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: JULY 31
Date of reporting period: JANUARY 31, 2018
ITEM 1. SEMIANNUAL REPORT TO STOCKHOLDERS.
USAA MUTUAL FUNDS TRUST - SEMIANNUAL REPORT FOR PERIOD ENDED JANUARY 31, 2018
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA AGGRESSIVE GROWTH FUND]
==============================================================
SEMIANNUAL REPORT
USAA AGGRESSIVE GROWTH FUND
FUND SHARES (USAUX) o INSTITUTIONAL SHARES (UIAGX)
JANUARY 31, 2018
==============================================================
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
INVESTMENT OVERVIEW 2
FINANCIAL INFORMATION
Portfolio of Investments 3
Notes to Portfolio of Investments 9
Financial Statements 10
Notes to Financial Statements 13
EXPENSE EXAMPLE 30
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE
RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY
USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN
PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS
ABOUT THE FUND.
(C)2018, USAA. All rights reserved.
================================================================================
================================================================================
FUND OBJECTIVE
THE USAA AGGRESSIVE GROWTH FUND (THE FUND) SEEKS CAPITAL APPRECIATION.
--------------------------------------------------------------------------------
TYPES OF INVESTMENTS
The Fund invests primarily in equity securities of large-capitalization
companies that are selected for their growth potential. Although the Fund
invests primarily in U.S. securities, it may invest up to 20% of its total
assets in foreign securities, including securities issued in emerging markets.
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* - 1/31/18 o
(% of Net Assets)
Apple, Inc. .............................................................. 5.6%
Microsoft Corp. .......................................................... 5.2%
Alphabet, Inc. "A" ....................................................... 4.7%
Visa, Inc. "A" ........................................................... 3.3%
Amazon.com, Inc. ......................................................... 3.2%
Mastercard, Inc. "A" ..................................................... 2.1%
UnitedHealth Group, Inc. ................................................. 1.8%
Vulcan Materials Co. ..................................................... 1.8%
Home Depot, Inc. ......................................................... 1.8%
Facebook, Inc. "A" ....................................................... 1.8%
o SECTOR ALLOCATION* - 1/31/18 o
[PIE CHART OF SECTOR ALLOCATION]
INFORMATION TECHNOLOGY 42.9%
CONSUMER DISCRETIONARY 14.9%
HEALTH CARE 13.4%
INDUSTRIALS 11.7%
FINANCIALS 5.0%
MATERIALS 3.4%
ENERGY 2.7%
CONSUMER STAPLES 2.4%
[END CHART]
*Does not include 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%.
You will find a complete list of securities that the Fund owns on pages 3-8.
================================================================================
2 | USAA AGGRESSIVE GROWTH FUND
================================================================================
PORTFOLIO OF INVESTMENTS
January 31, 2018 (unaudited)
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (96.4%)
COMMON STOCKS (96.4%)
CONSUMER DISCRETIONARY (14.9%)
------------------------------
AUTOMOBILE MANUFACTURERS (0.4%)
56,000 Ferrari N.V. $ 6,692
----------
CABLE & SATELLITE (1.1%)
418,394 Comcast Corp. "A" 17,794
----------
CASINOS & GAMING (1.2%)
101,727 Las Vegas Sands Corp. 7,886
315,000 MGM Resorts International 11,482
----------
19,368
----------
FOOTWEAR (0.9%)
199,400 NIKE, Inc. "B" 13,603
----------
HOME IMPROVEMENT RETAIL (1.8%)
141,193 Home Depot, Inc. 28,366
----------
HOTELS, RESORTS & CRUISE LINES (1.6%)
104,400 Hilton Worldwide Holdings, Inc. 8,942
260,000 Norwegian Cruise Line Holdings Ltd.* 15,792
----------
24,734
----------
INTERNET & DIRECT MARKETING RETAIL (5.9%)
34,271 Amazon.com, Inc.* 49,723
61,340 Expedia, Inc. 7,852
34,600 Netflix, Inc.* 9,352
12,752 Priceline Group, Inc.* 24,383
----------
91,310
----------
MOVIES & ENTERTAINMENT (1.6%)
225,000 Walt Disney Co. 24,451
----------
RESTAURANTS (0.4%)
111,150 Starbucks Corp. 6,314
----------
Total Consumer Discretionary 232,632
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 3
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES (2.4%)
-----------------------
FOOD RETAIL (1.7%)
892,000 Kroger Co. $ 27,081
----------
SOFT DRINKS (0.7%)
85,862 PepsiCo, Inc. 10,329
----------
Total Consumer Staples 37,410
----------
ENERGY (2.7%)
-------------
OIL & GAS DRILLING (0.5%)
700,000 Transocean Ltd.*(a) 7,553
----------
OIL & GAS EQUIPMENT & SERVICES (0.5%)
140,000 Halliburton Co. 7,518
----------
OIL & GAS EXPLORATION & PRODUCTION (1.7%)
173,000 Cimarex Energy Co. 19,411
68,000 EOG Resources, Inc. 7,820
----------
27,231
----------
Total Energy 42,302
----------
FINANCIALS (5.0%)
-----------------
CONSUMER FINANCE (0.7%)
113,607 American Express Co. 11,292
----------
DIVERSIFIED BANKS (2.4%)
583,609 Bank of America Corp. 18,676
164,262 JPMorgan Chase & Co. 19,000
----------
37,676
----------
FINANCIAL EXCHANGES & DATA (1.2%)
237,455 Intercontinental Exchange, Inc. 17,534
----------
PROPERTY & CASUALTY INSURANCE (0.7%)
300,000 XL Group Ltd. 11,052
----------
Total Financials 77,545
----------
HEALTH CARE (13.4%)
-------------------
BIOTECHNOLOGY (3.1%)
60,797 Amgen, Inc. 11,311
22,630 Biogen, Inc.* 7,871
193,931 Celgene Corp.* 19,618
112,731 Gilead Sciences, Inc. 9,447
----------
48,247
----------
HEALTH CARE EQUIPMENT (2.8%)
36,500 Becton, Dickinson & Co. 8,867
================================================================================
4 | USAA AGGRESSIVE GROWTH FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
566,200 Boston Scientific Corp.* $ 15,831
54,598 Danaher Corp. 5,530
104,886 Edwards Lifesciences Corp.* 13,277
----------
43,505
----------
LIFE SCIENCES TOOLS & SERVICES (2.0%)
39,730 ICON plc* 4,351
50,688 Illumina, Inc.* 11,792
71,050 Thermo Fisher Scientific, Inc. 15,923
----------
32,066
----------
MANAGED HEALTH CARE (3.2%)
62,809 Aetna, Inc. 11,734
38,168 Anthem, Inc. 9,460
121,000 UnitedHealth Group, Inc. 28,650
----------
49,844
----------
PHARMACEUTICALS (2.3%)
37,540 Allergan plc 6,767
162,012 Bristol-Myers Squibb Co. 10,142
71,050 Eli Lilly & Co. 5,787
167,050 Zoetis, Inc. 12,818
----------
35,514
----------
Total Health Care 209,176
----------
INDUSTRIALS (11.7%)
-------------------
AEROSPACE & DEFENSE (1.6%)
37,250 General Dynamics Corp. 8,287
22,200 Northrop Grumman Corp. 7,560
44,200 Raytheon Co. 9,235
----------
25,082
----------
AIR FREIGHT & LOGISTICS (0.4%)
26,150 FedEx Corp. 6,864
----------
AIRLINES (1.7%)
177,000 Delta Air Lines, Inc. 10,048
250,000 United Continental Holdings, Inc.* 16,955
----------
27,003
----------
CONSTRUCTION MACHINERY & HEAVY TRUCKS (1.6%)
87,792 Caterpillar, Inc. 14,291
52,750 Cummins, Inc. 9,917
----------
24,208
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 5
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
ELECTRICAL COMPONENTS & EQUIPMENT (1.4%)
120,872 Emerson Electric Co. $ 8,731
64,632 Rockwell Automation, Inc. 12,751
----------
21,482
----------
INDUSTRIAL CONGLOMERATES (1.3%)
125,686 Honeywell International, Inc. 20,068
----------
INDUSTRIAL MACHINERY (2.0%)
88,928 Dover Corp. 9,445
161,818 Fortive Corp. 12,302
46,723 Parker-Hannifin Corp. 9,411
----------
31,158
----------
RAILROADS (1.2%)
324,000 CSX Corp. 18,394
----------
RESEARCH & CONSULTING SERVICES (0.5%)
178,177 IHS Markit Ltd.* 8,504
----------
Total Industrials 182,763
----------
INFORMATION TECHNOLOGY (42.9%)
------------------------------
APPLICATION SOFTWARE (4.2%)
45,000 Adobe Systems, Inc.* 8,989
82,716 Intuit, Inc. 13,888
222,900 salesforce.com, Inc.* 25,391
184,700 Splunk, Inc.* 17,061
----------
65,329
----------
DATA PROCESSING & OUTSOURCED SERVICES (8.4%)
83,707 Fiserv, Inc.* 11,789
194,402 Mastercard, Inc. "A" 32,854
300,293 PayPal Holdings, Inc.* 25,621
415,047 Visa, Inc. "A"(a) 51,561
108,013 Worldpay, Inc. "A"* 8,675
----------
130,500
----------
HOME ENTERTAINMENT SOFTWARE (1.0%)
120,409 Electronic Arts, Inc.* 15,287
----------
INTERNET SOFTWARE & SERVICES (9.2%)
126,220 Alibaba Group Holding Ltd. ADR* 25,785
61,800 Alphabet, Inc. "A"* 73,061
24,185 CoStar Group, Inc.* 8,371
230,094 eBay, Inc.* 9,337
146,400 Facebook, Inc. "A"* 27,361
----------
143,915
----------
================================================================================
6 | USAA AGGRESSIVE GROWTH FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT (1.2%)
175,000 Applied Materials, Inc. $ 9,385
45,000 ASML Holdings N.V. 9,133
----------
18,518
----------
SEMICONDUCTORS (3.7%)
83,010 Analog Devices, Inc. 7,627
41,200 Broadcom Ltd. 10,219
131,400 Maxim Integrated Products, Inc. 8,015
39,800 NVIDIA Corp. 9,783
128,621 Texas Instruments, Inc. 14,106
110,000 Xilinx, Inc. 8,032
----------
57,782
----------
SYSTEMS SOFTWARE (8.1%)
72,245 Check Point Software Technologies Ltd.* 7,471
849,456 Microsoft Corp. 80,707
512,082 Oracle Corp. 26,418
77,700 ServiceNow, Inc.* 11,567
----------
126,163
----------
TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (7.1%)
521,830 Apple, Inc. 87,370
1,006,250 HP, Inc. 23,466
----------
110,836
----------
Total Information Technology 668,330
----------
MATERIALS (3.4%)
----------------
CONSTRUCTION MATERIALS (1.8%)
210,000 Vulcan Materials Co. 28,434
----------
DIVERSIFIED METALS & MINING (0.8%)
212,577 Rio Tinto plc ADR 11,928
----------
SPECIALTY CHEMICALS (0.6%)
24,310 Sherwin-Williams Co. 10,140
----------
STEEL (0.2%)
46,901 Nucor Corp. 3,140
----------
Total Materials 53,642
----------
Total Common Stocks (cost: $902,471) 1,503,809
----------
Total Equity Securities (cost: $902,471) 1,503,809
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 7
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS (4.0%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (4.0%)
62,627,003 State Street Institutional Treasury Money Market Fund
Premier Class, 1.23%(b) (cost: $62,627) $ 62,627
----------
SHORT-TERM INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED (0.3%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (0.3%)
166,800 Goldman Sachs Financial Square Government Fund
Institutional Class, 1.21%(b) 167
4,566,925 Invesco Government & Agency Portfolio Institutional Class, 1.24%(b) 4,567
----------
Total Short-Term Investments Purchased with Cash Collateral from Securities
Loaned (cost: $4,734) 4,734
----------
TOTAL INVESTMENTS (COST: $969,832) $1,571,170
==========
------------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
------------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------------------------------------------------------------------------------------------------------------------
Equity Securities:
Common Stocks $1,503,809 $- $- $1,503,809
Money Market Instruments:
Government & U.S. Treasury
Money Market Funds 62,627 - - 62,627
Short-Term Investments Purchased with
Cash Collateral from Securities Loaned:
Government & U.S. Treasury
Money Market Funds 4,734 - - 4,734
------------------------------------------------------------------------------------------------------------------
Total $1,571,170 $- $- $1,571,170
------------------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
For the period of August 1, 2017, through January 31, 2018, 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.
================================================================================
8 | USAA AGGRESSIVE GROWTH FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
January 31, 2018 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
Market values of securities are determined by procedures and practices
discussed in Note 1A to the financial statements.
The Portfolio of Investments category percentages shown represent the
percentages of the investments to net assets, and, in total, may not equal
100%. A category percentage of 0.0% represents less than 0.1% of net
assets. Investments in foreign securities were 4.6% of net assets at
January 31, 2018.
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) The security, or a portion thereof, was out on loan as of January 31,
2018.
(b) Rate represents the money market fund annualized seven-day yield at
January 31, 2018.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 9
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
January 31, 2018 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (including
securities on loan of $55,409) (cost of $969,832) $1,571,170
Receivables:
Capital shares sold 833
Dividends and interest 461
USAA Asset Management Company (Note 7D) 1
Other 9
----------
Total assets 1,572,474
----------
LIABILITIES
Payables:
Upon return of securities loaned 4,734
Securities purchased 6,788
Capital shares redeemed 939
Accrued management fees 579
Accrued transfer agent's fees 33
Other accrued expenses and payables 165
----------
Total liabilities 13,238
----------
Net assets applicable to capital shares outstanding $1,559,236
==========
NET ASSETS CONSIST OF:
Paid-in capital $ 907,772
Overdistribution of net investment income (4,066)
Accumulated net realized gain on investments 54,192
Net unrealized appreciation of investments 601,338
----------
Net assets applicable to capital shares outstanding $1,559,236
==========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $1,555,141/32,992 capital shares
outstanding, no par value) $ 47.14
==========
Institutional Shares (net assets of $4,095/86 capital shares
outstanding, no par value) $ 47.74
==========
See accompanying notes to financial statements.
