.14)
------------------------------------------------------------------------------
Net asset value at end of period $ 19.55 $ 17.60 $ 14.24 $ 16.46 $ 18.14 $ 17.44
==============================================================================
Total return (%)* 11.08 24.70 (12.77) (7.84) 4.56 13.78
Net assets at end of period (000) $418,431 $374,130 $302,012 $500,510 $503,052 $476,735
Ratios to average net assets:**
Expenses (%)(b) 1.48(d) 1.51 1.58 1.50 1.50 1.58
Net investment income (%) 1.26(d) .50 .73 .71 .83 1.00
Portfolio turnover (%) 30 45 47 46 48 148(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, 2017, average net assets were
$403,944,000.
(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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 41
================================================================================
(10) 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,
------------------------------------------------------------------------------
2017 2017 2016 2015 2014 2013
------------------------------------------------------------------------------
Net asset value at beginning of period $ 17.55 $ 14.21 $ 16.42 $ 18.10 $ 17.41 $ 15.45
------------------------------------------------------------------------------
Income (loss) from investment
operations:
Net investment income .14 .12(a) .18 .13 .18 .20(a)
Net realized and unrealized
gain (loss) 1.83 3.40(a) (2.25) (1.53) .65 1.99(a)
------------------------------------------------------------------------------
Total from investment operations 1.97 3.52(a) (2.07) (1.40) .83 2.19(a)
------------------------------------------------------------------------------
Less distributions from:
Net investment income - (.18) (.14) (.28) (.14) (.23)
------------------------------------------------------------------------------
Net asset value at end of period $ 19.52 $ 17.55 $ 14.21 $ 16.42 $ 18.10 $ 17.41
==============================================================================
Total return (%)* 11.23 24.93 (12.53) (7.64) 4.82 14.18
Net assets at end of period (000) $629,106 $585,468 $603,981 $637,007 $730,863 $540,580
Ratios to average net assets:**
Expenses (%)(b) 1.29(d) 1.29 1.30 1.27 1.29 1.30
Net investment income (%) 1.48(d) .75 1.11 .93 1.03 1.19
Portfolio turnover (%) 30 45 47 46 48 148(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, 2017, average net assets were
$623,353,000.
(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.
================================================================================
42 | USAA EMERGING MARKETS FUND
================================================================================
(10) 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,
------------------------------------------------------------------------------
2017 2017 2016 2015 2014 2013
------------------------------------------------------------------------------
Net asset value at beginning of period $17.55 $14.20 $ 16.40 $18.08 $17.35 $15.40
----------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .10 .05 .09 .05 .09 .11
Net realized and unrealized gain (loss) 1.82 3.42 (2.21) (1.53) .66 1.94
----------------------------------------------------------------------------
Total from investment operations 1.92 3.47 (2.12) (1.48) .75 2.05
----------------------------------------------------------------------------
Less distributions from:
Net investment income - (.12) (.08) (.20) (.02) (.10)
----------------------------------------------------------------------------
Redemption fees added to beneficial
interests - - - .00(a) - -
----------------------------------------------------------------------------
Net asset value at end of period $19.47 $17.55 $ 14.20 $16.40 $18.08 $17.35
============================================================================
Total return (%)* 10.94 24.53 (12.93) (8.09) 4.34 13.31
Net assets at end of period (000) $5,405 $4,864 $ 3,931 $4,560 $4,988 $4,784
Ratios to average net assets:**
Expenses (%)(b) 1.68(e),(g) 1.66(d) 1.75 1.79(c) 1.77 2.00
Expenses, excluding reimbursements (%)(b) 1.98(g) 1.87 1.92 1.95 1.77 2.04
Net investment income (%) 1.06(g) .35 .60 .41 .57 .55
Portfolio turnover (%) 30 45 47 46 48 148(f)
* 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, 2017, average net assets were
$5,234,000.
(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 Advisers Shares' average net
assets.
(d) Prior to October 1, 2016, the Manager voluntarily agreed to limit the annual
expenses of the Adviser Shares to 1.75% of the Advisers Shares' average net
assets.
(e) Prior to October 1, 2017, the Manager voluntarily agreed to limit the
annual expenses of the Adviser Shares to 1.65% of the Advisers Shares'
average net assets.
(f) Reflects increased trading activity due to changes in subadvisers(s) and
asset allocation strategies.
(g) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 43
================================================================================
EXPENSE EXAMPLE
November 30, 2017 (unaudited)
--------------------------------------------------------------------------------
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: direct costs, such
as wire fees, redemption fees, and low balance fees; and indirect costs,
including management fees, transfer agency fees, distribution and service
(12b-1) fees, and other Fund operating expenses. This example is intended to
help you understand your indirect costs, also referred to as "ongoing costs" (in
dollars), of investing in the Fund and to compare these costs with the ongoing
costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire six-month period of June 1, 2017, through
November 30, 2017.
ACTUAL EXPENSES
The line labeled "actual" under each share class in the table provides
information about actual account values and actual expenses. You may use the
information in this line, together with the amount you invested at the beginning
of the period, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number for your share
class in the "actual" line under the heading "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The line labeled "hypothetical" under each share class in the table provides
information about hypothetical account values and hypothetical expenses based on
the Fund's actual expense ratios for each class and an assumed rate of return of
5% per year before expenses, which is not the Fund's actual return. The
hypothetical account values and expenses may not be used to estimate the actual
ending account balance or expenses you paid for the period. You may
================================================================================
44 | USAA EMERGING MARKETS FUND
================================================================================
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, 2017 -
JUNE 1, 2017 NOVEMBER 30, 2017 NOVEMBER 30, 2017
--------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $1,110.80 $7.83
Hypothetical
(5% return before expenses) 1,000.00 1,017.65 7.49
INSTITUTIONAL SHARES
Actual 1,000.00 1,112.30 6.83
Hypothetical
(5% return before expenses) 1,000.00 1,018.60 6.53
ADVISER SHARES
Actual 1,000.00 1,109.40 8.88
Hypothetical
(5% return before expenses) 1,000.00 1,016.65 8.49
*Expenses are equal to the annualized expense ratio of 1.48% for Fund Shares,
1.29% for Institutional Shares, and 1.68% 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 11.08% for Fund Shares, 11.23% for Institutional
Shares, and 10.94% for Adviser Shares for the six-month period of June 1, 2017,
through November 30, 2017.
================================================================================
EXPENSE EXAMPLE | 45
================================================================================
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Jefferson C. Boyce
Dawn M. Hawley
Paul L. McNamara
Richard Y. Newton III
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
--------------------------------------------------------------------------------
ADMINISTRATOR AND USAA Asset Management Company
INVESTMENT ADVISER P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
UNDERWRITER AND USAA Investment Management Company
DISTRIBUTOR P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
--------------------------------------------------------------------------------
CUSTODIAN AND State Street Bank and Trust Company
ACCOUNTING AGENT P.O. Box 1713
Boston, Massachusetts 02105
--------------------------------------------------------------------------------
INDEPENDENT Ernst & Young LLP
REGISTERED PUBLIC 100 West Houston St., Suite 1700
ACCOUNTING FIRM San Antonio, Texas 78205
--------------------------------------------------------------------------------
MUTUAL FUND Under "My Accounts" on
SELF-SERVICE 24/7 usaa.com select your mutual fund
AT USAA.COM account and either click the link or
select 'I want to...' and select
OR CALL the desired action.
(800) 531-USAA (8722)
(210) 531-8722
--------------------------------------------------------------------------------
Copies of the Manager's proxy voting policies and procedures, approved by the
Trust's Board of Trustees for use in voting proxies on behalf of the Fund, are
available without charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722;
(ii) at USAA.COM; and (iii) in summary within the Statement of Additional
Information on the SEC's website at HTTP://WWW.SEC.GOV. Information regarding
how the Fund voted proxies relating to portfolio securities during the most
recent 12-month period ended June 30 is available without charge (i) at
USAA.COM; and (ii) on the SEC's website at HTTP://WWW.SEC.GOV.
The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. These Forms N-Q are
available at no charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722;
(ii) at USAA.COM; and (iii) on the SEC's website at HTTP://WWW.SEC.GOV. These
Forms N-Q also may be reviewed and copied at the SEC's Public Reference Room in
Washington, D.C. Information on the operation of the Public Reference Room may
be obtained by calling (800) 732-0330.
================================================================================
--------------
USAA PRSRT STD
9800 Fredericksburg Road U.S. Postage
San Antonio, TX 78288 PAID
USAA
--------------
>> SAVE PAPER AND FUND COSTS
Under MY PROFILE on USAA.COM select MANAGE PREFERENCES
Set your DOCUMENT PREFERENCES to USAA DOCUMENTS ONLINE.
[LOGO OF USAA]
USAA We know what it means to serve.(R)
=============================================================================
25559-0118 (C)2018, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA GOVERNMENT SECURITIES FUND]
==============================================================
SEMIANNUAL REPORT
USAA GOVERNMENT SECURITIES FUND
FUND SHARES (USGNX) o INSTITUTIONAL SHARES (UIGSX)
o ADVISER SHARES (UAGNX) o R6 SHARES (URGSX)
NOVEMBER 30, 2017
==============================================================
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
INVESTMENT OVERVIEW 2
FINANCIAL INFORMATION
Portfolio of Investments 3
Notes to Portfolio of Investments 10
Financial Statements 13
Notes to Financial Statements 17
EXPENSE EXAMPLE 36
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)2018, USAA. All rights reserved.
================================================================================
================================================================================
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,
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 Federal 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
================================================================================
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
o ASSET ALLOCATION - 11/30/17 o
[PIE CHART OF ASSET ALLOCATION]
COMMERCIAL MORTGAGE-BACKED SECURITIES* 36.6%
U.S. TREASURY SECURITIES - NOTES 26.6%
30-YEAR FIXED RATE SINGLE-FAMILY MORTGAGES* 21.1%
COLLATERALIZED MORTGAGE OBLIGATIONS* 3.5%
MUNICIPAL BONDS 3.3%
ASSET-BACKED SECURITIES 3.0%
OTHER U.S. GOVERNMENT SECURITIES* 2.8%
15-YEAR FIXED RATE SINGLE-FAMILY MORTGAGES* 2.3%
MONEY MARKET INSTRUMENTS 0.4%
10-YEAR FIXED RATE SINGLE-FAMILY MORTGAGES* 0.2%
[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 3-9.
================================================================================
2 | USAA GOVERNMENT SECURITIES FUND
================================================================================
PORTFOLIO OF INVESTMENTS
November 30, 2017 (unaudited)
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY ISSUES (66.5%)(A)
MORTGAGE-BACKED PASS-THROUGH SECURITIES, SINGLE-FAMILY (23.6%)
$ 1,409 Fannie Mae(+) 3.50% 5/01/2021 $ 1,457
3,025 Fannie Mae(+) 3.00 2/01/2027 3,091
5,179 Fannie Mae(+) 3.00 2/01/2027 5,293
812 Fannie Mae(+) 5.00 12/01/2035 887
313 Fannie Mae(+) 5.50 11/01/2037 347
455 Fannie Mae(+) 6.00 5/01/2038 512
2,371 Fannie Mae(+) 4.00 8/01/2039 2,490
4,032 Fannie Mae(+) 3.50 1/01/2042 4,154
6,371 Fannie Mae(+) 3.50 5/01/2042 6,565
102 Freddie Mac(+) 5.00 1/01/2021 106
697 Freddie Mac(+) 5.50 12/01/2035 774
1,788 Freddie Mac(+) 4.00 9/01/2040 1,876
6,437 Freddie Mac(+) 3.50 5/01/2042 6,634
5,296 Freddie Mac(+) 3.00 6/01/2042 5,313
88 Government National Mortgage Assn. I 5.50 12/15/2018 89
10 Government National Mortgage Assn. I 8.50 6/15/2021 10
8 Government National Mortgage Assn. I 9.00 7/15/2021 8
5 Government National Mortgage Assn. I 8.50 7/15/2022 5
349 Government National Mortgage Assn. I 6.00 8/15/2022 364
31 Government National Mortgage Assn. I 8.00 6/15/2023 33
699 Government National Mortgage Assn. I 4.50 5/15/2024 735
693 Government National Mortgage Assn. I 4.50 9/15/2024 725
725 Government National Mortgage Assn. I 4.50 9/15/2024 767
682 Government National Mortgage Assn. I 4.50 10/15/2024 711
644 Government National Mortgage Assn. I 4.50 10/15/2024 680
50 Government National Mortgage Assn. I 7.00 4/15/2027 51
157 Government National Mortgage Assn. I 7.00 5/15/2027 178
117 Government National Mortgage Assn. I 8.00 5/15/2027 125
91 Government National Mortgage Assn. I 7.50 2/15/2028 103
315 Government National Mortgage Assn. I 6.00 4/15/2028 357
27 Government National Mortgage Assn. I 6.50 5/15/2028 30
98 Government National Mortgage Assn. I 6.50 5/15/2028 109
9 Government National Mortgage Assn. I 6.75 5/15/2028 10
71 Government National Mortgage Assn. I 6.50 7/15/2028 80
14 Government National Mortgage Assn. I 7.00 7/15/2028 15
================================================================================
PORTFOLIO OF INVESTMENTS | 3
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 38 Government National Mortgage Assn. I 7.00% 8/15/2028 $ 39
35 Government National Mortgage Assn. I 7.00 8/15/2028 39
49 Government National Mortgage Assn. I 6.50 9/15/2028 55
79 Government National Mortgage Assn. I 7.00 9/15/2028 85
34 Government National Mortgage Assn. I 6.00 11/15/2028 38
138 Government National Mortgage Assn. I 6.50 11/15/2028 153
27 Government National Mortgage Assn. I 6.50 1/15/2029 30
10 Government National Mortgage Assn. I 6.50 1/15/2029 12
160 Government National Mortgage Assn. I 6.00 2/15/2029 180
18 Government National Mortgage Assn. I 7.50 3/15/2029 21
40 Government National Mortgage Assn. I 7.50 4/15/2029 43
326 Government National Mortgage Assn. I 7.00 5/15/2029 358
413 Government National Mortgage Assn. I 7.00 6/15/2029 455
176 Government National Mortgage Assn. I 6.00 7/15/2029 200
94 Government National Mortgage Assn. I 7.50 10/15/2029 105
20 Government National Mortgage Assn. I 7.50 10/15/2029 20
76 Government National Mortgage Assn. I 8.00 7/15/2030 80
24 Government National Mortgage Assn. I 8.00 9/15/2030 27
13 Government National Mortgage Assn. I 7.50 12/15/2030 14
21 Government National Mortgage Assn. I 7.50 1/15/2031 22
240 Government National Mortgage Assn. I 6.50 3/15/2031 267
36 Government National Mortgage Assn. I 7.00 8/15/2031 36
79 Government National Mortgage Assn. I 7.00 9/15/2031 92
225 Government National Mortgage Assn. I 6.50 10/15/2031 250
87 Government National Mortgage Assn. I 7.00 10/15/2031 95
32 Government National Mortgage Assn. I 7.50 11/15/2031 34
179 Government National Mortgage Assn. I 6.50 1/15/2032 200
248 Government National Mortgage Assn. I 6.00 5/15/2032 278
26 Government National Mortgage Assn. I 7.00 6/15/2032 29
132 Government National Mortgage Assn. I 7.00 7/15/2032 146
293 Government National Mortgage Assn. I 6.50 8/15/2032 326
942 Government National Mortgage Assn. I 6.50 9/15/2032 1,095
918 Government National Mortgage Assn. I 6.00 1/15/2033 1,039
409 Government National Mortgage Assn. I 6.00 2/15/2033 467
283 Government National Mortgage Assn. I 6.00 7/15/2033 318
241 Government National Mortgage Assn. I 6.00 9/15/2033 273
2,586 Government National Mortgage Assn. I 5.50 10/15/2033 2,887
1,152 Government National Mortgage Assn. I 5.50 12/15/2033 1,286
573 Government National Mortgage Assn. I 5.50 7/15/2034 646
1,472 Government National Mortgage Assn. I 5.50 10/15/2035 1,654
347 Government National Mortgage Assn. I 6.00 3/15/2037 391
285 Government National Mortgage Assn. I 6.00 9/15/2037 321
704 Government National Mortgage Assn. I 5.50 3/15/2038 782
1,437 Government National Mortgage Assn. I 5.50 4/15/2038 1,610
================================================================================
4 | USAA GOVERNMENT SECURITIES FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 457 Government National Mortgage Assn. I 6.00% 5/15/2038 $ 524
502 Government National Mortgage Assn. I 6.00 5/15/2038 574
424 Government National Mortgage Assn. I 6.00 9/15/2038 476
485 Government National Mortgage Assn. I 6.00 10/15/2038 543
680 Government National Mortgage Assn. I 6.00 12/15/2038 763
456 Government National Mortgage Assn. I 5.00 2/15/2039 497
2,795 Government National Mortgage Assn. I 5.50 6/15/2039 3,087
3,908 Government National Mortgage Assn. I 4.50 9/15/2039 4,180
2,811 Government National Mortgage Assn. I 4.50 11/15/2039 3,009
4,293 Government National Mortgage Assn. I 4.50 12/15/2039 4,609
13,147 Government National Mortgage Assn. I 4.50 2/15/2040 14,067
2,730 Government National Mortgage Assn. I 4.50 3/15/2040 2,896
1,569 Government National Mortgage Assn. I 4.50 6/15/2040 1,662
1,048 Government National Mortgage Assn. I 4.00 7/15/2040 1,099
2,569 Government National Mortgage Assn. I 4.50 7/15/2040 2,730
1,377 Government National Mortgage Assn. I 4.00 8/15/2040 1,448
3,194 Government National Mortgage Assn. I 4.00 9/15/2040 3,343
2,626 Government National Mortgage Assn. I 4.50 1/15/2041 2,792
11 Government National Mortgage Assn. II 8.00 12/20/2022 11
1,732 Government National Mortgage Assn. II 4.50 4/20/2024 1,824
268 Government National Mortgage Assn. II 8.00 8/20/2030 322
290 Government National Mortgage Assn. II 7.00 9/20/2030 341
160 Government National Mortgage Assn. II 6.00 3/20/2031 181
59 Government National Mortgage Assn. II 7.50 4/20/2031 71
96 Government National Mortgage Assn. II 6.50 5/20/2031 113
72 Government National Mortgage Assn. II 6.50 7/20/2031 83
189 Government National Mortgage Assn. II 6.50 8/20/2031 216
282 Government National Mortgage Assn. II 6.50 4/20/2032 326
268 Government National Mortgage Assn. II 6.50 6/20/2032 312
410 Government National Mortgage Assn. II 6.00 8/20/2032 464
360 Government National Mortgage Assn. II 6.00 9/20/2032 407
347 Government National Mortgage Assn. II 5.50 4/20/2033 386
1,210 Government National Mortgage Assn. II 5.00 5/20/2033 1,321
1,505 Government National Mortgage Assn. II 5.00 7/20/2033 1,644
381 Government National Mortgage Assn. II 6.00 10/20/2033 434
340 Government National Mortgage Assn. II 6.00 12/20/2033 367
1,221 Government National Mortgage Assn. II 6.00 2/20/2034 1,388
1,176 Government National Mortgage Assn. II 5.50 3/20/2034 1,311
1,123 Government National Mortgage Assn. II 6.00 3/20/2034 1,268
936 Government National Mortgage Assn. II 5.00 6/20/2034 1,032
843 Government National Mortgage Assn. II 6.50 8/20/2034 978
742 Government National Mortgage Assn. II 6.00 9/20/2034 854
2,088 Government National Mortgage Assn. II 6.00 10/20/2034 2,375
171 Government National Mortgage Assn. II 6.00 11/20/2034 184
================================================================================
PORTFOLIO OF INVESTMENTS | 5
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 4,279 Government National Mortgage Assn. II 5.50% 2/20/2035 $ 4,769
3,647 Government National Mortgage Assn. II 5.50 4/20/2035 4,059
1,778 Government National Mortgage Assn. II 5.50 7/20/2035 1,981
2,243 Government National Mortgage Assn. II 5.00 9/20/2035 2,449
714 Government National Mortgage Assn. II 6.00 5/20/2036 807
766 Government National Mortgage Assn. II 5.50 1/20/2037 843
508 Government National Mortgage Assn. II 5.00 2/20/2037 546
2,594 Government National Mortgage Assn. II 4.00 11/20/2040 2,736
--------
145,884
--------
COLLATERALIZED MORTGAGE OBLIGATIONS (3.5%)
4,725 Fannie Mae(+) 1.50 7/25/2027 4,563
2,173 Fannie Mae(+) 1.38 9/25/2027 2,080
1,865 Fannie Mae(+) 1.50 9/25/2027 1,790
1,881 Fannie Mae(+) 1.50 9/25/2027 1,796
2,047 Fannie Mae(+) 1.50 10/25/2027 1,958
1,860 Fannie Mae(+), 1 mo. USD LIBOR + 0.3% 1.63(b) 4/25/2035 1,860
1,681 Fannie Mae(+), 1 mo. USD LIBOR + 0.3% 1.63(b) 8/25/2037 1,674
2,824 Freddie Mac(+) 2.00 9/15/2026 2,791
1,098 Freddie Mac(+), 1 mo. USD LIBOR + 0.3% 1.55(b) 3/15/2036 1,099
1,795 Freddie Mac(+), 1 mo. USD LIBOR + 0.55% 1.80(b) 10/15/2041 1,810
--------
21,421
--------
COMMERCIAL MORTGAGE-BACKED SECURITIES (36.6%)
1,946 Fannie Mae(+) 2.05 7/01/2019 1,942
1,725 Fannie Mae(+) 1.65 9/25/2019 1,721
9,819 Fannie Mae(+) 1.58 1/01/2020 9,692
10,000 Fannie Mae(+) 2.63 9/01/2021 10,067
21,201 Fannie Mae(+) 2.42 11/01/2022 21,215
8,265 Fannie Mae(+) 2.50 4/01/2023 8,279
2,151 Fannie Mae(+) 2.54 5/01/2023 2,163
1,648 Fannie Mae(+) 3.32 7/25/2023 1,704
5,000 Fannie Mae(+) 2.16 10/25/2023 4,922
2,356 Fannie Mae(+) 2.80(c) 6/25/2025 2,348
2,422 Fannie Mae(+) 2.50 9/25/2026 2,410
4,000 Fannie Mae(+) 3.06 5/25/2027 4,051
3,000 Freddie Mac(+) 4.08(c) 11/25/2020 3,153
8,500 Freddie Mac(+) 2.22 12/25/2018 8,521
5,000 Freddie Mac(+) 2.86 1/25/2021 5,088
2,250 Freddie Mac(+) 2.27 3/25/2022 2,243
3,341 Freddie Mac(+) 1.69 4/25/2022 3,302
4,000 Freddie Mac(+) 2.72 6/25/2022 4,056
3,000 Freddie Mac(+) 2.36 7/25/2022 2,997
10,000 Freddie Mac(+) 2.31 8/25/2022 9,966
5,000 Freddie Mac(+) 2.51 11/25/2022 5,024
================================================================================
6 | USAA GOVERNMENT SECURITIES FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 5,000 Freddie Mac(+) 2.64% 1/25/2023 $ 5,050
3,000 Freddie Mac(+) 3.32(c) 2/25/2023 3,125
3,000 Freddie Mac(+) 2.41 3/25/2023 2,992
5,000 Freddie Mac(+) 3.00 1/25/2024 5,124
10,030 Freddie Mac(+) 3.49 1/25/2024 10,556
3,000 Freddie Mac(+) 3.39 3/25/2024 3,142
20,000 Freddie Mac(+) 2.95 7/25/2024 20,370
3,752 Freddie Mac(+) 2.60 1/25/2025 3,783
3,000 Freddie Mac(+) 3.02 1/25/2025 3,070
10,000 Freddie Mac(+) 3.28(c) 6/25/2025 10,389
4,718 Freddie Mac(+) 2.20 7/25/2025 4,635
4,000 Freddie Mac(+) 3.01 7/25/2025 4,080
3,000 Freddie Mac(+) 2.85 3/25/2026 2,987
5,000 Freddie Mac(+) 2.53 5/25/2026 4,898
5,000 Freddie Mac(+) 2.65 8/25/2026 4,931
2,448 Freddie Mac(+) 3.01 8/25/2026 2,502
4,500 Freddie Mac(+) 3.12 9/25/2026 4,595
3,000 Freddie Mac(+) 3.12 6/25/2027 3,054
9,274 Freddie Mac(+) 3.19 7/25/2027 9,500
2,879 Freddie Mac(+) 3.19 9/25/2027 2,945
--------
226,592
--------
OTHER U.S. GOVERNMENT SECURITIES (2.8%)
18,000 Fannie Mae(+) 2.13 4/24/2026 17,454
--------
Total U.S. Government Agency Issues (cost: $405,403) 411,351
--------
ASSET-BACKED SECURITIES (3.0%)
ASSET-BACKED FINANCING (3.0%)
3,550 Navient Student Loan Trust, 1 mo.
USD LIBOR + 0.51% 1.84(b) 6/25/2031 3,541
2,000 Navient Student Loan Trust, 1 mo.
USD LIBOR + 1.05%(d) 2.38(b) 6/25/2065 2,028
3,000 Navient Student Loan Trust, 1 mo.
USD LIBOR + 0.75%(d) 2.08(b) 3/25/2066 3,034
4,214 Nelnet Student Loan Trust, 3 mo.
USD LIBOR + 0.25% 1.58(b) 6/25/2041 3,818
1,242 SLM Student Loan Trust, 3 mo.
USD LIBOR + 0.11% 1.48(b) 10/27/2025 1,241
4,865 SLM Student Loan Trust, 1 mo.
USD LIBOR + 0.65% 1.98(b) 6/25/2055 4,914
--------
18,576
--------
Total Asset-Backed Securities (cost: $18,389) 18,576
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 7
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
U.S. TREASURY SECURITIES (26.6%)(E)
NOTES (26.6%)
$ 5,000 0.88%, 1/31/2018 0.88% 1/31/2018 $ 4,997
5,000 1.00%, 5/15/2018 1.00 5/15/2018 4,990
10,000 1.00%, 9/15/2018 1.00 9/15/2018 9,952
7,000 0.75%, 09/30/2018 0.75 9/30/2018 6,950
4,000 1.00%, 3/15/2019 1.00 3/15/2019 3,962
6,000 0.88%, 4/15/2019 0.88 4/15/2019 5,930
20,000 1.50%, 8/15/2020 1.50 8/15/2020 19,804
7,000 1.38%, 5/31/2021 1.38 5/31/2021 6,853
3,000 2.12%, 6/30/2021 2.13 6/30/2021 3,013
3,000 2.00%, 2/15/2022 2.00 2/15/2022 2,993
10,000 1.88%, 7/31/2022 1.88 7/31/2022 9,887
20,000 1.63%, 08/31/2022 1.63 8/31/2022 19,545
4,000 2.00%, 11/30/2022 2.00 11/30/2022 3,973
5,000 2.13%, 11/30/2023 2.13 11/30/2023 4,971
20,000 2.00%, 06/30/2024 2.00 6/30/2024 19,641
20,000 1.88%, 8/31/2024 1.88 8/31/2024 19,475
5,000 2.25%, 11/15/2024 2.25 11/15/2024 4,979
4,000 2.13%, 11/30/2024 2.13 11/30/2024 3,951
4,000 2.00%, 2/15/2025 2.00 2/15/2025 3,913
4,500 2.13%, 5/15/2025 2.13 5/15/2025 4,434
--------
164,213
--------
Total U.S. Treasury Securities (cost: $166,691) 164,213
--------
MUNICIPAL BONDS (3.3%)
AIRPORT/PORT (0.8%)
5,000 Port Auth. of New York & New Jersey 2.53 10/15/2020 5,043
--------
APPROPRIATED DEBT (0.5%)
3,000 Kansas Dev. Finance Auth. 3.94 4/15/2026 3,153
--------
GENERAL OBLIGATION (2.0%)
5,000 State of Connecticut 2.92 8/01/2023 4,962
3,000 State of Texas 2.83 10/01/2025 3,024
4,000 State of Texas 3.01 10/01/2026 4,058
--------
12,044
--------
Total Municipal Bonds (cost: $20,108) 20,240
--------
================================================================================
8 | USAA GOVERNMENT SECURITIES FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
(000) SECURITY (000)
------------------------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS (0.4%)
REPURCHASE AGREEMENTS (0.4%)
$ 2,408 Credit Agricole Corp. Inv. Bank, 1.04%, acquired 11/30/2017 and due on
12/01/2017 at $2,408 (collateralized by $5,785 of Fannie Mae(a,+),
4.50%, due 9/01/2041; market value $2,456) (cost: $2,408) $ 2,408
--------
------------------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES
------------------------------------------------------------------------------------------------------------------
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (0.0%)
4,893 State Street Institutional U.S. Government Money Market Fund
Premier Class, 0.99%(f) (cost: $5) 5
--------
Total Money Market Instruments (cost: $2,413) 2,413
--------
TOTAL INVESTMENTS (COST: $613,004) $616,793
========
------------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
------------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------------------------------------------------------------------------------------------------------------------
U.S. Government Agency Issues $ - $411,351 $- $411,351
Asset-Backed Securities - 18,576 - 18,576
U.S. Treasury Securities 164,213 - - 164,213
Municipal Bonds - 20,240 - 20,240
Money Market Instruments:
Repurchase Agreements - 2,408 - 2,408
Government & U.S. Treasury Money
Market Funds 5 - - 5
------------------------------------------------------------------------------------------------------------------
Total $164,218 $452,575 $- $616,793
------------------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
For the period of June 1, 2017, through November 30, 2017, there were no
transfers of securities between levels. The Fund's policy is to recognize any
transfers in and transfers out as of the beginning of the reporting period in
which the event or circumstance that caused the transfer occurred.
================================================================================
PORTFOLIO OF INVESTMENTS | 9
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
November 30, 2017 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
Market values of securities are determined by procedures and practices
discussed in Note 1A to the financial statements.
The Portfolio of Investments category percentages shown represent the
percentages of the investments to net assets, and, in total, may not equal
100%. A category percentage of 0.0% represents less than 0.1% of net assets.
o CATEGORIES AND DEFINITIONS
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
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
================================================================================
10 | USAA GOVERNMENT SECURITIES FUND
================================================================================
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 cash flows than regular mortgage securities, but such cash
flows can be difficult to predict because of the effect of prepayments.
o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS
LIBOR London Interbank Offered Rate
USD U.S. Dollar
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
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 11
================================================================================
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 security - interest rate is adjusted periodically. The
interest rate disclosed represents the rate at November 30, 2017.
(c) Stated interest rates may change slightly over time as underlying
mortgages pay down.
(d) Restricted security that is not registered under the Securities Act of
1933. A resale of this security in the United States may occur in an
exempt transaction to a qualified institutional buyer as defined by
Rule 144A, and as such has been deemed liquid by USAA Asset Management
Company (the Manager) under liquidity guidelines approved by USAA
Mutual Funds Trust's Board of Trustees (the Board), unless otherwise
noted as illiquid.
(e) Rates for U.S. Treasury notes or bonds represent the stated coupon
payment rate at time of issuance.
(f) Rate represents the money market fund annualized seven-day yield at
November 30, 2017.
See accompanying notes to financial statements.
================================================================================
12 | USAA GOVERNMENT SECURITIES FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
November 30, 2017 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $613,004) $616,793
Receivables:
Capital shares sold 149
USAA Asset Management Company (Note 7C) 1
Interest 1,860
--------
Total assets 618,803
--------
LIABILITIES
Payables:
Capital shares redeemed 253
Dividends on capital shares 73
Accrued management fees 63
Accrued transfer agent's fees 10
Other accrued expenses and payables 138
--------
Total liabilities 537
--------
Net assets applicable to capital shares outstanding $618,266
========
NET ASSETS CONSIST OF:
Paid-in capital $616,113
Undistributed net investment income 6
Accumulated net realized loss on investments (1,642)
Net unrealized appreciation of investments 3,789
--------
Net assets applicable to capital shares outstanding $618,266
========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $368,874/37,906 capital shares
outstanding, no par value) $ 9.73
========
Institutional Shares (net assets of $238,005/24,453 capital shares
outstanding, no par value) $ 9.73
========
Adviser Shares (net assets of $5,026/517 capital shares outstanding,
no par value) $ 9.72
========
R6 Shares (net assets of $6,361/654 capital shares outstanding,
no par value) $ 9.73
========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 13
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended November 30, 2017 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Interest income $ 7,300
-------
EXPENSES
Management fees 361
Administration and servicing fees:
Fund Shares 288
Institutional Shares 91
Adviser Shares 4
R6 Shares 1
Transfer agent's fees:
Fund Shares 244
Institutional Shares 91
Adviser Shares 1
Distribution and service fees (Note 7E):
Adviser Shares 7
Custody and accounting fees:
Fund Shares 55
Institutional Shares 18
Adviser Shares 1
R6 Shares 1
Postage:
Fund Shares 15
Shareholder reporting fees:
Fund Shares 13
Trustees' fees 18
Registration fees:
Fund Shares 14
Institutional Shares 10
Adviser Shares 11
R6 Shares 11
Professional fees 47
Other 13
-------
Total expenses 1,315
================================================================================
14 | USAA GOVERNMENT SECURITIES FUND
================================================================================
Expenses reimbursed:
Adviser Shares $ (6)
R6 Shares (9)
-------
Net expenses 1,300
-------
NET INVESTMENT INCOME 6,000
-------
NET UNREALIZED LOSS ON INVESTMENTS
Change in net unrealized appreciation/(depreciation) (8,089)
-------
Decrease in net assets resulting from operations $(2,089)
=======
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 15
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended November 30, 2017 (unaudited), and year ended
May 31, 2017
--------------------------------------------------------------------------------------------------------
11/30/2017 5/31/2017
--------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 6,000 $ 11,044
Net realized gain on investments - 6
Change in net unrealized appreciation/(depreciation)
of investments (8,089) (8,036)
----------------------------
Increase (decrease) in net assets resulting from operations (2,089) 3,014
----------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares (3,952) (8,434)
Institutional Shares (1,967) (2,507)
Adviser Shares (52) (93)
R6 Shares* (57) (55)
----------------------------
Distributions to shareholders (6,028) (11,089)
----------------------------
NET INCREASE (DECREASE) IN NET ASSETS FROM
CAPITAL SHARE TRANSACTIONS (NOTE 6)
Fund Shares (17,164) (35,121)
Institutional Shares 107,512 28,494
Adviser Shares (991) 1,071
R6 Shares* 1,406 5,000
----------------------------
Total net increase (decrease) in net assets
from capital share transactions 90,763 (556)
----------------------------
Net increase (decrease) in net assets 82,646 (8,631)
NET ASSETS
Beginning of period 535,620 544,251
----------------------------
End of period $618,266 $535,620
============================
Undistributed net investment income:
End of period $ 6 $ 34
============================
*R6 Shares commenced operations on December 1, 2016.
See accompanying notes to financial statements.
================================================================================
16 | USAA GOVERNMENT SECURITIES FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
November 30, 2017 (unaudited)
--------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company Act
of 1940, as amended (the 1940 Act), is an open-end management investment company
organized as a Delaware statutory trust consisting of 51 separate funds.
Additionally, USAA Government Securities Fund (the Fund) qualifies as a
registered investment company under Accounting Standards Codification Topic 946.
The information presented in this semiannual report pertains only to the Fund,
which is classified as diversified under the 1940 Act. The Fund's investment
objective is to provide investors a high level of current income consistent with
preservation of principal.
The Fund consists of four classes of shares: Government Securities Fund Shares
(Fund Shares), Government Securities Fund Institutional Shares (Institutional
Shares), Government Securities Fund Adviser Shares (Adviser Shares), and
Government Securities Fund R6 Shares (R6 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,
================================================================================
NOTES TO FINANCIAL STATEMENTS | 17
================================================================================
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. The R6 Shares are 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 backtesting reports,
pricing service quotation comparisons,
================================================================================
18 | USAA GOVERNMENT SECURITIES FUND
================================================================================
illiquid securities and fair value determinations, pricing movements, and
daily stale price monitoring.
The value of each security is determined (as of the close of trading on the
New York Stock Exchange (NYSE) on each business day the NYSE is open) as set
forth below:
1. Debt securities with maturities greater than 60 days are valued each
business day by a pricing service (the Service) approved by the Board.
The Service uses an evaluated mean between quoted bid and ask prices or
the last sales price to value a security when, in the Service's
judgment, these prices are readily available and are representative of
the security's market value. For many securities, such prices are not
readily available. The Service generally prices those securities based
on methods which include consideration of yields or prices of
securities of comparable quality, coupon, maturity, and type;
indications as to values from dealers in securities; and general market
conditions. Generally, debt securities are categorized in Level 2 of
the fair value hierarchy; however, to the extent the valuations include
significant unobservable inputs, the securities would be categorized in
Level 3.
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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 19
================================================================================
value is intended to cause the Fund's net asset value (NAV) to be more
reliable than it otherwise would be.
Fair value methods used by the Manager include, but are not limited to,
obtaining market quotations from secondary pricing services,
broker-dealers, other pricing services, or widely used quotation
systems. General factors considered in determining the fair value of
securities include fundamental analytical data, the nature and duration
of any restrictions on disposition of the securities, evaluation of
credit quality, and an evaluation of the forces that influenced the
market in which the securities are purchased and sold.
B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The
three-level valuation hierarchy disclosed in the Portfolio of Investments is
based upon the transparency of inputs to the valuation of an asset or
liability as of the measurement date. The three levels are defined as
follows:
Level 1 - inputs to the valuation methodology are quoted prices (unadjusted)
in active markets for identical securities.
Level 2 - inputs to the valuation methodology are other significant
observable inputs, including quoted prices for similar securities, inputs
that are observable for the securities, either directly or indirectly, and
market-corroborated inputs such as market indexes.
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.
================================================================================
20 | USAA GOVERNMENT SECURITIES FUND
================================================================================
For the six-month period ended November 30, 2017, the Fund did not incur any
income tax, interest, or penalties, and has recorded no liability for net
unrecognized tax benefits relating to uncertain income tax positions. On an
ongoing basis, the Manager will monitor the Fund's tax basis to determine if
adjustments to this conclusion are necessary. The statute of limitations on
the Fund's tax return filings generally remain open for the three preceding
fiscal reporting year ends and remain subject to examination by the Internal
Revenue Service and state taxing authorities.
D. INVESTMENTS IN SECURITIES - Securities transactions are accounted for on the
date the securities are purchased or sold (trade date). Gains or losses from
sales of investment securities are computed on the identified cost basis.
Interest income is recorded daily on the accrual basis. Premiums and
discounts are amortized over the life of the respective securities, using
the effective yield method for long-term securities and the straight- line
method for short-term securities.
E. 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, 2017,
the value of the related collateral exceeded the value of the
================================================================================
NOTES TO FINANCIAL STATEMENTS | 21
================================================================================
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 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, 2017, 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, 2017, 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.
================================================================================
22 | USAA GOVERNMENT SECURITIES FUND
================================================================================
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, along with other funds of the Trust and USAA ETF Trust
(together, the Trusts), in a joint, short-term, revolving, committed loan
agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate of
the Manager. The purpose of the agreement is to provide temporary or emergency
cash needs, including redemption requests that might otherwise require the
untimely disposition of securities. Subject to availability (including usage of
the facility by other funds of the Trusts), the Fund may borrow from CAPCO an
amount up to 5% of the Fund's total assets at an interest rate based on the
London Interbank Offered Rate (LIBOR), plus 100.0 basis points.
The Trusts are also assessed facility fees by CAPCO in the amount of 13.0 basis
points of the amount of the committed loan agreement. Prior to September 30,
2017, the maximum annual facility fee was 12.0 basis points of the amount of the
committed loan agreement. The facility fees are allocated among the funds of the
Trusts based on their respective average net assets for the period.
The Trusts may request an optional increase of the committed loan agreement from
$500 million up to $750 million. If the Trusts increase the committed loan
agreement, the assessed facility fee on the amount of the additional commitment
will be 14.0 basis points.
For the six-month period ended November 30, 2017, the Fund paid CAPCO facility
fees of $2,000, which represents 0.7% of the total fees paid to CAPCO by the
funds of the Trusts. The Fund had no borrowings under this agreement during the
six-month period ended November 30, 2017.
(3) DISTRIBUTIONS
The tax basis of distributions and any accumulated undistributed net investment
income will be determined as of the Fund's tax year-end of May 31, 2018, in
accordance with applicable federal tax law.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 23
================================================================================
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, 2017, the Fund had net capital loss carryforwards of $1,642,000, for
federal income tax purposes, as shown in the table below. It is unlikely that
the Board will authorize a distribution of capital gains realized in the future
until the capital loss carryforwards have been used.
CAPITAL LOSS CARRYFORWARDS
------------------------------------------
TAX CHARACTER
------------------------------------------
(NO EXPIRATION) BALANCE
--------------- ----------
Short-Term $1,533,000
Long-Term 109,000
----------
Total $1,642,000
==========
(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, 2017, were
$138,326,000 and $46,989,000, respectively.
As of November 30, 2017, the cost of securities, including short-term
securities, for federal income tax purposes, was approximately the same as the
cost reported in the financial statements.
Gross unrealized appreciation and depreciation of investments as of November 30,
2017, were $10,026,000 and $6,237,000, respectively, resulting in net unrealized
appreciation of $3,789,000.
(5) SECURITIES LENDING
The Fund, through its securities lending agreement with Citibank, N.A.
(Citibank), may lend its securities to qualified financial institutions, such as
certain broker-dealers, to earn additional income. The borrowers are required to
secure their loans continuously with collateral in an amount at
================================================================================
24 | USAA GOVERNMENT SECURITIES FUND
================================================================================
least equal to 102% of the fair value of domestic securities and foreign
government securities loaned and 105% of the fair value of foreign securities
and all other securities loaned. Collateral may be cash, U.S. government
securities, or other securities as permitted by SEC guidelines. Cash collateral
is invested in high-quality short-term investments. Collateral requirements are
determined daily based on the prior business day's ending value of securities
loaned. Risks to the Fund in securities-lending transactions are that the
borrower may not provide additional collateral when required or return the
securities when due, and that the value of the short-term investments will be
less than the amount of cash collateral required to be returned to the borrower.
The Fund's agreement with Citibank does not include master netting provisions.
Non-cash collateral received by the Fund may not be sold or re-pledged except to
satisfy borrower default. Cash collateral is listed in the Fund's Portfolio of
Investments and Financial Statements while non-cash collateral is not included.
At November 30, 2017, the Fund had no securities on loan.
(6) CAPITAL SHARE TRANSACTIONS
At November 30, 2017, there were an unlimited number of shares of capital stock
at no par value authorized for the Fund.