================================================================================
10 | USAA AGGRESSIVE GROWTH FUND
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended January 31, 2018 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends $ 7,473
Interest 198
Securities lending (net) 26
--------
Total income 7,697
--------
EXPENSES
Management fees 3,225
Administration and servicing fees:
Fund Shares 1,063
Institutional Shares 3
Transfer agent's fees:
Fund Shares 892
Institutional Shares 3
Custody and accounting fees:
Fund Shares 78
Postage:
Fund Shares 43
Shareholder reporting fees:
Fund Shares 25
Trustees' fees 17
Registration fees:
Fund Shares 15
Institutional Shares 9
Professional fees 76
Other 16
--------
Total expenses 5,465
Expenses paid indirectly:
Fund Shares (4)
Expenses reimbursed:
Institutional Shares (5)
--------
Net expenses 5,456
--------
NET INVESTMENT INCOME 2,241
--------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
AND FOREIGN CURRENCY
Net realized gain on:
Investments 83,064
Foreign currency transactions 2
Change in net unrealized appreciation/(depreciation) 143,016
--------
Net realized and unrealized gain 226,082
--------
Increase in net assets resulting from operations $228,323
========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 11
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended January 31, 2018 (unaudited), and year ended
July 31, 2017
--------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
1/31/2018 7/31/2017
-------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 2,241 $ 7,334
Net realized gain on investments 83,064 116,452
Net realized gain on foreign currency transactions 2 1
Change in net unrealized appreciation/
(depreciation) of investments 143,016 88,479
------------------------------
Increase in net assets resulting from operations 228,323 212,266
------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares (6,298) (10,460)
Institutional Shares (9) (1,182)
------------------------------
Total distributions of net investment income (6,307) (11,642)
------------------------------
Net realized gains:
Fund Shares (115,619) (70,679)
Institutional Shares (640) (7,273)
------------------------------
Total distributions of net realized gains (116,259) (77,952)
------------------------------
Distributions to shareholders (122,566) (89,594)
------------------------------
NET INCREASE (DECREASE) IN NET ASSETS FROM
CAPITAL SHARE TRANSACTIONS (NOTE 6)
Fund Shares 109,254 7,094
Institutional Shares (1,747) (128,279)
------------------------------
Total net increase (decrease) in net assets from
capital share transactions 107,507 (121,185)
------------------------------
Net increase in net assets 213,264 1,487
NET ASSETS
Beginning of period 1,345,972 1,344,485
------------------------------
End of period $1,559,236 $1,345,972
==============================
Overdistribution of net investment income:
End of period $ (4,066) $ -
==============================
See accompanying notes to financial statements.
================================================================================
12 | USAA AGGRESSIVE GROWTH FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
January 31, 2018 (unaudited)
--------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company Act
of 1940, as amended (the 1940 Act), is an open-end management investment
company organized as a Delaware statutory trust consisting of 51 separate funds.
The USAA Aggressive 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 two classes of shares: Aggressive Growth Fund Shares (Fund
Shares) and Aggressive Growth Fund Institutional Shares (Institutional Shares).
Each class of shares has equal rights to assets and earnings, except that each
class bears certain class-related expenses specific to the particular class.
These expenses include administration and servicing fees, transfer agent fees,
postage, shareholder reporting fees, and certain registration and custodian
fees. Expenses not attributable to a specific class, income, and realized gains
or losses on investments are allocated to each class of shares based on each
class' relative net assets. Each class has exclusive voting rights on matters
related solely to that class and separate voting rights on matters that relate
to all classes. The Institutional Shares are available for investment through a
USAA discretionary managed account program, and certain advisory programs
sponsored by financial intermediaries, such as brokerage firms, investment
advisors, financial planners, third-party administrators, and insurance
companies. Institutional Shares also are available to institutional investors,
which include retirement plans, endowments, foundations, and bank trusts, as
well as other persons or legal entities that the Fund may approve from time to
time, or for purchase by a USAA fund participating in a fund-of-funds investment
strategy (USAA fund-of-funds).
================================================================================
NOTES TO FINANCIAL STATEMENTS | 13
================================================================================
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
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
================================================================================
14 | USAA AGGRESSIVE GROWTH FUND
================================================================================
equity securities listed on a domestic exchange generally are
categorized in Level 1 of the fair value hierarchy. Certain preferred
and equity securities traded in inactive markets generally are
categorized in Level 2 of the fair value hierarchy.
2. Equity securities trading in various foreign markets may take place on
days when the NYSE is closed. Further, when the NYSE is open, the
foreign markets may be closed. Therefore, the calculation of the
Fund's net asset value (NAV) may not take place at the same time the
prices of certain foreign securities held by the Fund are determined.
In many cases, events affecting the values of foreign securities that
occur between the time of their last quoted sale or official closing
price and the close of normal trading on the NYSE on a day the Fund's
NAV is calculated will not need to be reflected in the value of the
Fund's foreign securities. However, the Manager will monitor for
events that would materially affect the value of the Fund's foreign
securities and the Committee will consider such available information
that it deems relevant and will determine a fair value for the
affected foreign securities in accordance with valuation procedures.
In addition, information from an external vendor or other sources may
be used to adjust the foreign market closing prices of foreign equity
securities to reflect what the Committee believes to be the fair value
of the securities as of the close of the NYSE. Fair valuation of
affected foreign equity securities may occur frequently based on an
assessment that events which occur on a fairly regular basis (such as
U.S. market movements) are significant. Such securities are
categorized in Level 2 of the fair value hierarchy.
3. Investments in open-end investment companies, commingled, or other
funds, other than ETFs, are valued at their NAV at the end of each
business day and are categorized in Level 1 of the fair value
hierarchy.
4. Short-term debt securities with original or remaining maturities of
60 days or less may be valued at amortized cost, provided that
amortized cost represents the fair value of such securities.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 15
================================================================================
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
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.
================================================================================
16 | USAA AGGRESSIVE GROWTH FUND
================================================================================
Level 3 - inputs to the valuation methodology are unobservable and
significant to the fair value measurement, including the Manager's own
assumptions in determining the fair value.
The inputs or methodologies used for valuing securities are not necessarily
an indication of the risks associated with investing in those securities.
C. FEDERAL TAXES - The Fund's policy is to comply with the requirements of the
Internal Revenue Code of 1986, as amended, applicable to regulated
investment companies and to distribute substantially all of its taxable
income and net capital gains, if any, to its shareholders. Therefore, no
federal income tax provision is required.
For the six-month period ended January 31, 2018, the Fund did not incur any
income tax, interest, or penalties, and has recorded no liability for net
unrecognized tax benefits relating to uncertain income tax positions. On
an ongoing basis, the Manager will monitor the Fund's tax basis to
determine if adjustments to this conclusion are necessary. The statute of
limitations on the Fund's tax return filings generally remain open for the
three preceding fiscal reporting year ends and remain subject to
examination by the Internal Revenue Service and state taxing authorities.
D. 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 17
================================================================================
securities are amortized on a straight-line basis over the life of the
respective securities.
F. FOREIGN CURRENCY TRANSLATIONS - The Fund's assets may be invested in the
securities of foreign issuers and may be traded in foreign currency. Since
the Fund's accounting records are maintained in U.S. dollars, foreign
currency amounts are translated into U.S. dollars on the following bases:
1. Purchases and sales of securities, income, and expenses at the exchange
rate obtained from an independent pricing service on the respective
dates of such transactions.
2. Market value of securities, other assets, and liabilities at the exchange
rate obtained from an independent pricing service on a daily basis.
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss
from investments.
Separately, net realized foreign currency gains/losses may arise from sales
of foreign currency, currency gains/losses realized between the trade and
settlement dates on security transactions, and from the difference between
amounts of dividends, interest, and foreign withholding taxes recorded on
the Fund's books and the U.S. dollar equivalent of the amounts received. At
the end of the Fund's fiscal year, net realized foreign currency
gains/losses are reclassified from accumulated net realized gains/losses to
accumulated undistributed net investment income on the Statement of Assets
and Liabilities, as such amounts are treated as ordinary income/loss for
federal income tax purposes. Net unrealized 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
================================================================================
18 | USAA AGGRESSIVE GROWTH FUND
================================================================================
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
January 31, 2018, brokerage commission recapture credits reduced the
expenses of the Fund Shares and Institutional Shares by $4,000 and less
than $500, respectively. Additionally, 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 19
================================================================================
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 January 31, 2018, the Fund paid CAPCO facility
fees of $5,000, which represents 2.0% 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 January 31, 2018.
(3) DISTRIBUTIONS
The tax basis of distributions and accumulated undistributed net investment
income will be determined as of the Fund's tax year-end of July 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 taxes.
At July 31, 2017, the Fund had no capital loss carryforwards, for federal income
tax purposes.
As of January 31, 2018, the cost of securities, including short-term securities,
for federal income tax purposes, was approximately the same as the cost reported
in the financial statements.
Gross unrealized appreciation and depreciation of investments as of January 31,
2018, were $604,890,000 and $3,552,000, respectively, resulting in net
unrealized appreciation of $601,338,000.
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities, excluding
short-term securities, for the six-month period ended January 31, 2018, were
$317,958,000 and $367,546,000, respectively.
================================================================================
20 | USAA AGGRESSIVE GROWTH FUND
================================================================================
(5) SECURITIES LENDING
The Fund, through a 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 January 31, 2018, 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
----------------------------------------------------------------------------------
$55,409,000 $51,786,000 $4,734,000
(6) CAPITAL SHARE TRANSACTIONS
At January 31, 2018, there were an unlimited number of shares of capital stock
at no par value authorized for the Fund.
Capital share transactions for the Institutional Shares resulted from purchases
and sales by the affiliated USAA fund-of-funds as well as other
================================================================================
NOTES TO FINANCIAL STATEMENTS | 21
================================================================================
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
JANUARY 31, 2018 JULY 31, 2017
----------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------
FUND SHARES:
Shares sold 1,653 $ 75,363 2,293 $ 92,063
Shares issued from
reinvested dividends 2,757 120,367 2,145 80,147
Shares redeemed (1,909) (86,476) (4,135) (165,116)
-----------------------------------------------------
Net increase from capital
share transactions 2,501 $109,254 303 $ 7,094
=====================================================
INSTITUTIONAL SHARES:
Shares sold 246 $ 11,320 321 $ 12,903
Shares issued from
reinvested dividends 15 649 224 8,455
Shares redeemed (301) (13,716) (3,795) (149,637)
-----------------------------------------------------
Net decrease from
capital share transactions (40) $ (1,747) (3,250) $(128,279)
=====================================================
(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 the day-to-day investment of all or a portion
of the Fund's assets. For the year ended July 31, 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, which is accrued daily and
paid monthly, is computed as a percentage of the Fund's average net assets
at annualized rates of 0.50% of the first $750 million of average net
assets, 0.40% of that portion of average net assets over $750 million but
not over $1.5 billion, and 0.33% of that portion of
================================================================================
22 | USAA AGGRESSIVE GROWTH FUND
================================================================================
average net assets over $1.5 billion. For the six-month period ended
January 31, 2018, the Fund's effective annualized base fee was 0.45% of the
Fund's average net assets for the same period.
The performance adjustment is calculated separately for each share class on
a monthly basis by comparing each class' performance over the performance
period to that of the Lipper Large-Cap Growth Funds Index. The Lipper
Large-Cap Growth Funds Index tracks the total return performance of funds
within the Lipper Large-Cap Growth 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). 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 Large-Cap Growth Funds Index over that period, even
if the class had overall negative returns during the performance period.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 23
================================================================================
For the six-month period ended January 31, 2018, the Fund incurred total
management fees, paid or payable to the Manager, of $3,225,000. For the
six-month period ended January 31, 2018, the Fund Shares and Institutional
Shares did not incur any performance adjustment.
B. SUBADVISORY ARRANGEMENT(S) - The Manager entered into Investment
Subadvisory Agreements with Wellington Management Company LLP (Wellington
Management) and Winslow Capital Management, LLC (Winslow Capital), under
which Wellington Management and Winslow Capital each direct the investment
and reinvestment of a portion of the Fund's assets (as allocated from time
to time by the Manager). Effective August 31, 2017, Wellington Management
and Winslow Capital are no longer subadvisor for the Fund.
The Manager (not the Fund) paid Wellington Management a subadvisory fee in
the annual amount of 0.325% on the first $300 million, 0.30% on the next
$700 million, and 0.28% on assets over $1 billion of the portion of the
Fund's average net assets that Wellington Management managed. For the
period ended August 31, 2017, the Manager incurred subadvisory fees with
respect to the Fund, paid or payable to Wellington Management, of $191,000.
The Manager (not the Fund) paid Winslow Capital a subadvisory fee in the
annual amount of 0.40% on the first $100 million, 0.35% on the next $250
million, 0.30% on the next $250 million, and 0.25% on the next $400 million
of the portion of the Fund's average net assets that Winslow Capital
manages. For the period ended August 31, 2017, the Manager incurred
subadvisory fees with respect to the Fund, paid or payable to Winslow
Capital, of $175,000.
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% and 0.10% of average net assets of the Fund Shares and
Institutional Shares, respectively. For the six-month period ended January
31, 2018, the Fund Shares and Institutional Shares incurred administration
and servicing fees, paid or payable to the Manager, of $1,063,000 and
$3,000, respectively.
================================================================================
24 | USAA AGGRESSIVE GROWTH FUND
================================================================================
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 January 31, 2018, the 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. EXPENSE LIMITATION - Effective December 1, 2017, the Manager agreed, through
November 30, 2018, to limit the total annual operating expenses of the
Institutional Shares to 0.70% of its average net assets, excluding
extraordinary expenses, and before reductions of any expenses paid
indirectly, and to reimburse the Institutional Shares for all expenses in
excess of that amount. This expense limitation arrangement may not be
changed or terminated through November 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 January 31, 2018, the
Institutional Shares incurred reimbursable expenses of $5,000, of which
$1,000 was receivable from the Manager.
E. TRANSFER AGENT'S FEES - USAA Transfer Agency Company, d/b/a USAA
Shareholder Account Services (SAS), an affiliate of the Manager, provides
transfer agent services to the Fund Shares 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 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 January 31,
2018, the Fund Shares and Institutional Shares incurred transfer agent's
fees, paid or payable to SAS, of $892,000 and $3,000, respectively.
F. 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 25
================================================================================
(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 January 31, 2018, 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 0.1
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.
(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 December 2017, the
SEC issued Temporary Final Rule Release No. 33-10442, INVESTMENT COMPANY
REPORTING MODERNIZATION (Temporary Rule), which extends to April 2019 the
compliance date on which funds in larger fund groups, such as the Fund, are
required to begin filing form N-PORT. In the interim, in lieu of filing form
N-PORT, the Temporary Rule requires that funds in larger fund groups maintain in
their records the information that is required to be included in form N-PORT.
The Temporary Rule does not affect the filing date or requirements of
form N-CEN.
In October 2016, the SEC issued Final Rule Release No. 33-10233, INVESTMENT
COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS (Liquidity Rule). The Liquidity Rule
requires funds to establish a liquidity risk management program and enhances
disclosures regarding funds' liquidity.
================================================================================
26 | USAA AGGRESSIVE GROWTH FUND
================================================================================
In February 2018, the SEC issued Interim Final Rule Release No. IC-33010,
INVESTMENT COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS; COMMISSION GUIDANCE FOR
IN-KIND ETFs, which extends, among others, the compliance dates for certain
disclosure requirements under the Liquidity Rule. The compliance date for the
liquidity disclosure required in form N-PORT has been extended to June 1, 2019
for larger entities such as the Fund. The compliance date for the liquidity
disclosure required in form N-CEN for large entities such as the Fund remains
December 1, 2018. The Fund is expected to comply with these compliance dates for
forms N-PORT and N-CEN. The Manager continues to evaluate the impact these rules
and amendments will have on the financial statements and other disclosures.
(10) NEW ACCOUNTING PRONOUNCEMENTS
In March 2017, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Update (ASU) 2017-08, Premium Amortization of Purchased Callable Debt
Securities. The amendments in the ASU shorten the premium amortization period on
a purchased callable debt security from the security's contractual life to the
earliest call date. It is anticipated that this change will enhance disclosures
by reducing losses recognized when a security is called on an earlier date. This
ASU is effective for fiscal years beginning after December 15, 2018. The Manager
continues to evaluate the impact this ASU will have on the financial statement
disclosures.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 27
================================================================================
(11) FINANCIAL HIGHLIGHTS - FUND SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JANUARY 31, YEAR ENDED JULY 31,
---------------------------------------------------------------------------------------
2018 2017 2016 2015 2014 2013
---------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 43.96 $ 40.02 $ 42.55 $ 40.90 $ 38.44 $ 35.09
---------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .07 .36 .33 .79 .79 .13
Net realized and
unrealized gain (loss) 7.13 6.30 (.20) 5.75 5.47 6.73
---------------------------------------------------------------------------------------
Total from investment
operations 7.20 6.66 .13 6.54 6.26 6.86
---------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.19) (.33) (.33) (.79) (.89) (.08)
Realized capital gains (3.83) (2.39) (2.33) (4.10) (2.91) (3.43)
---------------------------------------------------------------------------------------
Total distributions (4.02) (2.72) (2.66) (4.89) (3.80) (3.51)
---------------------------------------------------------------------------------------
Net asset value at
end of period $ 47.14 $ 43.96 $ 40.02 $ 42.55 $ 40.90 $ 38.44
=======================================================================================
Total return (%)* 17.15 17.92 .36 16.96 16.82 21.34
Net assets at end of
period (000) $1,555,141 $1,340,385 $1,208,124 $1,247,753 $1,093,796 $1,009,963
Ratios to average
net assets:**
Expenses (%)(a) .77(b) .81 .85 .88 .93 1.08
Net investment
income (%) .31(b) .57 .30 .30 .17 .40
Portfolio turnover (%) 23 51 70 55 68 67
* 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 January 31, 2018, average net assets
were $1,407,535,000.
(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%)(+) (.00%)(+) (.00%)(+) (.01%)
(+) Represents less than 0.01% of average net assets.
(b) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
28 | USAA AGGRESSIVE GROWTH FUND
================================================================================
(11) FINANCIAL HIGHLIGHTS (CONTINUED) - INSTITUTIONAL SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JANUARY 31, YEAR ENDED JULY 31,
-------------------------------------------------------------------------------------
2018 2017 2016 2015 2014 2013
-------------------------------------------------------------------------------------
Net asset value at
beginning of period $44.36 $40.39 $ 42.92 $ 41.22 $ 38.67 $ 35.26
-----------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .07(a) .21(a) .44 .21(a) 1.10 .30
Net realized and
unrealized gain (loss) 7.19(a) 6.52(a) (.24) 6.47(a) 5.29 6.73
-----------------------------------------------------------------------------------
Total from investment
operations 7.26(a) 6.73(a) .20 6.68(a) 6.39 7.03
-----------------------------------------------------------------------------------
Less distributions from:
Net investment income (.05) (.37) (.40) (.88) (.93) (.19)
Realized capital gains (3.83) (2.39) (2.33) (4.10) (2.91) (3.43)
-----------------------------------------------------------------------------------
Total distributions (3.88) (2.76) (2.73) (4.98) (3.84) (3.62)
-----------------------------------------------------------------------------------
Net asset value at
end of period $47.74 $44.36 $ 40.39 $ 42.92 $ 41.22 $ 38.67
===================================================================================
Total return (%)* 17.10 17.94 .51 17.21 17.09 21.79
Net assets at end
of period (000) $4,095 $5,587 $136,361 $163,115 $119,051 $165,058
Ratios to average
net assets:**
Expenses (%)(b) .82(c),(d) .73 .70 .68 .68 .71
Expenses, excluding
reimbursements (%)(b) .96(c) .73 .70 .68 .68 .71
Net investment income (%) .32(c) .54 .45 .50 .43 .78
Portfolio turnover (%) 23 51 70 55 68 67
* 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 January 31, 2018, average net assets were
$6,219,000.
(a) Calculated using average shares. For the six-month period ended
January 31, 2018, average shares were 134,000.
(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) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(d) Effective December, 1, 2017, the Manager has voluntarily agreed to limit the
annual expenses of the Institutional Shares to 0.70% of the Institutional
Shares' average net assets.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 29
================================================================================
EXPENSE EXAMPLE
January 31, 2018 (unaudited)
--------------------------------------------------------------------------------
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: direct costs, such
as wire fees, redemption fees, and low balance fees; and indirect costs,
including management fees, transfer agency fees, and other Fund operating
expenses. This example is intended to help you understand your indirect costs,
also referred to as "ongoing costs" (in dollars), of investing in the Fund and
to compare these costs with the ongoing costs of investing in other mutual
funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire six-month period of August 1, 2017, through
January 31, 2018.
ACTUAL EXPENSES
The line labeled "actual" under each share class in the table provides
information about actual account values and actual expenses. You may use the
information in this line, together with the amount you invested at the beginning
of the period, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number for your share
class in the "actual" line under the heading "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The line labeled "hypothetical" under each share class in the table provides
information about hypothetical account values and hypothetical expenses based on
the Fund's actual expense ratios for each class and an assumed rate of return of
5% per year before expenses, which is not the
================================================================================
30 | USAA AGGRESSIVE GROWTH FUND
================================================================================
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.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE AUGUST 1, 2017 -
AUGUST 1, 2017 JANUARY 31, 2018 JANUARY 31, 2018
----------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $1,171.50 $4.21
Hypothetical
(5% return before expenses) 1,000.00 1,021.32 3.92
INSTITUTIONAL SHARES
Actual 1,000.00 1,171.00** 4.49**
Hypothetical
(5% return before expenses) 1,000.00 1,021.07** 4.18**
*Expenses are equal to the annualized expense ratio of 0.77% for Fund Shares
and 0.82% for Institutional Shares, which are net of any reimbursements and
expenses paid indirectly, multiplied by the average account value over the
period, multiplied by 184 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 17.15% for Fund Shares and 17.10% for Institutional Shares for the six-month
period of August 1, 2017, through January 31, 2018.
**The Fund's annualized expense ratio of 0.82% for the Institutional Shares
above reflects a change effective December 1, 2017, to implement the Manager's
expense limitation of 0.70% of the Institutional Shares' average annual net
assets. Had the expense limitation of 0.70%, which is net
================================================================================
EXPENSE EXAMPLE | 31
================================================================================
of expenses paid indirectly, been in effect for the entire six-month period of
August 1, 2017, through January 30, 2018, the values in the table above would
be as shown below.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE AUGUST 1, 2017 -
AUGUST 1, 2017 JANUARY 31, 2018 JANUARY 31, 2018
----------------------------------------------------------------
INSTITUTIONAL SHARES
Actual $1,000.00 $1,172.20 $3.83
Hypothetical
(5% return before expenses) 1,000.00 1,021.68 3.57
================================================================================
32 | USAA AGGRESSIVE 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)
=============================================================================
23418-0318 (C)2018, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA CAPITAL GROWTH FUND]
==============================================================
SEMIANNUAL REPORT
USAA CAPITAL GROWTH FUND
FUND SHARES (USCGX) o INSTITUTIONAL SHARES (UICGX)
JANUARY 31, 2018
==============================================================
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
INVESTMENT OVERVIEW 2
FINANCIAL INFORMATION
Portfolio of Investments 4
Notes to Portfolio of Investments 13
Financial Statements 14
Notes to Financial Statements 17
EXPENSE EXAMPLE 34
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 CAPITAL GROWTH FUND (THE FUND) SEEKS CAPITAL APPRECIATION.
--------------------------------------------------------------------------------
TYPES OF INVESTMENTS
The Fund invests primarily in U.S. and foreign equity securities that are
believed to be the most attractive in the global marketplace. The Fund may
invest up to 100% of its assets in foreign securities.
IRA DISTRIBUTION WITHHOLDING DISCLOSURE
We generally must withhold federal income tax at a rate of 10% of the taxable
portion of your distribution and, if you live in a state that requires state
income tax withholding, at your state's tax rate. However, you may elect not to
have withholding apply or to have income tax withheld at a higher rate. Any
withholding election that you make will apply to any subsequent distribution
unless and until you change or revoke the election. If you wish to make a
withholding election or change or revoke a prior withholding election, call
(800) 531-USAA (8722) or (210) 531-8722.
If you do not have a withholding election in place by the date of a
distribution, federal income tax will be withheld from the taxable portion of
your distribution at a rate of 10%. If you must pay estimated taxes, you may be
subject to estimated tax penalties if your estimated tax payments are not
sufficient and sufficient tax is not withheld from your distribution.
For more specific information, please consult your tax adviser.
================================================================================
FUND OBJECTIVE | 1
================================================================================
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
o TOP 10 HOLDINGS* - 1/31/18 o
(% of Net Assets)
Apple, Inc. .............................................................. 2.9%
Northrop Grumman Corp. ................................................... 1.4%
Boeing Co. ............................................................... 1.3%
Lowe's Cos., Inc. ........................................................ 1.3%
Home Depot, Inc. ......................................................... 1.2%
UnitedHealth Group, Inc. ................................................. 1.1%
Citizens Financial Group, Inc. ........................................... 1.1%
Citigroup, Inc. .......................................................... 1.1%
Wal-Mart Stores, Inc. .................................................... 1.1%
Bank of America Corp. .................................................... 1.0%
o SECTOR ALLOCATION* - 1/31/18 o
[PIE CHART OF SECTOR ALLOCATION]
FINANCIALS 21.0%
INFORMATION TECHNOLOGY 17.6%
CONSUMER DISCRETIONARY 12.7%
HEALTH CARE 11.4%
INDUSTRIALS 11.0%
CONSUMER STAPLES 8.0%
ENERGY 6.0%
MATERIALS 5.9%
TELECOMMUNICATION SERVICES 2.6%
UTILITIES 2.6%
REAL ESTATE 0.7%
[END CHART]
*Does not include 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%.
You will find a complete list of securities that the Fund owns on pages 4-12.
================================================================================
2 | USAA CAPITAL GROWTH FUND
================================================================================
o COUNTRY ALLOCATION* - 1/31/18 o
[PIE CHART OF COUNTRY ALLOCATION]
UNITED STATES 56.2%
UNITED KINGDOM 8.5%
JAPAN 7.2%
FRANCE 3.8%
CANADA 3.1%
OTHER** 20.7%
[END CHART]
* Does not include money market instruments or short-term investments purchased
with cash collateral from securities loaned.
** 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
January 31, 2018 (unaudited)
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (99.5%)
COMMON STOCKS (98.9%)
CONSUMER DISCRETIONARY (12.7%)
------------------------------
APPAREL RETAIL (0.5%)
62,076 Ross Stores, Inc. $ 5,114
--------
APPAREL, ACCESSORIES & LUXURY GOODS (0.8%)
144,300 Burberry Group plc 3,235
40,000 Ralph Lauren Corp. 4,573
--------
7,808
--------
AUTO PARTS & EQUIPMENT (1.6%)
33,683 Lear Corp. 6,506
72,700 Magna International, Inc. 4,153
172,000 NGK Spark Plug Co. Ltd. 4,523
--------
15,182
--------
AUTOMOBILE MANUFACTURERS (2.4%)
1,525,000 Geely Automobile Holdings Ltd. 4,883
2,140,000 Guangzhou Automobile Group Co. Ltd. "H" 4,848
114,000 Honda Motor Co. Ltd. 3,995
146,600 Mazda Motor Corp. 2,054
130,000 Suzuki Motor Corp. 7,416
--------
23,196
--------
BROADCASTING (0.5%)
90,400 CBS Corp. "B" 5,208
--------
CABLE & SATELLITE (0.4%)
88,575 Comcast Corp. "A" 3,767
--------
DEPARTMENT STORES (0.5%)
1,150,196 Marks & Spencer Group plc 4,921
--------
GENERAL MERCHANDISE STORES (1.2%)
49,000 Canadian Tire Corp. Ltd. "A" 6,837
63,000 Target Corp.(a) 4,739
--------
11,576
--------
================================================================================
4 | USAA CAPITAL GROWTH FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
HOME IMPROVEMENT RETAIL (2.5%)
57,900 Home Depot, Inc. $ 11,632
116,900 Lowe's Cos., Inc. 12,243
--------
23,875
--------
HOMEBUILDING (1.2%)
110,200 Bellway plc 5,196
171,000 Persimmon plc 6,075
--------
11,271
--------
HOUSEHOLD APPLIANCES (0.6%)
162,185 Electrolux AB "B" 5,726
--------
TIRES & RUBBER (0.5%)
251,200 Sumitomo Rubber Industries Ltd. 4,871
--------
Total Consumer Discretionary 122,515
--------
CONSUMER STAPLES (8.0%)
-----------------------
DISTILLERS & VINTNERS (0.6%)
170,000 Diageo plc 6,113
--------
DRUG RETAIL (1.3%)
99,725 CVS Health Corp. 7,847
67,829 Walgreens Boots Alliance, Inc. 5,105
--------
12,952
--------
FOOD DISTRIBUTORS (0.5%)
1,363,703 Booker Group plc 4,388
--------
FOOD RETAIL (0.5%)
114,800 Seven & i Holdings Co. Ltd. 4,717
--------
HOUSEHOLD PRODUCTS (1.2%)
33,000 Clorox Co. 4,676
86,000 Procter & Gamble Co. 7,425
--------
12,101
--------
HYPERMARKETS & SUPER CENTERS (1.1%)
95,400 Wal-Mart Stores, Inc. 10,170
--------
PACKAGED FOODS & MEATS (0.8%)
104,642 Tyson Foods, Inc. "A"(a) 7,964
--------
SOFT DRINKS (0.7%)
58,100 PepsiCo, Inc. 6,989
--------
TOBACCO (1.3%)
59,131 Altria Group, Inc. 4,159
197,301 Imperial Brands plc 8,120
--------
12,279
--------
Total Consumer Staples 77,673
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 5
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
ENERGY (5.4%)