Capital share transactions for the Institutional Shares resulted from purchases
and sales by the affiliated USAA fund-of-funds as well as other
================================================================================
NOTES TO FINANCIAL STATEMENTS | 25
================================================================================
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, 2017 MAY 31, 2017
-----------------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------
FUND SHARES:
Shares sold 1,893 $ 18,594 5,118 $ 50,839
---------------------------------------------------------
Shares issued from reinvested dividends 369 3,617 776 7,700
Shares redeemed (4,013) (39,375) (9,478) (93,660)
---------------------------------------------------------
Net decrease from capital
share transactions (1,751) $(17,164) (3,584) $(35,121)
=========================================================
INSTITUTIONAL SHARES:
Shares sold 11,113 $109,604 3,390 $ 33,537
Shares issued from reinvested dividends 201 1,967 251 2,485
Shares redeemed (414) (4,059) (754) (7,528)
---------------------------------------------------------
Net increase from capital
share transactions 10,900 $107,512 2,887 $ 28,494
=========================================================
ADVISER SHARES:
Shares sold 3 $ 25 122 $ 1,203
Shares issued from reinvested dividends 1 9 1 8
Shares redeemed* (105) (1,025) (14) (140)
---------------------------------------------------------
Net increase (decrease) from capital
share transactions (101) $ (991) 109 $ 1,071
=========================================================
R6 SHARES
(COMMENCED ON DECEMBER 1, 2016):
Shares sold 152 $ 1,485 510 $ 5,000
Shares issued from reinvested dividends -** 2 - -
Shares redeemed (8) (81) - -
---------------------------------------------------------
Net increase from capital
share transactions 144 $ 1,406 510 $ 5,000
=========================================================
* Net of redemption fees, if any.
** Represents less than 500 shares.
(7) 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
================================================================================
26 | USAA GOVERNMENT SECURITIES FUND
================================================================================
of the Fund's assets, subject to the authority of and supervision by the
Board. The Manager is authorized to select (with approval of the Board and
without shareholder approval) one or more subadvisers to manage the
day-to-day investment of all or a portion of the Fund's assets. For the
six-month period ended November 30, 2017, 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 performance period for the
R6 Shares commenced on December 1, 2016, and includes the performance of the
Fund Shares for periods prior to December 1, 2016. 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 27
================================================================================
Each class' annual performance adjustment rate is multiplied by the average
net assets of each respective class over the entire performance period,
which is then multiplied by a fraction, the numerator of which is the number
of days in the month and the denominator of which is 365 (366 in leap
years). The resulting amount is then added to (in the case of
overperformance), or subtracted from (in the case of underperformance) the
base fee.
Under the performance fee arrangement, each class will pay a positive
performance fee adjustment for a performance period whenever the class
outperforms the Lipper Intermediate 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, 2017, the Fund incurred total
management fees, paid or payable to the Manager, of $361,000, which included
a performance adjustment for the Institutional Shares, Adviser Shares, and
R6 Shares of $1,000, $(1,000), and less than $500, respectively. For the
Institutional Shares, Adviser Shares, and R6 Shares, the performance
adjustments were less than 0.1%, (0.04)%, and less than 0.1%, respectively.
At November 30, 2017, the Fund Shares did not incur any performance
adjustment.
B. ADMINISTRATION AND SERVICING FEES - The Manager provides certain
administration and servicing functions for the Fund. For such services, the
Manager receives a fee accrued daily and paid monthly at an annualized rate
of 0.15% of average net assets of the Fund Shares and Adviser Shares, 0.10%
of average net assets of the Institutional Shares, and 0.05% of average net
assets of the R6 Shares. For the six-month period ended November 30, 2017,
the Fund Shares, Institutional Shares, Adviser Shares, and R6 Shares
incurred administration and servicing fees, paid or payable to the Manager,
of $288,000, $91,000, $4,000, and $1,000, 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
================================================================================
28 | USAA GOVERNMENT SECURITIES FUND
================================================================================
the Manager. For the six-month period ended November 30, 2017, the Fund
reimbursed the Manager $43,000 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, 2018, to
limit the total annual operating expenses of the Adviser Shares and R6
Shares to 0.75% and 0.35%, respectively, of their average net assets,
excluding extraordinary expenses and before reductions of any expenses paid
indirectly, and to reimburse the Adviser Shares and R6 Shares for all
expenses in excess of those amounts. This expense limitation arrangement may
not be changed or terminated through September 30, 2018, without approval of
the Board, and may be changed or terminated by the Manager at any time after
that date. For the six-month period ended November 30, 2017, the Fund
incurred reimbursable expenses from the Manager for the Adviser Shares and
R6 Shares of $6,000, and $9,000, respectively, of which $1,000 was
receivable from the Manager.
D. TRANSFER AGENT'S FEES - USAA Transfer Agency Company, d/b/a USAA Shareholder
Account Services (SAS), an affiliate of the Manager, provides transfer agent
services to the Fund Shares and Adviser Shares based on an annual charge of
$25.50 per shareholder account plus out-of-pocket expenses. SAS pays a
portion of these fees to certain intermediaries for administration and
servicing of accounts that are held with such intermediaries. Transfer
agent's fees for Institutional Shares and R6 Shares are paid monthly based
on a fee accrued daily at an annualized rate of 0.10% of the Institutional
Shares' and 0.01% of the R6 Shares' average net assets, plus out-of-pocket
expenses. For the six-month period ended November 30, 2017, the Fund Shares,
Institutional Shares, Adviser Shares, and R6 Shares incurred transfer
agent's fees, paid or payable to SAS, of $244,000, $91,000, $1,000, 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 29
================================================================================
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, 2017, the Adviser Shares incurred distribution and service (12b-1) fees
of $7,000.
F. UNDERWRITING SERVICES - IMCO provides exclusive underwriting and
distribution of the Fund's shares on a continuing best-efforts basis and
receives no fee or other compensation for these services, but may receive
12b-1 fees as described above, with respect to Adviser Shares.
(8) TRANSACTIONS WITH AFFILIATES
The Fund offers its Institutional Shares for investment by other USAA Funds and
is one of 19 USAA mutual funds in which the affiliated USAA fund-of-funds
invest. The USAA fund-of-funds do not invest in the underlying funds for the
purpose of exercising management or control. As of November 30, 2017, the USAA
fund-of-funds owned the following percentages of the total outstanding shares of
the Fund:
AFFILIATED USAA FUND OWNERSHIP %
--------------------------------------------------------------------------------
Cornerstone Conservative 3.1
Target Retirement Income 11.6
Target Retirement 2020 10.0
Target Retirement 2030 8.7
Target Retirement 2040 3.6
Target Retirement 2050 0.9
Target Retirement 2060 0.1
The Manager is indirectly wholly owned by United Services Automobile Association
(USAA), a large, diversified financial services institution. At November 30,
2017, USAA and its affiliates owned 487,000 Adviser Shares and 510,000 R6
Shares, which represents 94.2% of the Adviser Shares outstanding, 78.0% of the
R6 Shares outstanding, and 1.6% of the Fund's total outstanding shares.
================================================================================
30 | USAA GOVERNMENT SECURITIES FUND
================================================================================
Certain trustees and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Fund.
(9) UPCOMING REGULATORY MATTERS
In October 2016, the U.S. Securities and Exchange Commission (SEC) issued Final
Rule Release No. 33-10231, INVESTMENT COMPANY REPORTING MODERNIZATION. In part,
the rules require the filing of new forms N-PORT and N-CEN, and amend Regulation
S-X to require standardized, enhanced disclosure about derivatives in investment
company financial statements, as well as other amendments.
In October 2016, the SEC issued Final Rule Release No. 33-10233, INVESTMENT
COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS. This rule requires funds to
establish a liquidity risk management program and enhances disclosures regarding
funds' liquidity.
In October 2016, the SEC issued Final Rule Release No. 33-10234, INVESTMENT
COMPANY SWING PRICING. This rule permits certain funds to use swing pricing
during periods of heavy redemptions and requires certain disclosures regarding
the use of swing pricing in forms filed with the SEC.
The Manager continues to evaluate the impact these rules and amendments will
have on the financial statements and other disclosures. The compliance date for
new forms N-PORT and N-CEN is June 1, 2018 (with filing of Form N-PORT beginning
April 30, 2019), with other staggered compliance dates extending through April
30, 2019. The Fund is expected to comply with the June 1, 2018 compliance date
for new forms N-PORT and N-CEN.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 31
================================================================================
(10) 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,
-----------------------------------------------------------------------------------
2017 2017 2016 2015 2014 2013
-----------------------------------------------------------------------------------
Net asset value at
beginning of period $ 9.86 $ 10.00 $ 10.04 $ 10.02 $ 10.08 $ 10.40
-----------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .10 .20 .22 .25 .28 .29
Net realized and
unrealized gain (loss) (.13) (.14) (.04) .03 (.06) (.32)
-----------------------------------------------------------------------------------
Total from investment
operations (.03) .06 .18 .28 .22 (.03)
-----------------------------------------------------------------------------------
Less distributions from:
Net investment income (.10) (.20) (.22) (.26) (.28) (.29)
-----------------------------------------------------------------------------------
Net asset value at end
of period $ 9.73 $ 9.86 $ 10.00 $ 10.04 $ 10.02 $ 10.08
===================================================================================
Total return (%)* (.30) .62 1.80 2.78 2.20 (.36)
Net assets at end
of period (000) $368,874 $390,897 $432,471 $435,421 $451,688 $553,495
Ratios to average
net assets:**
Expenses (%)(a) .48(b) .48 .51 .51 .47 .41
Net investment
income (%) 2.05(b) 2.02 2.17 2.52 2.78 2.77
Portfolio turnover (%) 8 18 14 15 0 24
* 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, 2017, average net assets were
$383,194,000.
(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%)(+)
(+) Represents less than 0.01% of average net assets.
(b) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
32 | USAA GOVERNMENT SECURITIES FUND
================================================================================
(10) FINANCIAL HIGHLIGHTS (CONTINUED) - INSTITUTIONAL SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED YEAR ENDED PERIOD ENDED
NOVEMBER 30, MAY 31, MAY 31,
---------------------------------------------------
2017 2017 2016***
--------------------------------------------------
Net asset value at beginning of period $ 9.86 $ 10.00 $ 9.94
-----------------------------------------------
Income (loss) from investment operations:
Net investment income .11 .21 .18
Net realized and unrealized gain (loss) (.13) (.14) .06
-----------------------------------------------
Total from investment operations (.02) .07 .24
-----------------------------------------------
Less distributions from:
Net investment income (.11) (.21) (.18)
-----------------------------------------------
Net asset value at end of period $ 9.73 $ 9.86 $ 10.00
===============================================
Total return (%)* (.25) .71 2.39
Net assets at end of period (000) $238,005 $133,607 $106,692
Ratios to average net assets:**
Expenses (%) .38(a) .40 .44(a)
Expenses, excluding reimbursements (%) .38(a) .40 .44(a)
Net investment income (%) 2.15(a) 2.12 2.16(a)
Portfolio turnover (%) 8 18 14
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in
accordance with U.S. generally accepted accounting principles and could
differ from the Lipper reported return. Total returns for periods of less
than one year are not annualized.
** For the six-month period ended November 30, 2017, average net assets were
$182,008,000.
*** 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 | 33
================================================================================
(10) 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,
----------------------------------------------------------------------------------
2017 2017 2016 2015 2014 2013
----------------------------------------------------------------------------------
Net asset value at
beginning of period $ 9.85 $10.00 $10.04 $10.01 $10.07 $10.40
---------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .09 .17 .19 .22 .24 .24
Net realized and
unrealized gain (loss) (.13) (.15) (.04) .04 (.06) (.33)
---------------------------------------------------------------------------------
Total from investment
operations (.04) .02 .15 .26 .18 (.09)
---------------------------------------------------------------------------------
Less distributions from:
Net investment income (.09) (.17) (.19) (.23) (.24) (.24)
Redemption fees added to
beneficial interests .00(a) - - .00(a) - -
---------------------------------------------------------------------------------
Net asset value at
end of period $ 9.72 $ 9.85 $10.00 $10.04 $10.01 $10.07
=================================================================================
Total return (%)* (.43) .25 1.55 2.58 1.83 (.94)
Net assets at
end of period (000) $5,026 $6,089 $5,088 $5,116 $5,162 $5,150
Ratios to average
net assets:**
Expenses (%)(c) .75(d) .75 .75 .80(b) .84 .90
Expenses, excluding
reimbursements (%)(c) .96(d) .93 .95 1.05 .84 1.06
Net investment income (%) 1.78(d) 1.76 1.93 2.22 2.41 2.28
Portfolio turnover (%) 8 18 14 15 0 24
* 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, 2017, average net assets were
$5,805,000.
(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 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%)(+)
(+) Represents less than 0.01% of average net assets.
(d) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
34 | USAA GOVERNMENT SECURITIES FUND
================================================================================
(10) FINANCIAL HIGHLIGHTS (CONTINUED) - R6 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,
-----------------------------------
2017 2017***
-----------------------------------
Net Asset value at beginning of period $ 9.85 $ 9.80
-----------------------------
Income (loss) from investment operations:
Net investment income .11 .11
Net realized and unrealized gain (loss) (.12) .05
-----------------------------
Total from investment operations (.01) .16
-----------------------------
Less distributions from:
Net investment income (.11) (.11)
-----------------------------
Net asset value at end of period $ 9.73 $ 9.85
=============================
Total return (%)* (.13) 1.62
Net assets at end of period (000) $6,361 $5,027
Ratios to average net assets:**
Expenses (%)(a) .35 .35
Expenses, excluding reimbursements (%)(a) .68 1.12
Net investment income (%)(a) 2.18 2.22
Portfolio turnover (%) 8 18
* 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, 2017, average net assets were
$5,205,000.
*** R6 Shares commenced operations on December 1, 2016.
(a) Annualized. The ratio is not indicative of 12 months of operations.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 35
================================================================================
EXPENSE EXAMPLE
November 30, 2017 (unaudited)
--------------------------------------------------------------------------------
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: direct costs, such
as wire fees, redemption fees, and low balance fees; and indirect costs,
including management fees, transfer agency fees, distribution and service
(12b-1) fees, and other Fund operating expenses. This example is intended to
help you understand your indirect costs, also referred to as "ongoing costs" (in
dollars), of investing in the Fund and to compare these costs with the ongoing
costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire six-month period of June 1, 2017, through
November 30, 2017.
ACTUAL EXPENSES
The line labeled "actual" under each share class in the table provides
information about actual account values and actual expenses. You may use the
information in this line, together with the amount you invested at the beginning
of the period, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number for your share
class in the "actual" line under the heading "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The line labeled "hypothetical" under each share class in the table provides
information about hypothetical account values and hypothetical expenses based on
the Fund's actual expense ratios for each class and an assumed rate of return of
5% per year before expenses, which is not the Fund's actual return. The
hypothetical account values and expenses may not be used to estimate the actual
ending account balance or expenses you paid for the
================================================================================
36 | USAA GOVERNMENT SECURITIES FUND
================================================================================
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, 2017 -
JUNE 1, 2017 NOVEMBER 30, 2017 NOVEMBER 30, 2017
--------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $ 997.00 $2.40
Hypothetical
(5% return before expenses) 1,000.00 1,022.66 2.43
INSTITUTIONAL SHARES
Actual 1,000.00 997.50 1.90
Hypothetical
(5% return before expenses) 1,000.00 1,023.16 1.93
ADVISER SHARES
Actual 1,000.00 995.70 3.75
Hypothetical
(5% return before expenses) 1,000.00 1,021.31 3.80
R6 SHARES
Actual 1,000.00 998.70 1.75
Hypothetical
(5% return before expenses) 1,000.00 1,023.31 1.78
*Expenses are equal to the annualized expense ratio of 0.48% for Fund Shares,
0.38% for Institutional Shares, 0.75% for Adviser Shares, and 0.35% for R6
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 for Fund Shares, Institutional Shares, Adviser Shares, and R6
Shares (to reflect the one-half-year period). The Fund's actual ending account
values are based on its actual total returns of (0.30%) for Fund Shares,
(0.25%) for Institutional Shares, (0.43%) for Adviser Shares, and (0.13%) for
R6 Shares, for the six-month period of June 1, 2017, through November 30, 2017.
================================================================================
EXPENSE EXAMPLE | 37
================================================================================
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Jefferson C. Boyce
Dawn M. Hawley
Paul L. McNamara
Richard Y. Newton III
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
--------------------------------------------------------------------------------
ADMINISTRATOR AND USAA Asset Management Company
INVESTMENT ADVISER P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
UNDERWRITER AND USAA Investment Management Company
DISTRIBUTOR P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
--------------------------------------------------------------------------------
CUSTODIAN AND State Street Bank and Trust Company
ACCOUNTING AGENT P.O. Box 1713
Boston, Massachusetts 02105
--------------------------------------------------------------------------------
INDEPENDENT Ernst & Young LLP
REGISTERED PUBLIC 100 West Houston St., Suite 1700
ACCOUNTING FIRM San Antonio, Texas 78205
--------------------------------------------------------------------------------
MUTUAL FUND Under "My Accounts" on
SELF-SERVICE 24/7 usaa.com select your mutual fund
AT USAA.COM account and either click the link or
select 'I want to...' and select
OR CALL the desired action.
(800) 531-USAA (8722)
(210) 531-8722
--------------------------------------------------------------------------------
Copies of the Manager's proxy voting policies and procedures, approved by the
Trust's Board of Trustees for use in voting proxies on behalf of the Fund, are
available without charge (i) by calling (800) 531-USAA (8722) or (210)
531-8722; (ii) at USAA.COM; and (iii) in summary within the Statement of
Additional Information on the SEC's website at HTTP://WWW.SEC.GOV. Information
regarding how the Fund voted proxies relating to portfolio securities during
the most recent 12-month period ended June 30 is available without charge (i)
at USAA.COM; and (ii) on the SEC's website at HTTP://WWW.SEC.GOV.
The Fund files its complete schedule of portfolio holdings with the SEC for
the first and third quarters of each fiscal year on Form N-Q. These Forms N-Q
are available at no charge (i) by calling (800) 531-USAA (8722) or (210)
531-8722; (ii) at USAA.COM; and (iii) on the SEC's website at
HTTP://WWW.SEC.GOV. These Forms N-Q also may be reviewed and copied at the
SEC's Public Reference Room in Washington, D.C. Information on the operation
of the Public Reference Room may be obtained by calling (800) 732-0330.
================================================================================
--------------
USAA PRSRT STD
9800 Fredericksburg Road U.S. Postage
San Antonio, TX 78288 PAID
USAA
--------------
>> SAVE PAPER AND FUND COSTS
Under MY PROFILE on USAA.COM select MANAGE PREFERENCES
Set your DOCUMENT PREFERENCES to USAA DOCUMENTS ONLINE.
[LOGO OF USAA]
USAA We know what it means to serve.(R)
=============================================================================
23414-0118 (C)2018, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA GROWTH AND TAX STRATEGY FUND]
==============================================================
SEMIANNUAL REPORT
USAA GROWTH AND TAX STRATEGY FUND (USBLX)
NOVEMBER 30, 2017
==============================================================
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
INVESTMENT OVERVIEW 2
FINANCIAL INFORMATION
Portfolio of Investments 4
Notes to Portfolio of Investments 32
Financial Statements 36
Notes to Financial Statements 39
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)2018, USAA. All rights reserved.
================================================================================
================================================================================
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
================================================================================
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
o TOP 10 INDUSTRIES - 11/30/17 o
(% of Net Assets)
Diversified Banks ......................................................... 2.5%
Internet Software & Services .............................................. 2.3%
Pharmaceuticals ........................................................... 2.2%
Technology Hardware, Storage, & Peripherals ............................... 2.1%
Systems Software .......................................................... 1.8%
Semiconductors ............................................................ 1.7%
Internet & Direct Marketing Retail ........................................ 1.4%
Integrated Oil & Gas ...................................................... 1.4%
Biotechnology ............................................................. 1.3%
Health Care Equipment ..................................................... 1.3%
o TOP 5 TAX-EXEMPT BONDS - 11/30/17 o
(% of Net Assets)
Port of Port Arthur Navigation District ................................... 1.3%
Emmaus General Auth. ...................................................... 1.3%
Lewisville ................................................................ 1.2%
Washington Health Care Facilities Auth. ................................... 1.2%
Louisiana Public Facilities Auth. ......................................... 1.1%
o TOP 5 BLUE CHIP STOCKS - 11/30/17 o
(% of Net Assets)
Apple, Inc. ............................................................... 1.9%
Microsoft Corp. ........................................................... 1.4%
Amazon.com, Inc. .......................................................... 1.0%
Facebook, Inc. "A" ........................................................ 0.9%
Johnson & Johnson ......................................................... 0.8%
You will find a complete list of securities that the Fund owns on pages 4-31.
================================================================================
2 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
o ASSET ALLOCATION* - 11/30/17 o
[PIE CHART OF ASSET ALLOCATION]
BLUE CHIP STOCKS 48.3%
TAX-EXEMPT BONDS 45.6%
TAX-EXEMPT MONEY MARKET INSTRUMENTS 6.6%
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS 0.4%
U.S. TREASURY BILLS** 0.0%
RIGHTS** 0.0%
[END CHART]
* Does not include futures
** Represents less than 0.1% of the Fund.
Percentages are of the net assets of the Fund and may not equal 100%.
================================================================================
INVESTMENT OVERVIEW | 3
================================================================================
PORTFOLIO OF INVESTMENTS
November 30, 2017 (unaudited)
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
TAX-EXEMPT SECURITIES (52.2%)
TAX-EXEMPT BONDS (45.6%)
ALABAMA (0.3%)
$ 1,000 Lower Alabama Gas District 5.00% 9/01/2046 $ 1,233
--------
ARIZONA (0.6%)
1,300 Phoenix IDA 5.00 7/01/2046 1,391
1,000 Student and Academic Service, LLC (INS) 5.00 6/01/2044 1,112
--------
2,503
--------
CALIFORNIA (3.2%)
1,200 Jurupa Public Financing Auth. 5.00 9/01/2042 1,356
2,000 Monterey Peninsula Unified School District (INS)(PRE) 5.50 8/01/2034 2,264
1,000 State 5.00 2/01/2043 1,126
1,000 State 5.00 8/01/2045 1,161
1,000 Statewide Communities Dev. Auth. (INS) 5.00 11/15/2049 1,127
1,000 Sutter Butte Flood Control Agency (INS) 5.00 10/01/2040 1,136
1,500 Twin Rivers Unified School District (INS) 5.00 8/01/2040 1,684
1,000 Val Verde Unified School District (INS) 5.00 8/01/2044 1,129
4,435 West Contra Costa Unified School District (INS) 5.05(a) 8/01/2034 2,517
--------
13,500
--------
COLORADO (1.8%)
1,000 Denver Convention Center Hotel Auth. 5.00 12/01/2040 1,123
1,000 Health Facilities Auth. 5.00 12/01/2042 1,072
1,000 Health Facilities Auth. 5.00 6/01/2045 1,089
1,000 Park Creek Metropolitan District 5.00 12/01/2045 1,101
1,000 Rampart Range Metropolitan District (INS) 5.00 12/01/2047 1,145
2,000 Regional Transportation District 5.38 6/01/2031 2,159
--------
7,689
--------
CONNECTICUT (0.0%)
4,444 Mashantucket (Western) Pequot Tribe(b),(c) 6.05(d) 7/01/2031 178
--------
DISTRICT OF COLUMBIA (0.3%)
1,100 District of Columbia 5.00 7/01/2042 1,201
--------
FLORIDA (2.9%)
1,875 Escambia County Housing Finance Auth. (INS)(PRE) 5.75 6/01/2031 1,990
1,000 Halifax Hospital Medical Center 5.00 6/01/2046 1,091
================================================================================
4 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 1,000 Jacksonville 5.00% 10/01/2029 $ 1,118
2,000 Lee County IDA 5.00 11/01/2025 2,183
645 Lee County IDA 5.50 10/01/2047 693
1,300 Miami-Dade County 5.00 10/01/2034 1,405
1,000 Southeast Overtown/Park West Community
Redevelopment Agency(e) 5.00 3/01/2030 1,111
1,505 Tampa-Hillsborough County Expressway Auth. 5.00 7/01/2037 1,669
1,000 Volusia County Educational Facilities Auth. 5.00 10/15/2045 1,119
--------
12,379
--------
GUAM (0.5%)
750 International Airport Auth. (INS) 5.50 10/01/2033 855
1,000 Waterworks Auth. 5.50 7/01/2043 1,120
--------
1,975
--------
ILLINOIS (5.5%)
1,000 Bureau County Township HSD #502 (INS) 5.00 12/01/2037 1,148
1,000 Chicago Water 5.00 1/01/2044 1,070
1,000 Chicago Water 5.00 11/01/2044 1,088
1,000 Chicago Water 5.00 1/01/2047 1,095
1,000 Chicago-Midway Airport 5.00 1/01/2046 1,140
1,000 Chicago-O'Hare International Airport (INS) 5.25 1/01/2033 1,132
1,000 Chicago-O'Hare International Airport 5.00 1/01/2041 1,147
1,000 Cook County 5.00 11/15/2038 1,158
1,000 Cook County CCD #508 (INS)(f) 5.00 12/01/2047 1,096
1,000 Educational Facilities Auth. 4.00 11/01/2036 1,029
1,000 Finance Auth. 3.90 3/01/2030 1,047
2,000 Finance Auth. (PRE) 6.00 10/01/2032 2,280
1,000 Finance Auth. 5.00 5/15/2037 1,082
1,275 Finance Auth. 5.00 5/15/2040 1,340
1,000 Finance Auth. 4.00 10/01/2040 1,035
1,000 Finance Auth. 4.00 2/15/2041 1,018
1,000 Finance Auth. 5.00 8/15/2044 1,075
1,000 Finance Auth. 5.00 5/15/2045 1,098
1,000 Municipal Power Agency 4.00 12/01/2041 1,024
1,235 Springfield Metro Sanitary District 5.75 1/01/2053 1,425
--------
23,527
--------
INDIANA (1.6%)
500 Ball State Univ. (PRE) 5.00 7/01/2030 542
1,000 Evansville Redevelopment Auth. (INS) 4.00 2/01/2039 1,040
1,250 Finance Auth. 5.38 11/01/2032 1,293
1,000 Finance Auth. 5.00 2/01/2040 1,112
1,000 Finance Auth. 5.00 10/01/2044 1,076
1,500 Richmond Hospital Auth. 5.00 1/01/2039 1,663
--------
6,726
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 5
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
KANSAS (1.1%)
$ 1,000 Coffeyville (INS)(e) 5.00% 6/01/2042 $ 1,089
1,000 Wichita 4.63 9/01/2033 998
1,250 Wyandotte County/Kansas City 5.00 9/01/2044 1,433
1,000 Wyandotte County/Kansas City 5.00 9/01/2045 1,142
--------
4,662
--------
KENTUCKY (0.7%)
1,000 Ashland Medical Center 5.00 2/01/2040 1,077
1,000 Economic Dev. Finance Auth. (INS) 6.00 12/01/2033 1,012
1,000 Economic Dev. Finance Auth. 5.00 5/15/2046 1,049
--------
3,138
--------
LOUISIANA (3.4%)
705 Local Government Environmental Facilities and
Community Dev. Auth. (INS) 6.55 9/01/2025 787
1,000 Local Government Environmental Facilities and
Community Dev. Auth. (INS) 5.00 10/01/2039 1,133
1,000 Local Government Environmental Facilities and
Community Dev. Auth. (INS) 4.00 10/01/2046 1,031
2,000 Parish of St. John the Baptist 5.13 6/01/2037 2,003
1,000 Public Facilities Auth. 5.00 11/01/2045 1,098
1,000 Public Facilities Auth. (INS) 5.25 6/01/2051 1,112
1,000 Public Facilities Auth. 5.00 7/01/2052 1,112
1,000 Public Facilities Auth. 4.00 1/01/2056 1,008
1,000 Shreveport (INS) 5.00 12/01/2039 1,154
1,000 Shreveport 5.00 12/01/2040 1,134
1,500 State 5.00 5/01/2045 1,746
1,000 Tobacco Settlement Financing Corp. 5.25 5/15/2035 1,087
--------
14,405
--------
MAINE (0.2%)
1,000 Health and Higher Education Facilities Auth. 4.00 7/01/2046 888
--------
MASSACHUSETTS (1.5%)
1,000 Dev. Finance Agency 5.00 4/15/2040 1,091
1,000 Dev. Finance Agency 5.25 11/15/2041 1,120
1,000 Dev. Finance Agency 5.75 7/15/2043 1,115
1,000 Dev. Finance Agency 5.00 7/01/2044 1,102
1,000 Dev. Finance Agency 5.50 7/01/2044 1,103
1,000 Dev. Finance Agency 5.00 7/01/2046 1,103
--------
6,634
--------
MICHIGAN (1.1%)
1,250 Lincoln Consolidated School District (INS) 5.00 5/01/2040 1,423
1,000 Livonia Public Schools School District (INS) 5.00 5/01/2045 1,126
================================================================================
6 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 1,000 Wayne County Airport Auth. 5.00% 12/01/2044 $ 1,127
1,000 Wyandotte (INS) 5.00 10/01/2044 1,100
--------
4,776
--------
MINNESOTA (0.5%)
1,000 Saint Paul Housing and Redevelopment Auth. (PRE) 5.00 11/15/2044 1,215
1,000 Saint Paul Housing and Redevelopment Auth. 5.00 11/15/2047 1,153
--------
2,368
--------
MISSOURI (0.6%)
1,270 Health and Educational Facilities Auth. 5.00 8/01/2045 1,345
1,000 St. Louis Municipal Finance Corp. (INS) 5.00 10/01/2038 1,144
--------
2,489
--------
NEBRASKA (0.3%)
1,000 Douglas County Hospital Auth. 5.00 11/01/2048 1,106
--------
NEVADA (1.0%)
1,000 Carson City(f) 5.00 9/01/2042 1,118
1,555 Las Vegas Convention and Visitors Auth. 4.00 7/01/2041 1,605
1,500 Las Vegas Redevelopment Agency 5.00 6/15/2045 1,666
--------
4,389
--------
NEW JERSEY (2.3%)
1,000 EDA 5.00 6/15/2029 1,071
2,000 EDA (PRE) 5.00 9/01/2033 2,053
1,000 EDA 4.00 7/01/2034 993
2,000 EDA 5.00 6/15/2042 2,160
1,000 Educational Facilities Auth. 5.00 9/01/2036 1,082
1,250 South Jersey Transportation Auth. 5.00 11/01/2039 1,364
1,000 Transportation Trust Fund Auth. 5.00 6/15/2044 1,074
--------
9,797
--------
NEW MEXICO (0.2%)
1,000 Farmington 5.90 6/01/2040 1,087
--------
NEW YORK (2.3%)
1,000 Dormitory Auth. (PRE) 5.50 5/01/2037 1,055
1,205 Dormitory Auth. (INS) 5.50 7/01/2040 1,640
630 Liberty Dev. Corp. 5.25 10/01/2035 798
1,500 Liberty Dev. Corp. 5.50 10/01/2037 1,972
1,000 MTA 5.00 11/15/2042 1,119
1,000 New York City 5.25 8/15/2023 1,027
2,000 New York City Trust for Cultural Resources 5.00 12/01/2039 2,113
--------
9,724
--------
NORTH CAROLINA (0.3%)
1,000 Medical Care Commission 5.00 10/01/2035 1,123
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 7
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
OHIO (0.2%)
$ 750 Southeastern Port Auth. Hospital Facilities 5.00% 12/01/2043 $ 778
--------
OKLAHOMA (0.5%)
1,315 Comanche County Hospital Auth. 5.00 7/01/2032 1,365
750 Tulsa County Industrial Auth. 5.25 11/15/2037 840
--------
2,205
--------
PENNSYLVANIA (3.5%)
1,500 Berks County IDA 5.00 11/01/2050 1,668
1,125 Butler County Hospital Auth. 5.00 7/01/2039 1,243
1,000 Chester County IDA 5.00 10/01/2044 1,061
1,625 Indiana County Hospital Auth. 6.00 6/01/2039 1,786
1,000 Lancaster County Hospital Auth. 5.00 11/01/2035 1,114
1,000 Montgomery County IDA 5.25 1/15/2045 1,082
1,000 Northampton County General Purpose Auth. 4.00 8/15/2040 1,011
1,000 Philadelphia School District 5.00 9/01/2037 1,094
1,500 Reading School District (INS) 5.00 3/01/2038 1,705
1,000 Turnpike Commission 5.25 12/01/2044 1,121
1,000 Turnpike Commission 5.00 12/01/2046 1,110
1,000 Turnpike Commission 5.00 12/01/2047 1,146
--------
15,141
--------
PUERTO RICO (0.2%)
1,000 Commonwealth (INS) 5.00 7/01/2035 1,021
--------
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 1,140
--------
1,190
--------
SOUTH CAROLINA (0.5%)
2,000 Piedmont Municipal Power Agency (INS) 5.75 1/01/2034 2,244
--------
TENNESSEE (0.5%)
1,000 Metropolitan Government of Nashville and Davidson
County Health and Educational Facilities Board 5.00 10/01/2045 1,116
1,000 Metropolitan Government of Nashville and Davidson
County Health and Educational Facilities Board 5.00 7/01/2046 1,117
--------
2,233
--------
TEXAS (6.2%)
1,000 Central Texas Regional Mobility Auth. 4.00 1/01/2041 1,010
1,000 Central Texas Regional Mobility Auth. 5.00 1/01/2045 1,117
1,000 Clifton Higher Education Finance Corp. (NBGA) 5.00 8/15/2039 1,130
1,000 Harris County Cultural Education Facilities Finance Corp. 5.00 6/01/2038 1,066
================================================================================
8 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 1,000 Harris County Hospital District 4.00% 2/15/2042 $ 1,028
1,000 Houston 5.00 9/01/2039 1,116
1,000 Houston 5.00 9/01/2040 1,116
1,000 Karnes County Hospital District 5.00 2/01/2044 1,049
1,000 Laredo Waterworks and Sewer System 4.00 3/01/2041 1,046
4,890 Lewisville (INS) 5.80 9/01/2025 5,122
1,000 Matagorda County 4.00 6/01/2030 1,054
1,000 Mesquite Health Facilities Dev. Corp. 5.00 2/15/2035 1,051
1,600 New Hope Cultural Education Facilities Finance Corp. 5.00 4/01/2047 1,704
1,000 New Hope Cultural Education Facilities Finance Corp. 5.00 7/01/2047 881
1,500 North Texas Tollway Auth. 5.00 1/01/2031 1,707
1,000 North Texas Tollway Auth. 5.00 1/01/2045 1,129
1,000 Tarrant County Cultural Education Facilities Finance Corp. 5.00 11/15/2036 1,049
1,000 Tarrant County Cultural Education Facilities Finance Corp. 5.00 11/15/2045 1,036
1,000 Tarrant County Cultural Education Facilities Finance Corp. 5.00 11/15/2046 1,121
1,000 Transportation Commission 5.00 8/15/2042 1,111
--------
26,643
--------
VIRGINIA (0.3%)
1,000 Alexandria IDA 5.00 10/01/2050 1,100
--------
WASHINGTON (0.3%)
1,000 Health Care Facilities Auth. 5.00 1/01/2047 1,105
--------
WEST VIRGINIA (0.3%)
1,500 Pleasants County 5.25 10/15/2037 1,500
--------
WISCONSIN (0.3%)
1,000 Health and Educational Facilities Auth. 5.25 4/15/2035 1,097
--------
WYOMING (0.3%)
1,250 Laramie County 5.00 5/01/2037 1,358
--------
Total Tax-Exempt Bonds (cost: $189,989) 195,112
--------
TAX-EXEMPT MONEY MARKET INSTRUMENTS (6.6%)
VARIABLE-RATE DEMAND NOTES (6.6%)
FLORIDA (1.0%)
550 Dade County IDA(g) 1.00(o) 4/01/2020 550
3,700 Escambia County 1.00(o) 4/01/2039 3,700
--------
4,250
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 9
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
GEORGIA (0.4%)
$ 200 Heard County Dev. Auth.(g) 1.01%(o) 9/01/2026 $ 200
1,350 Monroe County Dev. Auth. 0.99(o) 11/01/2048 1,350
--------
1,550
--------
ILLINOIS (0.2%)
700 State (LIQ) (LOC - Deutsche Bank A.G.)(e),(g) 1.22(o) 7/01/2031 700
--------
LOUISIANA (1.1%)
4,900 Public Facilities Auth. 0.98(o) 12/01/2043 4,900
--------
OKLAHOMA (0.1%)
690 Muskogee Industrial Trust 0.98(o) 1/01/2025 690
--------
PENNSYLVANIA (1.3%)
5,500 Emmaus General Auth. (INS) (LIQ) 1.01(o) 12/01/2028 5,500
--------
TEXAS (1.3%)
5,775 Port of Port Arthur Navigation District 1.36(o) 11/01/2040 5,775
--------
WASHINGTON (1.2%)
5,000 Health Care Facilities Auth. (LIQ)(e),(g) 1.32(o) 2/01/2019 5,000
--------
Total Variable-Rate Demand Notes 28,365
--------
Total Tax-Exempt Money Market Instruments (cost: $28,365) 28,365
--------
Total Tax-Exempt Securities (cost: $218,354) 223,477
--------
------------------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES
------------------------------------------------------------------------------------------------------------------
GOVERNMENT & U.S. TREASURY MONEY MARKET INSTRUMENTS (0.4%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (0.4%)
1,649,638 State Street Institutional Treasury Money Market Fund Premier Class, 1.02%(h) 1,650
--------
------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT
(000)
------------------------------------------------------------------------------------------------------------------
U.S. TREASURY BILLS (0.0%)(n)
$ 150 1.08%, 2/01/2018(l) 150
--------
Total Government & U.S. Treasury Money Market Instruments (cost: $1,800) 1,800
--------
================================================================================
10 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (48.3%)
BLUE CHIP STOCKS (48.3%)
CONSUMER DISCRETIONARY (5.9%)
-----------------------------
ADVERTISING (0.1%)
3,674 Interpublic Group of Companies, Inc. $ 73
2,053 Omnicom Group, Inc. 146
--------
219
--------
APPAREL RETAIL (0.2%)
1,129 Foot Locker, Inc. 48
2,024 Gap, Inc. 65
2,256 L Brands, Inc. 127
3,606 Ross Stores, Inc. 274
5,796 TJX Companies, Inc. 438
--------
952
--------
APPAREL, ACCESSORIES & LUXURY GOODS (0.2%)
3,343 Hanesbrands, Inc. 70
1,422 Michael Kors Holdings Ltd.* 83
713 PVH Corp. 96
517 Ralph Lauren Corp. 49
2,615 Tapestry, Inc. 109
1,305 Under Armour, Inc. "A"* 17
1,632 Under Armour, Inc. "C"* 19
3,036 VF Corp. 222
--------
665
--------
AUTO PARTS & EQUIPMENT (0.1%)
1,762 BorgWarner, Inc. 98
2,354 Delphi Automotive plc 247
--------
345
--------
AUTOMOBILE MANUFACTURERS (0.2%)
35,629 Ford Motor Co. 446
11,947 General Motors Co. 515
--------
961
--------
AUTOMOTIVE RETAIL (0.1%)
687 Advance Auto Parts, Inc. 69
262 AutoZone, Inc.* 180
1,750 CarMax, Inc.* 121
811 O'Reilly Automotive, Inc.* 191
--------
561
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 11
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
BROADCASTING (0.1%)
3,467 CBS Corp. "B" $ 195
1,843 Discovery Communications, Inc. "C"* 33
941 Scripps Networks Interactive, Inc. "A"(i) 77
--------
305
--------
CABLE & SATELLITE (0.5%)
1,833 Charter Communications, Inc. "A"* 598
42,060 Comcast Corp. "A" 1,579
2,074 DISH Network Corp. "A"* 105
--------
2,282
--------
CASINOS & GAMING (0.1%)
4,715 MGM Resorts International 161
728 Wynn Resorts Ltd. 115
--------
276
--------
COMPUTER & ELECTRONICS RETAIL (0.0%)
2,415 Best Buy Co., Inc. 144
--------
CONSUMER ELECTRONICS (0.0%)
876 Garmin Ltd. 54
--------
DEPARTMENT STORES (0.0%)
1,536 Kohl's Corp. 74
2,484 Macy's, Inc. 59
1,034 Nordstrom, Inc. 47
--------
180
--------
DISTRIBUTORS (0.1%)
1,337 Genuine Parts Co. 124
2,623 LKQ Corp.* 104
--------
228
--------
FOOTWEAR (0.2%)
12,098 NIKE, Inc. "B" 731
--------
GENERAL MERCHANDISE STORES (0.2%)
2,347 Dollar General Corp. 207
2,162 Dollar Tree, Inc.* 222
4,975 Target Corp. 298
--------
727
--------
HOME FURNISHINGS (0.1%)
1,182 Leggett & Platt, Inc. 57
566 Mohawk Industries, Inc.* 160
--------
217
--------
================================================================================
12 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
HOME IMPROVEMENT RETAIL (0.6%)
10,738 Home Depot, Inc. $ 1,931
7,437 Lowe's Companies, Inc. 620
--------
2,551
--------
HOMEBUILDING (0.1%)
3,030 D.R. Horton, Inc. 155
35 Lennar Corp. 2
1,737 Lennar Corp. "A" 109
2,649 PulteGroup, Inc. 90
--------
356
--------
HOTELS, RESORTS & CRUISE LINES (0.3%)
3,668 Carnival Corp. 241
2,056 Hilton Worldwide Holdings, Inc. 159
2,837 Marriott International, Inc. "A" 360
1,621 Norwegian Cruise Line Holdings Ltd.* 88
1,606 Royal Caribbean Cruises Ltd. 199
970 Wyndham Worldwide Corp. 109
--------
1,156
--------
HOUSEHOLD APPLIANCES (0.0%)
674 Whirlpool Corp. 114
--------
HOUSEWARES & SPECIALTIES (0.0%)
4,392 Newell Brands, Inc. 136
--------
INTERNET & DIRECT MARKETING RETAIL (1.4%)
3,633 Amazon.com, Inc.* 4,275
1,111 Expedia, Inc. 136
3,933 Netflix, Inc.* 738
436 Priceline Group, Inc.* 758
975 TripAdvisor, Inc.* 34
--------
5,941
--------
LEISURE PRODUCTS (0.0%)
1,004 Hasbro, Inc. 94
3,680 Mattel, Inc. 67
--------
161
--------
MOTORCYCLE MANUFACTURERS (0.0%)
1,600 Harley-Davidson, Inc. 80
--------
MOVIES & ENTERTAINMENT (0.6%)
6,820 Time Warner, Inc. 624
9,704 Twenty-First Century Fox, Inc. "A" 310