-------------
INTEGRATED OIL & GAS (2.5%)
5,108,000 China Petroleum and Chemical Corp. "H" $ 4,414
305,917 Eni S.p.A. 5,502
36,956 Exxon Mobil Corp. 3,226
246,680 Repsol S.A. 4,642
105,466 TOTAL S.A. 6,106
--------
23,890
--------
OIL & GAS EQUIPMENT & SERVICES (1.1%)
260,781 SBM Offshore N.V. 4,867
343,000 Subsea 7 S.A. 5,339
--------
10,206
--------
OIL & GAS EXPLORATION & PRODUCTION (0.6%)
191,500 Murphy Oil Corp.(a) 6,147
--------
OIL & GAS REFINING & MARKETING (1.2%)
55,063 GS Holdings Corp. 3,579
122,248 Neste Oyj 8,451
--------
12,030
--------
Total Energy 52,273
--------
FINANCIALS (21.0%)
------------------
CONSUMER FINANCE (0.6%)
53,601 Capital One Financial Corp. 5,572
--------
DIVERSIFIED BANKS (8.7%)
6,260,000 Agricultural Bank of China Ltd. "H" 3,841
314,900 Bank of America Corp. 10,077
112,696 BNP Paribas S.A. 9,318
1,161,000 BOC Hong Kong Holdings Ltd. 5,929
75,500 Canadian Imperial Bank of Commerce 7,480
5,021,000 China Construction Bank Corp. "H" 5,790
130,955 Citigroup, Inc. 10,277
197,256 Danske Bank A/S 8,013
85,223 JPMorgan Chase & Co. 9,858
450,883 Skandinaviska Enskilda Banken AB "A" 5,696
132,710 Societe Generale S.A. 7,720
--------
83,999
--------
LIFE & HEALTH INSURANCE (4.4%)
1,244,918 Aegon N.V. 8,513
264,364 CNO Financial Group, Inc. 6,501
1,723,000 Legal and General Group plc 6,620
50,113 Lincoln National Corp. 4,150
================================================================================
6 | USAA CAPITAL GROWTH FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
135,000 NN Group N.V. $ 6,369
122,800 Sun Life Financial, Inc. 5,328
12,219 Swiss Life Holding AG 4,588
--------
42,069
--------
MULTI-LINE INSURANCE (2.1%)
36,300 Allianz SE 9,171
41,489 Assurant, Inc. 3,796
230,000 AXA S.A. 7,566
--------
20,533
--------
OTHER DIVERSIFIED FINANCIAL SERVICES (0.6%)
325,700 ORIX Corp. 6,071
--------
PROPERTY & CASUALTY INSURANCE (1.3%)
78,000 Allstate Corp. 7,704
113,300 Tokio Marine Holdings, Inc. 5,335
--------
13,039
--------
REAL ESTATE DEVELOPMENT (0.5%)
1,512,000 Shimao Property Holdings Ltd. 4,513
--------
REGIONAL BANKS (1.1%)
233,445 Citizens Financial Group, Inc. 10,715
--------
REINSURANCE (1.1%)
21,724 Muenchener Rueckver AG-Reg 5,112
55,000 Swiss Re AG 5,425
--------
10,537
--------
THRIFTS & MORTGAGE FINANCE (0.6%)
130,146 Essent Group Ltd.* 6,054
--------
Total Financials 203,102
--------
HEALTH CARE (11.4%)
-------------------
BIOTECHNOLOGY (2.1%)
35,500 Amgen, Inc. 6,605
23,047 Biogen, Inc.* 8,016
66,667 Gilead Sciences, Inc. 5,586
--------
20,207
--------
HEALTH CARE EQUIPMENT (1.4%)
117,400 Baxter International, Inc. 8,456
54,800 Masimo Corp.* 5,165
--------
13,621
--------
HEALTH CARE SERVICES (0.6%)
72,800 Express Scripts Holding Co.* 5,764
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 7
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
MANAGED HEALTH CARE (5.0%)
36,300 Aetna, Inc. $ 6,782
35,000 Anthem, Inc. 8,675
30,000 Cigna Corp. 6,250
26,595 Humana, Inc. 7,495
47,000 UnitedHealth Group, Inc. 11,129
39,272 WellCare Health Plans, Inc.* 8,262
--------
48,593
--------
PHARMACEUTICALS (2.3%)
1,416,473 Indivior plc* 8,099
73,400 Merck & Co., Inc. 4,349
65,200 Sanofi 5,757
45,689 UCB S.A. 3,982
--------
22,187
--------
Total Health Care 110,372
--------
INDUSTRIALS (11.0%)
-------------------
AEROSPACE & DEFENSE (3.6%)
36,117 Boeing Co. 12,799
35,500 Huntington Ingalls Industries, Inc. 8,432
39,797 Northrop Grumman Corp. 13,552
--------
34,783
--------
AIRLINES (0.6%)
318,000 Air Canada* 6,182
--------
BUILDING PRODUCTS (0.5%)
54,142 Owens Corning 5,034
--------
CONSTRUCTION MACHINERY & HEAVY TRUCKS (1.2%)
24,412 Cummins, Inc. 4,589
79,000 Oshkosh Corp. 7,167
--------
11,756
--------
HEAVY ELECTRICAL EQUIPMENT (0.6%)
78,000 Vestas Wind Systems A/S 5,322
--------
INDUSTRIAL CONGLOMERATES (0.6%)
271,000 Smiths Group plc 6,151
--------
INDUSTRIAL MACHINERY (2.7%)
118,561 Donaldson Co., Inc. 6,006
48,800 Illinois Tool Works, Inc. 8,475
157,200 Kawasaki Heavy Industries Ltd. 6,480
23,223 Parker-Hannifin Corp. 4,678
--------
25,639
--------
================================================================================
8 | USAA CAPITAL GROWTH FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
TRADING COMPANIES & DISTRIBUTORS (1.2%)
63,981 Ferguson plc $ 4,938
851,100 Marubeni Corp. 6,379
--------
11,317
--------
Total Industrials 106,184
--------
INFORMATION TECHNOLOGY (17.6%)
------------------------------
APPLICATION SOFTWARE (0.4%)
44,500 Citrix Systems, Inc.* 4,128
--------
COMMUNICATIONS EQUIPMENT (1.8%)
106,948 Cisco Systems, Inc. 4,443
54,205 F5 Networks, Inc.* 7,835
203,800 Juniper Networks, Inc. 5,329
--------
17,607
--------
DATA PROCESSING & OUTSOURCED SERVICES (1.3%)
20,400 Alliance Data Systems Corp. 5,236
57,416 Visa, Inc. "A"(a) 7,133
--------
12,369
--------
ELECTRONIC MANUFACTURING SERVICES (0.6%)
224,712 Jabil, Inc. 5,714
--------
HOME ENTERTAINMENT SOFTWARE (0.6%)
1,573,906 Zynga, Inc. "A"*(a) 5,635
--------
INTERNET SOFTWARE & SERVICES (1.6%)
6,592 Alphabet, Inc. "A"* 7,793
40,488 Facebook, Inc. "A"* 7,567
--------
15,360
--------
IT CONSULTING & OTHER SERVICES (0.9%)
62,892 Amdocs Ltd. 4,302
56,800 Science Applications International Corp.(a) 4,354
--------
8,656
--------
SEMICONDUCTOR EQUIPMENT (1.6%)
153,000 Applied Materials, Inc. 8,205
148,300 Teradyne, Inc. 6,798
--------
15,003
--------
SEMICONDUCTORS (0.7%)
14,101 Broadcom Ltd. 3,497
34,236 Texas Instruments, Inc. 3,755
--------
7,252
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 9
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
SYSTEMS SOFTWARE (1.2%)
48,224 Microsoft Corp. $ 4,582
56,500 VMware, Inc. "A"* 6,994
--------
11,576
--------
TECHNOLOGY DISTRIBUTORS (0.5%)
52,033 Tech Data Corp.* 5,217
--------
TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (6.4%)
169,877 Apple, Inc. 28,442
300,000 HP, Inc. 6,996
150,723 NetApp, Inc. 9,269
4,124 Samsung Electronics Co. Ltd. 9,636
83,826 Western Digital Corp. 7,459
--------
61,802
--------
Total Information Technology 170,319
--------
MATERIALS (5.9%)
----------------
DIVERSIFIED CHEMICALS (0.9%)
81,650 Chemours Co. 4,215
135,000 Huntsman Corp. 4,667
--------
8,882
--------
DIVERSIFIED METALS & MINING (1.7%)
386,005 Anglo American plc 9,364
2,298,518 South32 Ltd. 7,075
--------
16,439
--------
PAPER PACKAGING (0.9%)
71,280 Avery Dennison Corp. 8,744
--------
PAPER PRODUCTS (0.9%)
256,293 UPM-Kymmene Oyj 8,636
--------
SPECIALTY CHEMICALS (0.6%)
48,474 Covestro AG(b) 5,572
--------
STEEL (0.9%)
1,022,248 Fortescue Metals Group Ltd. 4,086
578,879 Outokumpu Oyj 4,959
--------
9,045
--------
Total Materials 57,318
--------
REAL ESTATE (0.7%)
------------------
REAL ESTATE DEVELOPMENT (0.7%)
724,500 CK Asset Holdings Ltd. 6,914
--------
================================================================================
10 | USAA CAPITAL GROWTH FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES (2.6%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (0.9%)
7,000,000 China Telecom Corp. Ltd. "H" $ 3,463
117,600 Nippon Telegraph & Telephone Corp. 5,592
--------
9,055
--------
WIRELESS TELECOMMUNICATION SERVICES (1.7%)
209,900 KDDI Corp. 5,293
284,000 NTT DOCOMO, Inc. 7,035
1,201,830 Vodafone Group plc 3,833
--------
16,161
--------
Total Telecommunication Services 25,216
--------
UTILITIES (2.6%)
----------------
ELECTRIC UTILITIES (1.5%)
61,000 Entergy Corp. 4,800
137,000 Exelon Corp. 5,276
182,173 Fortum Oyj 3,950
--------
14,026
--------
MULTI-UTILITIES (1.1%)
373,002 AGL Energy, Ltd. 7,045
179,500 RWE AG* 3,593
--------
10,638
--------
Total Utilities 24,664
--------
Total Common Stocks (cost: $693,638) 956,550
--------
PREFERRED STOCKS (0.6%)
ENERGY (0.6%)
-------------
INTEGRATED OIL & GAS (0.6%)
490,721 Petroleo Brasileiro S.A.* (cost: $4,700) 6,080
--------
Total Equity Securities (cost: $698,338) 962,630
--------
MONEY MARKET INSTRUMENTS (0.6%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (0.6%)
5,460,638 State Street Institutional Treasury Money Market Fund Premier Class, 1.23%(c)
(cost: $5,461) 5,461
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 11
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS PURCHASED WITH CASH COLLATERAL FROM
SECURITIES LOANED (1.1%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (1.1%)
840,468 Federated Government Obligations Fund Institutional Class, 1.19%(c) $ 840
356,648 Fidelity Government Fund Portfolio Class I, 1.22%(c) 357
255,065 Goldman Sachs Financial Square Government Fund Institutional Class, 1.21%(c) 255
6,325,922 Invesco Government & Agency Portfolio Institutional Class, 1.24%(c) 6,326
153,107 Morgan Stanley Institutional Liquidity Funds Government Portfolio
Institutional Class, 1.21%(c) 153
3,185,815 Western Asset Institutional Government Reserves Institutional Class, 1.22%(c) 3,186
--------
Total Short-Term Investments Purchased with Cash Collateral from
Securities Loaned (cost: $11,117) 11,117
--------
TOTAL INVESTMENTS (COST: $714,916) $979,208
========
--------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
--------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
--------------------------------------------------------------------------------------------------------
Equity Securities:
Common Stocks $956,550 $- $- $956,550
Preferred Stocks 6,080 - - 6,080
Money Market Instruments:
Government & U.S. Treasury
Money Market Funds 5,461 - - 5,461
Short-Term Investments Purchased with
Cash Collateral from Securities Loaned:
Government & U.S. Treasury
Money Market Funds 11,117 - - 11,117
--------------------------------------------------------------------------------------------------------
Total $979,208 $- $- $979,208
--------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
For the period of August 1, 2017, through January 31, 2018, 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.
================================================================================
12 | USAA CAPITAL GROWTH FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
January 31, 2018 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
Market values of securities are determined by procedures and practices
discussed in Note 1A to the financial statements.
The Portfolio of Investments category percentages shown represent the
percentages of the investments to net assets, and, in total, may not equal
100%. A category percentage of 0.0% represents less than 0.1% of net assets.
Investments in foreign securities were 43.3% of net assets at January 31,
2018.
o SPECIFIC NOTES
(a) The security, or a portion thereof, was out on loan as of
January 31, 2018.
(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) Rate represents the money market fund annualized seven-day yield at
January 31, 2018.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 13
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
January 31, 2018 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value
(including securities on loan of $15,419) (cost of $714,916) $979,208
Cash denominated in foreign currencies (identified cost of $2) 2
Receivables:
Capital shares sold 303
USAA Asset Management Company (Note 7D) 6
Dividends and interest 918
Securities sold 4,344
Other 9
--------
Total assets 984,790
--------
LIABILITIES
Payables:
Upon return of securities loaned 11,117
Capital shares redeemed 863
Bank overdraft 4,348
Accrued management fees 636
Accrued transfer agent's fees 32
Other accrued expenses and payables 160
--------
Total liabilities 17,156
--------
Net assets applicable to capital shares outstanding $967,634
========
NET ASSETS CONSIST OF:
Paid-in capital $677,340
Overdistribution of net investment income (1,344)
Accumulated net realized gain on investments 27,317
Net unrealized appreciation of investments 264,292
Net unrealized appreciation of foreign currency translations 29
--------
Net assets applicable to capital shares outstanding $967,634
========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $960,261/73,205
capital shares outstanding, no par value) $ 13.12
========
Institutional Shares (net assets of $7,373/560
capital shares outstanding, no par value) $ 13.15
========
See accompanying notes to financial statements.
================================================================================
14 | USAA CAPITAL GROWTH FUND
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended January 31, 2018 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $223) $ 6,903
Interest 14
Securities lending (net) 105
--------
Total income 7,022
--------
EXPENSES
Management fees 3,502
Administration and servicing fees:
Fund Shares 665
Institutional Shares 3
Transfer agent's fees:
Fund Shares 767
Institutional Shares 3
Custody and accounting fees:
Fund Shares 74
Institutional Shares 1
Postage:
Fund Shares 34
Shareholder reporting fees:
Fund Shares 23
Trustees' fees 17
Registration fees:
Fund Shares 22
Institutional Shares 12
Professional fees 68
Other 13
--------
Total expenses 5,204
Expenses reimbursed:
Institutional Shares (9)
--------
Net expenses 5,195
--------
NET INVESTMENT INCOME 1,827
--------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY
Net realized gain on:
Investments 45,137
Foreign currency transactions 59
Change in net unrealized appreciation/(depreciation) of:
Investments 87,524
Foreign currency translations (27)
--------
Net realized and unrealized gain 132,693
--------
Increase in net assets resulting from operations $134,520
========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 15
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended January 31, 2018 (unaudited), and year ended
July 31, 2017
--------------------------------------------------------------------------------------------------------
1/31/2018 7/31/2017
--------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 1,827 $ 9,754
Net realized gain on investments 45,137 96,167
Net realized gain (loss) on foreign currency transactions 59 (92)
Change in net unrealized appreciation/(depreciation) of:
Investments 87,524 27,269
Foreign currency translations (27) 69
--------------------
Increase in net assets resulting from operations 134,520 133,167
--------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares (8,408) (10,724)
Institutional Shares (68) (68)
--------------------
Total distributions of net investment income (8,476) (10,792)
--------------------
Net realized gains:
Fund Shares (20,165) -
Institutional Shares (152) -
--------------------
Total distributions of net realized gains (20,317) -
--------------------
Distributions to shareholders (28,793) (10,792)
--------------------
NET INCREASE (DECREASE) IN NET ASSETS FROM
CAPITAL SHARE TRANSACTIONS (NOTE 6)
Fund Shares 18,785 (6,370)
Institutional Shares 845 24
--------------------
Total net increase (decrease) in net assets from
capital share transactions 19,630 (6,346)
--------------------
Net increase in net assets 125,357 116,029
NET ASSETS
Beginning of period 842,277 726,248
--------------------
End of period $967,634 $842,277
====================
Accumulated undistributed (overdistribution of)
net investment income:
End of period $ (1,344) $ 5,305
====================
See accompanying notes to financial statements.
================================================================================
16 | USAA CAPITAL GROWTH FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
January 31, 2018 (unaudited)
--------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company Act
of 1940, as amended (the 1940 Act), is an open-end management investment
company organized as a Delaware statutory trust consisting of 51 separate funds.
The USAA Capital 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 two classes of shares: Capital Growth Fund Shares (Fund
Shares) and Capital Growth Fund Institutional Shares (Institutional Shares).
Each class of shares has equal rights to assets and earnings, except that each
class bears certain class-related expenses specific to the particular class.
These expenses include administration and servicing fees, transfer agent fees,
postage, shareholder reporting fees, and certain registration and custodian
fees. Expenses not attributable to a specific class, income, and realized gains
or losses on investments are allocated to each class of shares based on each
class' relative net assets. Each class has exclusive voting rights on matters
related solely to that class and separate voting rights on matters that relate
to all classes. The Institutional Shares are available for investment through a
USAA discretionary managed account program, and certain advisory programs
sponsored by financial intermediaries, such as brokerage firms, investment
advisors, financial planners, third-party administrators, and insurance
companies. Institutional Shares also are available to institutional investors,
which include retirement plans, endowments, foundations, and bank trusts, as
well as other persons or legal entities that
================================================================================
NOTES TO FINANCIAL STATEMENTS | 17
================================================================================
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).
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
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
================================================================================
18 | USAA CAPITAL GROWTH FUND
================================================================================
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 will
monitor for events that would materially affect the value of the Fund's
foreign securities. The Fund's subadviser has agreed to notify the
Manager of significant events they identify that would materially affect
the value of the Fund's foreign securities. If the Manager determines
that a particular event would materially affect the value of the Fund's
foreign securities, then the Committee will consider such available
information that it deems relevant and will determine a fair value for
the affected foreign securities in accordance with valuation procedures.
In addition, information from an external vendor or other sources may be
used to adjust the foreign market closing prices of foreign equity
securities to reflect what the Committee believes to be the fair value
of the securities as of the close of the NYSE. Fair valuation of
affected foreign equity securities may occur frequently based on an
assessment that events which occur on a fairly regular basis (such as
U.S. market movements) are significant. Such securities are categorized
in Level 2 of the fair value hierarchy.
3. Investments in open-end investment companies, commingled, or other
funds, other than ETFs, are valued at their NAV at the end of
================================================================================
NOTES TO FINANCIAL STATEMENTS | 19
================================================================================
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. 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.
7. In the event that price quotations or valuations are not readily
available, are not reflective of market value, or a significant event
has been recognized in relation to a security or class of securities,
the securities are valued in good faith by the Committee in accordance
with valuation procedures approved by the Board. The effect of fair
value pricing is that securities may not be priced on the basis of
quotations from the primary market in which they are traded and the
actual price realized from the sale of a security may differ materially
from the fair value price. Valuing these securities at fair value is
intended to cause the Fund's NAV to be more reliable than it otherwise
would be.
Fair value methods used by the Manager include, but are not limited to,
obtaining market quotations from secondary pricing services,
broker-dealers, other pricing services, or widely used quotation
systems. General factors considered in determining the fair value of
securities include fundamental analytical data, the nature and duration
of any restrictions on disposition of the securities, evaluation of
credit quality, and an evaluation of the forces that influenced the
market in which the securities are purchased and sold.
B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The
three-level valuation hierarchy disclosed in the Portfolio of Investments
================================================================================
20 | USAA CAPITAL GROWTH 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.
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 January 31, 2018, the Fund did not incur any
income tax, interest, or penalties, and has recorded no liability for net
unrecognized tax benefits relating to uncertain income tax positions. On an
ongoing basis, the Manager will monitor the Fund's tax basis to determine if
adjustments to this conclusion are necessary. The statute of limitations on
the Fund's tax return filings generally remain open for the three preceding
fiscal reporting year ends and remain subject to examination by the Internal
Revenue Service and state taxing authorities.
D. 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 21
================================================================================
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 amounts received. At
the end of the Fund's fiscal year, net realized
================================================================================
22 | USAA CAPITAL GROWTH FUND
================================================================================
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 January 31, 2018, 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 23
================================================================================
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 January 31, 2018, the Fund paid CAPCO facility
fees of $3,000, which represents 1.1% 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 January 31, 2018.
(3) DISTRIBUTIONS
The tax basis of distributions and accumulated undistributed net investment
income will be determined as of the Fund's tax year-end of July 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 taxes.
The Fund is permitted to carry forward post-enactment capital losses
indefinitely. Additionally, such capital losses that are carried forward will
retain their character as short-term and/or long-term capital losses. Post-
enactment capital loss carryforwards must be used before pre-enactment capital
loss carryforwards. As a result, pre-enactment capital loss carryforwards may be
more likely to expire unused.
================================================================================
24 | USAA CAPITAL GROWTH FUND
================================================================================
At July 31, 2017, the Fund had no capital loss carryforwards, for federal income
tax purposes.
As of January 31, 2018, the cost of securities, including short-term securities,
for federal income tax purposes, was approximately the same as the cost reported
in the financial statements.
Gross unrealized appreciation and depreciation of investments as of January 31,
2018, were $271,396,000 and $7,104,000, respectively, resulting in net
unrealized appreciation of $264,292,000.
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities, excluding
short-term securities, for the six-month period ended January 31, 2018, were
$184,228,000 and $193,405,000, respectively.
(5) SECURITIES LENDING
The Fund, through a 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 25
================================================================================
Investments and Financial Statements while non-cash collateral is not included.
At January 31, 2018, 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
--------------------------------------------------------------------------------
$15,419,000(1) $4,872,000 $11,117,000
--------------------------------------------------------------------------------
(1)Includes $4,730,000 of securities on loan that were sold prior to January 31,
2018.
(6) CAPITAL SHARE TRANSACTIONS
At January 31, 2018, there were an unlimited number of shares of capital stock
at no par value authorized for the Fund.
Capital share transactions for the Institutional Shares resulted from purchases
and sales by the affiliated USAA fund-of-funds as well as other persons or legal
entities that the Fund may approve from time to time. Capital share
transactions for all classes were as follows, in thousands:
SIX-MONTH
PERIOD ENDED YEAR ENDED
JANUARY 31, 2018 JULY 31, 2017
--------------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------
FUND SHARES:
Shares sold 3,424 $ 42,321 7,983 $ 84,928
Shares issued from reinvested dividends 2,311 28,402 1,019 10,651
Shares redeemed (4,218) (51,938) (9,637) (101,949)
--------------------------------------------------------
Net increase (decrease) from
capital share transactions 1,517 $ 18,785 (635) $ (6,370)
========================================================
INSTITUTIONAL SHARES:
Shares sold 67 $ 837 4 $ 43
Shares issued from reinvested dividends 2 19 -* -*
Shares redeemed (1) (11) (2) (19)
--------------------------------------------------------
Net increase from capital share transactions 68 $ 845 2 $ 24
========================================================
* Represents less than 500 shares or $500.
================================================================================
26 | USAA CAPITAL 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
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.
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 Global Funds Index. The Lipper Global Funds
Index tracks the total return performance of funds within the Lipper Global
Funds category.
For the Fund Shares, the performance period consists of the current month
plus the previous 35 months. The performance period for the Institutional
Shares commenced on August 7, 2015, and includes the
================================================================================
NOTES TO FINANCIAL STATEMENTS | 27
================================================================================
performance of the Fund Shares for periods prior to August 7, 2015. The
following table is utilized to determine the extent of the performance
adjustment:
OVER/UNDER PERFORMANCE
RELATIVE TO INDEX ANNUAL ADJUSTMENT RATE
(IN BASIS POINTS)(1) (IN BASIS POINTS)(1)
--------------------------------------------------------------------------------
+/- 100 to 400 +/- 4
+/- 401 to 700 +/- 5
+/- 701 and greater +/- 6
(1)Based on the difference between average annual performance of the
relevant share class of the Fund and its relevant index, rounded to the
nearest basis point. Average net assets of the share class are calculated
over a rolling 36-month period.
Each class' annual performance adjustment rate is multiplied by the average
net assets of each respective class over the entire performance period,
which is then multiplied by a fraction, the numerator of which is the number
of days in the month and the denominator of which is 365 (366 in leap
years). The resulting amount is then added to (in the case of
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 January 31, 2018, the Fund incurred total
management fees, paid or payable to the Manager, of $3,502,000, which
included a performance adjustment for the Fund Shares and the Institutional
Shares of $151,000 and $1,000, respectively. For the Fund Shares and the
Institutional Shares, the performance adjustments were 0.03% and 0.02%,
respectively.
B. SUBADVISORY ARRANGEMENT(S) - The Manager entered into an Investment
Subadvisory Agreement with QS Investors, LLC (QS Investors), under which QS
Investors directs the investment and reinvestment of the Fund's assets (as
allocated from time to time by the Manager).
================================================================================
28 | USAA CAPITAL GROWTH FUND
================================================================================
The Manager (not the Fund) pays QS Investors a subadvisory fee in the
annual amount of 0.25% of the first $250 million of assets, 0.21% on
assets over $250 million and up to $500 million, and 0.17% on assets
over $500 million of the Fund's average net assets that QS Investors
manages. For the six-month period ended January 31, 2018, the Manager
incurred subadvisory fees with respect to the Fund, paid or payable to
QS Investors, of $912,000.
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% and 0.10% of average net assets of the Funds Shares and
Institutional Shares, respectively. For the six-month period ended January
31, 2018, the Fund Shares and Institutional Shares incurred administration
and servicing fees, paid or payable to the Manager, of $665,000 and $3,000,
respectively.
In addition to the services provided under its Administration and Servicing
Agreement with the Fund, the Manager also provides certain compliance and
legal services for the benefit of the Fund. The Board has approved the
reimbursement of a portion of these expenses incurred by the Manager. For
the six-month period ended January 31, 2018, 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.
D. EXPENSE LIMITATION - The Manager agreed, through November 30, 2018, to limit
the total annual operating expenses of the Institutional Shares to 1.10% of
its average net assets, excluding extraordinary expenses and before
reductions of any expenses paid indirectly, and to reimburse the
Institutional Shares for all expenses in excess of that amount. This expense
limitation arrangement may not be changed or terminated through November 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 January
31, 2018, the Institutional Shares incurred reimbursable expenses of $9,000,
of which $6,000 was receivable from the Manager.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 29
================================================================================
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 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 January 31, 2018, the Fund Shares
and Institutional Shares incurred transfer agent's fees, paid or payable to
SAS, of $767,000 and $3,000, respectively.
F. 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.
(8) TRANSACTIONS WITH AFFILIATES
The Manager is indirectly wholly owned by United Services Automobile Association
(USAA), a large, diversified financial services institution. At January 31,
2018, USAA and its affiliates owned 490,000 Institutional Shares, which
represents 87.4% of the Institutional Shares outstanding and 0.7% of the Fund's
total outstanding shares.
Certain trustees and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Fund.
(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 December 2017, the
SEC issued Temporary Final
================================================================================
30 | USAA CAPITAL GROWTH FUND
================================================================================
Rule Release No. 33-10442, INVESTMENT COMPANY REPORTING MODERNIZATION (Temporary
Rule), which extends to April 2019 the compliance date on which funds in larger
fund groups, such as the Fund, are required to begin filing form N-PORT. In the
interim, in lieu of filing form N-PORT, the Temporary Rule requires that funds
in larger fund groups maintain in their records the information that is required
to be included in form N-PORT. The Temporary Rule does not affect the filing
date or requirements of form N-CEN.
In October 2016, the SEC issued Final Rule Release No. 33-10233, INVESTMENT
COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS (Liquidity Rule). The Liquidity Rule
requires funds to establish a liquidity risk management program and enhances
disclosures regarding funds' liquidity.
In February 2018, the SEC issued Interim Final Rule Release No. IC-33010,
INVESTMENT COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS; COMMISSION GUIDANCE FOR
IN-KIND ETFs, which extends, among others, the compliance dates for certain
disclosure requirements under the Liquidity Rule. The compliance date for the
liquidity disclosure required in form N-PORT has been extended to June 1, 2019
for larger entities such as the Fund. The compliance date for the liquidity
disclosure required in form N-CEN for large entities such as the Fund remains
December 1, 2018. The Fund is expected to comply with these compliance dates for
forms N-PORT and N-CEN. The Manager continues to evaluate the impact these rules
and amendments will have on the financial statements and other disclosures.
================================================================================
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
JANUARY 31, YEAR ENDED JULY 31,
------------------------------------------------------------------------------
2018 2017 2016 2015 2014 2013
------------------------------------------------------------------------------
Net asset value at
beginning of period $ 11.67 $ 9.97 $ 10.16 $ 9.31 $ 8.00 $ 6.44
------------------------------------------------------------------------------
Income (loss) from investment
operations:
Net investment income .02 .14 .13 .12 .12 .10
Net realized and unrealized
gain (loss) 1.83 1.71 (.21) .88 1.28 1.56
------------------------------------------------------------------------------
Total from investment operations 1.85 1.85 (.08) 1.00 1.40 1.66
------------------------------------------------------------------------------
Less distributions from:
Net investment income (.12) (.15) (.11) (.15) (.09) (.10)
Realized capital gains (.28) - - - - -
------------------------------------------------------------------------------
Total distributions (.40) (.15) (.11) (.15) (.09) (.10)
------------------------------------------------------------------------------
Net asset value at end of period $ 13.12 $ 11.67 $ 9.97 $ 10.16 $ 9.31 $ 8.00
==============================================================================
Total return (%)* 16.10 18.75 (.76) 10.79 17.55 26.00
Net assets at end of period (000) $960,261 $836,515 $721,357 $760,764 $706,918 $642,927
Ratios to average net assets:**
Expenses (%)(a) 1.16(c) 1.21 1.24 1.23(b) 1.28 1.30
Expenses, excluding
reimbursements (%)(a) 1.16(c) 1.21 1.24 1.23 1.28 1.34
Net investment income (%) .41(c) 1.27 1.39 .95 1.41 1.40
Portfolio turnover (%) 21 55(e) 24 38 36(d) 83
* 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 January 31, 2018, average net assets were
$880,960,000.
(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%)(+)
(+) Represents less than 0.01% of average net assets.
(b) Prior to December 1, 2014, the Manager had voluntarily agreed to limit the
annual expenses of the Fund Shares to 1.30% of the Fund Shares average net
assets.
(c) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(d) Reflects overall decrease in purchases and sales of securities.
(e) Reflects overall increase in purchases and sales of securities.
================================================================================
32 | USAA CAPITAL 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 YEAR ENDED PERIOD ENDED
JANUARY 31, JULY 31, JULY 31,
-----------------------------------------------------
2018 2017 2016***
-----------------------------------------------------
Net asset value at beginning of period $11.70 $ 9.98 $10.20
-----------------------------------------------
Income (loss) from investment operations:
Net investment income .03 .15 .14
Net realized and unrealized gain (loss) 1.83 1.71 (.24)
-----------------------------------------------
Total from investment operations 1.86 1.86 (.10)
-----------------------------------------------
Less distributions from:
Net investment income (.13) (.14) (.12)
Realized capital gains (.28) - -
-----------------------------------------------
Total distributions (.41) (.14) (.12)
-----------------------------------------------
Net asset value at end of period $13.15 $11.70 $ 9.98
===============================================
Total return (%)* 16.17 18.79 (.99)
Net assets at end of period (000) $7,373 $5,762 $4,891
Ratios to average net assets:**
Expenses (%) 1.10(a) 1.10 1.10(a)
Expenses, excluding reimbursements (%) 1.37(a) 1.47 1.48(a)
Net investment income (%) .46(a) 1.38 1.57(a)
Portfolio turnover (%) 21 55(b) 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 January 31, 2018, average net assets were
$6,444,000.