3,605 Twenty-First Century Fox, Inc. "B" 112
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
3,276 Viacom, Inc. "B" $ 93
14,415 Walt Disney Co. 1,511
--------
2,650
--------
PUBLISHING (0.0%)
3,584 News Corp. "A" 58
--------
RESTAURANTS (0.6%)
222 Chipotle Mexican Grill, Inc.* 68
1,252 Darden Restaurants, Inc. 105
7,378 McDonald's Corp. 1,269
13,153 Starbucks Corp. 760
2,991 Yum! Brands, Inc. 250
--------
2,452
--------
SPECIALIZED CONSUMER SERVICES (0.0%)
1,670 H&R Block, Inc. 44
--------
SPECIALTY STORES (0.1%)
558 Signet Jewelers Ltd. 29
930 Tiffany & Co. 88
1,196 Tractor Supply Co. 82
519 Ulta Beauty, Inc.* 115
--------
314
--------
TIRES & RUBBER (0.0%)
2,609 Goodyear Tire & Rubber Co. 84
--------
Total Consumer Discretionary 24,944
--------
CONSUMER STAPLES (3.9%)
-----------------------
AGRICULTURAL PRODUCTS (0.0%)
5,090 Archer-Daniels-Midland Co. 203
--------
BREWERS (0.0%)
1,717 Molson Coors Brewing Co. "B" 134
--------
DISTILLERS & VINTNERS (0.1%)
1,805 Brown-Forman Corp. "B" 108
1,572 Constellation Brands, Inc. "A" 342
--------
450
--------
DRUG RETAIL (0.3%)
9,494 CVS Health Corp. 727
7,909 Walgreens Boots Alliance, Inc. 576
--------
1,303
--------
FOOD DISTRIBUTORS (0.1%)
4,424 Sysco Corp. 256
--------
================================================================================
14 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
FOOD RETAIL (0.0%)
8,174 Kroger Co. $ 211
--------
HOUSEHOLD PRODUCTS (0.8%)
2,300 Church & Dwight Co., Inc. 108
1,190 Clorox Co. 166
8,024 Colgate-Palmolive Co. 581
3,274 Kimberly-Clark Corp. 392
23,230 Procter & Gamble Co. 2,091
--------
3,338
--------
HYPERMARKETS & SUPER CENTERS (0.5%)
3,995 Costco Wholesale Corp. 737
13,334 Wal-Mart Stores, Inc. 1,296
--------
2,033
--------
PACKAGED FOODS & MEAT (0.6%)
1,714 Campbell Soup Co. 84
3,679 ConAgra Brands, Inc. 137
5,320 General Mills, Inc. 301
1,241 Hershey Co. 138
2,388 Hormel Foods Corp. 87
1,034 J.M. Smucker Co. 121
2,219 Kellogg Co. 147
5,503 Kraft Heinz Co. 448
1,043 McCormick & Co., Inc. 107
14,079 Mondelez International, Inc. "A" 604
2,631 Tyson Foods, Inc. "A" 216
--------
2,390
--------
PERSONAL PRODUCTS (0.1%)
4,381 Coty, Inc. "A" 76
2,082 Estee Lauder Companies, Inc. "A" 260
--------
336
--------
SOFT DRINKS (0.8%)
34,835 Coca-Cola Co. 1,594
1,655 Dr. Pepper Snapple Group, Inc. 149
3,824 Monster Beverage Corp.* 240
12,873 PepsiCo, Inc. 1,500
--------
3,483
--------
TOBACCO (0.6%)
17,478 Altria Group, Inc. 1,185
13,721 Philip Morris International, Inc. 1,410
--------
2,595
--------
Total Consumer Staples 16,732
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 15
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
ENERGY (2.8%)
-------------
INTEGRATED OIL & GAS (1.4%)
17,264 Chevron Corp. $ 2,054
39,572 Exxon Mobil Corp.(i) 3,296
6,728 Occidental Petroleum Corp. 474
--------
5,824
--------
OIL & GAS DRILLING (0.0%)
951 Helmerich & Payne, Inc. 56
--------
OIL & GAS EQUIPMENT & SERVICES (0.3%)
3,740 Baker Hughes, a GE Co. 111
7,620 Halliburton Co. 318
3,504 National Oilwell Varco, Inc. 118
12,976 Schlumberger Ltd. 816
4,157 TechnipFMC plc 119
--------
1,482
--------
OIL & GAS EXPLORATION & PRODUCTION (0.7%)
5,105 Anadarko Petroleum Corp. 246
3,513 Apache Corp. 147
4,115 Cabot Oil & Gas Corp. 119
7,694 Chesapeake Energy Corp.* 31
788 Cimarex Energy Co. 91
1,371 Concho Resources, Inc.* 192
11,366 ConocoPhillips 578
4,847 Devon Energy Corp. 187
5,272 EOG Resources, Inc. 539
1,528 EQT Corp. 91
2,461 Hess Corp. 113
7,765 Marathon Oil Corp. 115
2,036 Newfield Exploration Co.* 63
4,486 Noble Energy, Inc. 118
1,588 Pioneer Natural Resources Co. 248
2,081 Range Resources Corp. 38
--------
2,916
--------
OIL & GAS REFINING & MARKETING (0.3%)
1,213 Andeavor 128
4,611 Marathon Petroleum Corp. 289
3,797 Phillips 66 370
4,066 Valero Energy Corp. 348
--------
1,135
--------
OIL & GAS STORAGE & TRANSPORTATION (0.1%)
17,108 Kinder Morgan, Inc. 295
================================================================================
16 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
3,468 ONEOK, Inc. $ 180
7,267 Williams Companies, Inc. 211
--------
686
--------
Total Energy 12,099
--------
FINANCIALS (7.1%)
-----------------
ASSET MANAGEMENT & CUSTODY BANKS (0.6%)
518 Affiliated Managers Group, Inc. 103
1,383 Ameriprise Financial, Inc. 226
9,352 Bank of New York Mellon Corp. 512
1,116 BlackRock, Inc. 559
2,997 Franklin Resources, Inc. 130
3,613 Invesco Ltd. 131
1,926 Northern Trust Corp.(j) 188
3,447 State Street Corp. 329
2,189 T. Rowe Price Group, Inc. 225
--------
2,403
--------
CONSUMER FINANCE (0.4%)
6,765 American Express Co. 661
4,410 Capital One Financial Corp. 406
3,494 Discover Financial Services 247
2,650 Navient Corp. 33
6,935 Synchrony Financial 249
--------
1,596
--------
DIVERSIFIED BANKS (2.5%)
89,376 Bank of America Corp. 2,518
24,820 Citigroup, Inc. 1,874
32,057 JPMorgan Chase & Co. 3,350
14,355 U.S. Bancorp 792
40,698 Wells Fargo & Co.(i) 2,298
--------
10,832
--------
FINANCIAL EXCHANGES & DATA (0.4%)
970 CBOE Holdings, Inc. 120
3,122 CME Group, Inc. 467
5,361 Intercontinental Exchange, Inc. 383
1,532 Moody's Corp. 232
1,159 NASDAQ, Inc. 92
2,291 S&P Global, Inc. 379
--------
1,673
--------
INSURANCE BROKERS (0.3%)
2,316 Aon plc 324
1,703 Arthur J. Gallagher & Co. 112
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
4,644 Marsh & McLennan Companies, Inc. $ 390
1,255 Willis Towers Watson plc 202
--------
1,028
--------
INVESTMENT BANKING & BROKERAGE (0.5%)
10,857 Charles Schwab Corp. 530
2,785 E*Trade Financial Corp.* 134
3,262 Goldman Sachs Group, Inc. 808
12,754 Morgan Stanley 658
1,192 Raymond James Financial, Inc. 105
--------
2,235
--------
LIFE & HEALTH INSURANCE (0.4%)
3,263 AFLAC, Inc. 286
883 Brighthouse Financial, Inc.* 52
1,996 Lincoln National Corp. 153
9,721 MetLife, Inc. 522
2,366 Principal Financial Group, Inc. 167
3,937 Prudential Financial, Inc. 456
1,161 Torchmark Corp. 103
2,360 Unum Group 134
--------
1,873
--------
MULTI-LINE INSURANCE (0.2%)
8,230 American International Group, Inc. 494
3,318 Hartford Financial Services Group, Inc. 191
2,514 Loews Corp. 126
--------
811
--------
MULTI-SECTOR HOLDINGS (0.8%)
17,344 Berkshire Hathaway, Inc. "B"* 3,348
2,777 Leucadia National Corp. 73
--------
3,421
--------
PROPERTY & CASUALTY INSURANCE (0.4%)
3,329 Allstate Corp. 342
4,115 Chubb Ltd. 626
1,525 Cincinnati Financial Corp. 114
5,434 Progressive Corp. 289
2,551 Travelers Companies, Inc. 346
2,431 XL Group Ltd. 94
--------
1,811
--------
REGIONAL BANKS (0.6%)
7,177 BB&T Corp. 355
4,616 Citizens Financial Group, Inc. 188
1,753 Comerica, Inc. 146
================================================================================
18 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
6,711 Fifth Third Bancorp $ 205
9,930 Huntington Bancshares, Inc. 143
10,027 KeyCorp 190
1,384 M&T Bank Corp. 234
4,418 PNC Financial Services Group, Inc. 621
10,886 Regions Financial Corp. 180
4,482 SunTrust Banks, Inc. 276
2,072 Zions Bancorp 103
--------
2,641
--------
REINSURANCE (0.0%)
375 Everest Re Group Ltd. 82
--------
Total Financials 30,406
--------
HEALTH CARE (6.8%)
------------------
BIOTECHNOLOGY (1.3%)
14,374 AbbVie, Inc. 1,393
2,034 Alexion Pharmaceuticals, Inc.* 223
6,536 Amgen, Inc. 1,148
1,878 Biogen, Inc.* 605
7,307 Celgene Corp.* 737
12,195 Gilead Sciences, Inc. 912
1,552 Incyte Corp.* 154
708 Regeneron Pharmaceuticals, Inc.* 256
2,283 Vertex Pharmaceuticals, Inc.* 330
--------
5,758
--------
HEALTH CARE DISTRIBUTORS (0.2%)
1,544 AmerisourceBergen Corp. 131
2,930 Cardinal Health, Inc. 173
1,445 Henry Schein, Inc.* 103
1,872 McKesson Corp. 277
--------
684
--------
HEALTH CARE EQUIPMENT (1.3%)
15,828 Abbott Laboratories(i) 892
4,622 Baxter International, Inc. 303
2,074 Becton, Dickinson & Co. 473
12,651 Boston Scientific Corp.* 332
662 C.R. Bard, Inc. 222
5,636 Danaher Corp. 532
1,920 Edwards Lifesciences Corp.* 225
2,461 Hologic, Inc.* 103
808 IDEXX Laboratories, Inc.* 126
1,029 Intuitive Surgical, Inc.* 411
12,340 Medtronic plc 1,014
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
1,294 ResMed, Inc. $ 111
2,966 Stryker Corp. 463
810 Varian Medical Systems, Inc.* 91
2,171 Zimmer Biomet Holdings, Inc. 254
--------
5,552
--------
HEALTH CARE FACILITIES (0.1%)
2,661 HCA Healthcare, Inc.* 226
832 Universal Health Services, Inc. "B" 90
--------
316
--------
HEALTH CARE SERVICES (0.2%)
1,271 DaVita, Inc.* 77
1,218 Envision Healthcare Corp.* 39
5,104 Express Scripts Holding Co.* 333
927 Laboratory Corp. of America Holdings* 147
1,226 Quest Diagnostics, Inc. 121
--------
717
--------
HEALTH CARE SUPPLIES (0.1%)
658 Align Technology, Inc.* 172
445 Cooper Companies, Inc. 107
2,090 Dentsply Sirona, Inc. 140
--------
419
--------
HEALTH CARE TECHNOLOGY (0.0%)
2,904 Cerner Corp.* 205
--------
LIFE SCIENCES TOOLS & SERVICES (0.4%)
3,001 Agilent Technologies, Inc. 208
1,347 Illumina, Inc.* 310
1,627 Iqvia Holdings, Inc.* 166
250 Mettler-Toledo International, Inc.* 157
1,114 PerkinElmer, Inc. 82
3,572 Thermo Fisher Scientific, Inc. 689
690 Waters Corp.* 136
--------
1,748
--------
MANAGED HEALTH CARE (1.0%)
3,022 Aetna, Inc. 545
2,330 Anthem, Inc. 547
1,565 Centene Corp.* 160
2,271 Cigna Corp. 481
1,316 Humana, Inc. 343
8,807 UnitedHealth Group, Inc. 2,009
--------
4,085
--------
================================================================================
20 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS (2.2%)
3,123 Allergan plc $ 543
14,940 Bristol-Myers Squibb Co. 944
8,563 Eli Lilly & Co. 725
24,210 Johnson & Johnson(i) 3,373
25,543 Merck & Co., Inc. 1,412
4,944 Mylan N.V.* 180
1,190 Perrigo Co. plc 104
53,417 Pfizer, Inc. 1,937
4,481 Zoetis, Inc. 324
--------
9,542
--------
Total Health Care 29,026
--------
INDUSTRIALS (4.9%)
-------------------
AEROSPACE & DEFENSE (1.2%)
3,879 Arconic, Inc. 95
5,046 Boeing Co. 1,397
2,590 General Dynamics Corp. 537
712 L3 Technologies, Inc. 141
2,228 Lockheed Martin Corp. 711
1,594 Northrop Grumman Corp. 490
2,710 Raytheon Co. 518
1,482 Rockwell Collins, Inc. 196
2,574 Textron, Inc. 143
443 TransDigm Group, Inc. 126
6,767 United Technologies Corp. 822
--------
5,176
--------
AGRICULTURAL & FARM MACHINERY (0.1%)
2,949 Deere & Co. 442
--------
AIR FREIGHT & LOGISTICS (0.4%)
1,279 C.H. Robinson Worldwide, Inc. 111
1,610 Expeditors International of Washington, Inc. 104
2,220 FedEx Corp. 514
6,274 United Parcel Service, Inc. "B" 762
--------
1,491
--------
AIRLINES (0.3%)
1,031 Alaska Air Group, Inc. 71
3,997 American Airlines Group, Inc. 202
6,141 Delta Air Lines, Inc. 325
5,077 Southwest Airlines Co. 308
2,553 United Continental Holdings, Inc.* 162
--------
1,068
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 21
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
BUILDING PRODUCTS (0.2%)
1,344 A.O. Smith Corp. $ 85
975 Allegion plc 82
1,553 Fortune Brands Home & Security, Inc. 106
8,596 Johnson Controls International plc 324
3,073 Masco Corp. 132
--------
729
--------
CONSTRUCTION & ENGINEERING (0.0%)
1,020 Fluor Corp. 49
963 Jacobs Engineering Group, Inc. 63
1,392 Quanta Services, Inc.* 53
--------
165
--------
CONSTRUCTION MACHINERY & HEAVY TRUCKS (0.3%)
5,384 Caterpillar, Inc. 760
1,364 Cummins, Inc. 228
3,281 PACCAR, Inc. 231
--------
1,219
--------
DIVERSIFIED SUPPORT SERVICES (0.0%)
762 Cintas Corp. 120
--------
ELECTRICAL COMPONENTS & EQUIPMENT (0.3%)
406 Acuity Brands, Inc. 69
2,103 AMETEK, Inc. 153
4,054 Eaton Corp. plc 315
5,920 Emerson Electric Co. 384
1,144 Rockwell Automation, Inc. 221
--------
1,142
--------
ENVIRONMENTAL & FACILITIES SERVICES (0.1%)
2,086 Republic Services, Inc. 136
708 Stericycle, Inc.* 47
3,711 Waste Management, Inc. 305
--------
488
--------
HUMAN RESOURCE & EMPLOYMENT SERVICES (0.0%)
1,300 Robert Half International, Inc. 74
--------
INDUSTRIAL CONGLOMERATES (1.0%)
5,398 3M Co. 1,312
80,856 General Electric Co.(i) 1,479
6,699 Honeywell International, Inc. 1,045
942 Roper Technologies, Inc. 252
--------
4,088
--------
================================================================================
22 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
INDUSTRIAL MACHINERY (0.4%)
1,435 Dover Corp. $ 140
1,268 Flowserve Corp. 54
2,848 Fortive Corp. 213
2,839 Illinois Tool Works, Inc. 480
2,268 Ingersoll-Rand plc 199
1,216 Parker-Hannifin Corp. 228
1,502 Pentair plc 107
590 Snap-On, Inc. 100
1,292 Stanley Black & Decker, Inc. 219
1,548 Xylem, Inc. 107
--------
1,847
--------
RAILROADS (0.4%)
8,426 CSX Corp. 470
960 Kansas City Southern 107
2,582 Norfolk Southern Corp. 358
7,288 Union Pacific Corp. 922
--------
1,857
--------
RESEARCH & CONSULTING SERVICES (0.1%)
1,096 Equifax, Inc. 125
3,349 IHS Markit Ltd.* 149
3,607 Nielsen Holdings plc 133
1,377 Verisk Analytics, Inc.* 133
--------
540
--------
TRADING COMPANIES & DISTRIBUTORS (0.1%)
2,691 Fastenal Co. 141
744 United Rentals, Inc.* 119
478 W.W. Grainger, Inc. 106
--------
366
--------
TRUCKING (0.0%)
714 JB Hunt Transport Services, Inc. 79
--------
Total Industrials 20,891
--------
INFORMATION TECHNOLOGY (11.6%)
------------------------------
APPLICATION SOFTWARE (0.6%)
4,438 Adobe Systems, Inc.* 805
796 ANSYS, Inc.* 118
2,021 Autodesk, Inc.* 222
2,583 Cadence Design Systems, Inc.* 113
1,380 Citrix Systems, Inc.* 121
2,223 Intuit, Inc. 350
================================================================================
PORTFOLIO OF INVESTMENTS | 23
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
6,219 salesforce.com, Inc.* $ 649
1,398 Synopsys, Inc.* 126
--------
2,504
--------
COMMUNICATIONS EQUIPMENT (0.5%)
45,146 Cisco Systems, Inc. 1,684
561 F5 Networks, Inc.* 75
1,100 Harris Corp. 159
3,064 Juniper Networks, Inc. 85
1,485 Motorola Solutions, Inc. 140
--------
2,143
--------
DATA PROCESSING & OUTSOURCED SERVICES (1.3%)
446 Alliance Data Systems Corp. 107
3,991 Automatic Data Processing, Inc. 457
3,104 Fidelity National Information Services, Inc. 293
1,920 Fiserv, Inc.* 252
1,450 Global Payments, Inc. 146
8,418 MasterCard, Inc. "A" 1,267
2,957 Paychex, Inc. 199
10,200 PayPal Holdings, Inc.* 772
1,527 Total System Services, Inc. 113
16,518 Visa, Inc. "A" 1,860
3,830 Western Union Co. 75
--------
5,541
--------
ELECTRONIC COMPONENTS (0.1%)
2,817 Amphenol Corp. "A" 255
8,228 Corning, Inc. 267
--------
522
--------
ELECTRONIC EQUIPMENT & INSTRUMENTS (0.0%)
1,385 FLIR Systems, Inc. 65
--------
ELECTRONIC MANUFACTURING SERVICES (0.1%)
3,258 TE Connectivity Ltd. 308
--------
HOME ENTERTAINMENT SOFTWARE (0.2%)
6,961 Activision Blizzard, Inc. 434
2,846 Electronic Arts, Inc.* 303
--------
737
--------
INTERNET SOFTWARE & SERVICES (2.3%)
1,562 Akamai Technologies, Inc.* 87
2,716 Alphabet, Inc. "A"* 2,814
2,750 Alphabet, Inc. "C"* 2,809
9,196 eBay, Inc.* 319
================================================================================
24 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
21,584 Facebook, Inc. "A"* $ 3,824
849 VeriSign, Inc.* 98
--------
9,951
--------
IT CONSULTING & OTHER SERVICES (0.7%)
5,486 Accenture plc "A" 812
5,487 Cognizant Technology Solutions Corp. "A" 397
1,287 CSRA, Inc. 37
2,609 DXC Technology Co. 251
827 Gartner, Inc.* 100
8,094 International Business Machines Corp. 1,246
--------
2,843
--------
SEMICONDUCTOR EQUIPMENT (0.2%)
9,813 Applied Materials, Inc. 518
1,382 KLA-Tencor Corp. 141
1,473 Lam Research Corp. 283
--------
942
--------
SEMICONDUCTORS (1.7%)
7,516 Advanced Micro Devices, Inc.* 82
3,352 Analog Devices, Inc. 289
3,703 Broadcom Ltd. 1,029
42,806 Intel Corp. 1,919
2,145 Microchip Technology, Inc. 187
10,148 Micron Technology, Inc.* 430
5,465 NVIDIA Corp. 1,097
1,030 Qorvo, Inc.* 79
13,797 QUALCOMM, Inc. 915
1,701 Skyworks Solutions, Inc. 178
8,840 Texas Instruments, Inc. 860
2,233 Xilinx, Inc. 155
--------
7,220
--------
SYSTEMS SOFTWARE (1.8%)
2,879 CA, Inc. 95
70,165 Microsoft Corp.(i) 5,906
27,427 Oracle Corp. 1,346
1,588 Red Hat, Inc.* 201
5,739 Symantec Corp. 166
--------
7,714
--------
TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (2.1%)
47,055 Apple, Inc.(i) 8,086
15,299 Hewlett Packard Enterprise Co. 213
15,371 HP, Inc. 330
2,488 NetApp, Inc. 140
================================================================================
PORTFOLIO OF INVESTMENTS | 25
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
2,663 Seagate Technology plc $ 103
2,659 Western Digital Corp. 210
2,213 Xerox Corp. 66
--------
9,148
--------
Total Information Technology 49,638
--------
MATERIALS (1.4%)
----------------
COMMODITY CHEMICALS (0.1%)
2,956 LyondellBasell Industries N.V. "A" 310
--------
CONSTRUCTION MATERIALS (0.1%)
582 Martin Marietta Materials, Inc. 122
1,204 Vulcan Materials Co. 151
--------
273
--------
DIVERSIFIED CHEMICALS (0.4%)
21,255 DowDuPont, Inc. 1,529
1,283 Eastman Chemical Co. 119
--------
1,648
--------
DIVERSIFIED METALS & MINING (0.0%)
12,380 Freeport-McMoRan, Inc.* 172
--------
FERTILIZERS & AGRICULTURAL CHEMICALS (0.2%)
2,035 CF Industries Holdings, Inc. 76
1,221 FMC Corp. 115
3,873 Monsanto Co. 459
3,264 Mosaic Co. 79
--------
729
--------
GOLD (0.0%)
4,916 Newmont Mining Corp. 182
--------
INDUSTRIAL GASES (0.2%)
1,923 Air Products & Chemicals, Inc. 314
2,671 Praxair, Inc. 411
--------
725
--------
METAL & GLASS CONTAINERS (0.0%)
3,094 Ball Corp. 123
--------
PAPER PACKAGING (0.1%)
906 Avery Dennison Corp. 103
3,771 International Paper Co. 214
860 Packaging Corp. of America 102
1,821 Sealed Air Corp. 88
2,313 WestRock Co. 144
--------
651
--------
================================================================================
26 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
SPECIALTY CHEMICALS (0.3%)
1,007 Albemarle Corp. $ 135
2,321 Ecolab, Inc. 315
719 International Flavors & Fragrances, Inc. 112
2,183 PPG Industries, Inc. 255
768 Sherwin-Williams Co. 307
--------
1,124
--------
STEEL (0.0%)
2,663 Nucor Corp. 153
--------
Total Materials 6,090
--------
REAL ESTATE (1.4%)
------------------
REAL ESTATE SERVICES (0.0%)
2,808 CBRE Group, Inc. "A"* 122
--------
REITs - HEALTH CARE (0.1%)
4,358 HCP, Inc. 115
3,300 Ventas, Inc. 211
3,536 Welltower, Inc. 239
--------
565
--------
REITs - HOTEL & RESORT (0.0%)
6,924 Host Hotels & Resorts, Inc. 137
--------
REITs - INDUSTRIAL (0.1%)
3,247 Duke Realty Corp. 91
4,845 ProLogis, Inc. 321
--------
412
--------
REITs - OFFICE (0.1%)
832 Alexandria Real Estate Equities, Inc. 106
1,478 Boston Properties, Inc. 185
888 SL Green Realty Corp. 91
1,602 Vornado Realty Trust 124
--------
506
--------
REITs - RESIDENTIAL (0.2%)
1,258 AvalonBay Communities, Inc. 228
3,386 Equity Residential 227
709 Essex Property Trust, Inc. 175
1,171 Mid-America Apartment Communities, Inc. 120
2,624 UDR, Inc. 103
--------
853
--------
REITs - RETAIL (0.3%)
663 Federal Realty Investment Trust 88
6,726 GGP, Inc. 158
================================================================================
PORTFOLIO OF INVESTMENTS | 27
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
3,567 Kimco Realty Corp. $ 66
2,496 Realty Income Corp. 138
1,543 Regency Centers Corp. 105
2,878 Simon Property Group, Inc. 465
--------
1,020
--------
REITs - SPECIALIZED (0.6%)
3,776 American Tower Corp. 543
3,745 Crown Castle International Corp. 423
1,886 Digital Realty Trust, Inc. 220
712 Equinix, Inc. 331
1,147 Extra Space Storage, Inc. 98
2,366 Iron Mountain, Inc. 97
1,363 Public Storage 290
1,109 SBA Communications Corp.* 188
6,942 Weyerhaeuser Co. 246
--------
2,436
--------
Total Real Estate 6,051
--------
TELECOMMUNICATION SERVICES (1.0%)
---------------------------------
ALTERNATIVE CARRIERS (0.0%)
9,402 CenturyLink, Inc. 137
--------
INTEGRATED TELECOMMUNICATION SERVICES (1.0%)
57,342 AT&T, Inc.(i) 2,086
38,096 Verizon Communications, Inc. 1,939
--------
4,025
--------
Total Telecommunication Services 4,162
--------
UTILITIES (1.5%)
----------------
ELECTRIC UTILITIES (1.0%)
2,301 Alliant Energy Corp. 104
4,535 American Electric Power Co., Inc. 352
6,147 Duke Energy Corp. 548
2,813 Edison International 229
1,670 Entergy Corp. 144
2,886 Eversource Energy 187
8,852 Exelon Corp. 369
4,254 FirstEnergy Corp. 145
4,239 NextEra Energy, Inc. 670
4,728 PG&E Corp. 256
1,023 Pinnacle West Capital Corp. 94
6,354 PPL Corp. 233
================================================================================
28 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
9,081 Southern Co. $ 465
4,625 Xcel Energy, Inc. 239
--------
4,035
--------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS (0.0%)
4,592 AES Corp. 49
2,902 NRG Energy, Inc. 80
--------
129
--------
MULTI-UTILITIES (0.5%)
2,468 Ameren Corp. 158
3,974 CenterPoint Energy, Inc. 119
2,468 CMS Energy Corp. 123
2,789 Consolidated Edison, Inc. 248
5,851 Dominion Energy, Inc. 492
1,653 DTE Energy Co. 191
3,499 NiSource, Inc. 96
4,608 Public Service Enterprise Group, Inc. 245
1,301 SCANA Corp. 56
2,211 Sempra Energy 268
2,943 WEC Energy Group, Inc. 205
--------
2,201
--------
WATER UTILITIES (0.0%)
1,625 American Water Works Co., Inc. 149
--------
Total Utilities 6,514
--------
Total Blue Chip Stocks (cost: $103,881) 206,553
--------
RIGHTS (0.0%)
CONSUMER STAPLES (0.0%)
-----------------------
FOOD RETAIL (0.0%)
1,460 Safeway Casa Ley CVR*(b),(k),(p) 1
1,460 Safeway PDC, LLC CVR*(b),(k),(p) -
--------
1
--------
Total Consumer Staples 1
--------
Total Rights (cost: $1) 1
--------
Total Equity Securities (cost: $103,882) 206,554
--------
TOTAL INVESTMENTS (COST: $324,036) $431,831
========
================================================================================
PORTFOLIO OF INVESTMENTS | 29
================================================================================
------------------------------------------------------------------------------------------------------------------
UNREALIZED
NOTIONAL CONTRACT APPRECIATION/
NUMBER OF EXPIRATION AMOUNT VALUE (DEPRECIATION)
CONTRACTS SECURITY DATE (000) (000) (000)
------------------------------------------------------------------------------------------------------------------
FUTURES(m)
LONG FUTURES
EQUITY CONTRACTS
11 E-mini S&P 500 12/15/2017 1,416 USD 1,456 40
------ --------
Total Long Futures $1,456 $ 40
------ --------
TOTAL FUTURES $1,456 $ 40
====== ========
------------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
------------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------------------------------------------------------------------------------------------------------------------
Tax-Exempt Securities:
Tax-Exempt Bonds $ - $195,112 $- $195,112
Tax-Exempt Money Market Instruments:
Variable-Rate Demand Notes - 28,365 - 28,365
Government & U.S. Treasury Money
Market Instruments:
Government & U.S. Treasury Money
Market Funds 1,650 - - 1,650
U.S. Treasury Bills 150 - - 150
Equity Securities:
Blue Chip Stocks 206,553 - - 206,553
Rights - - 1 1
Futures(1) 40 - - 40
------------------------------------------------------------------------------------------------------------------
Total $208,393 $223,477 $1 $431,871
------------------------------------------------------------------------------------------------------------------
(1) Futures are valued at the unrealized appreciation/(depreciation) on the
investment.
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
================================================================================
30 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
RECONCILIATION OF LEVEL 3 INVESTMENTS
------------------------------------------------------------------------------------------------------------------
($ IN 000s) RIGHTS
------------------------------------------------------------------------------------------------------------------
Balance as of May 31, 2017 $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, 2017 $1
------------------------------------------------------------------------------------------------------------------
For the period of June 1, 2017, through November 30, 2017, there were no
transfers of securities between levels. The Fund's policy is to recognize any
transfers in and transfers out as of the beginning of the reporting period in
which the event or circumstance that caused the transfer occurred.
================================================================================
PORTFOLIO OF INVESTMENTS | 31
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
November 30, 2017 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
Market values of securities are determined by procedures and practices
discussed in Note 1A to the financial statements.
The Portfolio of Investments category percentages shown represent the
percentages of the investments to net assets, and, in total, may not equal
100%. A category percentage of 0.0% represents less than 0.1% of net assets.
o 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
CCD Community College District
EDA Economic Development Authority
HSD High School District
IDA Industrial Development Authority/Agency
================================================================================
32 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
MTA Metropolitan Transportation Authority
PRE Pre-refunded to a date prior to maturity
REIT Real estate investment trust - Dividend distributions from REITs
may be recorded as income and later characterized by the REIT at
the end of the fiscal year as capital gains or a return of
capital. Thus, the Fund will estimate the components of
distributions from these securities and revise when actual
distributions are known.
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., or National Public Finance
Guarantee Corp. Although bond insurance reduces the risk of loss
due to default by an issuer, such bonds remain subject to the
risk that value may fluctuate for other reasons, and there is no
assurance that the insurance company will meet its obligations.
(LIQ) Liquidity enhancement that may, under certain circumstances,
provide for repayment of principal and interest upon demand from
one of the following: Deutsche Bank A.G., JP Morgan Chase & Co.,
or Wells Fargo & Co.
(LOC) Principal and interest payments are guaranteed by a bank letter of
credit or other bank credit agreement.
(NBGA) Principal and interest payments are guaranteed by a nonbank
guarantee agreement from Texas Permanent School Fund.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 33
================================================================================
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, 2017, was $179,000, 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.
(d) Up to 6.05% of the coupon may be PIK.
(e) Restricted security that is not registered under the Securities Act of
1933. A resale of this security in the United States may occur in an
exempt transaction to a qualified institutional buyer as defined by
Rule 144A, and as such has been deemed liquid by the Manager under
liquidity guidelines approved by the Board, unless otherwise noted as
illiquid.
(f) At November 30, 2017, the aggregate market value of securities purchased
on a delayed-delivery basis was $2,214,000, of which all were
when-issued securities.
(g) At November 30, 2017, the security, or a portion thereof, was segregated
to cover delayed-delivery and/or when-issued purchases.
(h) Rate represents the money market fund annualized seven-day yield at
November 30, 2017.
(i) The security, or a portion thereof, is segregated to cover the value of
open futures contracts at November 30, 2017.
(j) Northern Trust Corp. is the parent of Northern Trust Investments, Inc.,
which is the subadviser of the Fund.
================================================================================
34 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
(k) Security was fair valued at November 30, 2017, 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.
(l) Securities with a value of $150,000 are segregated as collateral for
initial margin requirements on open futures contracts.
(m) The contract value of futures purchased and/or sold as a percentage
of net assets is 0.3%.
(n) Rate represents an annualized yield at time of purchase, not coupon
rate.
(o) Variable-rate demand notes - interest rate is determined by the issuer
or agent based on current market conditions, and is not based on a
published reference rate and spread. These securities do not indicate
a reference rate and spread in their description.
(p) Security was fair valued at Level 3.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 35
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
November 30, 2017 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $324,036) $431,831
Cash 16
Receivables:
Capital shares sold 242
Dividends and interest 3,056
Variation margin on futures contracts 40
--------
Total assets 435,185
--------
LIABILITIES
Payables:
Securities purchased 6,805
Capital shares redeemed 152
Accrued management fees 115
Accrued transfer agent's fees 14
Other accrued expenses and payables 139
--------
Total liabilities 7,225
--------
Net assets applicable to capital shares outstanding $427,960
========
NET ASSETS CONSIST OF:
Paid-in capital $325,817
Accumulated undistributed net investment income 1,808
Accumulated net realized loss on investments and futures transactions (7,500)
Net unrealized appreciation of investments and futures contracts 107,835
--------
Net assets applicable to capital shares outstanding $427,960
========
Capital shares outstanding, no par value 21,804
========
Net asset value, redemption price, and offering price per share $ 19.63
========
See accompanying notes to financial statements.
================================================================================
36 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended November 30, 2017 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends $ 2,082
Interest 4,110
-------
Total income 6,192
-------
EXPENSES
Management fees 890
Administration and servicing fees 306
Transfer agent's fees 156
Custody and accounting fees 83
Postage 10
Shareholder reporting fees 12
Trustees' fees 17
Registration fees 20
Professional fees 48
Other 9
-------
Total expenses 1,551
-------
NET INVESTMENT INCOME 4,641
-------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS AND FUTURES CONTRACTS
Net realized gain on:
Investments 829
Futures transactions 94
Change in net unrealized appreciation/(depreciation) of:
Investments 17,487
Futures contracts 33
-------
Net realized and unrealized gain 18,443
-------
Increase in net assets resulting from operations $23,084
=======
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 37
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended November 30, 2017 (unaudited), and year ended
May 31, 2017
----------------------------------------------------------------------------------------------------------------
11/30/2017 5/31/2017
----------------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 4,641 $ 8,361
Net realized gain on investments 829 5,305
Net realized gain on futures transactions 94 393
Change in net unrealized appreciation/(depreciation) of:
Investments 17,487 13,470
Futures contracts 33 (69)
-----------------------------
Increase in net assets resulting from operations 23,084 27,460
-----------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (4,496) (8,091)
-----------------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 38,163 93,123
Reinvested dividends 4,197 7,516
Cost of shares redeemed (24,008) (56,322)
-----------------------------
Increase in net assets from capital share transactions 18,352 44,317
-----------------------------
Net increase in net assets 36,940 63,686
NET ASSETS
Beginning of period 391,020 327,334
-----------------------------
End of period $427,960 $391,020
=============================
Accumulated undistributed net investment income:
End of period $ 1,808 $ 1,663
=============================
CHANGE IN SHARES OUTSTANDING
Shares sold 2,000 5,140
Shares issued for dividends reinvested 222 418
Shares redeemed (1,259) (3,114)
-----------------------------
Increase in shares outstanding 963 2,444
=============================
See accompanying notes to financial statements.
================================================================================
38 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
November 30, 2017 (unaudited)
--------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company Act
of 1940, as amended (the 1940 Act), is an open-end management investment company
organized as a Delaware statutory trust consisting of 51 separate funds.
Additionally, USAA Growth and Tax Strategy Fund (the Fund) qualifies as a
registered investment company under Accounting Standards Codification Topic 946.
The information presented in this semiannual report pertains only to the Fund,
which is classified as diversified under the 1940 Act and is authorized to issue
an unlimited number of shares. The Fund's investment objective is to seek 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 39
================================================================================
meetings to review prior actions taken by the Committee and USAA Asset
Management Company (the Manager), an affiliate of the Fund. Among other
things, these monthly meetings include a review and analysis of backtesting
reports, pricing service quotation comparisons, illiquid securities and
fair value determinations, pricing movements, and daily stale price
monitoring.
The value of each security is determined (as of the close of trading on the
New York Stock Exchange (NYSE) on each business day the NYSE is open) as
set forth below:
1. Equity securities, including exchange-traded funds (ETFs), except as
otherwise noted, traded primarily on a domestic securities exchange or
the over-the-counter markets, are valued at the last sales price or
official closing price on the exchange or primary market on which they
trade. Securities traded primarily on foreign securities exchanges or
markets are valued at the last quoted sale price, or the most recently
determined official closing price calculated according to local market
convention, available at the time the Fund is valued. If no last sale
or official closing price is reported or available, the average of the
bid and ask prices generally is used. Actively traded equity securities
listed on a domestic exchange generally are categorized in Level 1 of
the fair value hierarchy. Certain preferred and equity securities traded
in inactive markets generally are categorized in Level 2 of the fair
value hierarchy.
2. 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 ask prices or
the last sales price to value a security when, in the Service's
================================================================================
40 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
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. 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.
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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 41
================================================================================
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 value derived from 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,
================================================================================
42 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
guarantees the transactions against default from the actual counterparty to
the transaction. The Fund's derivative agreements held at November 30,
2017, did not include master netting provisions.
FUTURES CONTRACTS - The Fund is subject to equity price risk, interest rate
risk, and foreign currency exchange rate risk in the normal course of
pursuing its investment objectives. The Fund may use futures contracts to
gain exposure to, or hedge against, changes in the value of equities,
interest rates, or foreign currencies. A futures contract represents a
commitment for the future purchase or sale of an asset at a specified price
on a specified date. Upon entering into such contracts, the Fund is
required to deposit with the broker in either cash or securities an initial
margin in an amount equal to a certain percentage of the contract amount.
Subsequent payments (variation margin) are made or received by the Fund
each day, depending on the daily fluctuations in the value of the contract,
and are recorded for financial statement purposes as unrealized gains or
losses. When the contract is closed, the Fund records a realized gain or
loss equal to the difference between the value of the contract at the time
it was opened and the value at the time it was closed. Upon entering into
such contracts, the Fund bears the risk of interest or exchange rates or
securities prices moving unexpectedly in an unfavorable direction, in which
case, the Fund may not achieve the anticipated benefits of the futures
contracts.
FAIR VALUES OF DERIVATIVE INSTRUMENTS AS OF NOVEMBER 30, 2017*
(IN THOUSANDS)
ASSET DERIVATIVES LIABILITY DERIVATIVES
--------------------------------------------------------------------------------------------------
STATEMENT OF STATEMENT OF
DERIVATIVES NOT ASSETS AND ASSETS AND
ACCOUNTED FOR AS LIABILITIES LIABILITIES
HEDGING INSTRUMENTS LOCATION FAIR VALUE LOCATION FAIR VALUE
--------------------------------------------------------------------------------------------------
Equity contracts Net unrealized $40** $-
appreciation of
investments and
futures contracts
--------------------------------------------------------------------------------------------------
* For open derivative instruments as of November 30, 2017, see the
Portfolio of Investments, which also is indicative of activity for the
six-month period ended November 30, 2017.
** Includes cumulative appreciation/(depreciation) of futures as reported on
the Portfolio of Investments. Only the variation margin from the last
business day of the reporting period is reported within the Statement of
Assets and Liabilities.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 43
================================================================================
THE EFFECT OF DERIVATIVE INSTRUMENTS ON THE STATEMENT OF OPERATIONS FOR THE
SIX-MONTH PERIOD ENDED NOVEMBER 30, 2017 (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 $94 $33
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.
For the six-month period ended November 30, 2017, the Fund did not incur
any income tax, interest, or penalties, and has recorded no liability for
net unrecognized tax benefits relating to uncertain income tax positions.
On an ongoing basis, the Manager will monitor the Fund's tax basis to
determine if adjustments to this conclusion are necessary. The statute of
limitations on the Fund's tax return filings generally remain open for the
three preceding fiscal reporting year ends and remain subject to
examination by the Internal Revenue Service and state taxing authorities.
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
================================================================================
44 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
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. SECURITIES PURCHASED ON A DELAYED-DELIVERY OR WHEN-ISSUED BASIS - Delivery
and payment for securities that have been purchased by the Fund on a
delayed-delivery or when-issued basis can take place a month or more after
the trade date. During the period prior to settlement, these securities do
not earn interest, are subject to market fluctuation, and may increase or
decrease in value prior to their delivery. The Fund maintains segregated
assets with a market value equal to or greater than the amount of its
purchase commitments. The purchase of securities on a delayed-delivery or
when-issued basis may increase the volatility of the Fund's NAV to the
extent that the Fund makes such purchases while remaining substantially
fully invested. As of November 30, 2017, the Fund's outstanding
delayed-delivery commitments, including interest purchased, were $2,205,000;
of which all were when-issued securities.
H. 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, 2017, there were no custodian and other bank
credits.
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 | 45
================================================================================
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, along with other funds of the Trust and USAA ETF Trust
(together, the Trusts), in a joint, short-term, revolving, committed loan
agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate of
the Manager. The purpose of the agreement is to provide temporary or emergency
cash needs, including redemption requests that might otherwise require the
untimely disposition of securities. Subject to availability (including usage of
the facility by other funds of the Trusts), the Fund may borrow from CAPCO an
amount up to 5% of the Fund's total assets at an interest rate based on the
London Interbank Offered Rate (LIBOR), plus 100.0 basis points.
The Trusts are also assessed facility fees by CAPCO in the amount of 13.0 basis
points of the amount of the committed loan agreement. Prior to September 30,
2017, the maximum annual facility fee was 12.0 basis points of the amount of the
committed loan agreement. The facility fees are allocated among the funds of the
Trusts based on their respective average net assets for the period.
The Trusts may request an optional increase of the committed loan agreement from
$500 million up to $750 million. If the Trusts increase the committed loan
agreement, the assessed facility fee on the amount of the additional commitment
will be 14.0 basis points.
For the six-month period ended November 30, 2017, the Fund paid CAPCO facility
fees of $2,000, which represents 0.5% of the total fees paid to CAPCO by the
funds of the Trusts. The Fund had no borrowings under this agreement during the
six-month period ended November 30, 2017.
(3) DISTRIBUTIONS
The tax basis of distributions and any accumulated undistributed net investment
income will be determined as of the Fund's tax year-end of May 31, 2018, in
accordance with applicable federal tax law.
================================================================================
46 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
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, 2017, the Fund had pre-enactment capital loss carryforwards of
$8,288,000 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 in 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
------- ------------
2018 $8,288,000
----------
Total $8,288,000
==========
(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, 2017, were
$28,379,000 and $25,389,000, respectively.
As of November 30, 2017, the cost of securities, including short-term
securities, for federal income tax purposes, was approximately the same as the
cost reported in the financial statements.
Gross unrealized appreciation and depreciation of investments as of November 30,
2017, were $112,808,000 and $5,013,000, respectively, resulting in net
unrealized appreciation of $107,795,000.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 47
================================================================================
(5) SECURITIES LENDING
The Fund, through its securities lending agreement with Citibank, N.A.
(Citibank), may lend its securities to qualified financial institutions, such as
certain broker-dealers, to earn additional income. The borrowers are required to
secure their loans continuously with collateral in an amount at least equal to
102% of the fair value of domestic securities and foreign government securities
loaned and 105% of the fair value of foreign securities and all other securities
loaned. Collateral may be cash, U.S. government securities, or other securities
as permitted by SEC guidelines. Cash collateral is invested in high-quality
short-term investments. Collateral requirements are determined daily based on
the prior business day's ending value of securities loaned. Risks to the Fund in
securities-lending transactions are that the borrower may not provide additional
collateral when required or return the securities when due, and that the value
of the short-term investments will be less than the amount of cash collateral
required to be returned to the borrower. The Fund's agreement with Citibank does
not include master netting provisions. Non-cash collateral received by the Fund
may not be sold or re-pledged except to satisfy borrower default. Cash
collateral is listed in the Fund's Portfolio of Investments and Financial
Statements while non-cash collateral is not included. For the six-month period
ended November 30, 2017, the Fund had no securities on loan.
(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 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 all or 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,
================================================================================
48 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
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 0.30% of the Fund's average net assets.
Prior to October 1, 2017, the Fund's base fee was 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 49
================================================================================
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 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, 2017, the Fund incurred total
management fees, paid or payable to the Manager, of $890,000, which
included a 0.01% performance adjustment of $11,000.
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, 2017, the
Manager incurred subadvisory fees with respect to the Fund, paid or
payable to NTI, of $130,000.
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, 2017, the Fund incurred administration and servicing
fees, paid or payable to the Manager, of $306,000.
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, 2017, the
================================================================================
50 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
Fund reimbursed the Manager $5,000 for these compliance and legal 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, 2017, the Fund incurred transfer agent's fees,
paid or payable to SAS, of $156,000.
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.
(7) TRANSACTIONS WITH AFFILIATES
The Manager is indirectly wholly owned by United Services Automobile Association
(USAA), a large, diversified financial services institution.
Certain trustees and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Fund.
(8) UPCOMING REGULATORY MATTERS
In October 2016, the U.S. Securities and Exchange Commission (SEC) issued Final
Rule Release No. 33-10231, INVESTMENT COMPANY REPORTING MODERNIZATION. In part,
the rules require the filing of new forms N-PORT and N-CEN, and amend Regulation
S-X to require standardized, enhanced disclosure about derivatives in investment
company financial statements, as well as other amendments.
In October 2016, the SEC issued Final Rule Release No. 33-10233, INVESTMENT
COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS. This rule requires funds to
establish a liquidity risk management program and enhances disclosures regarding
funds' liquidity.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 51
================================================================================
In October 2016, the SEC issued Final Rule Release No. 33-10234, INVESTMENT
COMPANY SWING PRICING. This rule permits certain funds to use swing pricing
during periods of heavy redemptions and requires certain disclosures regarding
the use of swing pricing in forms filed with the SEC.
The Manager continues to evaluate the impact these rules and amendments will
have on the financial statements and other disclosures. The compliance date for
new forms N-PORT and N-CEN is June 1, 2018 (with filing of Form N-PORT beginning
April 30, 2019), with other staggered compliance dates extending through April
30, 2019. The Fund is expected to comply with the June 1, 2018 compliance date
for new forms N-PORT and N-CEN.
================================================================================
52 | USAA GROWTH AND TAX STRATEGY 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,
-----------------------------------------------------------------------------------
2017 2017 2016 2015 2014 2013
-----------------------------------------------------------------------------------
Net asset value at
beginning of period $ 18.76 $ 17.79 $ 17.48 $ 16.86 $ 15.59 $ 14.02
-----------------------------------------------------------------------------------
Income from investment
operations:
Net investment income .22 .42 .43 .44 .41 .37
Net realized and
unrealized gain .86 .96 .35 .59 1.26 1.57
-----------------------------------------------------------------------------------
Total from investment
operations 1.08 1.38 .78 1.03 1.67 1.94
-----------------------------------------------------------------------------------
Less distributions from:
Net investment income (.21) (.41) (.47) (.41) (.40) (.37)
-----------------------------------------------------------------------------------
Net asset value at
end of period $ 19.63 $ 18.76 $ 17.79 $ 17.48 $ 16.86 $ 15.59
===================================================================================
Total return (%)* 5.81 7.88 4.60 6.16 10.92 14.07
Net assets at end of
period (000) $427,960 $391,020 $327,334 $283,181 $221,445 $188,461
Ratios to average
net assets:**
Expenses (%)(a) .76(b) .84 .87 .85 .92 .96
Net investment
income (%) 2.28(b) 2.33 2.53 2.63 2.60 2.51
Portfolio turnover (%) 7 4 10 9 5 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, 2017, average net assets
were $406,751,000.
(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%)(+)
(+) Represents less than 0.01% of average net assets.
(b) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 53
================================================================================
EXPENSE EXAMPLE
November 30, 2017 (unaudited)
--------------------------------------------------------------------------------
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: direct costs, such
as wire fees, redemption fees, and low balance fees; and indirect costs,
including management fees, transfer agency fees, and other Fund operating
expenses. This example is intended to help you understand your indirect costs,
also referred to as "ongoing costs" (in dollars), of investing in the Fund and
to compare these costs with the ongoing costs of investing in other mutual
funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire six-month period of June 1, 2017, through
November 30, 2017.
ACTUAL EXPENSES
The line labeled "actual" in the table provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested at the beginning of the period, to estimate the
expenses that you paid over the period. Simply divide your account value by
$1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number in the "actual" line under the heading
"Expenses Paid During Period" to estimate the expenses you paid on your account
during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The line labeled "hypothetical" in the table provides information about
hypothetical account values and hypothetical expenses based on the Fund's actual
expense ratio and an assumed rate of return of 5% per year before expenses,
which is not the Fund's actual return. The hypothetical account values and
expenses may not be used to estimate the actual ending account
================================================================================
54 | USAA GROWTH AND TAX STRATEGY 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, 2017 -
JUNE 1, 2017 NOVEMBER 30, 2017 NOVEMBER 30, 2017
---------------------------------------------------------------
Actual $1,000.00 $1,058.10 $3.92
Hypothetical
(5% return before expenses) 1,000.00 1,021.26 3.85
*Expenses are equal to the Fund's annualized expense ratio of 0.76%, 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 5.81% for the six-month period of June 1, 2017, through November 30,
2017.
================================================================================
EXPENSE EXAMPLE | 55
================================================================================
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Jefferson C. Boyce
Dawn M. Hawley
Paul L. McNamara
Richard Y. Newton III
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
--------------------------------------------------------------------------------
ADMINISTRATOR AND USAA Asset Management Company
INVESTMENT ADVISER P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
UNDERWRITER AND USAA Investment Management Company
DISTRIBUTOR P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
--------------------------------------------------------------------------------
CUSTODIAN AND State Street Bank and Trust Company
ACCOUNTING AGENT P.O. Box 1713
Boston, Massachusetts 02105
--------------------------------------------------------------------------------
INDEPENDENT Ernst & Young LLP
REGISTERED PUBLIC 100 West Houston St., Suite 1700
ACCOUNTING FIRM San Antonio, Texas 78205
--------------------------------------------------------------------------------
MUTUAL FUND Under "My Accounts" on
SELF-SERVICE 24/7 usaa.com select your mutual fund
AT USAA.COM account and either click the link or
select 'I want to...' and select
OR CALL the desired action.
(800) 531-USAA (8722)
(210) 531-8722
--------------------------------------------------------------------------------
Copies of the Manager's proxy voting policies and procedures, approved by the
Trust's Board of Trustees for use in voting proxies on behalf of the Fund, are
available without charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722;
(ii) at USAA.COM; and (iii) in summary within the Statement of Additional
Information on the SEC's website at HTTP://WWW.SEC.GOV. Information regarding
how the Fund voted proxies relating to portfolio securities during the most
recent 12-month period ended June 30 is available without charge (i) at
USAA.COM; and (ii) on the SEC's website at HTTP://WWW.SEC.GOV.
The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. These Forms N-Q are
available at no charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722;
(ii) at USAA.COM; and (iii) on the SEC's website at HTTP://WWW.SEC.GOV. These
Forms N-Q also may be reviewed and copied at the SEC's Public Reference Room in
Washington, D.C. Information on the operation of the Public Reference Room may
be obtained by calling (800) 732-0330.
================================================================================
--------------
USAA PRSRT STD
9800 Fredericksburg Road U.S. Postage
San Antonio, TX 78288 PAID
USAA
--------------
>> SAVE PAPER AND FUND COSTS
Under MY PROFILE on USAA.COM select MANAGE PREFERENCES
Set your DOCUMENT PREFERENCES to USAA DOCUMENTS ONLINE.
[LOGO OF USAA]
USAA We know what it means to serve.(R)
=============================================================================
27801-0118 (C)2018, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA INTERNATIONAL FUND]
==============================================================
SEMIANNUAL REPORT
USAA INTERNATIONAL FUND
FUND SHARES (USIFX) o INSTITUTIONAL SHARES (UIIFX)
o ADVISER SHARES (UAIFX)
NOVEMBER 30, 2017
==============================================================
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
INVESTMENT OVERVIEW 2
FINANCIAL INFORMATION
Portfolio of Investments 4
Notes to Portfolio of Investments 27
Financial Statements 29
Notes to Financial Statements 33
EXPENSE EXAMPLE 53
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)2018, USAA. All rights reserved.
================================================================================
================================================================================
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 significant 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
================================================================================
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
o TOP 10 INDUSTRIES - 11/30/17 o
(% of Net Assets)
Pharmaceuticals ........................................................... 7.7%
Diversified Banks ......................................................... 7.2%
Packaged Foods & Meat ..................................................... 3.9%
Integrated Oil & Gas ...................................................... 3.6%
Life & Health Insurance ................................................... 2.9%
Distillers & Vintners ..................................................... 2.8%
Electrical Components & Equipment ......................................... 2.8%
Personal Products ......................................................... 2.7%
Restaurants ............................................................... 2.6%
Auto Parts & Equipment .................................................... 2.3%
o TOP 10 EQUITY HOLDINGS - 11/30/17 o
(% of Net Assets)
Nestle S.A. ............................................................... 2.4%
Bayer AG .................................................................. 2.1%
UBS Group AG .............................................................. 1.7%
ING Groep N.V. ............................................................ 1.7%
AIA Group Ltd. ............................................................ 1.7%
Pernod Ricard S.A. ........................................................ 1.7%
Roche Holding AG .......................................................... 1.7%
SAP SE .................................................................... 1.6%
Air Liquide S.A. .......................................................... 1.5%
Schneider Electric SE ..................................................... 1.5%
You will find a complete list of securities that the Fund owns on pages 4-26.
================================================================================
2 | USAA INTERNATIONAL FUND
================================================================================
o COUNTRY ALLOCATION - 11/30/17 o
[PIE CHART OF COUNTRY ALLOCATION]
JAPAN 20.7%
UNITED KINGDOM 13.8%
FRANCE 12.8%
SWITZERLAND 9.7%
GERMANY 8.9%
NETHERLANDS 4.3%
OTHERS* 32.4%
[END CHART]
* Includes countries with less than 3% of portfolio, money market instruments
and short-term investments purchased with cash collateral from securities
loaned.
Percentages are of the net assets of the Fund and may not equal 100%.
================================================================================
INVESTMENT OVERVIEW | 3
================================================================================
PORTFOLIO OF INVESTMENTS
November 30, 2017 (unaudited)
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (98.8%)
COMMON STOCKS (98.8%)
CONSUMER DISCRETIONARY (12.5%)
------------------------------
ADVERTISING (1.2%)
54,900 Gendai Agency, Inc. $ 266
2,951,278 WPP plc 52,167
----------
52,433
----------
APPAREL RETAIL (0.7%)
996,549 Hennes & Mauritz AB "B"(a) 23,464
105,300 Honeys Co. Ltd. 1,076
147,330 Nishimatsuya Chain Co. Ltd. 1,778
72,800 PAL Group Holdings Co. Ltd. 2,241
----------
28,559
----------
APPAREL, ACCESSORIES & LUXURY GOODS (1.7%)
4,348,000 361 Degrees International Ltd. 1,525
12,796 Hermes International 6,745
74,622 Luxottica Group S.p.A. 4,339
192,150 LVMH Moet Hennessy Louis Vuitton SE(a) 55,919
114,100 Sanyo Shokai Ltd. 2,142
45,964 Ted Baker plc 1,634
5,554,000 Xtep International Holdings Ltd.(a) 2,062
----------
74,366
----------
AUTO PARTS & EQUIPMENT (2.3%)
292,400 Aisan Industry Co. Ltd. 3,323
856,700 Denso Corp. 47,994
132,500 Exedy Corp. 3,938
84,700 F-Tech, Inc. 1,394
18,115 Faurecia 1,386
140,400 Futaba Industrial Co. Ltd. 1,307
100,500 G-Tekt Corp. 2,113
59,300 Imasen Electric Industrial Co. Ltd. 704
50,300 Kasai Kogyo Co. Ltd. 875
237,400 Keihin Corp. 4,649
213,700 Nissin Kogyo Co. Ltd. 4,164
208,600 NOK Corp. 5,064
262,439 Schaeffler AG 4,578
================================================================================
4 | USAA INTERNATIONAL FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
296,270 Showa Corp. $ 3,588
234,100 Sumitomo Riko Co. Ltd. 2,456
249,800 Tokai Rika Co. Ltd. 5,178
182,700 Toyoda Gosei Co. Ltd. 4,557
2,036,000 Xinyi Glass Holdings Ltd. 2,484
57,000 Yorozu Corp. 1,258
----------
101,010
----------
AUTOMOBILE MANUFACTURERS (0.4%)
365,500 Honda Motor Co. Ltd. 12,159
639,680 Mitsubishi Motors Corp. 4,462
29,260 Renault S.A. 2,973
----------
19,594
----------
AUTOMOTIVE RETAIL (0.2%)
171,810 Bilia AB "A" 1,606
1,052,434 Halfords Group plc 4,888
1,348,126 Vertu Motors plc 866
----------
7,360
----------
BROADCASTING (0.8%)
174,785 Fuji Media Holdings, Inc. 2,600
44,885 M6-Metropole Television S.A. 1,181
172,420 Nippon Television Holdings, Inc. 3,112
546,087 ProSiebenSat.1 Media AG 17,367
329,663 RAI Way S.p.A.(b) 2,091
252,596 Television Francaise 1 S.A. 4,023
180,800 Tokyo Broadcasting System, Inc. 4,423
85,230 TV Asahi Holdings Corp. 1,808
----------
36,605
----------
CABLE & SATELLITE (0.1%)
387,916 NOS SGPS S.A. 2,636
----------
CASINOS & GAMING (0.0%)
330,000 Melco International Dev. Ltd. 949
----------
COMPUTER & ELECTRONICS RETAIL (0.2%)
231,835 CECONOMY AG 3,038
144,600 EDION Corp. 1,620
167,638 Unieuro S.p.A.(b) 2,834
----------
7,492
----------
CONSUMER ELECTRONICS (0.3%)
540,010 Funai Electric Co. Ltd. 4,141
190,000 Nikon Corp. 3,759
1,960,100 Pioneer Corp.* 3,797
----------
11,697
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 5
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
DEPARTMENT STORES (0.1%)
1,035,980 Marks & Spencer Group plc $ 4,388
----------
DISTRIBUTORS (0.1%)
46,300 Arata Corp. 2,427
----------
EDUCATION SERVICES (0.1%)
61,500 Benesse Holdings, Inc. 2,164
215,435 IDP Education Ltd. 942
----------
3,106
----------
FOOTWEAR (0.1%)
8,212,000 Daphne International Holdings Ltd.* 547
578,863 Geox S.p.A. 2,024
----------
2,571
----------
GENERAL MERCHANDISE STORES (0.1%)
818,854 B&M European Value Retail S.A. 4,229
----------
HOME IMPROVEMENT RETAIL (0.1%)
15,080 Hornbach Holding AG & Co. KGaA 1,380
222,700 Kohnan Shoji Co. Ltd. 4,630
----------
6,010
----------
HOMEBUILDING (0.2%)
273,500 Haseko Corp. 4,236
126,900 Meiwa Estate Co. Ltd. 960
279,509 Redrow plc 2,279
----------
7,475
----------
HOTELS, RESORTS & CRUISE LINES (0.2%)
630,801 Dalata Hotel Group plc* 4,370
303,706 Scandic Hotels Group AB(b) 3,954
----------
8,324
----------
HOUSEHOLD APPLIANCES (0.1%)
38,400 SodaStream International Ltd.* 2,703
----------
INTERNET & DIRECT MARKETING RETAIL (0.0%)
760,670 Qliro Group AB* 1,508
----------
LEISURE FACILITIES (0.1%)
445,600 Tokyo Dome Corp. 4,395
----------
LEISURE PRODUCTS (0.3%)
50,321 Games Workshop Group plc 1,332
124,020 Sankyo Co. Ltd. 3,995
189,081 Technogym S.p.A.(b) 1,815
37,219 Trigano S.A. 5,885
----------
13,027
----------
================================================================================
6 | USAA INTERNATIONAL FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
MOVIES & ENTERTAINMENT (0.3%)
218,500 Avex Group Holdings, Inc. $ 3,007
684,917 Cineworld Group plc 5,095
58,840 CTS Eventim AG & Co. KGaA 2,856
235,326 Mondo TV S.p.A. 1,798
----------
12,756
----------
PUBLISHING (0.0%)
137,531 Arnoldo Mondadori Editore S.p.A.* 375
45,600 Proto Corp. 668
----------
1,043
----------
RESTAURANTS (2.6%)
378,076 Collins Foods Ltd. 1,727
2,648,510 Compass Group plc 53,692
206,788 Greggs plc 3,714
926,906 SSP Group plc 8,092
1,055,824 Yum China Holdings, Inc. 43,109
----------
110,334
----------
SPECIALIZED CONSUMER SERVICES (0.0%)
2,100 Studio Alice Co. Ltd. 49
----------
SPECIALTY STORES (0.2%)
417,571 Card Factory plc 1,549
584,355 JD Sports Fashion plc 2,606
751,377 Pets At Home Group plc 1,770
179,900 Xebio Holdings Co. Ltd. 3,304
----------
9,229
----------
TEXTILES (0.0%)
134,600 Shikibo Ltd. 1,689
----------
Total Consumer Discretionary 537,964
----------
CONSUMER STAPLES (13.6%)
------------------------
AGRICULTURAL PRODUCTS (0.1%)
113,500 Chubu Shiryo Co. Ltd. 2,284
383,347 Costa Group Holdings Ltd. 1,827
----------
4,111
----------
BREWERS (1.0%)
4,003,858 Ambev S.A. ADR 24,784
163,776 Carlsberg A/S "B" 19,394
----------
44,178
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 7
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
DISTILLERS & VINTNERS (2.8%)
1,423,586 Diageo plc $ 49,450
464,904 Pernod Ricard S.A. 72,517
----------
121,967
----------
DRUG RETAIL (0.1%)
169,300 Cawachi Ltd. 4,212
----------
FOOD DISTRIBUTORS (0.1%)
763,349 Conviviality plc 4,207
40,600 Lacto Japan Co. Ltd. 1,483
----------
5,690
----------
FOOD RETAIL (0.5%)
25,500 Arcs Co. Ltd. 588
27,100 Heiwado Co. Ltd. 583
1,830,243 J Sainsbury plc 5,750
191,609 Loblaw Companies Ltd. 10,089
1,258,729 Tesco plc 3,303
----------
20,313
----------
HOUSEHOLD PRODUCTS (1.6%)
473,566 Essity Aktiebolag "B"* 13,753
599,280 Reckitt Benckiser Group plc 52,567
67,200 S.T. Corp. 1,788
----------
68,108
----------
HYPERMARKETS & SUPER CENTERS (0.1%)
204,519 Metro AG* 3,992
----------
PACKAGED FOODS & MEAT (3.9%)
1,030,659 a2 Milk Co. Ltd.* 5,939
383,023 Austevoll Seafood ASA 3,223
37,470 Cranswick plc 1,631
487,527 DANONE S.A. 41,153
1,123,500 Feed One Co. Ltd. 2,855
91,514 La Doria S.p.A. 1,841
148,900 Morinaga Milk Industry Co. Ltd. 6,073
1,198,860 Nestle S.A. 102,672
11,000 Nisshin Oillio Group Ltd. 338
80,978 Salmar ASA 2,372
----------
168,097
----------
PERSONAL PRODUCTS (2.7%)
513,784 Beiersdorf AG 61,147
368,100 Kao Corp. 24,327
128,941 L'Oreal S.A. 28,515
================================================================================
8 | USAA INTERNATIONAL FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
45,000 Sagami Rubber Industries Co. Ltd. $ 715
----------
114,704
----------
TOBACCO (0.7%)
909,900 Japan Tobacco, Inc. 30,075
----------
Total Consumer Staples 585,447
----------
ENERGY (4.4%)
-------------
INTEGRATED OIL & GAS (3.6%)
2,571,052 BP plc 17,006
2,259,338 ENI S.p.A. 37,137
1,477,084 Gazprom PAO ADR 6,632
107,114 Lukoil PJSC ADR 5,993
359,194 Petroleo Brasileiro S.A. ADR* 3,491
428,909 Royal Dutch Shell plc "B" 13,855
143,279 Statoil ASA 2,873
1,333,446 Suncor Energy, Inc. 46,252
700,600 Surgutneftegas ADR 3,219
265,900 Surgutneftegaz ADR 1,220
292,778 Total S.A. 16,520
----------
154,198
----------
OIL & GAS EQUIPMENT & SERVICES (0.3%)
175,231 Fugro N.V.* 2,469
153,015 Ocean Yield ASA 1,255
827,949 Saipem S.p.A.* 3,323
322,064 Subsea 7 S.A. 4,704
----------
11,751
----------
OIL & GAS EXPLORATION & PRODUCTION (0.5%)
3,371,323 Beach Energy Ltd. 2,678
99,733 Det Norske Oljeselskap ASA 2,346
526,218 Gulf Keystone Petroleum Ltd.* 713
340,200 INPEX Corp. 3,824
374,200 Japan Petroleum Exploration Co. Ltd. 8,555
230,484 KazMunaiGas Exploration Production GDR 2,685
641,159 Painted Pony Energy Ltd.*(a) 1,491
----------
22,292
----------
OIL & GAS REFINING & MARKETING (0.0%)
126,321 CropEnergies AG 1,274
----------
Total Energy 189,515
----------
FINANCIALS (16.2%)
------------------
ASSET MANAGEMENT & CUSTODY BANKS (1.5%)
97,090 Banca Generali S.p.A. 3,407
275,483 GAM Holding AG 4,368
================================================================================
PORTFOLIO OF INVESTMENTS | 9
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
12,529 HBM Healthcare Investments AG $ 1,644
592,082 Julius Baer Group Ltd.* 34,788
485,918 Magellan Financial Group Ltd. 9,299
899,915 Platinum Asset Management 5,085
112,500 SBI Holdings, Inc. 1,994
482,100 Uranium Participation Corp.* 1,562
----------
62,147
----------
CONSUMER FINANCE (0.0%)
27,200 Jaccs Co. Ltd. 626
----------
DIVERSIFIED BANKS (7.2%)
803,116 Aldermore Group plc* 3,378
930,644 Allahabad Bank Ltd.* 1,109
1,055,039 Alpha Bank AE* 2,047
474,987 Bank of Ireland Group plc* 3,705
9,144,194 Barclays plc 23,929
137,322 BNP Paribas S.A. 10,392
710,622 BPER Banca S.p.A. 3,887
1,295,265 CaixaBank S.A. 6,156
440,991 Canara Bank Ltd. 2,552
936,498 Corporation Bank* 617
244,400 Dah Sing Financial Holdings Ltd. 1,565
2,871,000 DBS Group Holdings Ltd. 52,008
78,481 FinecoBank Banca Fineco S.p.A. 791
1,773,185 HSBC Holdings plc 17,602
4,157,825 ING Groep N.V. 75,000
106,048 KB Financial Group, Inc. 5,837
375,425 KBC Groep N.V. 30,712
1,592,300 Mitsubishi UFJ Financial Group, Inc. 11,207
4,978,100 Mizuho Financial Group, Inc. 9,019
31,240 Norwegian Finance Holdings ASA* 357
229,200 Sberbank of Russia PJSC ADR 3,800
86,627 Shinhan Financial Group Co. Ltd. 3,853
141,298 Societe Generale S.A. 7,116
652,048 Standard Chartered plc* 6,512
249,900 Sumitomo Mitsui Financial Group, Inc. 10,096
151,790 Sumitomo Mitsui Trust Holdings, Inc. 5,616
1,843,224 Unicaja Banco S.A.*(b) 2,786
421,264 UniCredit S.p.A.* 8,474
----------
310,123
----------
DIVERSIFIED CAPITAL MARKETS (1.7%)
4,347,033 UBS Group AG* 75,076
----------
================================================================================
10 | USAA INTERNATIONAL FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
INVESTMENT BANKING & BROKERAGE (0.1%)
120,500 Aizawa Securities Co. Ltd. $ 805
268,200 Ichiyoshi Securities Co. Ltd. 3,050
60,700 IwaiCosmo Holdings, Inc. 777
19,189 Swissquote Group Holding S.A. 679
----------
5,311
----------
LIFE & HEALTH INSURANCE (2.9%)
9,177,200 AIA Group Ltd. 74,380
305,700 Dai-Ichi Life Holdings, Inc. 6,237
771,908 Prudential plc 19,407
11,334,000 Shin Kong Financial Holding Co. Ltd. 3,873
394,172 Societa Cattolica di Assicurazioni 4,276
407,178 Storebrand ASA 3,250
473,400 T&D Holdings, Inc. 7,763
261,109 TONGYANO Life Insurance Co. Ltd. 1,948
91,404 Wuestenrot & Wuerttembergische AG 2,465
----------
123,599
----------
MULTI-LINE INSURANCE (1.2%)
136,301 Ageas 6,698
103,490 ASR Nederland N.V. 4,219
402,538 Assicurazioni Generali S.p.A. 7,369
60,794 Topdanmark A/S* 2,616
51,568 Vittoria Assicurazioni S.p.A. 746
100,280 Zurich Insurance Group AG 30,295
----------
51,943
----------
MULTI-SECTOR HOLDINGS (0.1%)
50,882 Corporacion Financiera Alba S.A. 3,046
3,342,000 First Pacific Co. Ltd. 2,499
----------
5,545
----------
OTHER DIVERSIFIED FINANCIAL SERVICES (0.0%)
62,529,000 G-Resources Group Ltd.* 849
----------
PROPERTY & CASUALTY INSURANCE (0.1%)
258,170 Coface S.A.* 2,830
506,462 Hastings Group Holdings plc 2,150
----------
4,980
----------
REGIONAL BANKS (0.4%)
126,600 77th Bank Ltd. 2,979
14,700 Aichi Bank Ltd. 824
128,700 Chiba Kogyo Bank Ltd. 683
429,000 FIDEA Holdings Co. Ltd. 778
25,100 Nanto Bank Ltd. 677
================================================================================
PORTFOLIO OF INVESTMENTS | 11
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
21,900 Oita Bank Ltd. $ 866
197,006 Sparebank 1 Nord-Norge 1,456
265,268 SpareBank 1 SMN 2,646
142,960 SpareBank 1 SR-Bank ASA 1,495
2,052 St. Galler Kantonalbank "A" 959
593,300 Tochigi Bank Ltd. 2,530
58,600 Towa Bank Ltd. 683
----------
16,576
----------
SPECIALIZED FINANCE (0.2%)
474,900 Japan Securities Finance Co. 2,574
464,249 Plus500 Ltd. 6,012
23,400 Ricoh Leasing Co. Ltd. 801
----------
9,387
----------
THRIFTS & MORTGAGE FINANCE (0.8%)
1,083,065 Housing Dev. Finance Corp. Ltd. 28,080
658,599 OneSavings Bank plc 3,484
179,271 Paragon Group Cos. plc 1,173
----------
32,737
----------
Total Financials 698,899
----------
HEALTH CARE (12.3%)
-------------------
BIOTECHNOLOGY (0.1%)
199,101 Swedish Orphan Biovitrum AB* 2,742
38,864 Vitrolife AB 2,939
----------
5,681
----------
HEALTH CARE DISTRIBUTORS (0.1%)
98,760 Suzuken Co. Ltd. 3,896
----------
HEALTH CARE EQUIPMENT (1.9%)
22,979 Koninklijke Philips N.V. 892
497,100 Nikkiso Co. Ltd. 4,889
372,300 Olympus Corp. 15,250
1,277,400 Terumo Corp. 61,064
----------
82,095
----------
HEALTH CARE FACILITIES (0.3%)
365,485 Capio AB(b) 1,934
332,431 CVS Group plc 4,541
1,245,998 Estia Health Ltd. 3,581
539,033 Metlifecare Ltd. 2,222
324,416 Summerset Group Holdings Ltd. 1,171
----------
13,449
----------
================================================================================
12 | USAA INTERNATIONAL FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
HEALTH CARE SERVICES (0.1%)
250,000 China Cord Blood Corp.* $ 2,742
52,900 Unimat Retirement Community Co. Ltd. 885
----------
3,627
----------
HEALTH CARE SUPPLIES (1.7%)
113,290 Essilor International S.A. 14,570
1,179,100 Hoya Corp. 57,077
----------
71,647
----------
HEALTH CARE TECHNOLOGY (0.1%)
578,733 AGFA-Gevaert N.V.* 2,633
27,048 CompuGroup Medical SE 1,828
----------
4,461
----------
LIFE SCIENCES TOOLS & SERVICES (0.3%)
99,800 CMIC Holdings Co. Ltd. 1,499
391,862 Qiagen N.V.* 12,376
----------
13,875
----------
PHARMACEUTICALS (7.7%)
165,873 Almirall S.A.(a) 1,664
161,487 AstraZeneca plc 10,433
704,553 Bayer AG 89,855
63,100 Daito Pharmaceutical Co. Ltd. 1,741
70,400 Eisai Co. Ltd. 3,985
19,100 Fuji Pharma Co. Ltd. 737
88,503 Galenica AG*(b) 4,296
151,951 Indivior plc* 762
26,705 Ipsen S.A. 3,255
64,800 Kyorin Holdings, Inc. 1,234
239,375 Merck KGaA 25,480
585,585 Novartis AG 50,121
963,536 Novo Nordisk A/S "B" 49,740
12,310 Orion Oyj "A" 468
282,657 Roche Holding AG 71,314
208,700 Sumitomo Dainippon Pharma Co. Ltd. 3,019
182,500 Takeda Pharmaceutical Co. Ltd. 10,028
20,400 Towa Pharmaceutical Co. Ltd. 1,057
982,000 United Laboratories International Holdings Ltd.*(a) 792
----------
329,981
----------
Total Health Care 528,712
----------
INDUSTRIALS (16.0%)
-------------------
AEROSPACE & DEFENSE (1.0%)
504,947 Chemring Group plc 1,203
227,852 Latecoere S.A.* 1,486
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
113,713 MTU Aero Engines AG $ 20,444
1,762,437 Rolls-Royce Holdings plc* 20,427
14,333 Saab AB "B" 697
----------
44,257
----------
AGRICULTURAL & FARM MACHINERY (0.7%)
61,300 Iseki & Co. Ltd. 1,494
1,526,700 Kubota Corp. 28,758
----------
30,252
----------
AIR FREIGHT & LOGISTICS (0.3%)
526,358 CTT-Correios de Portugal S.A.(a) 2,036
759,000 Mitsui-Soko Holdings Co. Ltd.* 2,428
1,227,758 PostNL N.V. 5,436
207,000 Yusen Logistics Co. Ltd. 2,754
----------
12,654
----------
AIRLINES (0.4%)
280,007 Air France-KLM* 3,981
378,786 Dart Group plc 3,594
330,379 Finnair Oyj 4,711
1,109,331 SAS AB* 3,419
----------
15,705
----------
BUILDING PRODUCTS (1.3%)
158,761 Compagnie de Saint-Gobain 9,045
304,800 Daikin Industries Co. Ltd. 34,990
603,300 Nippon Sheet Glass Co. Ltd.* 5,323
181,800 Noritz Corp. 3,510
44,900 Sanko Metal Industrial Co. Ltd. 1,618
----------
54,486
----------
COMMERCIAL PRINTING (0.1%)
253,300 Toppan Forms Co. Ltd. 2,746
----------
CONSTRUCTION & ENGINEERING (1.3%)
78,049 Bauer AG 2,709
1,895,200 Chip Eng Seng Corp. Ltd. 1,286
472,000 Chiyoda Corp. 3,087
378,512 Costain Group plc 2,196
25,686 Eiffage S.A. 2,818
211,600 JGC Corp. 3,668
257,000 Kitano Construction Corp. 939
1,298,900 Lian Beng Group Ltd. 703
527,636 Maire Tecnimont S.p.A. 2,425
158,400 Matsui Construction Co. Ltd. 1,340
85,094 Morgan Sindall Group plc 1,579
================================================================================
14 | USAA INTERNATIONAL FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
1,113,111 Mota - Engil, SGPS, S.A. $ 4,571
128,800 Nichireki Co. Ltd. 1,554
96,400 Nishimatsu Construction Co. Ltd. 2,788
1,694,692 NRW Holdings Ltd.* 1,692
73,300 Okumura Corp. 2,973
225,100 P.S. Mitsubishi Construction Co., Ltd. 1,768
476,343 Peab AB 4,282
917,250 Raubex Group Ltd. 1,271
127,900 Shinnihon Corp. 1,066
95,700 Tekken Corp. 2,857
679,800 Toyo Construction Co. Ltd. 3,781
205,000 Toyo Engineering Corp. 2,317
2,112,800 United Engineers Ltd. 4,105
----------
57,775
----------
CONSTRUCTION MACHINERY & HEAVY TRUCKS (0.1%)
101,000 Aichi Corp. 715
113,022 Alstom S.A. 4,666
----------
5,381
----------
DIVERSIFIED SUPPORT SERVICES (0.1%)
328,458 HomeServe plc 3,551
277,440 SmartGroup Corp. Ltd. 2,164
----------
5,715
----------
ELECTRICAL COMPONENTS & EQUIPMENT (2.8%)
64,500 ENDO Lighting Corp. 728
318,900 Fujikura Ltd. 2,967
35,000 Iwasaki Electric Co. Ltd. 524
374,000 Johnson Electric Holdings Ltd. 1,477
429,629 Legrand S.A. 32,196
30,500 Nippon Seisen Co. Ltd. 1,499
120,708 NKT A/S* 5,513
773,328 Schneider Electric SE* 66,466
291,000 Swcc Showa Holdings Co. Ltd.* 2,580
259,000 Ushio, Inc. 3,724
207,814 Zumtobel Group AG 2,632
----------
120,306
----------
ENVIRONMENTAL & FACILITIES SERVICES (0.1%)
352,148 Derichebourg S.A. 3,835
564,892 RPS Group plc 2,076
----------
5,911
----------
HUMAN RESOURCE & EMPLOYMENT SERVICES (1.3%)
55,818 Adecco Group AG 4,221
3,823,574 Hays plc 9,525
================================================================================
PORTFOLIO OF INVESTMENTS | 15
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
428,843 Michael Page International $ 2,731
53,034 Openjob S.p.A. Agenzia Per Il Lavoro* 800
579,289 Randstad Holdings N.V. 35,675
54,213 Staffline Group plc 765
181,523 SThree plc 843
----------
54,560
----------
INDUSTRIAL CONGLOMERATES (0.6%)
71,970 Rheinmetall AG 9,157
846,413 Smiths Group plc 16,976
----------
26,133
----------
INDUSTRIAL MACHINERY (1.7%)
147,000 FANUC Corp. 36,500
388,784 Fenner plc 2,027
3,595 Georg Fischer 4,729
141,700 Hisaka Works Ltd. 1,487
177,500 Japan Steel Works Ltd. 5,678
41,900 Luxfer Holdings plc ADR 605
186,390 Mitsubishi Heavy Industries Ltd. 6,873
86,100 Nippon Thompson Co. Ltd. 561
166,000 Ryobi Ltd. 4,286
68,200 Sansei Technologies, Inc. 651
58,033 Stabilus S.A. 5,001
490,500 Sunningdale Tech Ltd. 687
559,000 Toshiba Machine Co. Ltd. 3,939
24,589 Washtec AG 2,250
----------
75,274
----------
MARINE (0.5%)
157,967 D/S Norden A/S* 3,208
184,000 Iino Kaiun Kaisha Ltd. 1,014
75,027 Kuehne & Nagel International AG 13,179
30,700 NS United Kaiun Kaisha Ltd. 726
12,824,000 Pacific Basin Shipping Ltd.* 2,808
----------
20,935
----------
MARINE PORTS & SERVICES (0.1%)
70,867 Hamburger Hafen und Logistik AG 2,084
----------
OFFICE SERVICES & SUPPLIES (0.2%)
385,300 KOKUYO Co. Ltd. 7,292
169,200 Relia, Inc. 1,906
----------
9,198
----------
================================================================================
16 | USAA INTERNATIONAL FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
RAILROADS (1.3%)
683,737 Canadian National Railway Co. $ 53,318
167,676 Go-Ahead Group plc 3,524
----------
56,842
----------
RESEARCH & CONSULTING SERVICES (1.4%)
1,225,159 Experian plc 25,483
30,432 Intertrust N.V.(b) 565
1,455,258 RELX N.V. 33,318
----------
59,366
----------
SECURITY & ALARM SERVICES (0.0%)
225,993 Prosegur Cash S.A.*(b) 740
----------
TRADING COMPANIES & DISTRIBUTORS (0.6%)
76,600 Advan Co. Ltd. 706
3,427 Bossard Holdings AG "A" 764
851,711 Howden Joinery Group plc 5,187
48,200 Kamei Corp. 775
113,800 Kuroda Electric Co. Ltd. 2,743
102,400 Nagase & Co. Ltd. 1,868
85,700 Onoken Co. Ltd. 1,549
236,439 Ramirent Oyj 2,111
272,430 Rexel S.A. 5,024
21,100 Shinsho Corp. 570
1,369,431 SIG plc 3,145
131,200 Wakita & Co. Ltd. 1,548
----------
25,990
----------
TRUCKING (0.1%)
83,200 Hamakyorex Co. Ltd. 2,310
----------
Total Industrials 688,620
----------
INFORMATION TECHNOLOGY (11.7%)
------------------------------
APPLICATION SOFTWARE (2.2%)
207,954 Dassault Systemes S.A. 22,353
615,607 SAP SE 69,353
36,408 SimCorp A/S 2,190
21,394 Temenos Group AG 2,640
----------
96,536
----------
COMMUNICATIONS EQUIPMENT (0.3%)
64,500 Ituran Location & Control Ltd. 2,296
926,372 LM Ericsson Telephone Co. "B" ADR 5,827
61,569 Silicom Ltd. 4,471
----------
12,594
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
DATA PROCESSING & OUTSOURCED SERVICES (1.2%)
745,119 Amadeus IT Group S.A. $ 53,718
----------
ELECTRONIC COMPONENTS (1.3%)
75,181 Austria Technologie & Systemtechnik AG 2,154
90,600 Canon Electronics, Inc. 1,996
133,300 Hosiden Corp. 2,095
110,300 Ibiden Co. Ltd. 1,751
540,000 Kyocera Corp. 37,910
292,000 Nichicon Corp. 3,856
486,600 Simplo Technology Co. Ltd. 2,774
413,000 Tamura Corp. 2,969
----------
55,505
----------
ELECTRONIC EQUIPMENT & INSTRUMENTS (0.2%)
482,700 Citizen Holdings Co. Ltd. 3,495
20,650 Comet Holding AG 3,279
649 Lem Holding S.A. 1,032
----------
7,806
----------
HOME ENTERTAINMENT SOFTWARE (0.2%)
45,513 G5 Entertainment AB 1,351
468,700 GungHo Online Entertainment, Inc. 1,191
191,500 Marvelous, Inc. 1,756
47,441 NHN Entertainment Corp.* 2,951
71,993 THQ Nordic AB* 654
9,136 UbiSoft Entertainment S.A.* 701
----------
8,604
----------
INTERNET SOFTWARE & SERVICES (1.5%)
139,800 Alibaba Group Holding Ltd. ADR* 24,756
75,291 Baidu, Inc. ADR* 17,963
120,400 DeNA Co. Ltd. 2,723
358,300 Gree, Inc. 2,327
71,863 Rightmove plc 3,918
95,593 Rocket Internet SE*(b) 2,275
3,972 Xing AG 1,241
1,477,601 Xlmedia plc 3,897
893,214 ZPG plc(b) 3,900
----------
63,000
----------
IT CONSULTING & OTHER SERVICES (1.6%)
4,266 Alten S.A. 355
760,611 Appen Ltd. 4,108
148,987 Computacenter plc 2,269
53,461 FDM Group Holdings plc 685
992,870 Fujitsu Ltd. 7,365
================================================================================
18 | USAA INTERNATIONAL FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
91,160 Indra Sistemas S.A.* $ 1,242
62,600 Ines Corp. 604
26,700 Interxion Holding N.V.* 1,541
73,100 Nihon Unisys Ltd. 1,431
137,123 Softcat plc 962
16,123 Sopra Steria Group 2,884
1,085,479 Tata Consultancy Services Ltd. 44,359
65,900 TIS, Inc. 2,237
----------
70,042
----------
SEMICONDUCTOR EQUIPMENT (0.3%)
50,365 BE Semiconductor Industries N.V. 4,135
48,366 Siltronic AG* 7,184
86,460 Tokyo Seimitsu Co. Ltd. 3,576
----------
14,895
----------
SEMICONDUCTORS (1.6%)
235,500 MediaTek, Inc. 2,560
99,800 Miraial Co. Ltd. 1,594
12,000 Shindengen Electric Manufacturing Co. Ltd. 828
1,233,700 Shinko Electric Industries Co. Ltd. 9,427
1,331,477 Taiwan Semiconductor Manufacturing Co. Ltd. ADR 52,727
----------
67,136
----------
SYSTEMS SOFTWARE (0.7%)
26,200 Alpha Systems, Inc. 559
269,609 Check Point Software Technologies Ltd.* 28,118
62,800 SRA Holdings, Inc. 1,947
17,600 Talend S.A. ADR* 704
----------
31,328
----------
TECHNOLOGY DISTRIBUTORS (0.1%)
353,811 Electrocomponents plc 3,019
22,900 Elematec Corp. 536
66,900 Marubun Corp. 616
100,800 Ryoyo Electro Corp. 1,720
----------
5,891
----------
TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (0.5%)
7,338,000 Acer, Inc. 5,015
171,700 Canon, Inc. 6,557
1,157,164 Compal Electronics, Inc. GDR(c) 4,003
18,400 Eizo Corp. 782
75,600 Fujitsu Frontech Ltd. 1,344
58,900 Melco Holdings, Inc. 1,934
----------
19,635
----------
Total Information Technology 506,690
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
MATERIALS (7.6%)
----------------
ALUMINUM (0.0%)
51,300 UACJ Corp. $ 1,326
----------
COMMODITY CHEMICALS (0.5%)
28,400 Mitsui Chemicals, Inc. 915
36,200 Nippon Carbide Industries Co., Inc. 666
860,414 Orica Ltd. 11,064
276,500 Teijin Ltd. 5,945
73,900 Toyobo Co. Ltd. 1,344
----------
19,934
----------
CONSTRUCTION MATERIALS (0.3%)
201,220 Cementir Holding S.p.A. 1,709
571,630 Forterra plc(b) 2,240
130,492 LafargeHolcim Ltd. 7,136
43,012 Vicat S.A. 3,521
----------
14,606
----------
COPPER (0.0%)
14,504,000 CST Group Ltd.* 84
----------
DIVERSIFIED CHEMICALS (0.0%)
64,500 Ishihara Sangyo Kaisha Ltd.* 1,173
----------
DIVERSIFIED METALS & MINING (1.0%)
286,819 Anglo American plc 5,272
44,464 Eramet* 4,489
147,500 Northern Dynasty Minerals Ltd.*(a) 295
91,100 Pacific Metals Co. Ltd.* 2,377
600,660 Rio Tinto plc 28,444
1,681,306 Western Areas Ltd.(a) 3,904
----------
44,781
----------
FERTILIZERS & AGRICULTURAL CHEMICALS (0.1%)
7,328,000 China BlueChemical Ltd. 2,036
588,500 Nufarm Ltd. 3,944
----------
5,980
----------
FOREST PRODUCTS (0.1%)
308,222 Svenska Cellulosa AB "B" 3,006
----------
GOLD (0.6%)
479,060 Acacia Mining plc 1,118
178,300 Barrick Gold Corp. 2,463
576,167 Centerra Gold, Inc.* 3,260
1,175,115 Eldorado Gold Corp. 1,328
1,083,964 Gold Fields Ltd. 4,599
================================================================================
20 | USAA INTERNATIONAL FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
605,367 Kinross Gold Corp.* $ 2,518
2,365,530 Ramelius Resources Ltd.* 689
5,457,932 Resolute Mining Ltd. 4,190
1,597,438 St. Barbara Ltd. 3,866
----------
24,031
----------
INDUSTRIAL GASES (2.1%)
531,241 Air Liquide S.A. 66,487
105,178 Linde AG* 24,556
----------
91,043
----------
METAL & GLASS CONTAINERS (0.1%)
31,832 Groupe Guillin 1,303
2,469,833 Nampak Ltd.* 3,223
14,688 Vidrala S.A. 1,476
----------
6,002
----------
PAPER PACKAGING (0.1%)
3,592,000 AMVIG Holdings Ltd. 961
205,080 Papeles Y Cartones De Europa S.A. 2,461
----------
3,422
----------
PAPER PRODUCTS (0.2%)
65,814 Ahlstrom-Munksjo Oyj 1,473
342,970 Altri S.G.P.S. S.A. 2,124
431,868 Ence Energia Y Celulosa S.A. 2,822
146,900 Nippon Paper Industries Co. Ltd. 2,811
59,638 SEMAPA - Sociedade de Investimento e Gestao S.G.P.S. S.A. 1,202
----------
10,432
----------
PRECIOUS METALS & MINERALS (0.2%)
107,304 Anglo American Platinum Ltd.* 2,849
656,942 Impala Platinum Holdings Ltd.*(a) 1,868
1,713,600 Petra Diamonds Ltd.* 1,559
----------
6,276
----------
SPECIALTY CHEMICALS (1.7%)
470,252 Akzo Nobel N.V.(a) 42,371
48,100 DIC Corp. 1,784
319,800 JSR Corp. 6,112
106,200 Osaka Soda Co. Ltd. 2,700
137,200 Shin-Etsu Chemical Co. Ltd. 14,342
372,094 Synthomer plc 2,402
23,300 Takasago International Corp. 734
29,656 Victrex plc 964
----------
71,409
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 21
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
STEEL (0.6%)
131,900 Chubu Steel Plate Co. Ltd. $ 987
535,312 Evraz plc 2,073
477,826 Ferrexpo plc 1,637
178,300 Kyoei Steel Ltd. 3,175
273,600 Nakayama Steel Works Ltd. 1,748
139,200 Neturen Co. Ltd. 1,447
90,300 Nippon Koshuha Steel Co. Ltd. 736
94,234 Salzgitter AG 4,853
402,800 Tokyo Steel Manufacturing Co. Ltd. 3,486
155,750 Yamato Kogyo Co. Ltd. 4,207
----------
24,349
----------
Total Materials 327,854
----------
REAL ESTATE (1.8%)
------------------
DIVERSIFIED REAL ESTATE ACTIVITIES (0.4%)
4,162,000 Emperor International Holdings Ltd. 1,380
2,326,000 Far East Consortium International Ltd. 1,474
178,000 Heiwa Real Estate Co. Ltd. 3,318
85,900 Mugen Estate Co. Ltd. 886
291,200 Samty Co. Ltd. 4,290
289,000 Soundwill Holdings Ltd. 566
55,400 Sun Frontier Fudousan Co. Ltd. 739
787,200 Tokyu Fudosan Holdings Corp. 5,666
----------
18,319
----------
REAL ESTATE DEVELOPMENT (0.2%)
151,000 Goldcrest Co. Ltd. 3,098
252,856 TAG Immobilien AG 4,630
835,400 Wheelock Properties Ltd. 1,177
----------
8,905
----------
REAL ESTATE OPERATING COMPANIES (0.6%)
11,428 Big Shopping Centers Ltd. 809
69,812 CA Immobilien Anlagen AG 2,098
166,457 Dios Fastigheter AB 1,114
126,879 Entra ASA(b) 1,769
378,723 Gazit Globe Ltd. 3,944
315,318 Hemfosa Fastigheter AB 4,140
2,335,849 Klovern AB "B" 3,181
212,440 TLG Immobilien AG 5,235
19,900 Unizo Holdings Co. Ltd. 533
164,013 Wihlborgs Fastigheter AB 3,819
----------
26,642
----------
================================================================================
22 | USAA INTERNATIONAL FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
REAL ESTATE SERVICES (0.1%)
443,900 Japan Asset Marketing Co. Ltd.* $ 481
353,163 Savills plc 4,487
----------
4,968
----------
REITs - DIVERSIFIED (0.2%)
602,371 Growthpoint Properties Australia Ltd.(a) 1,609
114 Kenedix, Inc. 640
2,133,700 Mapletree Greater China Commercial Trust 1,867
1,017 Sekisui House Ltd. 1,023
1,778,900 Viva Industrial Trust 1,233
----------
6,372
----------
REITs - HEALTH CARE (0.0%)
6,221 Aedifica REIT 592
----------
REITs - INDUSTRIAL (0.1%)
1,890,121 Hansteen Holdings REIT plc 3,566
----------
REITs - RESIDENTIAL (0.0%)
676,613 Irish Residential Properties REIT plc 1,199
----------
REITs - RETAIL (0.2%)
3,499 Altarea REIT 804
2,515,200 Immobiliare Grande Distribuzione SIIQ S.p.A. 3,224
101,105 Mercialys S.A. REIT 2,121
----------
6,149
----------
Total Real Estate 76,712
----------
TELECOMMUNICATION SERVICES (0.9%)
---------------------------------
ALTERNATIVE CARRIERS (0.1%)
705,000 NetLink NBN Trust* 429
277,824 Retelit S.p.A.* 452
330,187 SpeedCast International Ltd. 1,294
----------
2,175
----------
INTEGRATED TELECOMMUNICATION SERVICES (0.6%)
1,839,415 BT Group plc 6,488
8,340,000 China Telecom Corp. Ltd. "H" 4,047
383,368 Hellenic Telecommunications Organization S.A. 4,632
1,117,500 HKBN Ltd. 1,346
180,921 KT Corp. 5,062
1,882,030 Magyar Telekom Telecommunications plc 3,370
158,500 Telefonica Brasil S.A. 2,299
----------
27,244
----------
WIRELESS TELECOMMUNICATION SERVICES (0.2%)
373,000 China Mobile Ltd. 3,785
108,539 Freenet AG 4,114
================================================================================
PORTFOLIO OF INVESTMENTS | 23
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
134,676 Orange Belgium S.A. $ 2,913
----------
10,812
----------
Total Telecommunication Services 40,231
----------
UTILITIES (1.8%)
----------------
ELECTRIC UTILITIES (0.2%)
51,239 BKW AG 3,031
430,300 Companhia Paranaense de Energia-Copel 3,033
105,930 Okinawa Electric Power Co., Inc. 2,759
----------
8,823
----------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS (0.1%)
1,285,202 NTPC Ltd. 3,648
----------
MULTI-UTILITIES (1.4%)
2,754,012 Centrica plc 5,386
457,727 E.ON SE 5,294
2,336,306 Engie 40,891
1,519,061 Iren S.p.A. 4,658
167,924 RWE AG* 3,847
----------
60,076
----------
RENEWABLE ELECTRICITY (0.1%)
187,738 Saeta Yield S.A. 2,167
236,239 Scatec Solar ASA(b) 1,315
----------
3,482
----------
Total Utilities 76,029
----------
Total Common Stocks (cost: $3,011,705) 4,256,673
----------
PREFERRED STOCKS (0.0%)
MATERIALS (0.0%)
----------------
CONSTRUCTION MATERIALS (0.0%)
53,690 Buzzi Unicem S.p.A. (cost: $544) 812
----------
Total Materials 812
----------
EXCHANGE-TRADED FUNDS (0.0%)
12,635 iShares Core MSCI EAFE ETF (cost: $763) 832
----------
RIGHTS (0.0%)
INDUSTRIALS (0.0%)
------------------
AEROSPACE & DEFENSE (0.0%)
81,498,292 Rolls-Royce Holdings plc*(c) (cost: $108) 110
----------
Total Equity Securities (cost: $3,013,120) 4,258,427
----------
================================================================================
24 | USAA INTERNATIONAL FUND
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS (1.2%)
COMMERCIAL PAPER (0.6%)
INDUSTRIALS (0.6%)
------------------
INDUSTRIAL CONGLOMERATES (0.6%)
$ 24,579 General Electric Co.(d) 1.10% 12/01/2017 $ 24,579
----------
Total Industrials 24,579
----------
Total Commercial Paper (cost: $24,579) 24,579
----------
--------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES
--------------------------------------------------------------------------------------------------------
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (0.6%)
28,817,021 State Street Institutional Treasury Money Market
Fund Premier Class, 1.02% (e) 28,817
----------
Total Government & U.S. Treasury Money Market Funds (cost: $28,817) 28,817
----------
Total Money Market Instruments (cost: $53,396) 53,396
----------
SHORT-TERM INVESTMENTS PURCHASED WITH CASH
COLLATERAL FROM SECURITIES LOANED (2.6%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (2.6%)
308,011 Federated Government Obligations Fund Institutional Class, 0.94%(e) 308
26,165,867 Fidelity Government Portfolio Class I, 0.97%(e) 26,166
5,950,435 Goldman Sachs Financial Square Government Fund Institutional
Class, 0.96%(e) 5,950
76,584,690 Invesco Government & Agency Portfolio Institutional Class, 0.98%(e) 76,585
44,290 Morgan Stanley Institutional Liquidity Funds Government Portfolio
Institutional Class, 0.97%(e) 44
835,776 Western Asset Institutional Government Reserves Institutional
Class, 1.00%(e) 836
----------
Total Short-Term Investments Purchased with Cash Collateral from
Securities Loaned (cost: $109,889) 109,889
----------
TOTAL INVESTMENTS (COST: $3,176,405) $4,421,712
==========
================================================================================
PORTFOLIO OF INVESTMENTS | 25
================================================================================
--------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
--------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
--------------------------------------------------------------------------------------------------------
Equity Securities:
Common Stocks $4,252,670 $ 4,003 $- $4,256,673
Preferred Stocks 812 - - 812
Exchange-Traded Funds 832 - - 832
Rights - 110 - 110
Money Market Instruments:
Commercial Paper - 24,579 - 24,579
Government & U.S. Treasury
Money Market Funds 28,817 - - 28,817
Short-Term Investments Purchased with
Cash Collateral from Securities Loaned:
Government & U.S. Treasury Money
Market Funds 109,889 - - 109,889
--------------------------------------------------------------------------------------------------------
Total $4,393,020 $28,692 $- $4,421,712
--------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
--------------------------------------------------------------------------------
FAIR VALUE LEVEL TRANSFERS
--------------------------------------------------------------------------------
For the period of June 1, 2017, through November 30, 2017, the table below shows
the transfers between Level 1, Level 2, and Level 3. The Fund's policy is to
recognize any transfers in and transfers out as of the beginning of the
reporting period in which the event or circumstance that caused the transfer
occurred.