*** Institutional Shares commenced operations on August 7, 2015.
(a) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(b) Reflects overall increase in purchases and sales of securities.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 33
================================================================================
EXPENSE EXAMPLE
January 31, 2018 (unaudited)
--------------------------------------------------------------------------------
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: direct costs, such
as wire fees, redemption fees, and low balance fees; and indirect costs,
including management fees, transfer agency fees, and other Fund operating
expenses. This example is intended to help you understand your indirect costs,
also referred to as "ongoing costs" (in dollars), of investing in the Fund and
to compare these costs with the ongoing costs of investing in other mutual
funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire six-month period of August 1, 2017, through
January 31, 2018.
ACTUAL EXPENSES
The line labeled "actual" under each share class in the table provides
information about actual account values and actual expenses. You may use the
information in this line, together with the amount you invested at the beginning
of the period, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number for your share
class in the "actual" line under the heading "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The line labeled "hypothetical" under each share class in the table provides
information about hypothetical account values and hypothetical expenses based on
the Fund's actual expense ratios for each class and an assumed rate of return of
5% per year before expenses, which is not the Fund's actual return. The
hypothetical account values and expenses may not be used to estimate the actual
ending account balance or expenses you paid for the period. You may
================================================================================
34 | USAA CAPITAL GROWTH 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 AUGUST 1, 2017 -
AUGUST 1, 2017 JANUARY 31, 2018 JANUARY 31, 2018
-----------------------------------------------------------
FUND SHARES
Actual $1,000.00 $1,161.00 $6.32
Hypothetical
(5% return before expenses) 1,000.00 1,019.36 5.90
INSTITUTIONAL SHARES
Actual 1,000.00 1,161.70 5.99
Hypothetical
(5% return before expenses) 1,000.00 1,019.66 5.60
*Expenses are equal to the annualized expense ratio of 1.16% for Fund Shares and
1.10% for Institutional Shares, which are net of any reimbursements and
expenses paid indirectly, multiplied by the average account value over the
period, multiplied by 184 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 16.10% for Fund Shares and 16.17% for Institutional Shares for the six-month
period of August 1, 2017, through January 31, 2018.
================================================================================
EXPENSE EXAMPLE | 35
================================================================================
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)
=============================================================================
36843-0318 (C)2018, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA FIRST START GROWTH FUND]
==============================================================
SEMIANNUAL REPORT
USAA FIRST START GROWTH FUND (UFSGX)
JANUARY 31, 2018
==============================================================
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
INVESTMENT OVERVIEW 2
FINANCIAL INFORMATION
Portfolio of Investments 4
Notes to Portfolio of Investments 16
Financial Statements 21
Notes to Financial Statements 24
EXPENSE EXAMPLE 39
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 FIRST START GROWTH FUND (THE FUND) SEEKS LONG-TERM CAPITAL GROWTH WITH
REDUCED VOLATILITY OVER TIME.
--------------------------------------------------------------------------------
TYPES OF INVESTMENTS
The Fund intends to invest primarily in equity securities, but also invests in
bonds and money market instruments, as market conditions warrant. The Fund
expects its typical asset allocation to be approximately 70% equities and 30%
fixed-income securities. The implementation of the asset allocation may involve
the extensive use of equity and fixed-income exchange-traded funds (ETFs). The
Fund may invest in securities issued by domestic or foreign companies. The Fund
also may invest in fixed-income securities that are investment grade and below
investment grade, but limits its investments in below-investment-grade
securities to no more than 10% of its net assets.
The Fund's investments also may include real estate investment trusts,
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.
The Fund's assets will not be directly invested in companies whose primary line
of business is the production of tobacco products or alcoholic beverages or in
companies primarily focused on gaming activities.
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* 1/31/18 o
(% of Net Assets)
Vanguard FTSE Developed Markets ETF** .................................. 8.5%
iShares Core MSCI Emerging Markets ETF** ............................... 5.6%
iShares Core MSCI EAFE ETF** ........................................... 5.4%
iShares MSCI EAFE ETF** ................................................ 4.9%
Schwab Fundamental International
Large Co. Index ETF** ................................................ 2.5%
U.S. Treasury Bonds, 3.13%, 8/15/2044 .................................. 2.1%
U.S. Treasury Notes, 1.63%, 4/30/2023 .................................. 2.1%
Vanguard Total Bond Market ETF** ....................................... 2.0%
iShares Currency Hedged MSCI EAFE ETF** ................................ 2.0%
Vanguard Short-Term Corporate Bond ETF** ............................... 1.7%
* Does not include 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 4-15.
================================================================================
2 | USAA FIRST START GROWTH FUND
================================================================================
o ASSET ALLOCATION - 1/31/18* o
[PIE CHART OF ASSET ALLOCATION - 1/31/18*]
EXCHANGE-TRADED FUNDS** 40.6%
COMMON STOCKS 35.8%
U.S. TREASURY SECURITIES 10.9%
U.S. GOVERNMENT AGENCY ISSUES 4.3%
MONEY MARKET INSTRUMENTS 3.0%
CORPORATE OBLIGATIONS 2.5%
COMMERCIAL MORTGAGE SECURITIES 0.8%
PREFERRED STOCKS 0.8%
PRECIOUS METALS AND COMMODITY-RELATED SECURITIES 0.6%
EURODOLLAR AND YANKEE OBLIGATIONS 0.3%
ASSET-BACKED SECURITIES 0.3%
COLLATERALIZED MORTGAGE OBLIGATIONS 0.1%
[END CHART]
*Does not include short-term instruments purchased with cash collateral from
securities loaned.
**The Fund may rely on certain Securities and Exchange Commission exemptive
orders or rules that permit funds meeting various conditions to invest in an
exchange-traded fund in amounts exceeding limits set forth in the Investment
Company Act of 1941, 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
January 31, 2018 (unaudited)
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (77.8%)
COMMON STOCKS (35.8%)
CONSUMER DISCRETIONARY (4.7%)
-----------------------------
ADVERTISING (0.3%)
19,500 Omnicom Group, Inc. $ 1,495
----------
APPAREL RETAIL (0.2%)
11,650 TJX Companies, Inc. 936
----------
AUTO PARTS & EQUIPMENT (0.6%)
46,150 Magna International, Inc. 2,637
----------
BROADCASTING (0.3%)
23,841 CBS Corp. "B" 1,374
----------
HOME IMPROVEMENT RETAIL (0.7%)
16,000 Home Depot, Inc. 3,214
----------
HOTELS, RESORTS & CRUISE LINES (0.9%)
50,200 Norwegian Cruise Line Holdings Ltd.* 3,049
7,500 Wyndham Worldwide Corp. 931
----------
3,980
----------
INTERNET & DIRECT MARKETING RETAIL (0.7%)
2,300 Amazon.com, Inc.* 3,337
----------
RESTAURANTS (0.8%)
20,550 McDonald's Corp. 3,517
----------
SPECIALTY STORES (0.2%)
4,950 Ulta Beauty, Inc.* 1,099
----------
Total Consumer Discretionary 21,589
----------
CONSUMER STAPLES (2.0%)
-----------------------
AGRICULTURAL PRODUCTS (0.4%)
23,100 Bunge Ltd. 1,835
----------
DRUG RETAIL (0.3%)
17,010 CVS Health Corp. 1,338
----------
HYPERMARKETS & SUPER CENTERS (0.8%)
35,750 Wal-Mart Stores, Inc. 3,811
----------
================================================================================
4 | USAA FIRST START GROWTH FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
SOFT DRINKS (0.5%)
16,750 PepsiCo, Inc. $ 2,015
----------
Total Consumer Staples 8,999
----------
ENERGY (3.0%)
-------------
INTEGRATED OIL & GAS (1.0%)
10,350 Chevron Corp. 1,297
34,840 Occidental Petroleum Corp. 2,612
12,500 Royal Dutch Shell plc 878
----------
4,787
----------
OIL & GAS DRILLING (0.2%)
33,450 Patterson-UTI Energy, Inc. 790
----------
OIL & GAS EQUIPMENT & SERVICES (0.1%)
7,200 Schlumberger Ltd. 530
----------
OIL & GAS EXPLORATION & PRODUCTION (1.7%)
79,720 Antero Resources Corp.* 1,549
28,900 Cabot Oil & Gas Corp. 762
50,670 ConocoPhillips 2,980
21,900 EOG Resources, Inc. 2,518
----------
7,809
----------
Total Energy 13,916
----------
FINANCIALS (5.9%)
-----------------
ASSET MANAGEMENT & CUSTODY BANKS (0.6%)
48,520 Bank of New York Mellon Corp. 2,751
----------
CONSUMER FINANCE (0.7%)
80,650 Synchrony Financial 3,200
----------
DIVERSIFIED BANKS (2.5%)
139,820 Bank of America Corp. 4,474
41,350 JPMorgan Chase & Co. 4,783
39,250 U.S. Bancorp 2,243
----------
11,500
----------
FINANCIAL EXCHANGES & DATA (0.5%)
13,600 CME Group, Inc. 2,088
----------
PROPERTY & CASUALTY INSURANCE (0.9%)
8,150 Allstate Corp. 805
11,400 Chubb Ltd. 1,780
20,900 Progressive Corp. 1,131
14,500 XL Group Ltd. 534
----------
4,250
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 5
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
REGIONAL BANKS (0.7%)
83,430 KeyCorp $ 1,785
9,700 PNC Financial Services Group, Inc. 1,533
----------
3,318
----------
Total Financials 27,107
----------
HEALTH CARE (4.8%)
------------------
BIOTECHNOLOGY (1.5%)
11,600 AbbVie, Inc. 1,302
3,300 Amgen, Inc. 614
27,700 Celgene Corp.* 2,802
13,430 Gilead Sciences, Inc. 1,126
7,000 Shire plc 980
----------
6,824
----------
HEALTH CARE EQUIPMENT (0.7%)
39,580 Medtronic plc 3,400
----------
LIFE SCIENCES TOOLS & SERVICES (0.3%)
6,750 Thermo Fisher Scientific, Inc. 1,513
----------
MANAGED HEALTH CARE (0.7%)
13,550 UnitedHealth Group, Inc. 3,208
----------
PHARMACEUTICALS (1.6%)
9,220 Allergan plc 1,662
31,750 Johnson & Johnson 4,387
19,810 Merck & Co., Inc. 1,174
----------
7,223
----------
Total Health Care 22,168
----------
INDUSTRIALS (3.9%)
------------------
AEROSPACE & DEFENSE (0.7%)
5,650 Lockheed Martin Corp. 2,005
10,700 United Technologies Corp. 1,477
----------
3,482
----------
AIR FREIGHT & LOGISTICS (0.4%)
6,500 FedEx Corp. 1,706
----------
AIRLINES (0.6%)
43,680 Southwest Airlines Co. 2,656
----------
BUILDING PRODUCTS (0.4%)
37,000 Johnson Controls International plc 1,448
11,750 Masco Corp. 525
----------
1,973
----------
================================================================================
6 | USAA FIRST START GROWTH FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
CONSTRUCTION & ENGINEERING (0.4%)
54,960 AECOM* $ 2,149
----------
CONSTRUCTION MACHINERY & HEAVY TRUCKS (0.2%)
11,000 PACCAR, Inc. 820
----------
INDUSTRIAL CONGLOMERATES (0.7%)
9,320 Carlisle Companies, Inc. 1,064
12,850 Honeywell International, Inc. 2,052
----------
3,116
----------
RAILROADS (0.5%)
7,450 Canadian Pacific Railway Ltd. 1,378
6,830 Kansas City Southern 773
----------
2,151
----------
Total Industrials 18,053
----------
INFORMATION TECHNOLOGY (8.7%)
-----------------------------
COMMUNICATIONS EQUIPMENT (0.4%)
38,750 Cisco Systems, Inc. 1,610
----------
DATA PROCESSING & OUTSOURCED SERVICES (1.0%)
38,150 Visa, Inc. "A"(a) 4,739
----------
INTERNET SOFTWARE & SERVICES (1.8%)
4,990 Alphabet, Inc. "A"* 5,899
13,580 Facebook, Inc. "A"* 2,538
----------
8,437
----------
IT CONSULTING & OTHER SERVICES (0.4%)
18,650 DXC Technology Co. 1,857
----------
SEMICONDUCTOR EQUIPMENT (0.2%)
4,110 Lam Research Corp. 787
----------
SEMICONDUCTORS (1.0%)
5,850 Broadcom Ltd. 1,451
116,850 Cypress Semiconductor Corp. 2,020
19,030 Maxim Integrated Products, Inc. 1,161
----------
4,632
----------
SYSTEMS SOFTWARE (2.1%)
63,950 Microsoft Corp. 6,076
70,200 Oracle Corp. 3,621
----------
9,697
----------
TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (1.8%)
29,760 Apple, Inc. 4,983
111,680 HP, Inc. 2,604
================================================================================
PORTFOLIO OF INVESTMENTS | 7
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
10,300 Western Digital Corp. $ 917
----------
8,504
----------
Total Information Technology 40,263
----------
MATERIALS (1.3%)
----------------
DIVERSIFIED CHEMICALS (0.5%)
29,200 DowDuPont, Inc. 2,207
----------
FERTILIZERS & AGRICULTURAL CHEMICALS (0.2%)
9,000 Monsanto Co. 1,096
----------
GOLD (0.1%)
19,672 Hycroft Mining Corp.*(b),(c),(d) -
7,800 Newmont Mining Corp. 316
----------
316
----------
PAPER PACKAGING (0.2%)
3,450 Packaging Corp. of America 433
12,000 WestRock Co. 800
----------
1,233
----------
SPECIALTY CHEMICALS (0.3%)
11,200 Albemarle Corp. 1,250
----------
Total Materials 6,102
----------
REAL ESTATE (0.1%)
------------------
REITs - RETAIL (0.1%)
2,600 Simon Property Group, Inc. 425
----------
TELECOMMUNICATION SERVICES (0.4%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (0.4%)
51,990 AT&T, Inc. 1,947
----------
UTILITIES (1.0%)
----------------
ELECTRIC UTILITIES (1.0%)
16,350 Edison International 1,022
46,500 Exelon Corp. 1,791
9,450 NextEra Energy, Inc. 1,497
----------
Total Utilities 4,310
----------
Total Common Stocks (cost: $118,182) 164,879
----------
EXCHANGE-TRADED FUNDS (40.6%)
DOMESTIC EXCHANGE-TRADED FUNDS (3.1%)
50,000 Powershares S&P Midcap Low Volatility Portfolio 2,279
50,000 Powershares S&P Smallcap Low Volatility Portfolio 2,298
15,000 Vanguard Mid-Cap ETF 2,421
39,000 Vanguard REIT ETF 3,099
================================================================================
8 | USAA FIRST START GROWTH FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
30,000 Vanguard Small-Cap Value ETF $ 4,060
----------
Total Domestic Exchange-Traded Funds 14,157
----------
FIXED-INCOME EXCHANGE-TRADED FUNDS (3.7%)
100,000 Vanguard Short-Term Corporate Bond ETF 7,903
115,000 Vanguard Total Bond Market ETF 9,265
----------
Total Fixed-Income Exchange-Traded Funds 17,168
----------
INTERNATIONAL EXCHANGE-TRADED FUNDS (33.8%)
356,000 iShares Core MSCI EAFE ETF 24,753
418,824 iShares Core MSCI Emerging Markets ETF 25,733
302,000 iShares Currency Hedged MSCI EAFE ETF 9,096
16,000 iShares Edge MSCI Minimum Volatility EAFE ETF 1,205
19,000 iShares Edge MSCI Minimum Volatility Emerging Markets ETF 1,225
305,771 iShares MSCI EAFE ETF 22,578
245,000 PowerShares FTSE RAFI Emerging Markets Portfolio 6,083
50,000 Schwab Fundamental Emerging Markets Large Company Index ETF 1,624
360,300 Schwab Fundamental International Large Co. Index ETF 11,483
835,000 Vanguard FTSE Developed Markets ETF 39,237
125,000 Vanguard FTSE Emerging Markets ETF 6,230
20,334 WisdomTree Emerging Markets SmallCap Dividend Fund(a) 1,134
68,000 WisdomTree Europe Hedged Equity Fund 4,484
36,637 WisdomTree India Earnings Fund 1,058
----------
Total International Exchange-Traded Funds 155,923
----------
Total Exchange-Traded Funds (cost: $150,952) 187,248
----------
PRECIOUS METALS AND COMMODITY-RELATED SECURITIES (0.6%)
EXCHANGE-TRADED FUNDS (0.6%)
45,000 United States Commodity Index Fund * 1,953
41,000 VanEck Vectors Gold Miners ETF 974
----------
Total Exchange-Traded Funds 2,927
----------
Total Precious Metals and Commodity-Related Exchange-
Traded Funds Mae (Cost: $2,862) 2,927
----------
PREFERRED STOCKS (0.8%)
CONSUMER STAPLES (0.3%)
-----------------------
AGRICULTURAL PRODUCTS (0.3%)
30,000 CHS, Inc., 7.88%, cumulative redeemable *(e) 863
5,000 Dairy Farmers of America, Inc., 7.88%, cumulative redeemable(e),(f) 516
----------
Total Consumer Staples 1,379
----------
ENERGY (0.1%)
-------------
OIL & GAS EXPLORATION & PRODUCTION (0.1%)
800 Chesapeake Energy Corp., 5.75% *(e),(f) 492
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 9
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
FINANCIALS (0.3%)
-----------------
LIFE & HEALTH INSURANCE (0.2%)
28,000 Delphi Financial Group, Inc., 4.61%, cumulative redeemable,
3 mo. LIBOR + 3.19%(g) $ 658
----------
REGIONAL BANKS (0.1%)
500 M&T Bank Corp., 6.38%, cumulative redeemable M&T Bank
Corp., 6.38%, cumulative redeemable *(e) 511
----------
REINSURANCE (0.0%)
500 American Overseas Group Ltd., 7.50%, non-cumulative,
3 mo. LIBOR + 3.557%(b),(c),(d),(g) 125
----------
Total Financials 1,294
----------
TELECOMMUNICATION SERVICES (0.1%)
---------------------------------
ALTERNATIVE CARRIERS (0.1%)
20,000 Qwest Corp., 6.50% 411
----------
Total Preferred Stocks (cost: $3,914) 3,576
----------
Total Equity Securities (cost: $275,910) 358,630
----------
------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON
(000) RATE MATURITY
------------------------------------------------------------------------------------------------------------------
BONDS (19.2%)
ASSET-BACKED SECURITIES (0.3%)
FINANCIALS (0.3%)
-----------------
ASSET-BACKED FINANCING (0.3%)
$ 350 Avis Budget Rental Car Funding AESOP, LLC(f) 2.96% 7/20/2020 350
233 Avis Budget Rental Car Funding AESOP, LLC(f) 3.75 7/20/2020 233
200 Navient Student Loan Trust 1 mo. LIBOR + 1.50% 3.06(g) 8/25/2050 200
88 NP SPE II, LLC 3.37 10/21/2047 87
261 SCF Equipment Trust, LLC(f) 3.41 12/20/2023 259
274 Synchrony Credit Card Master Note Trust 2.95 5/15/2024 271
----------
Total Financials 1,400
----------
Total Asset-Backed Securities (cost: $1,385) 1,400
----------
COLLATERALIZED MORTGAGE OBLIGATION (0.1%)
FINANCIALS (0.1%)