TRANSFERS INTO TRANSFERS INTO TRANSFERS INTO
(OUT OF) (OUT OF) (OUT OF)
ASSETS ($ IN 000s) LEVEL 1 LEVEL 2 LEVEL 3
--------------------------------------------------------------------------------------------------------
Common Stocks(I) $2,553 $(2,553) $-
--------------------------------------------------------------------------------------------------------
Total $2,553 $(2,553) $-
--------------------------------------------------------------------------------------------------------
(I)Transferred from Level 2 to Level 1 due to an assessment of events at the
beginning of the reporting period, these securities had adjustments to their
foreign market closing prices to reflect changes in value that occurred after
the close of foreign markets and prior to the close of the U.S. securities
markets. Such adjustments were not made at the end of the current reporting
period.
================================================================================
26 | USAA INTERNATIONAL FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
November 30, 2017 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
Market values of securities are determined by procedures and practices
discussed in Note 1A to the financial statements.
The Portfolio of Investments category percentages shown represent the
percentages of the investments to net assets, and, in total, may not equal
100%. A category percentage of 0.0% represents less than 0.1% of net assets.
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 - Dividend distributions from REITs may
be recorded as income and later characterized by
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 27
================================================================================
the REIT at the end of the fiscal year as capital gains or a return
of capital. Thus, the Fund will estimate the components of
distributions from these securities and revise when actual
distributions are known.
o SPECIFIC NOTES
(a) The security, or a portion thereof, was out on loan as of
November 30, 2017.
(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, 2017, by the Manager in
accordance with valuation procedures approved by the Board. The total
value of all such securities was $4,113,000, which represented 0.1% of
the Fund's net assets.
(d) Commercial paper issued in reliance on the "private placement" exemption
from registration afforded by Section 4(a)(2) of the Securities Act of
1933, as amended (Section 4(a)(2) Commercial Paper). Unless this
commercial paper is subsequently registered, a resale of this commercial
paper in the United States must be effected in a transaction exempt from
registration under the Securities Act of 1933. Section 4(a)(2)
Commercial Paper is normally resold to other investors through or with
the assistance of the issuer or an 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.
(e) Rate represents the money market fund annualized seven-day yield at
November 30, 2017.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
28 | USAA INTERNATIONAL FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
November 30, 2017 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value
(including securities on loan of $127,630) (cost of $3,176,405) $4,421,712
Cash denominated in foreign currencies (identified cost of $1,630) 1,633
Receivables:
Capital shares sold 2,593
Dividends and interest 10,098
Securities sold 5,747
Other 107
----------
Total assets 4,441,890
----------
LIABILITIES
Payables:
Upon return of securities loaned 109,889
Securities purchased 5,737
Capital shares redeemed:
Affiliated transactions (Note 8) 9,787
Unaffiliated transactions 1,448
Unrealized depreciation on foreign currency contracts held, at value 13
Accrued management fees 2,661
Accrued transfer agent's fees 64
Other accrued expenses and payables 987
----------
Total liabilities 130,586
----------
Net assets applicable to capital shares outstanding $4,311,304
==========
NET ASSETS CONSIST OF:
Paid-in capital $2,928,555
Accumulated undistributed net investment income 52,426
Accumulated net realized gain on investments 85,144
Net unrealized appreciation of investments 1,245,307
Net unrealized depreciation of foreign capital gains tax (275)
Net unrealized appreciation of foreign currency translations 147
----------
Net assets applicable to capital shares outstanding $4,311,304
==========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $1,856,356/55,037 capital shares
outstanding, no par value) $ 33.73
==========
Institutional Shares (net assets of $2,446,766/72,716 capital shares
outstanding, no par value) $ 33.65
==========
Adviser Shares (net assets of $8,182/244 capital shares
outstanding, no par value) $ 33.55
==========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 29
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended November 30, 2017 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $3,288) $40,054
Interest 222
Securities lending (net) 332
-------
Total income 40,608
-------
EXPENSES
Management fees 16,151
Administration and servicing fees:
Fund Shares 1,334
Institutional Shares 1,197
Adviser Shares 6
Transfer agent's fees:
Fund Shares 1,102
Institutional Shares 1,197
Distribution and service fees (Note 7F):
Adviser Shares 10
Custody and accounting fees:
Fund Shares 265
Institutional Shares 339
Adviser Shares 1
Postage:
Fund Shares 63
Institutional Shares 29
Shareholder reporting fees:
Fund Shares 31
Institutional Shares 5
Trustees' fees 17
Registration fees:
Fund Shares 28
Institutional Shares 25
Adviser Shares 13
Professional fees 116
Other 28
-------
Total expenses 21,957
Expenses reimbursed:
Adviser Shares (7)
-------
Net expenses 21,950
-------
NET INVESTMENT INCOME 18,658
-------
================================================================================
30 | USAA INTERNATIONAL FUND
================================================================================
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY
Net realized gain on:
Investments $124,809
Foreign currency transactions 149
Change in net unrealized appreciation/(depreciation) of:
Investments 187,514
Foreign capital gains tax 340
Foreign currency translations (12)
--------
Net realized and unrealized gain 312,800
--------
Increase in net assets resulting from operations $331,458
========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 31
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended November 30, 2017 (unaudited), and year ended
May 31, 2017
--------------------------------------------------------------------------------------------------------
11/30/2017 5/31/2017
--------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 18,658 $ 49,382
Net realized gain on investments 124,809 42,367
Net realized gain (loss) on foreign currency transactions 149 (801)
Change in net unrealized appreciation/(depreciation) of:
Investments 187,514 584,580
Foreign capital gains tax 340 (615)
Foreign currency translations (12) 373
----------------------------
Increase in net assets resulting from operations 331,458 675,286
----------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares - (22,090)
Institutional Shares - (33,926)
Adviser Shares - (87)
----------------------------
Distributions to shareholders - (56,103)
----------------------------
NET DECREASE IN NET ASSETS FROM
CAPITAL SHARE TRANSACTIONS (NOTE 6)
Fund Shares 19,449 8,004
Institutional Shares (52,015) (48,212)
Adviser Shares 30 29
----------------------------
Total net decrease in net assets from
capital share transactions (32,536) (40,179)
----------------------------
Net increase in net assets 298,922 579,004
NET ASSETS
Beginning of period 4,012,382 3,433,378
----------------------------
End of period $4,311,304 $4,012,382
============================
Accumulated undistributed net investment income:
End of period $ 52,426 $ 33,768
============================
See accompanying notes to financial statements.
================================================================================
32 | USAA INTERNATIONAL FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
November 30, 2017 (unaudited)
--------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company Act
of 1940, as amended (the 1940 Act), is an open-end management investment
company organized as a Delaware statutory trust consisting of 51 separate funds.
Additionally, USAA International Fund (the Fund) qualifies as a registered
investment company under Accounting Standards Codification Topic 946. The
information presented in this semiannual report pertains only to the Fund, which
is classified as diversified under the 1940 Act. The Fund's investment objective
is to seek 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 33
================================================================================
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 backtesting reports,
pricing service quotation comparisons, illiquid securities and fair value
determinations, pricing movements, and daily stale price monitoring.
The value of each security is determined (as of the close of trading on
the New York Stock Exchange (NYSE) on each business day the NYSE
is open) as set forth below:
1. Equity securities, including exchange-traded funds (ETFs), except as
otherwise noted, traded primarily on a domestic securities exchange or
the over-the-counter markets, are valued at the last sales price or
================================================================================
34 | USAA INTERNATIONAL FUND
================================================================================
official closing price on the exchange or primary market on which they
trade. Securities traded primarily on foreign securities exchanges or
markets are valued at the last quoted sale price, or the most recently
determined official closing price calculated according to local market
convention, available at the time the Fund is valued. If no last sale
or official closing price is reported or available, the average of the
bid and ask prices generally is used. Actively traded equity securities
listed on a domestic exchange generally are categorized in Level 1 of
the fair value hierarchy. Certain preferred and equity securities
traded in inactive markets generally are categorized in Level 2 of the
fair value hierarchy.
2. Equity securities trading in various foreign markets may take place
on days when the NYSE is closed. Further, when the NYSE is open, the
foreign markets may be closed. Therefore, the calculation of the Fund's
net asset value (NAV) may not take place at the same time the prices of
certain foreign securities held by the Fund are determined. In many
cases, events affecting the values of foreign securities that occur
between the time of their last quoted sale or official closing price
and the close of normal trading on the NYSE on a day the Fund's NAV is
calculated will not need to be reflected in the value of 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 35
================================================================================
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. Futures are valued at the settlement price at the close of market on the
principal exchange on which they are traded or, in the absence of any
transactions that day, the settlement price on the prior trading date
if it is within the spread between the closing bid and ask price closest
to the last reported sale price.
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,
================================================================================
36 | USAA INTERNATIONAL FUND
================================================================================
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
income and net capital gains, if any, to its shareholders. Therefore, no
federal income tax provision is required.
For the six-month period ended November 30, 2017, the Fund did not incur
any income tax, interest, or penalties, and has recorded no liability for
net unrecognized tax benefits relating to uncertain income tax
================================================================================
NOTES TO FINANCIAL STATEMENTS | 37
================================================================================
positions. On an ongoing basis, the Manager will monitor the Fund's tax
basis to determine if adjustments to this conclusion are necessary. The
statute of limitations on the Fund's tax return filings generally remain
open for the three preceding fiscal reporting year ends and remain
subject to examination by the Internal Revenue Service and state taxing
authorities.
D. 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.
================================================================================
38 | USAA INTERNATIONAL 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.
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,
2017, 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, 2017, 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. Effective October 1, 2017, the
Adviser Shares no longer charge redemption fees.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 39
================================================================================
For the six-month period ended November 30, 2017, 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, along with other funds of the Trust and USAA ETF Trust
(together the Trusts), in a joint, short-term, revolving, committed loan
agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate of
the Manager. The purpose of the agreement is to provide temporary or emergency
cash needs, including redemption requests that might otherwise require the
untimely disposition of securities. Subject to availability (including usage of
the facility by other funds of the Trusts), the Fund may borrow from CAPCO an
amount up to 5% of the Fund's total assets at an interest rate based on the
London Interbank Offered Rate (LIBOR), plus 100.0 basis points.
The Trusts are also assessed facility fees by CAPCO in the amount of 13.0 basis
points of the amount of the committed loan agreement. Prior to September 30,
2017, the maximum annual facility fee was 12.0 basis points of the amount of the
committed loan agreement. The facility fees are allocated among the funds of the
Trusts based on their respective average net assets for the period.
================================================================================
40 | USAA INTERNATIONAL FUND
================================================================================
The Trusts may request an optional increase of the committed loan agreement from
$500 million up to $750 million. If the Trusts increase the committed loan
agreement, the assessed facility fee on the amount of the additional commitment
will be 14.0 basis points.
For the six-month period ended November 30, 2017, the Fund paid CAPCO facility
fees of $16,000, which represents 5.2% of the total fees paid to CAPCO by the
funds of the Trusts. The Fund had no borrowings under this agreement during the
six-month period ended November 30, 2017.
(3) DISTRIBUTIONS
The tax basis of distributions and any accumulated undistributed net investment
income will be determined as of the Fund's tax year-end of May 31, 2018, in
accordance with applicable federal tax law.
Distributions of net investment income and realized gains from security
transactions not offset by capital losses are made annually in the succeeding
fiscal year or as otherwise required to avoid the payment of federal income tax.
At May 31, 2017, the Fund had long-term capital loss carryforwards of
$23,989,000, for federal income tax purposes. It is unlikely that the Board will
authorize a distribution of capital gains realized in the future until the
capital loss carryforwards have been used.
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities, excluding
short-term securities, for the six-month period ended November 30, 2017, were
$746,505,000 and $752,526,000, respectively.
As of November 30, 2017, the cost of securities, including short-term
securities, for federal income tax purposes, was approximately the same as the
cost reported in the financial statements.
Gross unrealized appreciation and depreciation of investments as of November 30,
2017, were $1,330,095,000 and $84,788,000, respectively, resulting in net
unrealized appreciation of $1,245,307,000.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 41
================================================================================
(5) SECURITIES LENDING
The Fund, through its securities lending agreement with Citibank, N.A.
(Citibank), may lend its securities to qualified financial institutions, such as
certain broker-dealers, to earn additional income. The borrowers are required to
secure their loans continuously with collateral in an amount at least equal to
102% of the fair value of domestic securities and foreign government securities
loaned and 105% of the fair value of foreign securities and all other securities
loaned. Collateral may be cash, U.S. government securities, or other securities
as permitted by SEC guidelines. Cash collateral is invested in high-quality
short-term investments. Collateral requirements are determined daily based on
the prior business day's ending value of securities loaned. Risks to the Fund in
securities-lending transactions are that the borrower may not provide additional
collateral when required or return the securities when due, and that the value
of the short-term investments will be less than the amount of cash collateral
required to be returned to the borrower. The Fund's agreement with Citibank does
not include master netting provisions. Non-cash collateral received by the Fund
may not be sold or re-pledged except to satisfy borrower default. Cash
collateral is listed in the Fund's Portfolio of Investments and Financial
Statements while non-cash collateral is not included.
At November 30, 2017, the Fund's value of outstanding securities on loan and the
value of collateral are as follows:
VALUE OF SECURITIES
ON LOAN NON-CASH COLLATERAL CASH COLLATERAL
----------------------------------------------------------------------------------
$127,630,000 $24,369,000 $109,889,000
(6) CAPITAL SHARE TRANSACTIONS
At November 30, 2017, there were an unlimited number of shares of capital stock
at no par value authorized for the Fund.
Capital share transactions for the Institutional Shares resulted from purchases
and sales by the affiliated USAA fund-of-funds as well as other
================================================================================
42 | USAA INTERNATIONAL 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, 2017 MAY 31, 2017
------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------
FUND SHARES:
Shares sold 3,751 $ 121,714 8,504 $ 235,535
Shares issued from
reinvested dividends -* -* 811 21,661
Shares redeemed (3,150) (102,265) (9,069) (249,192)
-----------------------------------------------------
Net increase from
capital share transactions 601 $ 19,449 246 $ 8,004
=====================================================
INSTITUTIONAL SHARES:
Shares sold 3,523 $ 113,878 10,126 $ 277,737
Shares issued from
reinvested dividends - - 1,274 33,923
Shares redeemed (5,096) (165,893) (12,911) (359,872)
-----------------------------------------------------
Net decrease from
capital share transactions (1,573) $ (52,015) (1,511) $ (48,212)
=====================================================
ADVISER SHARES:
Shares sold 1 $ 30 1 $ 30
Shares issued from
reinvested dividends - - -* -*
Shares redeemed - - -* (1)
-----------------------------------------------------
Net increase from
capital share transactions 1 $ 30 1 $ 29
=====================================================
*Represents less than 500 shares or $500.
(7) 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 all
or a portion of the Fund's assets.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 43
================================================================================
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 funds
within 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.
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).
================================================================================
44 | USAA INTERNATIONAL FUND
================================================================================
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, 2017, the Fund incurred total
management fees, paid or payable to the Manager, of $16,151,000, which
included a performance adjustment for the Fund Shares, Institutional
Shares, and Adviser Shares of $224,000, $249,000, and less than $500,
respectively. For the Fund Shares, Institutional Shares, and Adviser
Shares, the performance adjustments were 0.02%, 0.02%, and 0.01%,
respectively.
B. SUBADVISORY ARRANGEMENT(S) - The Manager entered into Investment
Subadvisory Agreements with Lazard Asset Management LLC (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, 2017, the Manager incurred subadvisory fees with respect
to the Fund, paid or payable to Lazard, of $1,460,000.
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 $3 billion, and 0.25% on
assets over $3 billion on the portion of the
================================================================================
NOTES TO FINANCIAL STATEMENTS | 45
================================================================================
Fund's average net assets that MFS manages. For the six-month period ended
November 30, 2017, the Manager incurred subadvisory fees with respect to
the Fund, paid or payable to MFS, of $4,109,000.
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,
2017, the Manager incurred subadvisory fees with respect to the Fund, paid
or payable to Wellington Management, of $1,712,000.
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, 2017, the Fund Shares, Institutional Shares, and
Adviser Shares incurred administration and servicing fees, paid or payable
to the Manager, of $1,334,000, $1,197,000, and $6,000, respectively.
In addition to the services provided under its Administration and Servicing
Agreement with the Fund, the Manager also provides certain compliance and
legal services for the benefit of the Fund. The Board has approved the
reimbursement of a portion of these expenses incurred by the Manager. For
the six-month period ended November 30, 2017, the Fund reimbursed the
Manager $50,000 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, 2018, 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
================================================================================
46 | USAA INTERNATIONAL FUND
================================================================================
September 30, 2018, without approval of the Board, and may be changed or
terminated by the Manager at any time after that date. For the six-month
period ended November 30, 2017, the Adviser Shares incurred reimbursable
expenses of $7,000, of which less than $500 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, 2017, the Fund Shares,
Institutional Shares, and Adviser Shares incurred transfer agent's fees,
paid or payable to SAS, of $1,102,000, $1,197,000, 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, 2017, the Adviser Shares incurred
distribution and service (12b-1) fees of $10,000.
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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 47
================================================================================
(8) TRANSACTIONS WITH AFFILIATES
The Fund offers its Institutional Shares for investment by other USAA Funds and
is one of 19 USAA mutual funds in which the affiliated USAA fund-of-funds
invest. The USAA fund-of-funds do not invest in the underlying funds for the
purpose of exercising management or control. As of November 30, 2017, the Fund
recorded a payable for capital shares redeemed of $9,787,000 for the USAA
fund-of-funds' purchases and redemptions of Institutional Shares. As of November
30, 2017, 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 1.2
Target Retirement Income 0.6
Target Retirement 2020 1.5
Target Retirement 2030 4.1
Target Retirement 2040 5.3
Target Retirement 2050 3.2
Target Retirement 2060 0.3
The Manager is indirectly wholly owned by United Services Automobile Association
(USAA), a large, diversified financial services institution. At November 30,
2017, USAA and its affiliates owned 240,000 Adviser Shares, which represents
98.4% of the Adviser Shares outstanding and 0.2% of the Fund's total outstanding
shares.
Certain trustees and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Fund.
(9) UPCOMING REGULATORY MATTERS
In October 2016, the U.S. Securities and Exchange Commission (SEC) issued Final
Rule Release No. 33-10231, INVESTMENT COMPANY REPORTING MODERNIZATION. In part,
the rules require the filing of new forms N-PORT and N-CEN, and amend Regulation
S-X to require standardized, enhanced
================================================================================
48 | USAA INTERNATIONAL FUND
================================================================================
disclosure about derivatives in investment company financial statements, as well
as other amendments.
In October 2016, the SEC issued Final Rule Release No. 33-10233, INVESTMENT
COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS. This rule requires funds to
establish a liquidity risk management program and enhances disclosures regarding
funds' liquidity.
In October 2016, the SEC issued Final Rule Release No. 33-10234, INVESTMENT
COMPANY SWING PRICING. This rule permits certain funds to use swing pricing
during periods of heavy redemptions and requires certain disclosures regarding
the use of swing pricing in forms filed with the SEC.
The Manager continues to evaluate the impact these rules and amendments will
have on the financial statements and other disclosures. The compliance date for
new forms N-PORT and N-CEN is June 1, 2018 (with filing of Form N-PORT beginning
April 30, 2019), with other staggered compliance dates extending through April
30, 2019. The Fund is expected to comply with the June 1, 2018 compliance date
for new forms N-PORT and N-CEN.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 49
================================================================================
(10) 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,
--------------------------------------------------------------------------------------------
2017 2017 2016 2015 2014 2013
--------------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 31.16 $ 26.40 $ 30.90 $ 31.25 $ 27.29 $ 21.59
--------------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .13 .42 .35(a) .38 .34(a) .32(a)
Net realized and
unrealized gain (loss) 2.44 4.76 (3.34)(a) .16 3.86(a) 5.71(a)
--------------------------------------------------------------------------------------------
Total from investment
operations 2.57 5.18 (2.99)(a) .54 4.20(a) 6.03(a)
--------------------------------------------------------------------------------------------
Less distributions from:
Net investment income - (.42) (.37) (.50) (.24) (.33)
Realized capital gains - - (1.14) (.39) - -
--------------------------------------------------------------------------------------------
Total distributions - (.42) (1.51) (.89) (.24) (.33)
--------------------------------------------------------------------------------------------
Net asset value at
end of period $ 33.73 $ 31.16 $ 26.40 $ 30.90 $ 31.25 $ 27.29
============================================================================================
Total return (%)* 8.25 19.87 (9.75) 1.97 15.44 28.01
Net assets at end of
period (000) $1,856,356 $1,696,372 $1,430,667 $1,958,773 $1,836,335 $1,509,000
Ratios to average
net assets:**
Expenses (%)(b) 1.10(c) 1.11 1.13 1.12 1.16 1.21
Net investment
income (%) .84(c) 1.33 1.27 1.42 1.16 1.27
Portfolio turnover (%) 18 40 62(d) 17 14 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, 2017, average net assets were
$1,776,294,000.
(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 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).
================================================================================
50 | USAA INTERNATIONAL FUND
================================================================================
(10) 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,
--------------------------------------------------------------------------------------------
2017 2017 2016 2015 2014 2013
--------------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 31.07 $ 26.34 $ 30.82 $ 31.17 $ 27.23 $ 21.59
--------------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .16 .45 .47(a) .46 .38 .42(a)
Net realized and
unrealized gain (loss) 2.42 4.74 (3.42)(a) .12 3.85 5.65(a)
--------------------------------------------------------------------------------------------
Total from investment
operations 2.58 5.19 (2.95)(a) .58 4.23 6.07(a)
--------------------------------------------------------------------------------------------
Less distributions from:
Net investment income - (.46) (.39) (.54) (.29) (.43)
Realized capital gains - - (1.14) (.39) - -
--------------------------------------------------------------------------------------------
Total distributions - (.46) (1.53) (.93) (.29) (.43)
--------------------------------------------------------------------------------------------
Net asset value at
end of period $ 33.65 $ 31.07 $ 26.34 $ 30.82 $ 31.17 $ 27.23
============================================================================================
Total return (%)* 8.30 19.97 (9.61) 2.11 15.60 28.23
Net assets at end of
period (000) $2,446,766 $2,308,470 $1,996,349 $1,735,756 $1,720,967 $1,235,652
Ratios to average
net assets:**
Expenses (%)(b) 1.01(c) 1.00 1.00 .99 1.01 1.02
Net investment
income (%) .93(c) 1.43 1.74 1.53 1.33 1.65
Portfolio turnover (%) 18 40 62(d) 17 14 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, 2017, average net assets were
$2,389,025,000.
(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).
================================================================================
NOTES TO FINANCIAL STATEMENTS | 51
================================================================================
(10) 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,
--------------------------------------------------------------------------------------------
2017 2017 2016 2015 2014 2013
--------------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 31.04 $ 26.31 $ 30.77 $ 31.13 $ 27.17 $ 21.54
--------------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .10 .35 .31 .32 .25 .23
Net realized and
unrealized gain (loss) 2.41 4.74 (3.35) .12 3.84 5.69
--------------------------------------------------------------------------------------------
Total from investment
operations 2.51 5.09 (3.04) .44 4.09 5.92
--------------------------------------------------------------------------------------------
Less distributions from:
Net investment income - (.36) (.28) (.41) (.13) (.29)
Realized capital gains - - (1.14) (.39) - -
--------------------------------------------------------------------------------------------
Total distributions - (.36) (1.42) (.80) (.13) (.29)
--------------------------------------------------------------------------------------------
Redemption fees added
to beneficial interest - - .00(f) - - -
--------------------------------------------------------------------------------------------
Net asset value at
end of period $ 33.55 $ 31.04 $ 26.31 $ 30.77 $ 31.13 $ 27.17
============================================================================================
Total return (%)* 8.12 19.58 (9.94) 1.62 15.10 27.56
Net assets at end of
period (000) $ 8,182 $ 7,540 $ 6,362 $ 7,481 $ 7,698 $ 6,641
Ratios to average
net assets:**
Expenses (%)(c) 1.35(d) 1.35 1.37(b) 1.44(a) 1.46 1.55
Expenses, excluding
reimbursements (%)(c) 1.53(d) 1.51 1.46 1.51 1.46 1.68
Net investment income (%) .59(d) 1.08 1.14 1.07 .85 .97
Portfolio turnover (%) 18 40 62(e) 17 14 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, 2017, average net assets were
$7,860,000.
(a) Prior to October 1, 2014, the Manager had voluntarily agreed to limit the
annual expenses of the Adviser Shares to 1.55% of the Adviser Shares'
average net assets.
(b) Prior to October 1, 2015, the Manager had voluntarily agreed to limit the
annual expenses of the Adviser Shares to 1.40% of the Adviser Shares'
average net assets.
(c) Reflects total annual operating expenses of the Adviser Shares before
reductions of any expenses paid indirectly. The Adviser Shares' expenses
paid indirectly decreased the expense ratios as follows:
(.00%)(+) (.00%)(+) (.00%)(+) - (.00%)(+) (.00%)(+)
(+) Represents less than 0.01% of average net assets.
(d) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(e) Reflects increased trading activity due to changes in subadviser(s).
(f) Represents less than $0.01 per share.
================================================================================
52 | USAA INTERNATIONAL FUND
================================================================================
EXPENSE EXAMPLE
November 30, 2017 (unaudited)
--------------------------------------------------------------------------------
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: direct costs, such
as wire fees, redemption fees, and low balance fees; and indirect costs,
including management fees, transfer agency fees, distribution and service
(12b-1) fees, and other Fund operating expenses. This example is intended to
help you understand your indirect costs, also referred to as "ongoing costs" (in
dollars), of investing in the Fund and to compare these costs with the ongoing
costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire six-month period of June 1, 2017, through
November 30, 2017.
ACTUAL EXPENSES
The line labeled "actual" under each share class in the table provides
information about actual account values and actual expenses. You may use the
information in this line, together with the amount you invested at the beginning
of the period, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number for your share
class in the "actual" line under the heading "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The line labeled "hypothetical" under each share class in the table provides
information about hypothetical account values and hypothetical expenses based on
the Fund's actual expense ratios for each class and an assumed rate of return of
5% per year before expenses, which is not the Fund's actual return. The
hypothetical account values and expenses may not be used to
================================================================================
EXPENSE EXAMPLE | 53
================================================================================
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, 2017 -
JUNE 1, 2017 NOVEMBER 30, 2017 NOVEMBER 30, 2017
-------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $1,082.50 $5.74
Hypothetical
(5% return before expenses) 1,000.00 1,019.55 5.57
INSTITUTIONAL SHARES
Actual 1,000.00 1,083.00 5.27
Hypothetical
(5% return before expenses) 1,000.00 1,020.00 5.11
ADVISER SHARES
Actual 1,000.00 1,081.20 7.04
Hypothetical
(5% return before expenses) 1,000.00 1,018.30 6.83
*Expenses are equal to the annualized expense ratio of 1.10% for Fund Shares,
1.01% for Institutional Shares, and 1.35% 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 8.25% for Fund Shares, 8.30% for Institutional Shares,
and 8.12% for Adviser Shares for the six-month period of June 1, 2017, through
November 30, 2017.
================================================================================
54 | USAA INTERNATIONAL FUND
================================================================================
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Jefferson C. Boyce
Dawn M. Hawley
Paul L. McNamara
Richard Y. Newton III
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
--------------------------------------------------------------------------------
ADMINISTRATOR AND USAA Asset Management Company
INVESTMENT ADVISER P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
UNDERWRITER AND USAA Investment Management Company
DISTRIBUTOR P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
--------------------------------------------------------------------------------
CUSTODIAN AND State Street Bank and Trust Company
ACCOUNTING AGENT P.O. Box 1713
Boston, Massachusetts 02105
--------------------------------------------------------------------------------
INDEPENDENT Ernst & Young LLP
REGISTERED PUBLIC 100 West Houston St., Suite 1700
ACCOUNTING FIRM San Antonio, Texas 78205
--------------------------------------------------------------------------------
MUTUAL FUND Under "My Accounts" on
SELF-SERVICE 24/7 usaa.com select your mutual fund
AT USAA.COM account and either click the link or
select 'I want to...' and select
OR CALL the desired action.
(800) 531-USAA (8722)
(210) 531-8722
--------------------------------------------------------------------------------
Copies of the Manager's proxy voting policies and procedures, approved by the
Trust's Board of Trustees for use in voting proxies on behalf of the Fund, are
available without charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722;
(ii) at USAA.COM; and (iii) in summary within the Statement of Additional
Information on the SEC's website at HTTP://WWW.SEC.GOV. Information regarding
how the Fund voted proxies relating to portfolio securities during the most
recent 12-month period ended June 30 is available without charge (i) at
USAA.COM; and (ii) on the SEC's website at HTTP://WWW.SEC.GOV.
The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. These Forms N-Q are
available at no charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722;
(ii) at USAA.COM; and (iii) on the SEC's website at HTTP://WWW.SEC.GOV. These
Forms N-Q also may be reviewed and copied at the SEC's Public Reference Room in
Washington, D.C. Information on the operation of the Public Reference Room may
be obtained by calling (800) 732-0330.
================================================================================
--------------
USAA PRSRT STD
9800 Fredericksburg Road U.S. Postage
San Antonio, TX 78288 PAID
USAA
--------------
>> SAVE PAPER AND FUND COSTS
Under MY PROFILE on USAA.COM select MANAGE PREFERENCES
Set your DOCUMENT PREFERENCES to USAA DOCUMENTS ONLINE.
[LOGO OF USAA]
USAA We know what it means to serve.(R)
=============================================================================
23410-0118 (C)2018, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA MANAGED ALLOCATION FUND]
==============================================================
SEMIANNUAL REPORT
USAA MANAGED ALLOCATION FUND (UMAFX)
NOVEMBER 30, 2017
==============================================================
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
INVESTMENT OVERVIEW 2
FINANCIAL INFORMATION
Portfolio of Investments 3
Notes to Portfolio of Investments 5
Financial Statements 7
Notes to Financial Statements 10
EXPENSE EXAMPLE 21
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)2018, USAA. All rights reserved.