-----------------
727 Structured Asset Mortgage Investments, Inc.
1 mo. LIBOR + 0.50% (cost: $712) 2.06(g) 7/19/2035 677
----------
================================================================================
10 | USAA FIRST START GROWTH FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
COMMERCIAL MORTGAGE SECURITIES (0.8%)
FINANCIALS (0.8%)
-----------------
COMMERCIAL MORTGAGE-BACKED SECURITIES (0.7%)
$ 500 Banc of America Commercial Mortgage, Inc. 6.12%(h) 2/10/2051 $ 500
852 Bear Stearns Commercial Mortgage Securities,
Inc.(f) 5.66(h) 9/11/2041 864
57 Commercial Mortgage Trust 5.38 12/10/2046 57
900 FREMF Mortgage Trust(f) 3.56(h) 8/25/2045 908
275 GE Capital Commercial Mortgage Corp. 5.61(h) 12/10/2049 276
42 GMAC Commercial Mortgage Securities, Inc. 4.96 12/10/2041 42
250 GMAC Commercial Mortgage Securities, Inc. 4.98(h) 12/10/2041 252
444 JPMorgan Chase & Co. 5.37 5/15/2047 444
----------
3,343
----------
INTEREST-ONLY COMMERCIAL MORTGAGE BACKED
SECURITIES (0.1%)
3,228 CSAIL Commercial Mortgage Trust(c) 1.81(h) 1/15/2049 330
2,722 UBS Commercial Mortgage Trust(c),(f) 2.08(h) 5/10/2045 192
----------
522
----------
Total Financials 3,865
----------
Total Commercial Mortgage Securities (cost: $3,720) 3,865
----------
CORPORATE OBLIGATIONS (2.5%)
CONSUMER DISCRETIONARY (0.3%)
-----------------------------
DEPARTMENT STORES (0.1%)
396 Neiman Marcus Group Ltd., LLC
3 mo. LIBOR + 3.25%(i) 4.81 10/25/2020 341
----------
SPECIALTY STORES (0.2%)
596 Academy Ltd. 3 mo. LIBOR + 4.00%(i) 5.49 7/01/2022 482
400 Guitar Center, Inc.(f) 6.50 4/15/2019 393
----------
875
----------
Total Consumer Discretionary 1,216
----------
CONSUMER STAPLES (0.1%)
-----------------------
FOOD RETAIL (0.1%)
300 BI-LO, LLC & BI-LO Finance Corp.(f) 9.25 2/15/2019 297
----------
ENERGY (0.2%)
-------------
OIL & GAS STORAGE & TRANSPORTATION (0.2%)
500 Energy Transfer, LP 3 mo. LIBOR + 3.018% 4.79(g) 11/01/2066 450
500 Enterprise TE Partners LP 3 mo. LIBOR + 4.50% 4.26(g) 6/01/2067 479
250 Tallgrass Energy Partners, LP / Tallgrass Energy
Finance Corp.(f) 5.50 9/15/2024 257
----------
Total Energy 1,186
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 11
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
FINANCIALS (1.7%)
-----------------
ASSET MANAGEMENT & CUSTODY BANKS (0.3%)
$ 350 Ares Capital Corp. 3.62% 1/19/2022 $ 348
900 Prospect Capital Corp. 5.00 7/15/2019 916
----------
1,264
----------
LIFE & HEALTH INSURANCE (0.2%)
600 Prudential Financial, Inc. 3 mo. LIBOR + 3.92% 5.62(g) 6/15/2043 653
----------
MULTI-LINE INSURANCE (0.2%)
1,000 Nationwide Mutual Insurance Co.
3 mo. LIBOR + 2.29%(f) 3.88(g) 12/15/2024 997
----------
PROPERTY & CASUALTY INSURANCE (0.3%)
700 Allstate Corp. 3 mo. LIBOR + 2.938% 5.75(g) 8/15/2053 763
298 AmTrust Financial Services, Inc. 6.13 8/15/2023 291
500 HSB Group, Inc. 3 mo. LIBOR + 0.910% 2.63(g) 7/15/2027 437
----------
1,491
----------
REGIONAL BANKS (0.7%)
500 Compass Bank 3.88 4/10/2025 497
1,000 Cullen/Frost Capital Trust II 3 mo. LIBOR + 1.55% 3.03(g) 3/01/2034 895
1,000 Manufacturers & Traders Trust Co.
3 mo. LIBOR + 0.64% 2.12(g) 12/01/2021 999
1,000 SunTrust Capital I 3 mo. LIBOR + 0.67% 2.09(g) 5/15/2027 935
----------
3,326
----------
Total Financials 7,731
----------
HEALTH CARE (0.1%)
------------------
HEALTH CARE FACILITIES (0.1%)
600 Community Health Systems, Inc. 6.88 2/01/2022 430
----------
REAL ESTATE (0.1%)
------------------
REAL ESTATE DEVELOPMENT (0.1%)
285 Crescent Communities, LLC & Crescent
Ventures, Inc.(f) 8.87 10/15/2021 304
----------
UTILITIES (0.0%)
----------------
MULTI-UTILITIES (0.0%)
225 WEC Energy Group, Inc. 3 mo. LIBOR + 2.113% 3.53(g) 5/15/2067 219
----------
Total Corporate Obligations (cost: $10,854) 11,383
----------
EURODOLLAR AND YANKEE OBLIGATIONS (0.3%)
ENERGY (0.0%)
-------------
OIL & GAS DRILLING (0.0%)
782 Schahin II Finance Co. SPV Ltd.(f),(j) 5.88 9/25/2023 113
----------
================================================================================
12 | USAA FIRST START GROWTH FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
FINANCIALS (0.1%)
-----------------
PROPERTY & CASUALTY INSURANCE (0.1%)
$ 250 QBE Capital Funding III Ltd.
3 mo. LIBOR + 3.04%(f) 7.25%(g) 5/24/2041 $ 281
----------
MATERIALS (0.2%)
----------------
COMMODITY CHEMICALS (0.1%)
500 Braskem Finance Ltd. 6.45 2/03/2024 567
----------
GOLD (0.1%)
500 Pretium Resources, Inc. 2.25 3/15/2022 435
----------
Total Materials 1,002
----------
Total Eurodollar and Yankee
Obligations (cost: $1,892) 1,396
----------
U.S. GOVERNMENT AGENCY ISSUES(k) (4.3%)
GOVERNMENT SECURITIES (4.3%)
----------------------------
COLLATERALIZED-MORTGAGE OBLIGATIONS (0.2%)
1,000 Freddie Mac(+) 3.51 4/25/2030 1,023
----------
MORTGAGE-BACKED PASS-THROUGH SECURITIES (4.1%)
1,675 Freddie Mac(+) 3.00 4/01/2046 1,645
2,846 Freddie Mac(+) 3.00 3/01/2047 2,793
6,457 Freddie Mac(+) 3.50 4/01/2046 6,532
7,917 Freddie Mac(+) 3.00 6/01/2046 7,774
----------
18,744
----------
Total U.S. Government Agency Issues (cost: $20,428) 19,767
----------
U.S. TREASURY SECURITIES(l) (10.9%)
BONDS (3.9%)
4,300 2.96%, 08/15/2044 (STRIPS Principal)(m) 1,975
2,000 3.00%, 11/15/2044 2,026
4,200 3.00%, 05/15/2045 4,254
9,500 3.12%, 08/15/2044 9,846
----------
18,101
----------
NOTES (7.0%)
5,000 1.13%, 02/28/2021 4,822
4,000 1.62%, 02/15/2026 3,689
1,970 1.63%, 08/15/2022 1,897
390 1.63%, 11/15/2022 374
10,000 1.63%, 04/30/2023 9,547
6,000 1.87%, 07/31/2022 5,842
1,000 2.25%, 11/15/2024 975
1,800 2.25%, 11/15/2027 1,728
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 800 2.37%, 08/15/2024 $ 787
1,600 2.37%, 05/15/2027 1,555
1,000 2.75%, 11/15/2023 1,009
----------
32,225
----------
Total U.S. Treasury Securities (cost: $50,588) 50,326
----------
Total Bonds (cost: $89,579) 88,814
----------
MONEY MARKET INSTRUMENTS (3.0%)
COMMERCIAL PAPER (1.4%)
800 Barton Capital Corp.(f) 1.52% 2/14/2018 799
600 Fairway Finance Corp.(f) 1.42 2/02/2018 600
581 Gotham Funding Corp.(f) 1.55 2/20/2018 580
600 Liberty Funding, LLC(f) 1.52 2/05/2018 600
800 LMA Americas, LLC(f) 1.48 2/01/2018 800
670 Manhattan Asset Funding Co., LLC(f) 1.45 2/02/2018 670
800 Nieuw Amsterdam Receivables(f) 1.50 2/05/2018 800
800 Southern Co. Gas Capital(f) 1.78 2/08/2018 800
810 Victory Receivables(f) 1.55 2/08/2018 810
----------
Total Commercial Paper (cost: $6,459) 6,459
----------
------------------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES
------------------------------------------------------------------------------------------------------------------
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (1.6%)
7,655,828 State Street Institutional Treasury Money Market
Fund Premier Class, 1.23%(n) (cost: $7,656) 7,656
----------
Total Money Market Instruments (cost: $14,115) 14,115
----------
SHORT-TERM INVESTMENT PURCHASED WITH CASH
COLLATERAL FROM SECURITIES LOANED (0.2%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (0.2%)
1,147,410 Invesco Government & Agency Portfolio
Institutional Class, 1.24%(n) 1,147
----------
Total Short-Term Investment Purchased with Cash
Collateral from Securities Loaned (cost: $1,147) 1,147
----------
TOTAL INVESTMENTS (COST: $380,751) $ 462,706
==========
================================================================================
14 | USAA FIRST START GROWTH FUND
================================================================================
--------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
--------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
--------------------------------------------------------------------------------------------------------------
Equity Securities:
Common Stocks $164,879 $ - $ - $164,879
Exchange-Traded Funds 187,248 - - 187,248
Precious Metals and Commodity-
Related Exchange-Traded Funds 2,927 - - 2,927
Preferred Stocks - 3,451 125 3,576
Bonds:
Asset-Backed Securities - 1,400 - 1,400
Collateralized Mortgage Obligation - 677 - 677
Commercial Mortgage Securities - 3,865 - 3,865
Corporate Obligations - 11,383 - 11,383
Eurodollar and Yankee Obligations - 1,396 - 1,396
U.S. Government Agency Issues - 19,767 - 19,767
U.S. Treasury Securities 48,351 1,975 - 50,326
Money Market Instruments:
Commercial Paper - 6,459 - 6,459
Government & U.S. Treasury Money
Market Funds 7,656 - - 7,656
Short-Term Investment Purchased with
Cash Collateral from Securities Loaned:
Government & U.S. Treasury
Money Market Funds 1,147 - - 1,147
--------------------------------------------------------------------------------------------------------------
Total $412,208 $50,373 $125 $462,706
--------------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
--------------------------------------------------------------------------------------------------------------
RECONCILIATION OF LEVEL 3 INVESTMENTS
--------------------------------------------------------------------------------------------------------------
($ IN 000s) COMMON STOCKS PREFERRED STOCKS
--------------------------------------------------------------------------------------------------------------
Balance as of July 31, 2017 $ 8 $125
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 $(8) -
--------------------------------------------------------------------------------------------------------------
Balance as of January 31, 2018 $ - $125
--------------------------------------------------------------------------------------------------------------
For the period of August 1, 2017, through January 31, 2018, 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 | 15
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
January 31, 2018 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
Market values of securities are determined by procedures and practices
discussed in Note 1A to the financial statements.