================================================================================
================================================================================
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
================================================================================
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
o ASSET ALLOCATION* - 11/30/17 o
[PIE CHART OF ASSET ALLOCATION]
INTERNATIONAL EXCHANGE-TRADED FUNDS** 99.2%
MONEY MARKET INSTRUMENTS 0.9%
[END CHART]
*Does not include short-term investments purchased with cash collateral from
securities loaned.
**The Fund may rely on certain Securities and Exchange Commission (SEC)
exemptive orders or rules that permit funds meeting various conditions to invest
in an exchange-traded fund (ETF) in amounts exceeding limits set forth in the
Investment Company Act of 1940, as amended, that would otherwise be applicable.
Percentages are of the net assets of the Fund and may not equal 100%.
You will find a complete list of securities that the Fund owns on pages 3-4.
================================================================================
2 | USAA MANAGED ALLOCATION FUND
================================================================================
PORTFOLIO OF INVESTMENTS
November 30, 2017 (unaudited)
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (99.2%)
EXCHANGE-TRADED FUNDS (99.2%)
INTERNATIONAL EXCHANGE-TRADED FUNDS (99.2%)
6,254,530 iShares Core MSCI EAFE ETF(a) $411,736
--------
8,766,110 Vanguard FTSE Emerging Markets ETF 389,916
--------
Total International Exchange-Traded Funds 801,652
--------
Total Exchange-Traded Funds 801,652
--------
Total Equity Securities (cost: $759,158) 801,652
--------
------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON
(000) RATE MATURITY
------------------------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS (0.9%)
COMMERCIAL PAPER (0.8%)
FINANCIALS (0.8%)
-----------------
ASSET-BACKED FINANCING (0.8%)
$ 500 Liberty Street Funding, LLC(b),(c) 1.22% 12/14/2017 500
6,450 LMA Americas, LLC(b),(c) 1.18 12/04/2017 6,449
--------
6,949
--------
Total Financials 6,949
--------
Total Commercial Paper (cost: $6,949) 6,949
--------
------------------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES
------------------------------------------------------------------------------------------------------------------
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (0.1%)
510,760 State Street Institutional Treasury Money Market Fund
Premier Class, 1.02%(d) (cost: $511) 511
--------
Total Money Market Instruments (cost: $7,460) 7,460
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 3
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS PURCHASED WITH CASH
COLLATERAL FROM SECURITIES LOANED (2.9%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (2.9%)
23,800,000 Invesco Government & Agency Portfolio Institutional Class, 0.98%(d) $ 23,800
--------
Total Short-Term Investments Purchased with Cash Collateral
from Securities Loaned (cost: $23,800) 23,800
--------
TOTAL INVESTMENTS (COST: $790,418) $832,912
========
------------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
------------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------------------------------------------------------------------------------------------------------------------
Equity Securities:
Exchange-Traded Funds:
International Exchange-Traded Funds $801,652 $ - $- $801,652
Money Market Instruments:
Commercial Paper - 6,949 - 6,949
Government & U.S. Treasury Money
Market Funds 511 - - 511
Short-Term Investments Purchased with
Cash Collateral from Securities Loaned:
Government & U.S. Treasury Money
Market Funds 23,800 - - 23,800
------------------------------------------------------------------------------------------------------------------
Total $825,963 $6,949 $- $832,912
------------------------------------------------------------------------------------------------------------------
For the period of June 1, 2017, through November 30, 2017, there were no
transfers of securities between levels. The Fund's policy is to recognize any
transfers in and transfers out as of the beginning of the reporting period in
which the event or circumstance that caused the transfer occurred.
================================================================================
4 | USAA MANAGED ALLOCATION FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
November 30, 2017 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
Market values of securities are determined by procedures and practices
discussed in Note 1A to the financial statements.
The Portfolio of Investments category percentages shown represent the
percentages of the investments to net assets, and, in total, may not equal
100%. A category percentage of 0.0% represents less than 0.1% of net assets.
Investments in foreign securities were 99.2% of net assets at November 30,
2017.
The Fund may rely on certain Securities and Exchange Commission (SEC)
exemptive orders or rules that permit funds meeting various conditions to
invest in an exchange-traded fund (ETF) in amounts exceeding limits set
forth in the Investment Company Act of 1940, as amended, that would
otherwise be applicable.
o SPECIFIC NOTES
(a) The security, or a portion thereof, was out on loan as of November
30, 2017.
(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.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 5
================================================================================
(c) Commercial paper issued in reliance on the "private placement"
exemption from registration afforded by Section 4(a)(2) of the
Securities Act of 1933, as amended (Section 4(a)(2) Commercial Paper).
Unless this commercial paper is subsequently registered, a resale of
this commercial paper in the United States must be effected in a
transaction exempt from registration under the Securities Act of 1933.
Section 4(a)(2) Commercial Paper is normally resold to other investors
through or with the assistance of the issuer or an 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.
(d) Rate represents the money market fund annualized seven-day yield at
November 30, 2017.
See accompanying notes to financial statements.
================================================================================
6 | USAA MANAGED ALLOCATION FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
November 30, 2017 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (including
securities on loan of $23,041) (cost of $790,418) $832,912
Receivables:
Capital shares sold 197
Interest 2
--------
Total assets 833,111
--------
LIABILITIES
Payables:
Upon return of securities loaned 23,800
Capital shares redeemed 326
Accrued management fees 399
Other accrued expenses and payables 138
--------
Total liabilities 24,663
--------
Net assets applicable to capital shares outstanding $808,448
========
NET ASSETS CONSIST OF:
Paid-in capital $767,624
Accumulated undistributed net investment income 13,424
Accumulated net realized loss on investments (15,094)
Net unrealized appreciation of investments 42,494
--------
Net assets applicable to capital shares outstanding $808,448
========
Capital shares outstanding, no par value 65,954
========
Net asset value, redemption price, and offering price per share $ 12.26
========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 7
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended November 30, 2017 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends $12,690
Interest 35
Securities lending (net) 580
-------
Total income 13,305
-------
EXPENSES
Management fees 2,374
Administration and servicing fees 198
Transfer agent's fees 198
Custody and accounting fees 48
Postage 50
Shareholder reporting fees 8
Trustees' fees 18
Registration fees 19
Professional fees 46
Other 10
-------
Total expenses 2,969
-------
NET INVESTMENT INCOME 10,336
-------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain 41,249
Change in net unrealized appreciation/(depreciation) of:
Investments (8,728)
-------
Net realized and unrealized gain 32,521
-------
Increase in net assets resulting from operations $42,857
=======
See accompanying notes to financial statements.
================================================================================
8 | USAA MANAGED ALLOCATION FUND
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended November 30, 2017 (unaudited), and year ended
May 31, 2017
-----------------------------------------------------------------------------------------------------------------
11/30/2017 5/31/2017
-----------------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 10,336 $ 15,726
Net realized gain on investments 41,249 10,904
Net realized gain on long-term capital gain
distributions from other investment companies - 8
Change in net unrealized
appreciation/(depreciation) of investments (8,728) 36,149
---------------------------------
Increase in net assets resulting from operations 42,857 62,787
---------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income - (15,780)
---------------------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 40,645 109,626
Reinvested dividends - 15,777
Cost of shares redeemed (40,933) (115,123)
---------------------------------
Increase (decrease) in net assets from capital
share transactions (288) 10,280
---------------------------------
Net increase in net assets 42,569 57,287
NET ASSETS
Beginning of period 765,879 708,592
---------------------------------
End of period $808,448 $ 765,879
=================================
Accumulated undistributed net investment income:
End of period $ 13,424 $ 3,088
=================================
CHANGE IN SHARES OUTSTANDING
Shares sold 3,393 9,699
Shares issued for dividends reinvested - 1,462
Shares redeemed (3,419) (10,219)
---------------------------------
Increase (decrease) in shares outstanding (26) 942
=================================
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 9
================================================================================
NOTES TO FINANCIAL STATEMENTS
November 30, 2017 (unaudited)
--------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company Act
of 1940, as amended (the 1940 Act), is an open-end management investment
company organized as a Delaware statutory trust consisting of 51 separate funds.
Additionally, USAA Managed Allocation Fund (the Fund) qualifies as a registered
investment company under Accounting Standards Codification Topic 946. The
information presented in this semiannual report pertains only to the Fund, which
is classified as diversified under the 1940 Act and is authorized to issue an
unlimited number of shares. The Fund's investment objective is to seek to
maximize total return, consisting primarily of capital appreciation. The Fund is
not offered for sale directly to the general public and is currently 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.
================================================================================
10 | USAA MANAGED ALLOCATION FUND
================================================================================
The Committee meets as often as necessary to make pricing and fair value
determinations. In addition, the Committee holds regular monthly meetings to
review prior actions taken by the Committee and USAA Asset Management
Company (the Manager), an affiliate of the Fund. Among other things, these
monthly meetings include a review and analysis of backtesting reports,
pricing service quotation comparisons, illiquid securities and fair value
determinations, pricing movements, and daily stale price monitoring.
The value of each security is determined (as of the close of trading on the
New York Stock Exchange (NYSE) on each business day the NYSE is open) as set
forth below:
1. Equity securities, including exchange-traded funds (ETFs), except as
otherwise noted, traded primarily on a domestic securities exchange or
the over-the-counter markets, are valued at the last sales price or
official closing price on the exchange or primary market on which they
trade. Securities traded primarily on foreign securities exchanges or
markets are valued at the last quoted sale price, or the most recently
determined official closing price calculated according to local market
convention, available at the time the Fund is valued. If no last sale
or official closing price is reported or available, the average of the
bid and ask prices generally is used. Actively traded equity securities
listed on a domestic exchange generally are categorized in Level 1 of
the fair value hierarchy. Certain preferred and equity securities
traded in inactive markets generally are categorized in Level 2 of the
fair value hierarchy.
2. Equity securities trading in various foreign markets may take place on
days when the NYSE is closed. Further, when the NYSE is open, the
foreign markets may be closed. Therefore, the calculation of the Fund's
net asset value (NAV) may not take place at the same time the prices of
certain foreign securities held by the Fund are determined. In many
cases, events affecting the values of foreign securities that occur
between the time of their last quoted sale or official closing price
and the close of normal trading on the NYSE on a day the Fund's NAV is
calculated will not need to be reflected in the value of the Fund's
foreign securities. However, the Manager will monitor for
================================================================================
NOTES TO FINANCIAL STATEMENTS | 11
================================================================================
events that would materially affect the value of the Fund's foreign
securities and the Committee will consider such available information
that it deems relevant and will determine a fair value for the affected
foreign securities in accordance with valuation procedures. In
addition, information from an external vendor or other sources may be
used to adjust the foreign market closing prices of foreign equity
securities to reflect what the Committee believes to be the fair value
of the securities as of the close of the NYSE. Fair valuation of
affected foreign equity securities may occur frequently based on an
assessment that events which occur on a fairly regular basis (such as
U.S. market movements) are significant. Such securities are categorized
in Level 2 of the fair value hierarchy.
3. Investments in open-end investment companies, commingled, or other
funds, other than ETFs, are valued at their NAV at the end of each
business day and are categorized in Level 1 of the fair value hierarchy.
4. Short-term debt securities with original or remaining maturities of 60
days or less may be valued at amortized cost, provided that amortized
cost represents the fair value of such securities.
5. Repurchase agreements are valued at cost.
6. In the event that price quotations or valuations are not readily
available, are not reflective of market value, or a significant event
has been recognized in relation to a security or class of securities,
the securities are valued in good faith by the Committee in accordance
with valuation procedures approved by the Board. The effect of fair
value pricing is that securities may not be priced on the basis of
quotations from the primary market in which they are traded and the
actual price realized from the sale of a security may differ materially
from the fair value price. Valuing these securities at fair value is
intended to cause the Fund's NAV to be more reliable than it otherwise
would be.
Fair value methods used by the Manager include, but are not limited to,
obtaining market quotations from secondary pricing services,
broker-dealers, other pricing services, or widely used quotation
================================================================================
12 | USAA MANAGED ALLOCATION FUND
================================================================================
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.
For the six-month period ended November 30, 2017, the Fund did not incur any
income tax, interest, or penalties, and has recorded no liability for net
unrecognized tax benefits relating to uncertain income tax positions. On an
ongoing basis, the Manager will monitor the Fund's tax
================================================================================
NOTES TO FINANCIAL STATEMENTS | 13
================================================================================
basis to determine if adjustments to this conclusion are necessary. The
statute of limitations on the Fund's tax return filings generally remain
open for the three preceding fiscal reporting year ends and remain subject
to examination by the Internal Revenue Service and state taxing authorities.
D. INVESTMENTS IN SECURITIES - Securities transactions are accounted for 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, 2017, 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.
================================================================================
14 | USAA MANAGED ALLOCATION FUND
================================================================================
(2) LINE OF CREDIT
The Fund participates, along with other funds of the Trust and USAA ETF Trust
(together, the Trusts), in a joint, short-term, revolving, committed loan
agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate of
the Manager. The purpose of the agreement is to provide temporary or emergency
cash needs, including redemption requests that might otherwise require the
untimely disposition of securities. Subject to availability (including usage of
the facility by other funds of the Trusts), the Fund may borrow from CAPCO an
amount up to 5% of the Fund's total assets at an interest rate based on the
London Interbank Offered Rate (LIBOR), plus 100.0 basis points.
The Trusts are also assessed facility fees by CAPCO in the amount of 13.0 basis
points of the amount of the committed loan agreement. Prior to September 30,
2017, the maximum annual facility fee was 12.0 basis points of the amount of the
committed loan agreement. The facility fees are allocated among the funds of the
Trusts based on their respective average net assets for the period.
The Trusts may request an optional increase of the committed loan agreement from
$500 million up to $750 million. If the Trusts increase the committed loan
agreement, the assessed facility fee on the amount of the additional commitment
will be 14.0 basis points.
For the six-month period ended November 30, 2017, the Fund paid CAPCO facility
fees of $3,000, which represents 1.0% of the total fees paid to CAPCO by the
funds of the Trusts. The Fund had no borrowings under this agreement during the
six-month period ended November 30, 2017.
(3) DISTRIBUTIONS
The tax basis of distributions and any accumulated undistributed net investment
income will be determined as of the Fund's tax year-end of May 31, 2018, in
accordance with applicable federal tax law.
Distributions of net investment income and realized gains from security
transactions not offset by capital losses are made annually in the succeeding
fiscal year or as otherwise required to avoid the payment of federal income
taxes.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 15
================================================================================
At May 31, 2017, the Fund had net capital loss carryforwards of $56,343,000, for
federal income tax purposes as shown in the table below. It is unlikely that the
Board will authorize a distribution of capital gains realized in the future
until the capital loss carryforwards have been used.
CAPITAL LOSS CARRYFORWARDS
--------------------------------------
TAX CHARACTER
--------------------------------------
(NO EXPIRATION) BALANCE
--------------- -----------
Short-Term $13,324,000
Long-Term 43,019,000
-----------
Total $56,343,000
===========
(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, 2017, were
$588,126,000 and $577,076,000, respectively.
As of November 30, 2017, the cost of securities, including short-term
securities, for federal income tax purposes, was approximately the same as the
cost reported in the financial statements.
Net unrealized appreciation of investments as of November 30, 2017, was
$42,494,000.
(5) SECURITIES LENDING
The Fund, through its securities lending agreement with Citibank, N.A.
(Citibank), may lend its securities to qualified financial institutions, such as
certain broker-dealers, to earn additional income. The borrowers are required to
secure their loans continuously with collateral in an amount at least equal to
102% of the fair value of domestic securities and foreign government securities
loaned and 105% of the fair value of foreign securities and all other securities
loaned. Collateral may be cash, U.S. government securities, or other securities
as permitted by SEC guidelines. Cash collateral is invested in high-quality
short-term investments. Collateral requirements are determined daily based on
the prior business day's ending value of securities loaned. Risks to the Fund in
securities-lending transactions are that the borrower may not provide additional
collateral when required or return the securities when due, and that the value
================================================================================
16 | USAA MANAGED ALLOCATION FUND
================================================================================
of the short-term investments will be less than the amount of cash collateral
required to be returned to the borrower. The Fund's agreement with Citibank does
not include master netting provisions. Non-cash collateral received by the Fund
may not be sold or re-pledged except to satisfy borrower default. Cash
collateral is listed in the Fund's Portfolio of Investments and Financial
Statements while non-cash collateral is not included.
At November 30, 2017, the Fund's value of outstanding securities on loan and the
value of collateral are as follows:
VALUE OF SECURITIES
ON LOAN NON-CASH COLLATERAL CASH COLLATERAL
------------------------------------------------------------------------
$23,041,000 $- $23,800,000
(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 all or a portion of
the Fund's assets. For the six-month period ended November 30, 2017, the
Fund had no subadviser(s).
The Fund's management fee is accrued daily and paid monthly at an annualized
rate of 0.60% of the Fund's average net assets. For the six- month period
ended November 30, 2017, the Fund incurred total management fees, paid or
payable to the Manager, of $2,374,000.
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, 2017, the Fund incurred administration
and servicing fees, paid or payable to the Manager, of $198,000.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 17
================================================================================
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, 2017, 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, 2017, the
Fund incurred transfer agent's fees, paid or payable to SAS, of $198,000.
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.
(7) TRANSACTIONS WITH AFFILIATES
The Manager is indirectly wholly owned by United Services Automobile Association
(USAA), a large, diversified financial services institution.
Certain trustees and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Fund.
(8) UPCOMING REGULATORY MATTERS
In October 2016, the U.S. Securities and Exchange Commission (SEC) issued Final
Rule Release No. 33-10231, INVESTMENT COMPANY REPORTING MODERNIZATION. In part,
the rules require the filing of new forms N-PORT and N-CEN, and amend Regulation
S-X to require standardized, enhanced disclosure about derivatives in investment
company financial statements, as well as other amendments.
================================================================================
18 | USAA MANAGED ALLOCATION FUND
================================================================================
In October 2016, the SEC issued Final Rule Release No. 33-10233, INVESTMENT
COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS. This rule requires funds to
establish a liquidity risk management program and enhances disclosures regarding
funds' liquidity.
In October 2016, the SEC issued Final Rule Release No. 33-10234, INVESTMENT
COMPANY SWING PRICING. This rule permits certain funds to use swing pricing
during periods of heavy redemptions and requires certain disclosures regarding
the use of swing pricing in forms filed with the SEC.
The Manager continues to evaluate the impact these rules and amendments will
have on the financial statements and other disclosures. The compliance date for
new forms N-PORT and N-CEN is June 1, 2018 (with filing of Form N-PORT beginning
April 30, 2019), with other staggered compliance dates extending through April
30, 2019. The Fund is expected to comply with the June 1, 2018 compliance date
for new forms N-PORT and N-CEN.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 19
================================================================================
(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,
------------------------------------------------------------------------------------
2017 2017 2016 2015 2014 2013
------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 11.61 $ 10.90 $ 11.99 $ 11.99 $ 11.32 $ 10.67
------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .16 .24 .24(a) .23 .20 .18
Net realized and
unrealized gain (loss) .49 .72 (.97)(a) .00(b) .66 .95
------------------------------------------------------------------------------------
Total from investment
operations .65 .96 (.73)(a) .23 .86 1.13
------------------------------------------------------------------------------------
Less distributions from:
Net investment income - (.25) (.21) (.23) (.18) (.23)
Realized capital gains - - (.15) - (.01) (.25)
------------------------------------------------------------------------------------
Total distributions - (.25) (.36) (.23) (.19) (.48)
------------------------------------------------------------------------------------
Net asset value at
end of period $ 12.26 $ 11.61 $ 10.90 $ 11.99 $ 11.99 $ 11.32
====================================================================================
Total return (%)* 5.60 8.94 (6.13) 1.98 7.65 10.70
Net assets at
end of period (000) $808,448 $765,879 $708,592 $1,398,614 $1,219,192 $714,894
Ratios to average
net assets:**
Expenses (%)(c) .75(d) .76 .75 .74 .73 .74
Net investment income (%) 2.61(d) 2.13 2.09 2.04 1.80 1.68
Portfolio turnover (%) 74 194(f) 90(f) 35 65 65
* 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, 2017, average net assets were
$789,699,000.
(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%)(+)
(+) Represents less than 0.01% of average net assets.
(d) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(e) Reflects overall decrease in purchases and sales of securities.
(f) Reflects increased trading activity due to large shareholder redemptions.
================================================================================
20 | USAA MANAGED ALLOCATION FUND
================================================================================
EXPENSE EXAMPLE
November 30, 2017 (unaudited)
--------------------------------------------------------------------------------
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: direct costs, such
as wire fees, redemption fees, and low balance fees; and indirect costs,
including management fees, transfer agency fees, and other Fund operating
expenses. This example is intended to help you understand your indirect costs,
also referred to as "ongoing costs" (in dollars), of investing in the Fund and
to compare these costs with the ongoing costs of investing in other mutual
funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire six-month period of June 1, 2017, through
November 30, 2017.
ACTUAL EXPENSES
The line labeled "actual" in the table provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested at the beginning of the period, to estimate the
expenses that you paid over the period. Simply divide your account value by
$1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number in the "actual" line under the heading
"Expenses Paid During Period" to estimate the expenses you paid on your account
during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The line labeled "hypothetical" in the table provides information about
hypothetical account values and hypothetical expenses based on the Fund's actual
expense ratio and an assumed rate of return of 5% per year before expenses,
which is not the Fund's actual return. The hypothetical account values and
expenses may not be used to estimate the actual ending account
================================================================================
EXPENSE EXAMPLE | 21
================================================================================
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, 2017 -
JUNE 1, 2017 NOVEMBER 30, 2017 NOVEMBER 30, 2017
---------------------------------------------------------------
Actual $1,000.00 $1,056.00 $3.87
Hypothetical
(5% return before expenses) 1,000.00 1,021.31 3.80
*Expenses are equal to the Fund's annualized expense ratio of 0.75%, 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 5.60% for the six-month period of June 1, 2017, through
November 30, 2017.
================================================================================
22 | USAA MANAGED ALLOCATION FUND
================================================================================
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Jefferson C. Boyce
Dawn M. Hawley
Paul L. McNamara
Richard Y. Newton III
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
--------------------------------------------------------------------------------
ADMINISTRATOR AND USAA Asset Management Company
INVESTMENT ADVISER P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
UNDERWRITER AND USAA Investment Management Company
DISTRIBUTOR P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
--------------------------------------------------------------------------------
CUSTODIAN AND State Street Bank and Trust Company
ACCOUNTING AGENT P.O. Box 1713
Boston, Massachusetts 02105
--------------------------------------------------------------------------------
INDEPENDENT Ernst & Young LLP
REGISTERED PUBLIC 100 West Houston St., Suite 1700
ACCOUNTING FIRM San Antonio, Texas 78205
--------------------------------------------------------------------------------
MUTUAL FUND Under "My Accounts" on
SELF-SERVICE 24/7 usaa.com select your mutual fund
AT USAA.COM account and either click the link or
select 'I want to...' and select
OR CALL the desired action.
(800) 531-USAA (8722)
(210) 531-8722
--------------------------------------------------------------------------------
Copies of the Manager's proxy voting policies and procedures, approved by the
Trust's Board of Trustees for use in voting proxies on behalf of the Fund, are
available without charge (i) by calling (800) 531-USAA (8722) or (210)
531-8722; (ii) at USAA.COM; and (iii) in summary within the Statement of
Additional Information on the SEC's website at HTTP://WWW.SEC.GOV. Information
regarding how the Fund voted proxies relating to portfolio securities during
the most recent 12-month period ended June 30 is available without charge (i)
at USAA.COM; and (ii) on the SEC's website at HTTP://WWW.SEC.GOV.
The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. These Forms N-Q are
available at no charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722;
(ii) at USAA.COM; and (iii) on the SEC's website at HTTP://WWW.SEC.GOV. These
Forms N-Q also may be reviewed and copied at the SEC's Public Reference Room
in Washington, D.C. Information on the operation of the Public Reference Room
may be obtained by calling (800) 732-0330.
================================================================================
--------------
USAA PRSRT STD
9800 Fredericksburg Road U.S. Postage
San Antonio, TX 78288 PAID
USAA
--------------
>> SAVE PAPER AND FUND COSTS
Under MY PROFILE on USAA.COM select MANAGE PREFERENCES
Set your DOCUMENT PREFERENCES to USAA DOCUMENTS ONLINE.
[LOGO OF USAA]
USAA We know what it means to serve.(R)
=============================================================================
93924-0118 (C)2018, 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 (USAGX) o INSTITUTIONAL SHARES (UIPMX)
o ADVISER SHARES (UPMMX)
NOVEMBER 30, 2017
==============================================================
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
INVESTMENT OVERVIEW 2
FINANCIAL INFORMATION
Portfolio of Investments 4
Notes to Portfolio of Investments 8
Financial Statements 10
Notes to Financial Statements 13
EXPENSE EXAMPLE 31
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE
RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY
USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN
PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS
ABOUT THE FUND.
(C)2018, USAA. All rights reserved.
================================================================================
================================================================================
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
================================================================================
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
o TOP 10 EQUITY HOLDINGS* - 11/30/17 o
(% of Net Assets)
Newmont Mining Corp. ...................................................... 4.9%
Agnico-Eagle Mines Ltd. ................................................... 4.6%
Randgold Resources Ltd. ADR ............................................... 4.6%
Newcrest Mining Ltd. ...................................................... 4.4%
Wheaton Precious Metals Corp. ............................................. 4.2%
Centerra Gold, Inc. ....................................................... 3.4%
Kinross Gold Corp. ........................................................ 3.4%
Compania de Minas Buenaventura S.A. ADR ................................... 3.2%
Royal Gold, Inc. .......................................................... 3.1%
Alamos Gold, Inc. "A" ..................................................... 3.0%
*Does not include money market instruments and short-term investments purchased
with cash collateral from securities loaned.
================================================================================
2 | USAA PRECIOUS METALS AND MINERALS FUND
================================================================================
o ASSET ALLOCATION* - 11/30/17 o
[PIE CHART OF ASSET ALLOCATION]
GOLD 87.6%
SILVER 10.5%
MONEY MARKET INSTRUMENTS 1.6%
PLATINUM GROUP METALS 0.4%
[END CHART]
*Does not include short-term investments purchased with cash collateral from
securities loaned.
Percentages are of the net assets of the Fund and may not equal 100%.
You will find a complete list of securities that the Fund owns on pages 4-7.
================================================================================
INVESTMENT OVERVIEW | 3
================================================================================
PORTFOLIO OF INVESTMENTS
November 30, 2017 (unaudited)
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (98.5%)
COMMON STOCKS (98.5%)
GOLD (87.6%)
AFRICAN GOLD COMPANIES (6.5%)
900,000 AngloGold Ashanti Ltd. ADR $ 9,405
770,000 Endeavour Mining Corp.* 13,936
3,200,000 Gold Fields Ltd. ADR 13,536
8,566,400 Great Basin Gold Ltd.*(a),(h) -
6,500,000 Great Basin Gold Ltd.*(a),(b),(c),(h) -
--------
36,877
--------
AUSTRALIAN GOLD COMPANIES (18.2%)
13,200,000 Doray Minerals Ltd.*(d) 1,897
9,473,686 Gascoyne Resources Ltd.* 2,938
7,063,636 Kingsgate Consolidated Ltd.* 2,271
1,425,000 Newcrest Mining Ltd. 25,125
3,200,000 Northern Star Resources Ltd. 14,111
6,400,000 OceanaGold Corp. 16,469
900,000 OceanaGold Corp.(d) 2,316
10,450,000 Perseus Mining Ltd.* 2,511
13,145,000 Perseus Mining Ltd.*(d) 3,159
13,500,000 Ramelius Resources Ltd.*(d) 3,931
7,400,000 Saracen Mineral Holdings Ltd.* 8,368
6,250,000 St. Barbara Ltd. 15,128
3,400,000 Westgold Resources Ltd.*(d) 4,848
--------
103,072
--------
EUROPEAN GOLD COMPANIES (6.7%)
6,500,000 Centamin plc 11,991
285,000 Randgold Resources Ltd. ADR 26,152
--------
38,143
--------
NORTH AMERICAN GOLD COMPANIES (53.0%)
600,000 Agnico-Eagle Mines Ltd. 26,226
8,403,900 Alacer Gold Corp.* 13,614
2,700,000 Alamos Gold, Inc."A" 17,161
1,900,000 Asanko Gold, Inc.*(d) 1,163
3,044,572 AuRico Metals, Inc.* 4,225
240,000 Axmin, Inc.*(b) 6
================================================================================
4 | USAA PRECIOUS METALS AND MINERALS FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
4,000,000 B2Gold Corp.* $ 10,200
400,000 Barrick Gold Corp. 5,512
3,400,000 Centerra Gold, Inc.* 19,238
1,500,000 Continental Gold, Inc.*(d) 3,523
810,000 Detour Gold Corp.* 8,790
5,344,600 Dundee Precious Metals, Inc.* 12,262
7,000,000 Eldorado Gold Corp. 7,910
850,000 Goldcorp, Inc. 10,744
7,907,400 Golden Star Resources Ltd.*(d) 6,813
1,975,000 Guyana Goldfields, Inc.* 6,705
1,800,000 IAMGOLD Corp.* 9,774
4,600,000 Kinross Gold Corp.* 19,136
803,414 Kirkland Lake Gold Ltd. 11,577
1,733,200 Klondex Mines Ltd.* 4,286
2,100,000 Mandalay Resources Corp.(d) 488
5,757,622 Nautilus Minerals, Inc.*(b),(c) 870
2,400,000 New Gold, Inc.* 7,440
750,000 Newmont Mining Corp. 27,743
375,000 Northern Star Mining Corp.*(a),(b),(h) -
535,700 Osisko Gold Royalties Ltd. 6,357
1,052,830 Pretium Resources, Inc.*(d) 11,265
215,000 Royal Gold, Inc. 17,785
4,700,000 SEMAFO, Inc.* 11,621
2,183,810 Tahoe Resources, Inc.(d) 9,682
400,000 Torex Gold Resources, Inc.* 3,959
1,900,000 Yamana Gold, Inc.(d) 4,826
--------
300,901
--------
SOUTH AMERICAN GOLD COMPANIES (3.2%)
1,300,000 Compania de Minas Buenaventura S.A. ADR 18,187
--------
Total Gold (cost: $679,725) 497,180
--------
PLATINUM GROUP METALS (0.4%)
6,936,200 Platinum Group Metals Ltd.*(d) (cost: $15,579) 2,289
--------
SILVER (10.5%)
700,000 Fresnillo plc 12,221
750,000 MAG Silver Corp.* 7,947
1,000,000 Pan American Silver Corp. 15,140
1,150,000 Wheaton Precious Metals Corp. 24,012
--------
Total Silver (cost: $56,014) 59,320
--------
Total Common Stocks (cost: $751,318) 558,789
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 5
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
WARRANTS (0.0%)
GOLD (0.0%)
AUSTRALIAN GOLD COMPANIES (0.0%)
779,738 Westgold Resources Ltd.*(d) (cost: $-) $ 183
--------
Total Equity Securities (cost: $751,318) 558,972
--------
------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON
(000) RATE MATURITY
------------------------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS (1.6%)
COMMERCIAL PAPER (1.6%)
$ 5,000 Cabot Corp.(e),(f) 1.36% 12/05/2017 4,999
3,951 FMC Corp.(e),(f) 1.42 12/01/2017 3,951
-----
Total Commercial Paper (cost: $8,950) 8,950
-----
------------------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES
------------------------------------------------------------------------------------------------------------------
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (0.0%)
131,637 State Street Institutional Treasury Money Market Fund Premier Class, 1.02%(g)
(cost: $132) 132
--------
Total Money Market Instruments (cost: $9,082) 9,082
--------
SHORT-TERM INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED (2.2%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (2.2%)
563,629 Federated Government Obligations Fund Institutional Class, 0.94%(g) 564
1,011,999 Fidelity Government Portfolio Class I, 0.97%(g) 1,012
1,093,390 Goldman Sachs Financial Square Government Fund Institutional Class, 0.96%(g) 1,093
9,188,808 Invesco Government & Agency Portfolio Institutional Class, 0.98%(g) 9,189
170,174 Morgan Stanley Institutional Liquidity Funds Government Portfolio
Institutional Class, 0.97%(g) 170
402,950 Western Asset Institutional Government Reserves Institutional Class, 1.00%(g) 403
--------
Total Short-Term Investments Purchased with Cash Collateral from
Securities Loaned (cost: $12,431) 12,431
--------
TOTAL INVESTMENTS (COST: $772,831) $580,485
========
================================================================================
6 | USAA PRECIOUS METALS AND MINERALS FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
------------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------------------------------------------------------------------------------------------------------------------
Equity Securities:
Common Stocks $558,789 $ - $- $558,789
Warrants 183 - - 183
Money Market Instruments:
Commercial Paper - 8,950 - 8,950
Government & U.S. Treasury
Money Market Funds 132 - - 132
Short-Term Investments Purchased with
Cash Collateral from Securities Loaned:
Government & U.S. Treasury
Money Market Funds 12,431 - - 12,431
------------------------------------------------------------------------------------------------------------------
Total $571,535 $8,950 $- $580,485
------------------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
--------------------------------------------------------------------------------
FAIR VALUE LEVEL TRANSFERS
--------------------------------------------------------------------------------
For the period of June 1, 2017, through November 30, 2017, the table below shows
the transfers between Level 1, Level 2, and Level 3. The Fund's policy is to
recognize any transfers in and transfers out as of the beginning of the
reporting period in which the event or circumstance that caused the transfer
occurred.
TRANSFERS INTO TRANSFERS INTO TRANSFERS INTO
(OUT OF) (OUT OF) (OUT OF)
ASSETS ($ IN 000s) LEVEL 1 LEVEL 2 LEVEL 3
------------------------------------------------------------------------------------------------------------------
Common Stocks(I) $4,128 $(4,128) $-
------------------------------------------------------------------------------------------------------------------
Total $4,128 $(4,128) $-
------------------------------------------------------------------------------------------------------------------
(I) Transferred from Level 2 to Level 1 due to the availability of significant
observable valuation inputs once the securities began actively trading.
================================================================================
PORTFOLIO OF INVESTMENTS | 7
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
November 30, 2017 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
Market values of securities are determined by procedures and practices
discussed in Note 1A to the financial statements.
The Portfolio of Investments category percentages shown represent the
percentages of the investments to net assets, and, in total, may not equal
100%. A category percentage of 0.0% represents less than 0.1% of net
assets. Investments in foreign securities were 85.2% of net assets at
November 30, 2017.
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, 2017, 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 zero.
================================================================================
8 | 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, 2017, was $876,000, which represented 0.2% of the Fund's
net assets.
(c) Restricted security that is not registered under the Securities Act of
1933.
(d) The security, or a portion thereof, was out on loan as of November 30,
2017.
(e) Restricted security that is not registered under the Securities Act of
1933. A resale of this security in the United States may occur in an
exempt transaction to a qualified institutional buyer as defined by Rule
144A, and as such has been deemed liquid by the Manager under liquidity
guidelines approved by the Board, unless otherwise noted as illiquid.
(f) Commercial paper issued in reliance on the "private placement" exemption
from registration afforded by Section 4(a)(2) of the Securities Act of
1933, as amended (Section 4(a)(2) Commercial Paper). Unless this
commercial paper is subsequently registered, a resale of this commercial
paper in the United States must be effected in a transaction exempt from
registration under the Securities Act of 1933. Section 4(a)(2)
Commercial Paper is normally resold to other investors through or with
the assistance of the issuer or an 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.
(g) Rate represents the money market fund annualized seven-day yield at
November 30, 2017.
(h) Security was fair valued at Level 3.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 9
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
November 30, 2017 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (including
securities on loan of $16,706) (cost of $772,831) $ 580,485
Cash denominated in foreign currencies (identified cost of $4,518) 4,487
Receivables:
Capital shares sold 410
Dividends and interest 292
Securities sold 84
Other 28
----------
Total assets 585,786
----------
LIABILITIES
Payables:
Upon return of securities loaned 12,431
Securities purchased 3,197
Capital shares redeemed 508
Unrealized depreciation on foreign currency contracts held, at value 1
Accrued management fees 333
Accrued transfer agent's fees 52
Other accrued expenses and payables 1,818
----------
Total liabilities 18,340
----------
Net assets applicable to capital shares outstanding $ 567,446
==========
NET ASSETS CONSIST OF:
Paid-in capital $1,441,841
Accumulated undistributed net investment loss (43,240)
Accumulated net realized loss on investments (637,163)
Net unrealized depreciation of investments (192,346)
Net unrealized depreciation of foreign capital gains tax (1,635)
Net unrealized depreciation of foreign currency translations (11)
----------
Net assets applicable to capital shares outstanding $ 567,446
==========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $545,830/43,542 capital shares
outstanding, no par value) $ 12.54
==========
Institutional Shares (net assets of $5,492/432 capital shares
outstanding, no par value) $ 12.71
===========
Adviser Shares (net assets of $16,124/1,298 capital shares
outstanding, no par value) $ 12.42
===========
See accompanying notes to financial statements.
================================================================================
10 | USAA PRECIOUS METALS AND MINERALS FUND
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended November 30, 2017 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $139) $ 1,812
Interest 47
Securities lending (net) 206
--------
Total income 2,065
--------
EXPENSES
Management fees 2,122
Administration and servicing fees:
Fund Shares 435
Institutional Shares 2
Adviser Shares 13
Transfer agent's fees:
Fund Shares 878
Institutional Shares 2
Adviser Shares 2
Distribution and service fees (Note 7D):
Adviser Shares 22
Custody and accounting fees:
Fund Shares 68
Institutional Shares 1
Adviser Shares 2
Postage:
Fund Shares 44
Adviser Shares 2
Shareholder reporting fees:
Fund Shares 24
Trustees' fees 18
Registration fees:
Fund Shares 20
Institutional Shares 10
Adviser Shares 8
Professional fees 56
Other 13
--------
Total expenses 3,742
--------
NET INVESTMENT LOSS (1,677)
--------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY
Net realized gain (loss) on:
Investments (15,726)
Foreign currency transactions 87
Change in net unrealized appreciation/(depreciation) of:
Investments 193
Foreign capital gains tax (344)
Foreign currency translations (24)
--------
Net realized and unrealized loss (15,814)
--------
Decrease in net assets resulting from operations $(17,491)
========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 11
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended November 30, 2017 (unaudited), and year ended
May 31, 2017
-------------------------------------------------------------------------------------------------------------
11/30/2017 5/31/2017
-------------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income (loss) $ (1,677) $ 179
Net realized loss on investments (15,726) (69,821)
Net realized gain (loss) on foreign currency transactions 87 (56)
Change in net unrealized appreciation/(depreciation) of:
Investments 193 56,878
Foreign capital gains tax (344) (398)
Foreign currency translations (24) 52
-----------------------
Decrease in net assets resulting from operations (17,491) (13,166)
-----------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares - (22,606)
Institutional Shares - (382)
Adviser Shares - (718)
-----------------------
Distributions to shareholders - (23,706)
-----------------------
NET DECREASE IN NET ASSETS FROM CAPITAL SHARE
TRANSACTIONS (NOTE 6)
Fund Shares (22,922) (26,942)
Institutional Shares 2,793 (11,312)
Adviser Shares (1,651) 3,767
-----------------------
Total net decrease in net assets from capital
share transactions (21,780) (34,487)
-----------------------
Capital contribution from USAA Transfer Agency Company:
Institutional Shares - 13
-----------------------
Net decrease in net assets (39,271) (71,346)
NET ASSETS
Beginning of period 606,717 678,063
-----------------------
End of period $567,446 $606,717
=======================
Accumulated undistributed (overdistribution of)
net investment loss (income):
End of period $(43,240) $(41,563)
=======================
See accompanying notes to financial statements.
================================================================================
12 | USAA PRECIOUS METALS AND MINERALS FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
November 30, 2017 (unaudited)
--------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company Act
of 1940, as amended (the 1940 Act), is an open-end management investment company
organized as a Delaware statutory trust consisting of 51 separate funds.
Additionally, USAA Precious Metals and Minerals Fund (the Fund) qualifies as a
registered investment company under Accounting Standards Codification Topic 946.
The information presented in this semiannual report pertains only to the Fund,
which is classified as 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 Institutional Shares
(Institutional Shares), and Precious Metals and Minerals Fund
================================================================================
NOTES TO FINANCIAL STATEMENTS | 13
================================================================================
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 regarding
application of the pricing and fair valuation policies and procedures
during the preceding quarter.
================================================================================
14 | USAA PRECIOUS METALS AND MINERALS FUND
================================================================================
The Committee meets as often as necessary to make pricing and fair value
determinations. In addition, the Committee holds regular monthly meetings to
review prior actions taken by the Committee and USAA Asset Management Company
(the Manager), an affiliate of the Fund. Among other things, these monthly
meetings include a review and analysis of backtesting reports, pricing service
quotation comparisons, illiquid securities and fair value determinations,
pricing movements, and daily stale price monitoring.
The value of each security is determined (as of the close of trading on the New
York Stock Exchange (NYSE) on each business day the NYSE is open) as set forth
below:
1. Equity securities, including exchange-traded funds (ETFs), except as
otherwise noted, traded primarily on a domestic securities exchange or the
over-the-counter markets, are valued at the last sales price or official
closing price on the exchange or primary market on which they trade.
Securities traded primarily on foreign securities exchanges or markets are
valued at the last quoted sale price, or the most recently determined
official closing price calculated according to local market convention,
available at the time the Fund is valued. If no last sale or official
closing price is reported or available, the average of the bid and ask
prices generally is used. Actively traded equity securities listed on a
domestic exchange generally are categorized in Level 1 of the fair value
hierarchy. Certain preferred and equity securities traded in inactive
markets generally are categorized in Level 2 of the fair value hierarchy.
2. Equity securities trading in various foreign markets may take place on
days when the NYSE is closed. Further, when the NYSE is open, the foreign
markets may be closed. Therefore, the calculation of the Fund's net asset
value (NAV) may not take place at the same time the prices of certain
foreign securities held by the Fund are determined. In many cases, events
affecting the values of foreign securities that occur between the time of
their last quoted sale or official closing price and the close of normal
trading on the NYSE on a day the Fund's NAV is calculated will not need to
be reflected in the value of the Fund's foreign securities. However, the
Manager will monitor for
================================================================================
NOTES TO FINANCIAL STATEMENTS | 15
================================================================================
events that would materially affect the value of the Fund's foreign
securities and the Committee will consider such available information that
it deems relevant and will determine a fair value for the affected foreign
securities in accordance with valuation procedures. In addition,
information from an external vendor or other sources may be used to adjust
the foreign market closing prices of foreign equity securities to reflect
what the Committee believes to be the fair value of the securities as of
the close of the NYSE. Fair valuation of affected foreign equity securities
may occur frequently based on an assessment that events which occur on a
fairly regular basis (such as U.S. market movements) are significant. Such
securities are categorized in Level 2 of the fair value hierarchy.
3. Investments in open-end investment companies, commingled, or other
funds, other than ETFs, are valued at their NAV at the end of each business
day and are categorized in Level 1 of the fair value hierarchy.
4. Short-term debt securities with original or remaining maturities of 60
days or less may be valued at amortized cost, provided that amortized cost
represents the fair value of such securities.
5. Repurchase agreements are valued at cost.
6. In the event that price quotations or valuations are not readily
available, are not reflective of market value, or a significant event has
been recognized in relation to a security or class of securities, the
securities are valued in good faith by the Committee in accordance with
valuation procedures approved by the Board. The effect of fair value
pricing is that securities may not be priced on the basis of quotations
from the primary market in which they are traded and the actual price
realized from the sale of a security may differ materially from the fair
value price. Valuing these securities at fair value is intended to cause
the Fund's NAV to be more reliable than it otherwise would be.
Fair value methods used by the Manager include, but are not limited to,
obtaining market quotations from secondary pricing services, broker-dealers,
other pricing services, or widely used quotation systems. General
================================================================================
16 | USAA PRECIOUS METALS AND MINERALS FUND
================================================================================
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.
For the six-month period ended November 30, 2017, the Fund did not incur
any income tax, interest, or penalties, and has recorded no liability for
net unrecognized tax benefits relating to uncertain income tax
================================================================================
NOTES TO FINANCIAL STATEMENTS | 17
================================================================================
positions. On an ongoing basis, the Manager will monitor the Fund's tax
basis to determine if adjustments to this conclusion are necessary. The
statute of limitations on the Fund's tax return filings generally remain
open for the three preceding fiscal reporting year ends and remain subject
to examination by the Internal Revenue Service and state taxing authorities.
D. 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
================================================================================
18 | USAA PRECIOUS METALS AND MINERALS FUND
================================================================================
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss
from investments.
Separately, net realized foreign currency gains/losses may arise from sales
of foreign currency, currency gains/losses realized between the trade and
settlement dates on security transactions, and from the difference between
amounts of dividends, interest, and foreign withholding taxes recorded on
the Fund's books and the U.S. dollar equivalent of the amounts received. At
the end of the Fund's fiscal year, net realized foreign currency
gains/losses are reclassified from accumulated net realized gains/losses to
accumulated undistributed net investment income on the Statement of Assets
and Liabilities, as such amounts are treated as ordinary income/loss for
federal income tax purposes. Net unrealized foreign currency exchange
gains/losses arise from changes in the value of assets and liabilities,
other than investments in securities, resulting from changes in the exchange
rate.
G. 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, 2017, 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. Effective October 1, 2017, the
Adviser Shares no longer charge redemption fees. For the six-month period
ended November 30, 2017, 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 19
================================================================================
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, along with other funds of the Trust and USAA ETF Trust
(together, the Trusts), in a joint, short-term, revolving, committed loan
agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate of
the Manager. The purpose of the agreement is to provide temporary or emergency
cash needs, including redemption requests that might otherwise require the
untimely disposition of securities. Subject to availability (including usage of
the facility by other funds of the Trusts), the Fund may borrow from CAPCO an
amount up to 5% of the Fund's total assets at an interest rate based on the
London Interbank Offered Rate (LIBOR), plus 100.0 basis points.
The Trusts are also assessed facility fees by CAPCO in the amount of 13.0 basis
points of the amount of the committed loan agreement. Prior to September 30,
2017, the maximum annual facility fee was 12.0 basis points of the amount of the
committed loan agreement. The facility fees are allocated among the funds of the
Trusts based on their respective average net assets for the period.
The Trusts may request an optional increase of the committed loan agreement from
$500 million up to $750 million. If the Trusts increase the committed loan
agreement, the assessed facility fee on the amount of the additional commitment
will be 14.0 basis points.
For the six-month period ended November 30, 2017, the Fund paid CAPCO facility
fees of $2,000, which represents 0.8% of the total fees paid to
================================================================================
20 | USAA PRECIOUS METALS AND MINERALS FUND
================================================================================
CAPCO by the funds of the Trusts. The Fund had no borrowings under this
agreement during the six-month period ended November 30, 2017.
(3) DISTRIBUTIONS
The tax basis of distributions and any accumulated undistributed net investment
income will be determined as of the Fund's tax year-end of May 31, 2018, in
accordance with applicable federal tax law.
Distributions of net investment income and realized gains from security
transactions not offset by capital losses are made annually in the succeeding
fiscal year or as otherwise required to avoid the payment of federal income tax.
At May 31, 2017, the Fund had net capital loss carryforwards of $621,463,000,
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. Late year losses incurred
after October 31, and within the taxable year are deemed to arise on the first
day of the Fund's next taxable year. For the year ended May 31, 2017, the Fund
deferred to June 1, 2017, late year losses of $7,687,000.
CAPITAL LOSS CARRYFORWARDS
---------------------------------------
TAX CHARACTER
---------------------------------------
(NO EXPIRATION) BALANCE
---------------- ------------
Short-Term $ 15,006,000
Long-Term 606,457,000
------------
Total $621,463,000
============
(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, 2017, were
$22,913,000 and $44,184,000, respectively.
As of November 30, 2017, the cost of securities, including short-term
securities, for federal income tax purposes, was approximately the same as the
cost reported in the financial statements.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 21
================================================================================
Gross unrealized appreciation and depreciation of investments as of November 30,
2017, were $125,276,000 and $317,622,000, respectively, resulting in net
unrealized depreciation of $192,346,000.
(5) SECURITIES LENDING
The Fund, through its securities lending agreement with Citibank, N.A.
(Citibank), may lend its securities to qualified financial institutions, such as
certain broker-dealers, to earn additional income. The borrowers are required to
secure their loans continuously with collateral in an amount at least equal to
102% of the fair value of domestic securities and foreign government securities
loaned and 105% of the fair value of foreign securities and all other securities
loaned. Collateral may be cash, U.S. government securities, or other securities
as permitted by SEC guidelines. Cash collateral is invested in high-quality
short-term investments. Collateral requirements are determined daily based on
the prior business day's ending value of securities loaned. Risks to the Fund in
securities-lending transactions are that the borrower may not provide additional
collateral when required or return the securities when due, and that the value
of the short-term investments will be less than the amount of cash collateral
required to be returned to the borrower. The Fund's agreement with Citibank does
not include master netting provisions. Non-cash collateral received by the Fund
may not be sold or re-pledged except to satisfy borrower default. Cash
collateral is listed in the Fund's Portfolio of Investments and Financial
Statements while non-cash collateral is not included.
At November 30, 2017, the Fund's value of outstanding securities on loan and the
value of collateral are as follows:
VALUE OF SECURITIES
ON LOAN NON-CASH COLLATERAL CASH COLLATERAL
--------------------------------------------------------------------------------
$16,706,000 $6,942,000 $12,431,000
(6) CAPITAL SHARE TRANSACTIONS
At November 30, 2017, there were an unlimited number of shares of capital stock
at no par value authorized for the Fund.
Capital share transactions for the Institutional Shares resulted from purchases
and sales by the affiliated USAA fund-of-funds as well as other
================================================================================
22 | USAA PRECIOUS METALS AND MINERALS 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, 2017 MAY 31, 2017
------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------
FUND SHARES:
Shares sold 2,083 $ 27,086 7,516 $ 111,147
Shares issued from
reinvested dividends - - 2,005 22,052
Shares redeemed (3,824) (50,008) (10,792) (160,141)
-----------------------------------------------
Net decrease from capital
share transactions (1,741) $(22,922) (1,271) $ (26,942)
===============================================
INSTITUTIONAL SHARES:
Shares sold 449 $ 6,016 339 $ 4,872
Shares issued from
reinvested dividends - - 34 378
Shares redeemed (238) (3,223) (1,157) (16,562)
-----------------------------------------------
Net increase (decrease) from
capital share transactions 211 $ 2,793 (784) $ (11,312)
===============================================
ADVISER SHARES:
Shares sold 176 $ 2,280 802 $ 12,338
Shares issued from
reinvested dividends - - 60 648
Shares redeemed* (307) (3,931) (656) (9,219)
-----------------------------------------------
Net increase (decrease) from
capital share transactions (131) $ (1,651) 206 $ 3,767
===============================================
*Net of redemption fees, if any.
(7) 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 | 23
================================================================================
the day-to-day investment of all or a portion of the Fund's assets. For the
six-month period ended November 30, 2017, 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
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 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.
Under the performance fee arrangement, each class will pay a positive
performance fee adjustment for a performance period whenever the class
================================================================================
24 | USAA PRECIOUS METALS AND MINERALS FUND
================================================================================
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, 2017, the Fund incurred total
management fees, paid or payable to the Manager, of $2,122,000, which
included a performance adjustment for the Fund Shares, Institutional
Shares, and Adviser Shares of $(119,000), $(15,000), and $(3,000),
respectively. For the Fund Shares, Institutional Shares, and Adviser
Shares, the performance adjustments were (0.04)%, (0.60)%, and (0.04)%,
respectively.
B. ADMINISTRATION AND SERVICING FEES - The Manager provides certain
administration and servicing functions for the Fund. For such services, the
Manager receives a fee accrued daily and paid monthly at an annualized rate
of 0.15% of average net assets 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, 2017, the Fund Shares, Institutional Shares, and
Adviser Shares incurred administration and servicing fees, paid or payable
to the Manager, of $435,000, $2,000, and $13,000, 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, 2017, 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. 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 25
================================================================================
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, 2017, the Fund Shares,
Institutional Shares, and Adviser Shares incurred transfer agent's fees,
paid or payable to SAS, of $878,000, $2,000, and $2,000, respectively.
D. DISTRIBUTION AND SERVICE (12b-1) FEES - The Fund has adopted a plan
pursuant to Rule 12b-1 under the 1940 Act with respect to the Adviser
Shares. Under the plan, the Adviser Shares pay fees to USAA Investment
Management Company (IMCO), the distributor, for distribution and
shareholder services. IMCO pays all or a portion of such fees to
intermediaries that make the Adviser Shares available for investment by
their customers. The fee is accrued daily and paid monthly at an annual
rate of 0.25% of the Adviser Shares' average net assets. Adviser Shares
are offered and sold without imposition of an initial sales charge or a
contingent deferred sales charge. For the six-month period ended November
30, 2017, the Adviser Shares incurred distribution and service (12b-1) fees
of $22,000.
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.
(8) TRANSACTIONS WITH AFFILIATES
The Fund offers its Institutional Shares for investment by other USAA Funds and
is one of 19 USAA mutual funds in which the affiliated USAA fund-of-funds
invest. The USAA fund-of-funds do not invest in the underlying funds for the
purpose of exercising management or control. As of November 30, 2017, 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 0.3
Target Retirement 2030 0.0*
Target Retirement 2040 0.0*
* Represents less than 0.1%
================================================================================
26 | USAA PRECIOUS METALS AND MINERALS FUND
================================================================================
The Manager is indirectly wholly owned by United Services Automobile Association
(USAA), a large, diversified financial services institution. At November 30,
2017, USAA and its affiliates owned 130,000 Adviser Shares, which represents
10.0% of the Adviser Shares outstanding and 0.3% of the Fund's total outstanding
shares.
Certain trustees and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Fund.
(9) UPCOMING REGULATORY MATTERS
In October 2016, the U.S. Securities and Exchange Commission (SEC) issued Final
Rule Release No. 33-10231, INVESTMENT COMPANY REPORTING MODERNIZATION. In part,
the rules require the filing of new forms N-PORT and N-CEN, and amend Regulation
S-X to require standardized, enhanced disclosure about derivatives in investment
company financial statements, as well as other amendments.
In October 2016, the SEC issued Final Rule Release No. 33-10233, INVESTMENT
COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS. This rule requires funds to
establish a liquidity risk management program and enhances disclosures regarding
funds' liquidity.
In October 2016, the SEC issued Final Rule Release No. 33-10234, INVESTMENT
COMPANY SWING PRICING. This rule permits certain funds to use swing pricing
during periods of heavy redemptions and requires certain disclosures regarding
the use of swing pricing in forms filed with the SEC.
The Manager continues to evaluate the impact these rules and amendments will
have on the financial statements and other disclosures. The compliance date for
new forms N-PORT and N-CEN is June 1, 2018 (with filing of Form N-PORT beginning
April 30, 2019), with other staggered compliance dates extending through April
30, 2019. The Fund is expected to comply with the June 1, 2018 compliance date
for new forms N-PORT and N-CEN.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 27
================================================================================
(10) 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,
------------------------------------------------------------------------------------
2017 2017 2016 2015 2014 2013
------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 12.93 $ 13.90 $ 12.29 $ 14.12 $ 6.69 $ 25.80
-----------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment
income (loss) (.04)(a) .14 .08 (.06)(a) (.02)(a) (.00)(a),(b)
Net realized and
unrealized gain (loss) (.35)(a) (.60) 1.53(c) (1.61)(a) (2.53)(a) (8.67)(a)
-----------------------------------------------------------------------------------
Total from investment
operations (.39)(a) (.46) 1.61 (1.67)(a) (2.55)(a) (8.67)(a)
-----------------------------------------------------------------------------------
Less distributions from:
Net investment income - (.51) - (.16) (.02) -
Realized capital gains - - - - - (.44)
-----------------------------------------------------------------------------------
Total distributions - (.51) - (.16) (.02) (.44)
-----------------------------------------------------------------------------------
Net asset value at
end of period $ 12.54 $ 12.93 $ 13.90 $ 12.29 $ 14.12 $ 16.69
===================================================================================
Total return (%)* (3.02) (2.68) 13.10(c) (11.77) (15.26) (34.23)
Net assets at end
of period (000) $545,830 $585,515 $647,140 $573,456 $710,487 $841,841
Ratios to average
net assets:**
Expenses (%)(d) 1.24(e) 1.22 1.33 1.25 1.24 1.18
Net investment
income (loss) (%) (.56)(e) .02 (.31) (.46) (.13) (.01)
Portfolio turnover (%) 4 14 17 8 10 15
* 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, 2017, average net assets
were $578,541,000.
(a) Calculated using average shares. For the six-month period ended
November 30, 2017, average shares were 44,441,000.
(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%)(+)
(+) Represents less than 0.01% of average net assets.
(e) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
28 | USAA PRECIOUS METALS AND MINERALS FUND
================================================================================
(10) 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,
------------------------------------------------------------------------------------
2017 2017 2016 2015 2014 2013
------------------------------------------------------------------------------------
Net asset value at
beginning of period $13.07 $13.98 $ 12.34 $ 14.17 $ 16.77 $ 25.87
---------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment
income (loss)(a) (.02) .07 .01 (.03) .02 .06
Net realized and
unrealized gain (loss)(a) (.34) (.47) 1.63(b) (1.60) (2.56) (8.72)
---------------------------------------------------------------------------------
Total from investment
operations(a) (.36) (.40) 1.64 (1.63) (2.54) (8.66)
---------------------------------------------------------------------------------
Less distributions from:
Net investment income - (.51) - (.20) (.06) -
Realized capital gains - - - - - (.44)
---------------------------------------------------------------------------------
Total distributions - (.51) - (.20) (.06) (.44)
---------------------------------------------------------------------------------
Net asset value at
end of period $12.71 $13.07 $ 13.98 $ 12.34 $ 14.17 $ 16.77
=================================================================================
Total return (%)* (2.75) (2.23) 13.29(b) (11.46) (15.11) (34.10)
Net assets at end
of period (000) $5,492 $2,893 $14,050 $161,591 $183,768 $317,818
Ratios to average
net assets:**
Expenses (%)(c) .84(d) .76 .99 .99 1.00 .99
Net investment
income (loss) (%) (.23)(d) .46 .13 (.20) .11 .27
Portfolio turnover (%) 4 14 17 8 10 15
* 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, 2017, average net assets were
$4,832,000.
(a) Calculated using average shares. For the six-month period ended
November 30, 2017, average shares were 351,000.
(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%)(+)
(+) Represents less than 0.01% of average net assets.
(d) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 29
================================================================================
(10) 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,
------------------------------------------------------------------------------------
2017 2017 2016 2015 2014 2013
------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 12.82 $ 13.79 $ 12.20 $ 14.01 $ 16.57 $ 25.68
----------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment
income (loss) (.01) .04 (.04)(a) (.08)(a) (.05)(a) (.06)(a)
Net realized and
unrealized gain (loss) (.39) (.50) 1.63(a),(b) (1.58)(a) (2.51)(a) (8.61)(a)
----------------------------------------------------------------------------------
Total from investment
operations (.40) (.46) 1.59(a) (1.66)(a) (2.56)(a) (8.67)(a)
----------------------------------------------------------------------------------
Less distributions from:
Net investment income - (.51) - (.15) .00(c) -
Realized capital gains - - - - - (.44)
----------------------------------------------------------------------------------
Total distributions - (.51) - (.15) .00(c) (.44)
----------------------------------------------------------------------------------
Redemption fees added
to beneficial interests(c) .00 .00 .00 .00 .00 .00
----------------------------------------------------------------------------------
Net asset value at
end of period $ 12.42 $ 12.82 $ 13.79 $ 12.20 $ 14.01 $ 16.57
==================================================================================
Total return (%)* (3.12) (2.68) 13.03(b) (11.83) (15.45) (34.39)
Net assets at end
of period (000) $16,124 $18,309 $16,873 $12,357 $15,727 $11,052
Ratios to average
net assets:**
Expenses (%)(d) 1.31(f) 1.30 1.37 1.39(e) 1.40 1.45
Expenses, excluding
reimbursements (%)(d) 1.31(f) 1.30 1.37 1.39 1.40 1.49
Net investment loss (%) (.63)(f) (.04) (.36) (.60) (.31) (.23)
Portfolio turnover (%) 4 14 17 8 10 15
* 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, 2017, average net assets
were $17,172,000.
(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 Adviser
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%)(+)
(+) Represents less than 0.01% of average net assets.
(e) 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.
(f) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
30 | USAA PRECIOUS METALS AND MINERALS FUND
================================================================================
EXPENSE EXAMPLE
November 30, 2017 (unaudited)
--------------------------------------------------------------------------------
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: direct costs, such
as wire fees, redemption fees, and low balance fees; and indirect costs,
including management fees, transfer agency fees, distribution and service
(12b-1) fees, and other Fund operating expenses. This example is intended to
help you understand your indirect costs, also referred to as "ongoing costs" (in
dollars), of investing in the Fund and to compare these costs with the ongoing
costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire six-month period of June 1, 2017, through
November 30, 2017.
ACTUAL EXPENSES
The line labeled "actual" under each share class in the table provides
information about actual account values and actual expenses. You may use the
information in this line, together with the amount you invested at the beginning
of the period, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number for your share
class in the "actual" line under the heading "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The line labeled "hypothetical" under each share class in the table provides
information about hypothetical account values and hypothetical expenses based on
the Fund's actual expense ratios for each class and an assumed rate of return of
5% per year before expenses, which is not the Fund's actual return. The
hypothetical account values and expenses may not be used to
================================================================================
EXPENSE EXAMPLE | 31
================================================================================
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, 2017 -
JUNE 1, 2017 NOVEMBER 30, 2017 NOVEMBER 30, 2017
-----------------------------------------------------------
FUND SHARES
Actual $1,000.00 $ 969.80 $6.12
Hypothetical
(5% return before expenses) 1,000.00 1,018.85 6.28
INSTITUTIONAL SHARES
Actual 1,000.00 972.50 4.15
Hypothetical
(5% return before expenses) 1,000.00 1,020.86 4.26
ADVISER SHARES
Actual 1,000.00 968.80 6.47
Hypothetical
(5% return before expenses) 1,000.00 1,018.50 6.63
*Expenses are equal to the annualized expense ratio of 1.24% for Fund Shares,
0.84% for Institutional Shares, and 1.31% for Adviser Shares, which are net of
any expenses paid indirectly, multiplied by the average account value over the
period, multiplied by 183 days/365 days (to reflect the one-half-year period).
The Fund's actual ending account values are based on its actual total returns
of (3.02)% for Fund Shares, (2.75)% for Institutional Shares, and (3.12)% for
Adviser Shares for the six-month period of June 1, 2017, through November 30,
2017.
================================================================================
32 | USAA PRECIOUS METALS AND MINERALS FUND
================================================================================
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Jefferson C. Boyce
Dawn M. Hawley
Paul L. McNamara
Richard Y. Newton III
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
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ADMINISTRATOR AND USAA Asset Management Company
INVESTMENT ADVISER P.O. Box 659453
San Antonio, Texas 78265-9825
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UNDERWRITER AND USAA Investment Management Company
DISTRIBUTOR P.O. Box 659453
San Antonio, Texas 78265-9825
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TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
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CUSTODIAN AND State Street Bank and Trust Company
ACCOUNTING AGENT P.O. Box 1713
Boston, Massachusetts 02105
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INDEPENDENT Ernst & Young LLP
REGISTERED PUBLIC 100 West Houston St., Suite 1700
ACCOUNTING FIRM San Antonio, Texas 78205
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MUTUAL FUND Under "My Accounts" on
SELF-SERVICE 24/7 usaa.com select your mutual fund
AT USAA.COM account and either click the link or
select 'I want to...' and select
OR CALL the desired action.
(800) 531-USAA (8722)
(210) 531-8722
--------------------------------------------------------------------------------
Copies of the Manager's proxy voting policies and procedures, approved by the
Trust's Board of Trustees for use in voting proxies on behalf of the Fund, are
available without charge (i) by calling (800) 531-USAA (8722) or (210)
531-8722; (ii) at USAA.COM; and (iii) in summary within the Statement of
Additional Information on the SEC's website at HTTP://WWW.SEC.GOV. Information
regarding how the Fund voted proxies relating to portfolio securities during
the most recent 12-month period ended June 30 is available without charge (i)
at USAA.COM; and (ii) on the SEC's website at HTTP://WWW.SEC.GOV.
The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. These Forms N-Q are
available at no charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722;
(ii) at USAA.COM; and (iii) on the SEC's website at HTTP://WWW.SEC.GOV. These
Forms N-Q also may be reviewed and copied at the SEC's Public Reference Room
in Washington, D.C. Information on the operation of the Public Reference Room
may be obtained by calling (800) 732-0330.
================================================================================
--------------
USAA PRSRT STD
9800 Fredericksburg Road U.S. Postage
San Antonio, TX 78288 PAID
USAA
--------------
>> SAVE PAPER AND FUND COSTS
Under MY PROFILE on USAA.COM select MANAGE PREFERENCES
Set your DOCUMENT PREFERENCES to USAA DOCUMENTS ONLINE.
[LOGO OF USAA]
USAA We know what it means to serve.(R)
=============================================================================
23408-0118 (C)2018, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA TREASURY MONEY MARKET TRUST]
============================================================
SEMIANNUAL REPORT
USAA TREASURY MONEY MARKET TRUST(R) (UATXX)
NOVEMBER 30, 2017
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TABLE OF CONTENTS
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FUND OBJECTIVE 1
INVESTMENT OVERVIEW 2
FINANCIAL INFORMATION
Portfolio of Investments 3
Notes to Portfolio of Investments 5
Financial Statements 7
Notes to Financial Statements 10
EXPENSE EXAMPLE 19
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)2018, USAA. All rights reserved.
================================================================================
================================================================================
FUND OBJECTIVE
THE USAA TREASURY MONEY MARKET TRUST (THE FUND) SEEKS TO PROVIDE INVESTORS
MAXIMUM CURRENT INCOME WHILE MAINTAINING THE HIGHEST DEGREE OF SAFETY AND
LIQUIDITY.
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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 consist of U.S. Treasury
bills, notes, and bonds; repurchase agreements collateralized by such
obligations; and other obligations of the U.S. Treasury. 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
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INVESTMENT OVERVIEW
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o PORTFOLIO MIX - 11/30/17 o
[PIE CHART OF PORTFOLIO MIX]
U.S. TREASURY BILLS 43.8%
REPURCHASE AGREEMENTS 37.4%
U.S. TREASURY NOTES 18.0%
[END CHART]
Percentages are of the net assets of the Fund and may not equal 100%.
================================================================================
2 | USAA TREASURY MONEY MARKET TRUST
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PORTFOLIO OF INVESTMENTS
November 30, 2017 (unaudited)
--------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
(000) SECURITY (000)
--------------------------------------------------------------------------------------------------------
U.S. TREASURY SECURITIES (61.8%)
NOTES (18.0%)(c)
$ 25,000 1.00%, 12/15/2017 $ 25,000
10,000 0.88%, 1/31/2018 9,996
155,000 1.56%, 1/31/2018, 3 mo. USTMMR + 0.272%(a) 155,081
8,000 1.00%, 2/15/2018 7,998
3,000 0.75%, 2/28/2018 2,997
10,000 0.75%, 4/15/2018 9,982
157,000 1.48%, 4/30/2018, 3 mo. USTMMR + 0.19%(a) 157,150
138,000 1.46%, 7/31/2018, 3 mo. USTMMR + 0.174%(a) 138,188
83,000 1.46%, 10/31/2018, 3 mo. USTMMR + 0.17%(a) 83,176
----------
589,568
----------
BILLS (43.8%)(e)
55,000 0.95%, 12/07/2017 54,991
40,000 0.90%, 12/14/2017 39,985
105,000 1.05%, 12/21/2017 104,940
50,000 1.11%, 12/28/2017 49,964
87,000 1.09%, 1/04/2018 86,911
79,500 1.10%, 1/11/2018 79,402
80,000 1.10%, 1/18/2018 79,882
86,000 1.12%, 1/25/2018 85,853
72,000 1.13%, 2/01/2018 71,858
74,000 1.17%, 2/08/2018 73,846
60,000 1.17%, 2/15/2018 59,850
68,000 1.16%, 2/22/2018 67,825
50,000 1.24%, 3/01/2018 49,861
44,000 1.25%, 3/08/2018 43,862
30,000 1.25%, 3/15/2018 29,900
83,000 1.00%, 3/22/2018 82,693
55,000 1.26%, 3/29/2018 54,785
127,000 1.27%, 4/05/2018 126,471
110,000 1.29%, 4/12/2018 109,510
50,000 1.28%, 4/19/2018 49,761
35,000 1.39%, 5/24/2018 34,764
----------
1,436,914
----------
Total U.S. Treasury Securities (cost: $2,026,482) 2,026,482
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 3
================================================================================
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PRINCIPAL
AMOUNT VALUE
(000) SECURITY (000)
--------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS (37.4%)
$ 107,000 Bank of America, N.A., 1.03%, acquired 11/30/2017 and due
on 12/01/2017 at $107,000 (collateralized by $110,515 of U.S.
Treasury, 2.00%(c), due 4/30/2024; market value $109,140) $ 107,000
200,000 Credit Agricole Corp. Inv. Bank, 1.03%, acquired 11/30/2017
and due on 12/01/2017 at $200,000 (collateralized by $29,029 of
U.S. Treasury(b), 1.63%, due 1/15/2018; $165,484 of U.S. Treasury,
2.50%(c), due 8/15/2023; combined market value $204,000) 200,000
225,000 HSBC Bank USA, Inc., 1.00%, acquired 11/30/2017 and due on
12/01/2017 at $225,000 (collateralized by $229,575 of
U.S. Treasury, 1.75%(c), due 11/30/2019; market value $229,504) 225,000
120,000 Mitsubishi Securities International plc, 1.01%, acquired 11/30/2017
and due on 12/01/2017 at $120,000 (collateralized by $123,117 of
U.S. Treasury, 0.75% - 8.13%(c), due 8/31/2018 - 5/15/2046; $100
of U.S Treasury(b), 2.38%, due 1/15/2025; $1,544 of U.S. Treasury,
1.60%(e), due 10/11/2018; combined market value $122,404) 120,000
396,000 Natixis Securities Americas, LLC, 1.03%, acquired 11/30/2017 and
due on 12/01/2017 at $396,000 (collateralized by $387,039 of
U.S Treasury, 1.38% - 7.88%(c), due 9/30/2019 - 11/15/2046; $1 of
U.S. Treasury(b), 1.88%, due 7/15/2019; $22,880 of GNMA(f),
3.50%, due 6/15/2026; combined market value $403,932) 396,000
176,000 RBC Capital Markets, 1.01%, acquired 11/30/2017 and due on
12/01/2017 at $176,000 (collateralized by $25,641 of
U.S. Treasury, 1.56% - 2.94%(d), due 8/15/2018 - 11/15/2046;
$14,384 of U.S. Treasury(b), 0.13% - 3.38%, due 4/15/2020 -
2/15/2045; $135,043 of U.S. Treasury, 1.00% - 6.50%(c), due
12/31/2017 - 8/15/2044; combined market value $179,525) 176,000
----------
Total Repurchase Agreements (cost: $1,224,000) 1,224,000
----------
TOTAL INVESTMENTS (COST: $3,250,482) $3,250,482
==========
--------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
--------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
--------------------------------------------------------------------------------------------------------
U.S. Treasury Securities:
Notes $- $ 589,568 $- $ 589,568
Bills - 1,436,914 - 1,436,914
Repurchase Agreements - 1,224,000 - 1,224,000
--------------------------------------------------------------------------------------------------------
Total $- $3,250,482 $- $3,250,482
--------------------------------------------------------------------------------------------------------
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4 | USAA TREASURY MONEY MARKET TRUST
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
November 30, 2017 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
Values of securities are determined by procedures and practices discussed
in Note 1A to the financial statements.
The cost of securities at November 30, 2017, 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 PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS
USTMMR Quarterly U.S. Treasury Money Market Rate
o SPECIFIC NOTES
(a) Rates for U.S. Treasury floating-rate notes rise and fall based on
discount rates in auctions of 13-week Treasury bills, and are paid
quarterly.
(b) 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.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 5
================================================================================
(c) Rates for U.S. Treasury notes or bonds represent the stated coupon
payment rate at time of issuance.
(d) Zero-coupon security. Rate represents the effective yield at the date of
purchase.
(e) Rate represents an annualized yield at time of purchase, not coupon
rate.
(f) Mortgage-backed securities issued by Government National Mortgage
Association (GNMA) are supported by the full faith and credit of the
U.S. Government.
See accompanying notes to financial statements.
================================================================================
6 | USAA TREASURY MONEY MARKET TRUST
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
November 30, 2017 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities (amortized cost approximates market value) $2,026,482
Investment in repurchase agreements (cost approximates market value) 1,224,000
Cash 10,422
Receivables:
Capital shares sold 47,868
Interest 874
----------
Total assets 3,309,646
----------
LIABILITIES
Payables:
Capital shares redeemed 32,846
Dividends on capital shares 2
Accrued management fees 334
Other accrued expenses and payables 342
----------
Total liabilities 33,524
----------
Net assets applicable to capital shares outstanding $3,276,122
==========
NET ASSETS CONSIST OF:
Paid-in capital $3,276,116
Undistributed net investment income 6
----------
Net assets applicable to capital shares outstanding $3,276,122
==========
Capital shares outstanding, no par value 3,276,116
==========
Net asset value, redemption price, and offering price per share $ 1.00
==========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 7
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended November 30, 2017 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Interest income $15,229
-------
EXPENSES
Management fees 1,881
Administration and servicing fees 1,505
Transfer agent's fees 1,505
Custody and accounting fees 135
Postage 151
Shareholder reporting fees 20
Trustees' fees 18
Registration fees 63
Professional fees 63
Other 15
-------
Total expenses 5,356
-------
NET INVESTMENT INCOME $ 9,873
=======
See accompanying notes to financial statements.
================================================================================
8 | USAA TREASURY MONEY MARKET TRUST
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended November 30, 2017 (unaudited), and year ended
May 31, 2017
--------------------------------------------------------------------------------------------------------
11/30/2017 5/31/2017
--------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 9,873 $ 2,115
---------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (9,867) (2,115)
---------------------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 5,431,924 9,649,637
Reinvested dividends 9,858 2,113
Cost of shares redeemed (4,791,716) (7,214,563)
---------------------------------
Increase in net assets from capital
share transactions 650,066 2,437,187
---------------------------------
Net increase in net assets 650,072 2,437,187
NET ASSETS
Beginning of period 2,626,050 188,863
---------------------------------
End of period $ 3,276,122 $ 2,626,050
=================================
Undistributed net investment income:
End of period $ 6 $ -
=================================
CHANGE IN SHARES OUTSTANDING
Shares sold 5,431,924 9,649,637
Shares issued for dividends reinvested 9,858 2,113
Shares redeemed (4,791,716) (7,214,563)
---------------------------------
Increase in shares outstanding 650,066 2,437,187
=================================
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 9
================================================================================
NOTES TO FINANCIAL STATEMENTS
November 30, 2017 (unaudited)
--------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company Act
of 1940, as amended (the 1940 Act), is an open-end management investment
company organized as a Delaware statutory trust consisting of 51 separate funds.
Additionally, USAA Treasury Money Market Trust (the Fund) qualifies as a
registered investment company under Accounting Standards Codification Topic 946.
The information presented in this semiannual report pertains only to the Fund,
which is classified as diversified under the 1940 Act and is authorized to issue
an unlimited number of shares. The Fund seeks to provide investors maximum
current income while maintaining the highest degree of safety and liquidity.
The Fund operates as a government money market fund in compliance with the
requirements of Rule 2a-7 under the 1940 Act; and as a government 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
================================================================================
10 | USAA TREASURY MONEY MARKET TRUST
================================================================================
regarding application of the pricing and fair valuation policies and
procedures during the preceding quarter.
The Committee meets as often as necessary to make pricing and fair value
determinations. In addition, the Committee holds regular monthly meetings
to review prior actions taken by the Committee and USAA Asset Management
Company (the Manager), an affiliate of the Fund. Among other things, these
monthly meetings include a review and analysis of backtesting reports,
pricing service quotation comparisons, illiquid securities and fair value
determinations, pricing movements, and daily stale price monitoring.
The value of each security is determined (as of the close of trading on
the New York Stock Exchange (NYSE) on each business day the NYSE is open)
as set forth below:
1. All securities held in the Fund are short-term debt securities
which are valued pursuant to Rule 2a-7 under the 1940 Act. This method
values a security at its purchase price, and thereafter, assumes a
constant amortization to maturity of any premiums or discounts.
2. 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 11
================================================================================
Level 2 - inputs to the valuation methodology are other significant
observable inputs, including quoted prices for similar securities, inputs
that are observable for the securities, either directly or indirectly, and
market-corroborated inputs such as market indexes.
Level 3 - inputs to the valuation methodology are unobservable and
significant to the fair value measurement, including the Manager's own
assumptions in determining the fair value.
The inputs or methodologies used for valuing securities are not
necessarily an indication of the risks associated with investing in those
securities. For example, money market securities are valued using amortized
cost, in accordance with rules under the 1940 Act. Generally, amortized
cost approximates the current fair value of a security, but since the value
is not obtained from a quoted price in an active market, such securities
are reflected as Level 2.
C. FEDERAL TAXES - The Fund's policy is to comply with the requirements of
the Internal Revenue Code of 1986, as amended, applicable to regulated
investment companies and to distribute substantially all of its taxable
income and net capital gains, if any, to its shareholders. Therefore, no
federal income tax provision is required.
For the six-month period ended November 30, 2017, the Fund did not incur
any income tax, interest, or penalties, and has recorded no liability for
net unrecognized tax benefits relating to uncertain income tax positions.
On an ongoing basis, the Manager will monitor the Fund's tax basis to
determine if adjustments to this conclusion are necessary. The statute of
limitations on the Fund's tax return filings generally remain open for the
three preceding fiscal reporting year ends and remain subject to
examination by the Internal Revenue Service and state taxing authorities.
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
================================================================================
12 | USAA TREASURY MONEY MARKET TRUST
================================================================================
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 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, 2017,
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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 13
================================================================================
Fund's bank accounts may be used to directly reduce the Fund's expenses.
For the six-month period ended November 30, 2017, there were no custodian
and other bank credits.
H. INDEMNIFICATIONS - Under the Trust's organizational documents, its officers
and trustees are indemnified against certain liabilities arising out of the
performance of their duties to the Trust. In addition, in the normal course
of business, the Trust enters into contracts that contain a variety of
representations and warranties that provide general indemnifications. The
Trust's maximum exposure under these arrangements is unknown, as this would
involve future claims that may be made against the Trust that have not yet
occurred. However, the Trust expects the risk of loss to be remote.
I. USE OF ESTIMATES - The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts in the
financial statements.
(2) LINE OF CREDIT
The Fund participates, along with other funds of the Trust and USAA ETF Trust
(together, the Trusts), in a joint, short-term, revolving, committed loan
agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate of
the Manager. The purpose of the agreement is to provide temporary or emergency
cash needs, including redemption requests that might otherwise require the
untimely disposition of securities. Subject to availability (including usage of
the facility by other funds of the Trusts), the Fund may borrow from CAPCO an
amount up to 5% of the Fund's total assets at an interest rate based on the
London Interbank Offered Rate (LIBOR), plus 100.0 basis points.
The Trusts are also assessed facility fees by CAPCO in the amount of 13.0 basis
points of the amount of the committed loan agreement. Prior to September 30,
2017, the maximum annual facility fee was 12.0 basis points of the amount of the
committed loan agreement. The facility fees are allocated among the funds of the
Trusts based on their respective average net assets for the period.
================================================================================
14 | USAA TREASURY MONEY MARKET TRUST
================================================================================
The Trusts may request an optional increase of the committed loan agreement from
$500 million up to $750 million. If the Trusts increase the committed loan
agreement, the assessed facility fee on the amount of the additional commitment
will be 14.0 basis points.
For the six-month period ended November 30, 2017, the Fund paid CAPCO facility
fees of $11,000, which represents 3.7% of the total fees paid to CAPCO by the
funds of the Trusts. The Fund had no borrowings under this agreement during the
six-month period ended November 30, 2017.
(3) DISTRIBUTIONS
The tax basis of distributions and any accumulated undistributed net investment
income will be determined as of the Fund's tax year-end of May 31, 2018, in
accordance with applicable federal tax law.
Net investment income is accrued daily as dividends and distributed to
shareholders monthly. Distributions of realized gains from security transactions
not offset by capital losses are made annually in the succeeding fiscal year or
as otherwise required to avoid the payment of federal income tax.
At May 31, 2017, the Fund had no capital loss carryforwards, for federal income
tax purposes.
(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, 2017, the Fund incurred management
fees, paid or payable to the Manager, of $1,881,000.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 15
================================================================================
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, 2017, the Fund incurred administration and servicing fees,
paid or payable to the Manager, of $1,505,000.
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, 2017, the Fund reimbursed the
Manager $36,000 for these compliance and legal services. These expenses
are included in the professional fees on the Fund's Statement of Operations.
C. TRANSFER AGENT'S FEES - USAA Transfer Agency Company, d/b/a USAA Shareholder
Account Services (SAS), an affiliate of the Manager, provides transfer agent
services to the Fund. The Fund's transfer agent's fees are accrued daily and
paid monthly at an annualized rate of 0.10% of the Fund's average net assets
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,
2017, the Fund incurred transfer agent's fees, paid or payable to SAS, of
$1,505,000.
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.
(5) TRANSACTIONS WITH AFFILIATES
The Manager is indirectly wholly owned by United Services Automobile Association
(USAA), a large, diversified financial services institution.
================================================================================
16 | USAA TREASURY MONEY MARKET TRUST
================================================================================
Certain trustees and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Fund.
(6) UPCOMING REGULATORY MATTERS
In October 2016, the U.S. Securities and Exchange Commission (SEC) issued Final
Rule Release No. 33-10231, INVESTMENT COMPANY REPORTING MODERNIZATION. In part,
the rules require the filing of new forms N-PORT and N-CEN, and amend Regulation
S-X to require standardized, enhanced disclosure about derivatives in investment
company financial statements, as well as other amendments.
In October 2016, the SEC issued Final Rule Release No. 33-10233, INVESTMENT
COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS. This rule requires funds to
establish a liquidity risk management program and enhances disclosures regarding
funds' liquidity.
In October 2016, the SEC issued Final Rule Release No. 33-10234, INVESTMENT
COMPANY SWING PRICING. This rule permits certain funds to use swing pricing
during periods of heavy redemptions and requires certain disclosures regarding
the use of swing pricing in forms filed with the SEC.
The Manager continues to evaluate the impact these rules and amendments will
have on the financial statements and other disclosures. The compliance date for
new forms N-PORT and N-CEN is June 1, 2018 (with filing of Form N-PORT beginning
April 30, 2019), with other staggered compliance dates extending through April
30, 2019. The Fund is expected to comply with the June 1, 2018 compliance date
for new forms N-PORT and N-CEN.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 17
================================================================================
(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,
----------------------------------------------------------------------------------------
2017 2017 2016 2015 2014 2013
----------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income(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
========================================================================================
.33 .08(b) .00(b),(d) .00(b),(d) .00(b),(d) .00(b),(d)
Total return (%)*
Net assets at end
of period (000) $3,276,122 $2,626,050 $188,863 $119,654 $128,416 $141,474
Ratios to average
net assets:**
Expenses (%)(c) .36(e) .35(b) .17(b) .06(b) .04(b) .15(b)
Expenses, excluding
reimbursements (%) .36(e) .39 .49 .52 .48 .49
Net investment
income (%)(d) .65(e) .12 .00(d) .00(d) .00(d) .00(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
iMoney Net reported return. Total returns for periods of less than one year
are not annualized.
** For the six-month period ended November 30, 2017, average net assets were
$3,007,225,000.
(a) Represents less than $0.01 per share.
(b) The Manager had voluntarily agreed, on a temporary basis, to reimburse
management, administrative, or other fees to limit the Fund's expenses and
attempt to prevent a negative yield.
(c) Reflects total annual operating expenses of the Fund Shares before
reductions of any expenses paid indirectly. The Fund Shares' expenses paid
indirectly decreased the expense ratios as follows:
- - - - (.00%)(+) (.00%)(+)
(+) Represents less than 0.01% of average net assets.
(d) Represents less than 0.01%.
(e) Annualized. The ratio is not necessarily indicative of 12 months of operations.
================================================================================
18 | USAA TREASURY MONEY MARKET TRUST
================================================================================
EXPENSE EXAMPLE
November 30, 2017 (unaudited)
--------------------------------------------------------------------------------
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: direct costs, such
as wire fees, redemption fees, and low balance fees; and indirect costs,
including management fees, transfer agency fees, and other Fund operating
expenses. This example is intended to help you understand your indirect costs,
also referred to as "ongoing costs" (in dollars), of investing in the Fund and
to compare these costs with the ongoing costs of investing in other mutual
funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire six-month period of June 1, 2017, through
November 30, 2017.
ACTUAL EXPENSES
The line labeled "actual" in the table provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested at the beginning of the period, to estimate the
expenses that you paid over the period. Simply divide your account value by
$1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number in the "actual" line under the heading
"Expenses Paid During Period" to estimate the expenses you paid on your account
during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The line labeled "hypothetical" in the table provides information about
hypothetical account values and hypothetical expenses based on the Fund's actual
expense ratio and an assumed rate of return of 5% per year before expenses,
which is not the Fund's actual return. The hypothetical account values and
expenses may not be used to estimate the actual ending account
================================================================================
EXPENSE EXAMPLE | 19
================================================================================
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, 2017 -
JUNE 1, 2017 NOVEMBER 30, 2017 NOVEMBER 30, 2017
---------------------------------------------------------------
Actual $1,000.00 $1,003.30 $1.81
Hypothetical
(5% return before expenses) 1,000.00 1,023.26 1.83
*Expenses are equal to the Fund's annualized expense ratio of 0.36%, 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 0.33% for the six-month period of June 1, 2017, through
November 30, 2017.
================================================================================
20 | USAA TREASURY MONEY MARKET TRUST
================================================================================
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Jefferson C. Boyce
Dawn M. Hawley
Paul L. McNamara
Richard Y. Newton III
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
--------------------------------------------------------------------------------
ADMINISTRATOR AND USAA Asset Management Company
INVESTMENT ADVISER P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
UNDERWRITER AND USAA Investment Management Company
DISTRIBUTOR P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
--------------------------------------------------------------------------------
CUSTODIAN AND State Street Bank and Trust Company
ACCOUNTING AGENT P.O. Box 1713
Boston, Massachusetts 02105
--------------------------------------------------------------------------------
INDEPENDENT Ernst & Young LLP
REGISTERED PUBLIC 100 West Houston St., Suite 1700
ACCOUNTING FIRM San Antonio, Texas 78205
--------------------------------------------------------------------------------
MUTUAL FUND Under "My Accounts" on
SELF-SERVICE 24/7 usaa.com select your mutual fund
AT USAA.COM account and either click the link or
select 'I want to...' and select
OR CALL the desired action.
(800) 531-USAA (8722)
(210) 531-8722
--------------------------------------------------------------------------------
Copies of the Manager's proxy voting policies and procedures, approved by the
Trust's Board of Trustees for use in voting proxies on behalf of the Fund, are
available without charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722;
(ii) at USAA.COM; and (iii) in summary within the Statement of Additional
Information on the SEC's website at HTTP://WWW.SEC.GOV. Information regarding
how the Fund voted proxies relating to portfolio securities during the most
recent 12-month period ended June 30 is available without charge (i) at
USAA.COM; and (ii) on the SEC's website at HTTP://WWW.SEC.GOV.
The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. These Forms N-Q are
available at no charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722;
(ii) at USAA.COM; and (iii) on the SEC's website at HTTP://WWW.SEC.GOV. These
Forms N-Q also may be reviewed and copied at the SEC's Public Reference Room in
Washington, D.C. Information on the operation of the Public Reference Room may
be obtained by calling (800) 732-0330.
================================================================================
--------------
USAA PRSRT STD
9800 Fredericksburg Road U.S. Postage
San Antonio, TX 78288 PAID
USAA
--------------
>> SAVE PAPER AND FUND COSTS
Under MY PROFILE on USAA.COM select MANAGE PREFERENCES
Set your DOCUMENT PREFERENCES to USAA DOCUMENTS ONLINE.
[LOGO OF USAA]
USAA We know what it means to serve.(R)
=============================================================================
23416-0118 (C)2018, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA WORLD GROWTH FUND]
============================================================
SEMIANNUAL REPORT
USAA WORLD GROWTH FUND
FUND SHARES (USAWX) o INSTITUTIONAL SHARES (UIWGX)
o ADVISER SHARES (USWGX)
NOVEMBER 30, 2017
============================================================
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
INVESTMENT OVERVIEW 2
FINANCIAL INFORMATION
Portfolio of Investments 4
Notes to Portfolio of Investments 10
Financial Statements 11
Notes to Financial Statements 15
EXPENSE EXAMPLE 33
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE
RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY
USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN
PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS
ABOUT THE FUND.
(C)2018, USAA. All rights reserved.
================================================================================
================================================================================
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.
While the Fund may invest in companies of any size, it generally focuses on
companies with large market capitalizations. 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 significant percentage of
its assets in securities of issuers in a single country, a small number of
countries, or a particular geographic region. The Fund uses an active bottom-up
investment approach to buying and selling investments. 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
================================================================================
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
o TOP 10 INDUSTRIES - 11/30/17 o
(% of Net Assets)
Health Care Equipment ..................................................... 7.8%
Pharmaceuticals ........................................................... 5.5%
Packaged Foods & Meat ..................................................... 5.3%
Household Products ........................................................ 5.1%
Asset Management & Custody Banks .......................................... 5.0%
Industrial Conglomerates .................................................. 4.6%
Distillers & Vintners ..................................................... 4.1%
Apparel, Accessories & Luxury Goods ....................................... 3.9%
Life Sciences Tools & Services ............................................ 3.8%
IT Consulting & Other Services ............................................ 3.2%
o TOP 10 EQUITY HOLDINGS - 11/30/17 o
(% of Net Assets)
Thermo Fisher Scientific, Inc. ............................................ 2.9%
Bayer AG .................................................................. 2.8%
Honeywell International, Inc. ............................................. 2.7%
Nestle S.A. ............................................................... 2.5%
Accenture plc "A" ......................................................... 2.5%
Visa, Inc. "A" ............................................................ 2.4%
Medtronic plc ............................................................. 2.4%
Diageo plc ................................................................ 2.1%
LVMH Moet Hennessy Louis Vuitton SE ....................................... 2.1%
Stryker Corp. ............................................................. 2.0%
You will find a complete list of securities that the Fund owns on pages 4-9.
================================================================================
2 | USAA WORLD GROWTH FUND
================================================================================
o COUNTRY ALLOCATION - 11/30/17 o
[PIE CHART OF COUNTRY ALLOCATION]
UNITED STATES 57.8%
FRANCE 9.1%
UNITED KINGDOM 9.0%
SWITZERLAND 8.3%
GERMANY 6.8%
OTHER* 12.7%
[END CHART]
* Includes countries with less than 3% of portfolio.
Percentages are of the net assets of the Fund and may not equal 100%.
================================================================================
INVESTMENT OVERVIEW | 3
================================================================================
PORTFOLIO OF INVESTMENTS
November 30, 2017 (unaudited)
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (99.0%)
COMMON STOCKS (99.0%)
CONSUMER DISCRETIONARY (16.4%)
-----------------------------
ADVERTISING (2.1%)
103,837 Omnicom Group, Inc. $ 7,418
1,301,928 WPP plc 23,013
----------
30,431
----------
APPAREL RETAIL (0.4%)
196,194 Urban Outfitters, Inc.* 6,106
----------
APPAREL, ACCESSORIES & LUXURY GOODS (3.9%)
371,492 Burberry Group plc 8,621
159,994 Compagnie Financiere Richemont S.A. 13,776
5,718 Hermes International 3,014
101,215 LVMH Moet Hennessy Louis Vuitton SE(a) 29,455
----------
54,866
----------
AUTO PARTS & EQUIPMENT (0.7%)
92,553 Aptiv plc 9,687
----------
AUTOMOTIVE RETAIL (0.6%)
11,526 AutoZone, Inc.* 7,916
----------
CABLE & SATELLITE (2.5%)
757,582 Comcast Corp. "A" 28,440
604,065 Sky plc* 7,650
----------
36,090
----------
CASINOS & GAMING (0.5%)
570,400 Sands China Ltd. 2,772
23,210 Wynn Resorts Ltd. 3,669
----------
6,441
----------
HOTELS, RESORTS & CRUISE LINES (0.4%)
45,019 Marriott International, Inc. "A" 5,717
----------
MOTORCYCLE MANUFACTURERS (0.4%)
124,104 Harley-Davidson, Inc.(a) 6,230
----------
================================================================================
4 | USAA WORLD GROWTH FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
MOVIES & ENTERTAINMENT (3.1%)
190,488 Time Warner, Inc. $ 17,432
254,821 Walt Disney Co. 26,710
----------
44,142
----------
RESTAURANTS (1.5%)
702,976 Compass Group plc 14,251
152,752 Whitbread plc 7,371
----------
21,622
----------
SPECIALTY STORES (0.3%)
275,328 Sally Beauty Holdings, Inc.* 4,694
----------
Total Consumer Discretionary 233,942
----------
CONSUMER STAPLES (18.2%)
------------------------
BREWERS (2.3%)
1,237,529 Ambev S.A. 7,773
89,447 Carlsberg A/S "B" 10,592
136,021 Heineken N.V. 13,857
----------
32,222
----------
DISTILLERS & VINTNERS (4.1%)
851,688 Diageo plc 29,585
187,037 Pernod Ricard S.A. 29,174
----------
58,759
----------
HOUSEHOLD PRODUCTS (5.1%)
216,409 Colgate-Palmolive Co. 15,679
970,955 Essity Aktiebolag "B"* 28,197
327,086 Reckitt Benckiser Group plc 28,691
----------
72,567
----------
PACKAGED FOODS & MEAT (5.3%)
323,350 DANONE S.A. 27,295
207,030 Kellogg Co. 13,697
413,333 Nestle S.A. 35,398
----------
76,390
----------
PERSONAL PRODUCTS (1.4%)
1,173,980 Coty, Inc. "A" 20,228
----------
Total Consumer Staples 260,166
----------
ENERGY (0.9%)
-------------
OIL & GAS EQUIPMENT & SERVICES (0.9%)
108,510 National Oilwell Varco, Inc. 3,641
156,837 Schlumberger Ltd. 9,857
----------
13,498
----------
Total Energy 13,498
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 5
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
FINANCIALS (10.8%)
-----------------
ASSET MANAGEMENT & CUSTODY BANKS (5.0%)
440,336 Bank of New York Mellon Corp. $ 24,104
282,878 Franklin Resources, Inc. 12,263
143,646 Julius Baer Group Ltd.* 8,440
282,133 State Street Corp. 26,901
----------
71,708
----------
CONSUMER FINANCE (1.5%)
221,300 American Express Co. 21,623
----------
DIVERSIFIED BANKS (1.0%)
144,586 Erste Group Bank AG* 6,307
742,345 Grupo Financiero Banorte S.A. "O" 4,360
512,200 Kasikornbank Public Co. Ltd. 3,670
----------
14,337
----------
DIVERSIFIED CAPITAL MARKETS (1.4%)
1,117,268 UBS Group AG* 19,296
----------
FINANCIAL EXCHANGES & DATA (0.6%)
71,331 Deutsche Boerse AG 8,087
----------
INVESTMENT BANKING & BROKERAGE (1.0%)
59,848 Goldman Sachs Group, Inc. 14,821
----------
REINSURANCE (0.3%)
47,489 Swiss Re AG 4,451
----------
Total Financials 154,323
----------
HEALTH CARE (18.5%)
------------------
HEALTH CARE EQUIPMENT (7.8%)
319,129 Abbott Laboratories 17,989
413,615 Medtronic plc 33,970
29,818 Sonova Holding AG 4,750
187,281 Stryker Corp. 29,216
226,818 Zimmer Biomet Holdings, Inc. 26,560
----------
112,485
----------
HEALTH CARE SUPPLIES (1.4%)
51,318 Cooper Companies, Inc. 12,377
153,600 Hoya Corp. 7,435
----------
19,812
----------
LIFE SCIENCES TOOLS & SERVICES (3.8%)
216,093 Thermo Fisher Scientific, Inc. 41,654
66,464 Waters Corp.* 13,105
----------
54,759
----------
================================================================================
6 | USAA WORLD GROWTH FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
PHARMACEUTICALS (5.5%)
307,744 Bayer AG $ 39,248
43,202 Johnson & Johnson 6,019
97,764 Merck KGaA 10,407
89,422 Roche Holding AG 22,561
----------
78,235
----------
Total Health Care 265,291
----------
INDUSTRIALS (16.8%)
------------------
AEROSPACE & DEFENSE (1.8%)
61,330 MTU Aero Engines AG 11,027
120,792 United Technologies Corp. 14,670
----------
25,697
----------
AGRICULTURAL & FARM MACHINERY (0.8%)
617,500 Kubota Corp. 11,632
----------
AIR FREIGHT & LOGISTICS (1.7%)
195,682 United Parcel Service, Inc. "B" 23,766
----------
AIRPORT SERVICES (1.1%)
75,534 Aena SME S.A. 15,027
----------
ELECTRICAL COMPONENTS & EQUIPMENT (2.2%)
164,700 Legrand S.A. 12,342
217,927 Schneider Electric SE* 18,731
----------
31,073
----------
HUMAN RESOURCE & EMPLOYMENT SERVICES (0.7%)
132,937 Adecco Group AG 10,054
----------
INDUSTRIAL CONGLOMERATES (4.6%)
112,588 3M Co. 27,374
245,837 Honeywell International, Inc. 38,341
----------
65,715
----------
RAILROADS (3.0%)
295,290 Canadian National Railway Co. 23,027
144,484 Kansas City Southern 16,202
34,697 Union Pacific Corp. 4,389
----------
43,618
----------
TRADING COMPANIES & DISTRIBUTORS (0.9%)
106,835 Brenntag AG 6,650
63,446 NOW, Inc.*(a) 655
26,285 W.W. Grainger, Inc. 5,817
----------
13,122
----------
Total Industrials 239,704
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 7
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
INFORMATION TECHNOLOGY (12.1%)
-----------------------------
COMMUNICATIONS EQUIPMENT (0.7%)
274,554 Cisco Systems, Inc. $ 10,241
----------
DATA PROCESSING & OUTSOURCED SERVICES (3.0%)
113,501 PayPal Holdings, Inc.* 8,595
305,433 Visa, Inc. "A"(a) 34,389
----------
42,984
----------
ELECTRONIC COMPONENTS (0.6%)
96,631 Amphenol Corp. "A" 8,754
----------
INTERNET SOFTWARE & SERVICES (0.8%)
326,960 eBay, Inc.* 11,336
----------
IT CONSULTING & OTHER SERVICES (3.2%)
237,503 Accenture plc "A" 35,153
139,458 Cognizant Technology Solutions Corp. "A" 10,080
----------
45,233
----------
SEMICONDUCTORS (0.4%)
72,464 Microchip Technology, Inc. 6,303
----------
SYSTEMS SOFTWARE (2.4%)
117,138 Check Point Software Technologies Ltd.* 12,216
449,062 Oracle Corp. 22,031
----------
34,247
----------
TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (1.0%)
5,927 Samsung Electronics Co. Ltd. 13,834
----------
Total Information Technology 172,932
----------
MATERIALS (5.3%)
----------------
FERTILIZERS & AGRICULTURAL CHEMICALS (1.0%)
124,854 Monsanto Co. 14,775
----------
INDUSTRIAL GASES (2.9%)
86,493 Air Liquide S.A. 10,825
91,349 Linde AG* 21,327
56,812 Praxair, Inc. 8,745
----------
40,897
----------
SPECIALTY CHEMICALS (1.4%)
224,237 Akzo Nobel N.V.(a) 20,204
----------
Total Materials 75,876
----------
Total Common Stocks 1,415,732
----------
Total Equity Securities (cost: $832,039) 1,415,732
----------
================================================================================
8 | USAA WORLD GROWTH FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS (0.8%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (0.8%)
11,964,764 State Street Institutional Treasury Money Market Fund
Premier Class, 1.02%(b) (cost: $11,965) $ 11,965
----------
SHORT-TERM INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED (3.9%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (3.9%)
19,617,514 Fidelity Government Portfolio Class I, 0.97%(b) 19,617
35,451,606 Invesco Government & Agency Portfolio Institutional Class, 0.98%(b) 35,452
----------
Total Short-Term Investments Purchased with Cash Collateral from
Securities Loaned (cost: $55,069) 55,069
----------
TOTAL INVESTMENTS (COST: $899,073) $1,482,766
==========
--------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
--------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
--------------------------------------------------------------------------------------------------------
Equity Securities:
Common Stocks $1,415,732 $- $- $1,415,732
Money Market Instruments:
Government & U.S. Treasury Money
Market Funds 11,965 - - 11,965
Short-Term Investments Purchased
with Cash Collateral from
Securities Loaned:
Government & U.S. Treasury
Money Market Funds 55,069 - - 55,069
--------------------------------------------------------------------------------------------------------
Total $1,482,766 $- $- $1,482,766
--------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
For the period of June 1, 2017, through November 30, 2017, there were no
transfers of securities between levels. The Fund's policy is to recognize any
transfers in and transfers out as of the beginning of the reporting period in
which the event or circumstance that caused the transfer occurred.
================================================================================
PORTFOLIO OF INVESTMENTS | 9
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
November 30, 2017 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
Market values of securities are determined by procedures and practices
discussed in Note 1A to the financial statements.
The Portfolio of Investments category percentages shown represent the
percentages of the investments to net assets, and, in total, may not equal
100%. A category percentage of 0.0% represents less than 0.1% of net
assets. Investments in foreign securities were 45.9% of net assets at
November 30, 2017.
o SPECIFIC NOTES
(a) The security, or a portion thereof, was out on loan as of
November 30, 2017.
(b) Rate represents the money market fund annualized seven-day yield at
November 30, 2017.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
10 | USAA WORLD GROWTH FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
November 30, 2017 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (including securities on
loan of $86,302) (cost of $899,073) $1,482,766
Cash denominated in foreign currencies (identified cost of $37) 37
Receivables:
Capital shares sold 1,102
USAA Asset Management Company (Note 7D) 5
Dividends and interest 2,394
Securities sold 2,911
Other 14
Unrealized appreciation on foreign currency contracts held, at value 2
----------
Total assets 1,489,231
----------
LIABILITIES
Payables:
Upon return of securities loaned 55,069
Securities purchased 2,222
Capital shares redeemed 949
Accrued management fees 866
Accrued transfer agent's fees 63
Other accrued expenses and payables 370
----------
Total liabilities 59,539
----------
Net assets applicable to capital shares outstanding $1,429,692
==========
NET ASSETS CONSIST OF:
Paid-in capital $ 784,680
Accumulated undistributed net investment income 8,379
Accumulated net realized gain on investments 53,068
Net unrealized appreciation of investments 583,693
Net unrealized depreciation of foreign capital gains tax (158)
Net unrealized appreciation of foreign currency translations 30
----------
Net assets applicable to capital shares outstanding $1,429,692
==========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $1,392,244/41,887 capital
shares outstanding, no par value) $ 33.24
==========
Institutional Shares (net assets of $27,076/815 capital
shares outstanding, no par value) $ 33.22
==========
Adviser Shares (net assets of $10,372/314 capital
shares outstanding, no par value) $ 33.09
==========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 11
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended November 30, 2017 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $249) $10,164
Interest 51
Securities lending (net) 27
-------
Total income 10,242
-------
EXPENSES
Management fees 5,310
Administration and servicing fees:
Fund Shares 1,015
Institutional Shares 7
Adviser Shares 13
Transfer agent's fees:
Fund Shares 1,037
Institutional Shares 7
Adviser Shares 10
Distribution and service fees (Note 7F):
Adviser Shares 22
Custody and accounting fees:
Fund Shares 111
Institutional Shares 1
Adviser Shares 2
Postage:
Fund Shares 40
Adviser Shares 1
Shareholder reporting fees:
Fund Shares 25
Trustees' fees 17
Registration fees:
Fund Shares 18
Institutional Shares 18
Adviser Shares 8
Professional fees 78
Other 16
-------
Total expenses 7,756
================================================================================
12 | USAA WORLD GROWTH FUND
================================================================================
Expenses reimbursed:
Institutional Shares $ (9)
Adviser Shares (1)
-------
Net expenses 7,746
-------
NET INVESTMENT INCOME 2,496
-------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY
Net realized gain on:
Investments (net of foreign taxes withheld of $1) 31,182
Foreign currency transactions 86
Change in net unrealized appreciation/(depreciation) of:
Investments 55,787
Foreign capital gains tax (113)
Foreign currency translations (1)
-------
Net realized and unrealized gain 86,941
-------
Increase in net assets resulting from operations $89,437
=======
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 13
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended November 30, 2017 (unaudited), and year ended
May 31, 2017
--------------------------------------------------------------------------------------------------------
11/30/2017 5/31/2017
--------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 2,496 $ 8,722
Net realized gain on investments 31,182 30,993
Net realized gain (loss) on foreign currency transactions 86 (112)
Change in net unrealized appreciation/(depreciation) of:
Investments 55,787 165,425
Foreign capital gains tax (113) (45)
Foreign currency translations (1) 92
---------------------------
Increase in net assets resulting from operations 89,437 205,075
---------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares - (8,757)
Institutional Shares - (40)
Adviser Shares - (84)
---------------------------
Total distributions of net investment income - (8,881)
---------------------------
Net realized gains:
Fund Shares - (23,893)
Institutional Shares - (125)
Adviser Shares - (344)
---------------------------
Total distributions of net realized gains - (24,362)
---------------------------
Distributions to shareholders - (33,243)
---------------------------
NET DECREASE IN NET ASSETS FROM
CAPITAL SHARE TRANSACTIONS (NOTE 6)
Fund Shares (14,392) (6,270)
Institutional Shares 19,115 781
Adviser Shares (10,424) 657
---------------------------
Total net decrease in net assets from capital
share transactions (5,701) (4,832)
---------------------------
Net increase in net assets 83,736 167,000
NET ASSETS
Beginning of period 1,345,956 1,178,956
---------------------------
End of period $1,429,692 $1,345,956
===========================
Accumulated undistributed net investment income:
End of period $ 8,379 $ 5,883
===========================
See accompanying notes to financial statements.
================================================================================
14 | USAA WORLD GROWTH FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
November 30, 2017 (unaudited)
--------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company Act
of 1940, as amended (the 1940 Act), is an open-end management investment
company organized as a Delaware statutory trust consisting of 51 separate funds.
Additionally, USAA World Growth Fund (the Fund) qualifies as a registered
investment company under Accounting Standards Codification Topic 946. The
information presented in this semiannual report pertains only to the Fund, which
is classified as diversified under the 1940 Act. The Fund's investment objective
is to seek 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, foundations, and bank
trusts, as well as other persons or
================================================================================
NOTES TO FINANCIAL STATEMENTS | 15
================================================================================
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 backtesting reports,
pricing service quotation comparisons, illiquid securities and fair value
determinations, pricing movements, and daily stale price monitoring.
The value of each security is determined (as of the close of trading on
the New York Stock Exchange (NYSE) on each business day the NYSE is open)
as set forth below:
1. Equity securities, including exchange-traded funds (ETFs), except as
otherwise noted, traded primarily on a domestic securities exchange or
the over-the-counter markets, are valued at the last sales price or
================================================================================
16 | USAA WORLD GROWTH FUND
================================================================================
official closing price on the exchange or primary market on which they
trade. Securities traded primarily on foreign securities exchanges or
markets are valued at the last quoted sale price, or the most recently
determined official closing price calculated according to local market
convention, available at the time the Fund is valued. If no last sale
or official closing price is reported or available, the average of the
bid and ask prices generally is used. Actively traded equity securities
listed on a domestic exchange generally are categorized in Level 1 of
the fair value hierarchy. Certain preferred and equity securities traded
in inactive markets generally are categorized in Level 2 of the fair
value hierarchy.
2. Equity securities trading in various foreign markets may take place
on days when the NYSE is closed. Further, when the NYSE is open, the
foreign markets may be closed. Therefore, the calculation of the Fund's
net asset value (NAV) may not take place at the same time the prices of
certain foreign securities held by the Fund are determined. In many
cases, events affecting the values of foreign securities that occur
between the time of their last quoted sale or official closing price and
the close of normal trading on the NYSE on a day the Fund's NAV is
calculated will not need to be reflected in the value of 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 17
================================================================================
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.
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
================================================================================
18 | USAA WORLD GROWTH FUND
================================================================================
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.
For the six-month period ended November 30, 2017, the Fund did not incur
any income tax, interest, or penalties, and has recorded no liability for
net unrecognized tax benefits relating to uncertain income tax positions.
On an ongoing basis, the Manager will monitor the Fund's tax basis to
determine if adjustments to this conclusion are necessary. The statute of
limitations on the Fund's tax return filings generally remain open for the
three preceding fiscal reporting year ends and remain subject to
examination by the Internal Revenue Service and state taxing authorities.
D. 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 | 19
================================================================================
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.
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
================================================================================
20 | USAA WORLD GROWTH FUND
================================================================================
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, 2017, 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. Effective October 1, 2017, the
Adviser Shares no longer charge redemption fees. For the six-month period
ended November 30, 2017, the Adviser Shares charged redemption fees of
$1,000.
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.
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 | 21
================================================================================
(2) LINE OF CREDIT
The Fund participates, along with other funds of the Trust and USAA ETF Trust
(together the Trusts), in a joint, short-term, revolving, committed loan
agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate of
the Manager. The purpose of the agreement is to provide temporary or emergency
cash needs, including redemption requests that might otherwise require the
untimely disposition of securities. Subject to availability (including usage of
the facility by other funds of the Trusts), the Fund may borrow from CAPCO an
amount up to 5% of the Fund's total assets at an interest rate based on the
London Interbank Offered Rate (LIBOR), plus 100.0 basis points.
The Trusts are also assessed facility fees by CAPCO in the amount of 13.0 basis
points of the amount of the committed loan agreement. Prior to September 30,
2017, the maximum annual facility fee was 12.0 basis points of the amount of the
committed loan agreement. The facility fees are allocated among the funds of the
Trusts based on their respective average net assets for the period.
The Trusts may request an optional increase of the committed loan agreement from
$500 million up to $750 million. If the Trusts increase the committed loan
agreement, the assessed facility fee on the amount of the additional commitment
will be 14.0 basis points.
For the six-month period ended November 30, 2017, the Fund paid CAPCO facility
fees of $5,000, which represents 1.7% of the total fees paid to CAPCO by the
funds of the Trusts. The Fund had no borrowings under this agreement during the
six-month period ended November 30, 2017.
(3) DISTRIBUTIONS
The tax basis of distributions and any accumulated undistributed net investment
income will be determined as of the Fund's tax year-end of May 31, 2018, in
accordance with applicable federal tax law.
Distributions of net investment income and realized gains from security
transactions not offset by capital losses are made annually in the succeeding
fiscal year or as otherwise required to avoid the payment of federal income tax.
================================================================================
22 | USAA WORLD GROWTH FUND
================================================================================
At May 31, 2017, the Fund had no capital loss carryforwards, for federal income
tax purposes.
(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, 2017, were
$68,467,000 and $75,558,000, respectively.
As of November 30, 2017, the cost of securities, including short-term
securities, for federal income tax purposes, was approximately the same as the
cost reported in the financial statements.
Gross unrealized appreciation and depreciation of investments as of November 30,
2017, were $597,192,000 and $13,499,000, respectively, resulting in net
unrealized appreciation of $583,693,000.
(5) SECURITIES LENDING
The Fund, through its securities lending agreement with Citibank, N.A.
(Citibank), may lend its securities to qualified financial institutions, such as
certain broker-dealers, to earn additional income. The borrowers are required to
secure their loans continuously with collateral in an amount at least equal to
102% of the fair value of domestic securities and foreign government securities
loaned and 105% of the fair value of foreign securities and all other securities
loaned. Collateral may be cash, U.S. government securities, or other securities
as permitted by SEC guidelines. Cash collateral is invested in high-quality
short-term investments. Collateral requirements are determined daily based on
the prior business day's ending value of securities loaned. Risks to the Fund in
securities-lending transactions are that the borrower may not provide additional
collateral when required or return the securities when due, and that the value
of the short-term investments will be less than the amount of cash collateral
required to be returned to the borrower. The Fund's agreement with Citibank does
not include master netting provisions. Non-cash collateral received by the Fund
may not be sold or re-pledged except to satisfy borrower default. Cash
collateral is listed in the Fund's Portfolio of Investments and Financial
Statements while non-cash collateral is not included.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 23
================================================================================
At November 30, 2017, the Fund's value of outstanding securities on loan and the
value of collateral are as follows:
VALUE OF SECURITIES
ON LOAN NON-CASH COLLATERAL CASH COLLATERAL
-----------------------------------------------------------------------------------------------
$86,302,000 $33,584,000 $55,069,000
-----------------------------------------------------------------------------------------------
(6) CAPITAL SHARE TRANSACTIONS
At November 30, 2017, there were an unlimited number of shares of capital stock
at no par value authorized for the Fund.
Capital share transactions for the Institutional Shares resulted from purchases
and sales by the affiliated USAA fund-of-funds as well as other persons or legal
entities that the Fund may approve from time to time. Capital share transactions
for all classes were as follows, in thousands:
SIX-MONTH PERIOD ENDED YEAR ENDED
NOVEMBER 30, 2017 MAY 31, 2017
---------------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------
FUND SHARES:
Shares sold 1,942 $ 62,220 5,012 $ 141,576
Shares issued from reinvested dividends - - 1,177 32,291
Shares redeemed (2,392) (76,612) (6,400) (180,137)
------------------------------------------------------------
Net decrease from capital
share transactions (450) $(14,392) (211) $ (6,270)
============================================================
INSTITUTIONAL SHARES:
Shares sold 602 $ 19,375 44 $ 1,210
Shares issued from reinvested dividends - - 1 34
Shares redeemed (8) (260) (17) (463)
------------------------------------------------------------
Net increase from capital
share transactions 594 $ 19,115 28 $ 781
------------------------------------------------------------
ADVISER SHARES:
Shares sold 27 $ 861 79 $ 2,207
Shares issued from reinvested dividends - - 7 178
Shares redeemed* (348) (11,285) (62) (1,728)
------------------------------------------------------------
Net increase (decrease) from capital
share transactions (321) $(10,424) 24 $ 657
============================================================
*Net of redemption fees, if any.
================================================================================
24 | USAA WORLD GROWTH FUND
================================================================================
(7) 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 all
or 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 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.
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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 25
================================================================================
Each class' annual performance adjustment rate is multiplied by the average
net assets of each respective class over the entire performance period,
which is then multiplied by a fraction, the numerator of which is the number
of days in the month and the denominator of which is 365 (366 in leap
years). The resulting amount is then added to (in the case of
overperformance), or subtracted from (in the case of underperformance) the
base fee.
Under the performance fee arrangement, each class will pay a positive
performance fee adjustment for a performance period whenever the class
outperforms the Lipper Global 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, 2017, the Fund incurred total
management fees, paid or payable to the Manager, of $5,310,000, which
included a performance adjustment for the Fund Shares, and Institutional
Shares of $118,000 and less than $500 respectively. For the Fund Shares and
Institutional Shares, the performance adjustments were 0.02% and less than
0.01%. For the six-month period ended November 30, 2017, the Adviser Shares
did not incur any performance adjustment.
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% on 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, 2017, the Manager incurred subadvisory fees with respect to
the Fund, paid or payable to MFS, of $2,086,000.
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
================================================================================
26 | USAA WORLD GROWTH FUND
================================================================================
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, 2017, the Fund Shares,
Institutional Shares, and Adviser Shares incurred administration and
servicing fees, paid or payable to the Manager, of $1,015,000, $7,000, and
$13,000, 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, 2017, the Fund reimbursed the
Manager $17,000 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, 2018, to
limit the total annual operating expenses of the Institutional Shares and
Adviser Shares to 1.10% and 1.35%, respectively, of their average net
assets, excluding extraordinary expenses and before reductions of any
expenses paid indirectly, and to reimburse the Institutional Shares and the
Adviser Shares for all expenses in excess of that amount. This expense
limitation arrangement may not be changed or terminated through September
30, 2018, without approval of the Board, and may be changed or terminated
by the Manager at any time after that date. For the six-month period ended
November 30, 2017, the Institutional Shares and Adviser Shares incurred
reimbursable expenses of $9,000 and $1,000, respectively, of which $5,000
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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 27
================================================================================
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, 2017, the Fund Shares,
Institutional Shares, and Adviser Shares incurred transfer agent's fees,
paid or payable to SAS, of $1,037,000, $7,000, and $10,000, 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 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, 2017, the Adviser Shares incurred
distribution and service (12b-1) fees of $22,000.
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.
(8) TRANSACTIONS WITH AFFILIATES
The Manager is indirectly wholly owned by United Services Automobile Association
(USAA), a large, diversified financial services institution. At November 30,
2017, USAA and its affiliates owned 173,000 Institutional Shares and 162,000
Adviser Shares, which represents 21.3% of the Institutional Shares outstanding,
51.7% of the Adviser Shares outstanding, and 0.8% of the Fund's total
outstanding shares.
Certain trustees and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Fund.
================================================================================
28 | USAA WORLD GROWTH FUND
================================================================================
(9) UPCOMING REGULATORY MATTERS
In October 2016, the U.S. Securities and Exchange Commission (SEC) issued Final
Rule Release No. 33-10231, INVESTMENT COMPANY REPORTING MODERNIZATION. In part,
the rules require the filing of new forms N-PORT and N-CEN, and amend Regulation
S-X to require standardized, enhanced disclosure about derivatives in investment
company financial statements, as well as other amendments.
In October 2016, the SEC issued Final Rule Release No. 33-10233, INVESTMENT
COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS. This rule requires funds to
establish a liquidity risk management program and enhances disclosures regarding
funds' liquidity.
In October 2016, the SEC issued Final Rule Release No. 33-10234, INVESTMENT
COMPANY SWING PRICING. This rule permits certain funds to use swing pricing
during periods of heavy redemptions and requires certain disclosures regarding
the use of swing pricing in forms filed with the SEC.
The Manager continues to evaluate the impact these rules and amendments will
have on the financial statements and other disclosures. The compliance date for
new forms N-PORT and N-CEN is June 1, 2018 (with filing of Form N-PORT beginning
April 30, 2019), with other staggered compliance dates extending through April
30, 2019. The Fund is expected to comply with the June 1, 2018 compliance date
for new forms N-PORT and N-CEN.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 29
================================================================================
(10) 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,
----------------------------------------------------------------------------------------------
2017 2017 2016 2015 2014 2013
----------------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 31.16 $ 27.20 $ 28.69 $ 28.00 $ 24.24 $ 18.41
----------------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .06 .19 .21 .24 .20 .19
Net realized and
unrealized gain (loss) 2.02 4.55 (.95) 1.16 4.19 5.85
----------------------------------------------------------------------------------------------
Total from investment
operations 2.08 4.74 (.74) 1.40 4.39 6.04
----------------------------------------------------------------------------------------------
Less distributions from:
Net investment income - (.21) (.19) (.28) (.19) (.20)
Realized capital gains - (.57) (.56) (.43) (.44) (.01)
----------------------------------------------------------------------------------------------
Total distributions - (.78) (.75) (.71) (.63) (.21)
----------------------------------------------------------------------------------------------
Net asset value at
end of period $ 33.24 $ 31.16 $ 27.20 $ 28.69 $ 28.00 $ 24.24
==============================================================================================
Total return (%)* 6.68 17.81 (2.49) 5.10 18.24 32.93
Net assets at end
of period (000) $1,392,244 $1,319,357 $1,157,148 $1,208,909 $1,128,586 $879,178
Ratios to average
net assets:**
Expenses (%)(a) 1.11(b) 1.13 1.17 1.17 1.19 1.25
Net investment
income (%) .36(b) .72 .81 .91 .75 .93
Portfolio turnover (%) 5 12 10 9 9 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, 2017, average net assets were
$1,350,281,000.
(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.
================================================================================
30 | USAA WORLD GROWTH FUND
================================================================================
(10) 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,
------------------------------------------------------------
2017 2017 2016***
------------------------------------------------------------
Net asset value at beginning of period $ 31.14 $27.14 $28.83
------------------------------------------------------
Income (loss) from investment operations:
Net investment income .07 .20 .24
Net realized and unrealized gain (loss) 2.01 4.55 (1.11)
------------------------------------------------------
Total from investment operations 2.08 4.75 (0.87)
------------------------------------------------------
Less distributions from:
Net investment income - (.18) (.26)
Realized capital gains - (.57) (.56)
------------------------------------------------------
Total distributions - (.75) (.82)
------------------------------------------------------
Net asset value at end of period $ 33.22 $31.14 $27.14
======================================================
Total return (%)* 6.68 17.89 (2.92)
------------------------------------------------------
Net assets at end of period (000) $27,076 $6,877 $5,228
======================================================
Ratios to average net assets:**
Expenses (%) .96(a) 1.09 1.10(a)
Expenses, excluding reimbursements (%) 1.09(a) 1.37 1.54(a)
Net investment income (%) .46(a) .78 1.11(a)
Portfolio turnover (%) 5 12 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, 2017, average net assets were
$14,126,000.
*** 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 | 31
================================================================================
(10) 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,
-----------------------------------------------------------------------------------------
2017 2017 2016 2015 2014 2013
---------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 31.07 $ 27.13 $ 28.55 $ 27.90 $ 24.17 $18.37
---------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .02 .12 .14 .19 .18 .13
Net realized and
unrealized gain (loss) 2.00 4.53 (.93) 1.13 4.16 5.82
---------------------------------------------------------------------------------------
Total from investment
operations 2.02 4.65 (.79) 1.32 4.34 5.95
---------------------------------------------------------------------------------------
Less distributions from:
Net investment income - (.14) (.07) (.24) (.17) (.14)
Realized capital gains - (.57) (.56) (.43) (.44) (.01)
---------------------------------------------------------------------------------------
Total distributions - (.71) (.63) (.67) (.61) (.15)
---------------------------------------------------------------------------------------
Redemption fees added
to benificial interests .00(b) .00(b) .00(b) .00(b) - -
---------------------------------------------------------------------------------------
Net asset value at
end of period $ 33.09 $ 31.07 $ 27.13 $ 28.55 $ 27.90 $24.17
=======================================================================================
Total return (%)* 6.50 17.50 (2.72) 4.84 18.08 32.47
Net assets at end
of period (000) $10,372 $19,722 $16,580 $26,797 $21,583 $8,490
Ratios to average
net assets:**
Expenses (%)(a) 1.40(d) 1.42 1.42 1.38(c) 1.35 1.60
Expenses, excluding
reimbursements (%)(a) 1.41(d) 1.42 1.42 1.38 1.35 1.63
Net investment income (%) .12(d) .45 .49 .72 .64 .59
Portfolio turnover (%) 5 12 10 9 9 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, 2017, average net assets were
$17,296,000.
(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%)(+)
(+) Represents less than 0.01% of average net assets.
(b) Represents less than $0.01 per share.
(c) 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.
(d) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
32 | USAA WORLD GROWTH FUND
================================================================================
EXPENSE EXAMPLE
November 30, 2017 (unaudited)
--------------------------------------------------------------------------------
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: direct costs, such
as wire fees, redemption fees, and low balance fees; and indirect costs,
including management fees, transfer agency fees, distribution and service
(12b-1) fees, and other Fund operating expenses. This example is intended to
help you understand your indirect costs, also referred to as "ongoing costs" (in
dollars), of investing in the Fund and to compare these costs with the ongoing
costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire six-month period of June 1, 2017, through
November 30, 2017.
ACTUAL EXPENSES
The line labeled "actual" under each share class in the table provides
information about actual account values and actual expenses. You may use the
information in this line, together with the amount you invested at the beginning
of the period, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number for your share
class in the "actual" line under the heading "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The line labeled "hypothetical" under each share class in the table provides
information about hypothetical account values and hypothetical expenses based on
the Fund's actual expense ratios for each class and an assumed rate of return of
5% per year before expenses, which is not the Fund's actual return. The
hypothetical account values and expenses may not be used to estimate the
================================================================================
EXPENSE EXAMPLE | 33
================================================================================
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, 2017 -
JUNE 1, 2017 NOVEMBER 30, 2017 NOVEMBER 30, 2017
-----------------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $1,066.80 $5.75
Hypothetical
(5% return before expenses) 1,000.00 1,019.50 5.62
INSTITUTIONAL SHARES
Actual 1,000.00 1,066.80 5.65
Hypothetical
(5% return before expenses) 1,000.00 1,019.60 5.52
ADVISER SHARES
Actual 1,000.00 1,065.00 7.30
Hypothetical
(5% return before expenses) 1,000.00 1,018.00 7.13
*Expenses are equal to the annualized expense ratio of 1.11% for Fund Shares,
1.09% for Institutional Shares, and 1.41% 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 6.68% for Fund Shares, 6.68% for Institutional Shares,
and 6.50% for Adviser Shares for the six-month period of June 1, 2017, through
November 30, 2017.
================================================================================
34 | USAA WORLD GROWTH FUND
================================================================================
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Jefferson C. Boyce
Dawn M. Hawley
Paul L. McNamara
Richard Y. Newton III
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
--------------------------------------------------------------------------------
ADMINISTRATOR AND USAA Asset Management Company
INVESTMENT ADVISER P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
UNDERWRITER AND USAA Investment Management Company
DISTRIBUTOR P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
--------------------------------------------------------------------------------
CUSTODIAN AND State Street Bank and Trust Company
ACCOUNTING AGENT P.O. Box 1713
Boston, Massachusetts 02105
--------------------------------------------------------------------------------
INDEPENDENT Ernst & Young LLP
REGISTERED PUBLIC 100 West Houston St., Suite 1700
ACCOUNTING FIRM San Antonio, Texas 78205
--------------------------------------------------------------------------------
MUTUAL FUND Under "My Accounts" on
SELF-SERVICE 24/7 usaa.com select your mutual fund
AT USAA.COM account and either click the link or
select 'I want to...' and select
OR CALL the desired action.
(800) 531-USAA (8722)
(210) 531-8722
--------------------------------------------------------------------------------
Copies of the Manager's proxy voting policies and procedures, approved by the
Trust's Board of Trustees for use in voting proxies on behalf of the Fund, are
available without charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722;
(ii) at USAA.COM; and (iii) in summary within the Statement of Additional
Information on the SEC's website at HTTP://WWW.SEC.GOV. Information regarding
how the Fund voted proxies relating to portfolio securities during the most
recent 12-month period ended June 30 is available without charge (i) at
USAA.COM; and (ii) on the SEC's website at HTTP://WWW.SEC.GOV.
The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. These Forms N-Q are
available at no charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722;
(ii) at USAA.COM; and (iii) on the SEC's website at HTTP://WWW.SEC.GOV. These
Forms N-Q also may be reviewed and copied at the SEC's Public Reference Room in
Washington, D.C. Information on the operation of the Public Reference Room may
be obtained by calling (800) 732-0330.
================================================================================
--------------
USAA PRSRT STD
9800 Fredericksburg Road U.S. Postage
San Antonio, TX 78288 PAID
USAA
--------------
>> SAVE PAPER AND FUND COSTS
Under MY PROFILE on USAA.COM select MANAGE PREFERENCES
Set your DOCUMENT PREFERENCES to USAA DOCUMENTS ONLINE.
[LOGO OF USAA]
USAA We know what it means to serve.(R)
=============================================================================
23412-0118 (C)2018, 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, 2017
By:* /S/ KRISTEN MILLAN
-----------------------------------------------------------
Signature and Title: Kristen Millan, Assistant Secretary
Date: January 29, 2018
------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By:* /S/ DANIEL S. MCNAMARA
-----------------------------------------------------
Signature and Title: Daniel S. McNamara, President
Date: January 29, 2018
------------------------------
By:* /S/ ROBERTO GALINDO, JR.
-----------------------------------------------------
Signature and Title: Roberto Galindo, Jr., Treasurer
Date: January 29, 2018
------------------------------
*Print the name and title of each signing officer under his or her signature.