The Portfolio of Investments category percentages shown represent the
percentages of the investments to net assets, and, in total, may not equal
100%. A category percentage of 0.0% represents less than 0.1% of net
assets. Investments in foreign securities were 27.4% of net assets at
January 31, 2018.
The Fund may rely on certain Securities and Exchange Commission (SEC)
exemptive orders or rules that permit funds meeting various conditions to
invest in an exchange-traded fund (ETF) in amounts exceeding limits set
forth in the Investment Company Act of 1940, as amended, that would
otherwise be applicable.
o CATEGORIES AND DEFINITIONS
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,
================================================================================
16 | USAA FIRST START GROWTH FUND
================================================================================
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 paydown.
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.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 17
================================================================================
o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS
LIBOR London Interbank Offered Rate
STRIPS Separate trading of registered interest and principal of securities
REITs Real estate investment trusts - 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.
o SPECIFIC NOTES
(a) The security, or a portion thereof, was out on loan as of
January 31, 2018.
(b) Security was fair valued at January 31, 2018, 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 $125,000, which represented by less
than 0.1% of the Fund's net assets.
(c) Security deemed illiquid by the Manager, under liquidity guidelines
approved by the Board. The aggregate market value of these securities at
January 31, 2018, was $647,000, which represented 0.1% of the Fund's net
assets.
(d) Security was fair valued at Level 3.
(e) Security is perpetual and has no final maturity date but may be subject
to calls at various dates in the future.
(f) Restricted security that is not registered under the Securities Act of
1933. A resale of this security in the United States may occur in an
exempt transaction to a qualified institutional buyer as defined by
Rule 144A, and as such has been deemed liquid by the Manager under
liquidity guidelines approved by the Board unless otherwise noted as
illiquid.
================================================================================
18 | USAA FIRST START GROWTH FUND
================================================================================
(g) Variable-rate security - interest rate is adjusted periodically. The
interest rate disclosed represent the rate at January 31, 2018.
(h) Stated interest rates may change slightly over time as underlying
mortgages paydown.
(i) 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 all in interest rate
of all contracts within the loan facility. The interest rate is adjusted
periodically, and the rate disclosed represents the current rate at
January 31, 2018. 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.
(j) At January 31, 2018, the issuer was in default with respect to interest
and/or principal payments.
(k) 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
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 19
================================================================================
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.
(l) Rates for U.S. Treasury notes or bonds represent the stated coupon
payment rate at time of issuance.
(m) Zero-coupon security. Rate represents the effective yield at the date
of purchase.
(n) Rate represents the money market fund annualized seven-day yield at
January 31, 2018.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
20 | USAA FIRST START GROWTH FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
January 31, 2018 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (including securities on
loan of $4,670) (cost of $380,751) $462,706
Receivables:
Capital shares sold 185
USAA Asset Management Company (Note 6C) 250
Dividends and interest 662
Securities sold 674
Other 2
--------
Total assets 464,479
--------
LIABILITIES
Payables:
Upon return of securities loaned 1,147
Securities purchased 1,424
Capital shares redeemed 260
Accrued management fees 293
Accrued transfer agent's fees 60
Other accrued expenses and payables 192
--------
Total liabilities 3,376
--------
Net assets applicable to capital shares outstanding $461,103
========
NET ASSETS CONSIST OF:
Paid-in capital $377,759
Overdistribution of net investment income (937)
Accumulated net realized gain on investments 2,326
Net unrealized appreciation of investments 81,955
--------
Net assets applicable to capital shares outstanding $461,103
========
Capital shares outstanding, no par value 32,361
========
Net asset value, redemption price, and offering price per share $ 14.25
========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 21
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended January 31, 2018 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $5) $ 3,847
Interest 1,530
Securities lending (net) 19
--------
Total income 5,396
--------
EXPENSES
Management fees 1,663
Administration and servicing fees 333
Transfer agent's fees 1,252
Custody and accounting fees 72
Postage 57
Shareholder reporting fees 28
Trustees' fees 16
Registration fees 18
Professional fees 65
Other 10
--------
Total expenses 3,514
Expenses reimbursed (454)
--------
Net expenses 3,060
--------
NET INVESTMENT INCOME 2,336
--------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on:
Investments 6,550
Long-term capital gain distributions from other investment companies 2
Change in net unrealized appreciation/(depreciation) of:
Investments 29,867
--------
Net realized and unrealized gain 36,419
--------
Increase in net assets resulting from operations $ 38,755
========
See accompanying notes to financial statements.
================================================================================
22 | USAA FIRST START GROWTH FUND
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended January 31, 2018 (unaudited), and year
ended July 31, 2017
----------------------------------------------------------------------------------------
1/31/2018 7/31/2017
----------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 2,336 $ 4,487
Net realized gain on investments 6,550 12,851
Net realized gain on long-term capital gain distributions
from other investment companies 2 7
Change in net unrealized appreciation/(depreciation) of
investments 29,867 24,442
------------------------
Increase in net assets resulting from operations 38,755 41,787
------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (4,485) (6,055)
Net realized gains (13,844) (5,358)
------------------------
Distributions to shareholders (18,329) (11,413)
------------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 31,918 70,431
Reinvested dividends 18,243 11,357
Cost of shares redeemed (36,592) (74,553)
------------------------
Increase in net assets from capital share transactions 13,569 7,235
------------------------
Net increase in net assets 33,995 37,609
NET ASSETS
Beginning of period 427,108 389,499
------------------------
End of period $461,103 $427,108
========================
Accumulated undistributed (overdistribution of)
net investment income:
End of period $ (937) $ 1,212
========================
CHANGE IN SHARES OUTSTANDING
Shares sold 2,290 5,473
Shares issued for dividends reinvested 1,321 907
Shares redeemed (2,626) (5,784)
------------------------
Increase in shares outstanding 985 596
========================
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 23
================================================================================
NOTES TO FINANCIAL STATEMENTS
January 31, 2018 (unaudited)
--------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company Act
of 1940, as amended (the 1940 Act), is an open-end management investment
company organized as a Delaware statutory trust consisting of 51 separate funds.
The USAA First Start 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 and is authorized to issue an
unlimited number of shares. The Fund's investment objective is to seek
long-term capital growth with reduced volatility over 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.
The Committee meets as often as necessary to make pricing and fair value
determinations. In addition, the Committee holds regular monthly
================================================================================
24 | USAA FIRST START GROWTH 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 events that
would materially affect the value of the Fund's foreign
================================================================================
NOTES TO FINANCIAL STATEMENTS | 25
================================================================================
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.
================================================================================
26 | USAA FIRST START GROWTH 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. 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 27
================================================================================
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. However, these securities are included
in the Level 3 category due to limited market transparency and/or a lack of
corroboration to support the quoted prices.
Refer to the Portfolio of Investments for a reconciliation of investments
in which significant unobservable inputs (Level 3) were used in determining
value.
C. FEDERAL TAXES - The Fund's policy is to comply with the requirements of the
Internal Revenue Code of 1986, as amended, applicable to regulated
investment companies and to distribute substantially all of its taxable
income and net capital gains, if any, to its shareholders. Therefore, no
federal income tax provision is required.
For the six-month period ended January 31, 2018, the Fund did not incur any
income tax, interest, or penalties, and has recorded no liability for net
unrecognized tax benefits relating to uncertain income tax positions. On an
ongoing basis, the Manager will monitor the Fund's tax basis to determine
if adjustments to this conclusion are necessary. The
================================================================================
28 | USAA FIRST START GROWTH FUND
================================================================================
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 are amortized
over the life of the respective securities, using the effective yield
method for long-term securities and the straight-line method for
short-term securities.
F. 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 29
================================================================================
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. 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.
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 January 31, 2018, 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
================================================================================
30 | USAA FIRST START GROWTH FUND
================================================================================
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.
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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 31
================================================================================
For the six-month period ended January 31, 2018, the Fund paid CAPCO facility
fees of $2,000, which represents 0.5% of the total fees paid to CAPCO by the
funds of the Trusts. The Fund had no borrowings under this agreement during the
six-month period ended January 31, 2018.
(3) DISTRIBUTIONS
The tax basis of distributions and accumulated undistributed net investment
income will be determined as of the Fund's tax year-end of July 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 taxes.
At July 31, 2017, the Fund had no capital loss carryforwards, for federal income
tax purposes.
For the six-month period ended January 31, 2018, the cost of securities,
including short-term securities, for federal income tax purposes, was
approximately the same as the cost reported in the financial statements.
Gross unrealized appreciation and depreciation of investments as of January 31,
2018, were $87,925,000 and $5,970,000, respectively, resulting in net unrealized
appreciation of $81,955,000.
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities, excluding
short-term securities, for the six-month period ended January 31, 2018, were
$48,508,000 and $40,507,000, respectively.
(5) SECURITIES LENDING
The Fund, through a 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,
================================================================================
32 | USAA FIRST START GROWTH FUND
================================================================================
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 January 31, 2018, 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
--------------------------------------------------------------------------------------------------
$4,670,000 $3,598,000 $1,147,000
(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 January 31, 2018, 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 33
================================================================================
The performance adjustment is calculated monthly by comparing the Fund's
performance over the performance period to that of the Lipper Flexible
Portfolio Funds Index. The Lipper Flexible Portfolio Funds Index tracks the
total return performance of funds within the Lipper Flexible Portfolio
Funds category.
The performance period for the Fund consists of the current month plus the
previous 35 months. The following table is utilized to determine the extent
of the performance adjustment:
OVER/UNDER PERFORMANCE
RELATIVE TO INDEX ANNUAL ADJUSTMENT RATE
(IN BASIS POINTS)(1) (IN BASIS POINTS)(1)
-------------------------------------------------------------------------
+/- 100 to 400 +/- 4
+/- 401 to 700 +/- 5
+/- 701 and greater +/- 6
(1)Based on the difference between average annual performance of the Fund
and its relevant index, rounded to the nearest basis point. Average net
assets are calculated over a rolling 36-month period.
The annual performance adjustment rate is multiplied by the average net
assets of the Fund over the entire performance period, which is then
multiplied by a fraction, the numerator of which is the number of days in
the month and the denominator of which is 365 (366 in leap years). The
resulting amount is then added to (in the case of overperformance), or
subtracted from (in the case of underperformance) the base fee.
Under the performance fee arrangement, the Fund will pay a positive
performance fee adjustment for a performance period whenever the Fund
outperforms the Lipper Flexible Portfolio Funds Index over that period,
even if the Fund had overall negative returns during the performance period.
For the six-month period ended January 31, 2018, the Fund incurred total
management fees, paid or payable to the Manager, of $1,663,000. For the
six month period ended January 31, 2018, the Fund did not incur any
performance adjustment.
B. ADMINISTRATION AND SERVICING FEES - The Manager provides certain
administration and servicing functions for the Fund. For such services,
================================================================================
34 | USAA FIRST START GROWTH FUND
================================================================================
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 January 31, 2018, the Fund incurred administration and servicing
fees, paid or payable to the Manager, of $333,000.
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 January 31, 2018, the Fund reimbursed the
Manager $1,000 for these compliance and legal services. These expenses are
included in the professional fees on the Fund's Statement of Operations.
C. EXPENSE LIMITATION - The Manager agreed, through November 30, 2018, to limit
the total annual operating expenses of the Fund to 1.38% 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 November 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 January 31, 2018, the Fund
incurred reimbursable expenses of $454,000, of which $250,000 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 January 31, 2018, the Fund incurred transfer agent's fees,
paid or payable to SAS, of $1,252,000.
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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 35
================================================================================
(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 December 2017, the
SEC issued Temporary Final Rule Release No. 33-10442, INVESTMENT COMPANY
REPORTING MODERNIZATION (Temporary Rule), which extends to April 2019 the
compliance date on which funds in larger fund groups, such as the Fund, are
required to begin filing form N-PORT. In the interim, in lieu of filing form
N-PORT, the Temporary Rule requires that funds in larger fund groups maintain in
their records the information that is required to be included in form N-PORT.
The Temporary Rule does not affect the filing date or requirements of form
N-CEN.
In October 2016, the SEC issued Final Rule Release No. 33-10233, INVESTMENT
COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS (Liquidity Rule). The Liquidity Rule
requires funds to establish a liquidity risk management program and enhances
disclosures regarding funds' liquidity.
In February 2018, the SEC issued Interim Final Rule Release No. IC-33010,
INVESTMENT COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS; COMMISSION GUIDANCE FOR
IN-KIND ETFs, which extends, among others, the compliance dates for certain
disclosure requirements under the Liquidity Rule. The compliance date for the
liquidity disclosure required in form N-PORT has been extended to June 1, 2019
for larger entities such as the Fund. The compliance date for the liquidity
disclosure required in form N-CEN for large entities such as the Fund remains
December 1, 2018. The Fund is
================================================================================
36 | USAA FIRST START GROWTH FUND
================================================================================
expected to comply with these compliance dates for forms N-PORT and N-CEN. The
Manager continues to evaluate the impact these rules and amendments will have on
the financial statements and other disclosures.
(9) NEW ACCOUNTING PRONOUNCEMENTS
In March 2017, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Update (ASU) 2017-08, Premium Amortization of Purchased Callable Debt
Securities. The amendments in the ASU shorten the premium amortization period on
a purchased callable debt security from the security's contractual life to the
earliest call date. It is anticipated that this change will enhance disclosures
by reducing losses recognized when a security is called on an earlier date. This
ASU is effective for fiscal years beginning after December 15, 2018. The Manager
continues to evaluate the impact this ASU will have on the financial statement
disclosures.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 37
================================================================================
(10) FINANCIAL HIGHLIGHTS
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JANUARY 31, YEAR ENDED JULY 31,
-------------------------------------------------------------------------------------
2018 2017 2016 2015 2014 2013
-------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 13.61 $ 12.65 $ 13.29 $ 13.72 $ 12.56 $ 10.87
-------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .07 .14 .20 .18 .20 .23
Net realized and
unrealized gain (loss) 1.15 1.18 (.22) .35 1.31 1.69
-------------------------------------------------------------------------------------
Total from investment
operations 1.22 1.32 (.02) .53 1.51 1.92
-------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.14) (.19) (.19) (.18) (.23) (.23)
Realized capital gains (.44) (.17) (.43) (.78) (.12) -
-------------------------------------------------------------------------------------
Total distributions (.58) (.36) (.62) (.96) (.35) (.23)
-------------------------------------------------------------------------------------
Net asset value at
end of period $ 14.25 $ 13.61 $ 12.65 $ 13.29 $ 13.72 $ 12.56
=====================================================================================
Total return (%)* 9.15 10.78 .04 3.95 12.16 17.90
Net assets at end
of period (000) $461,103 $427,108 $389,499 $378,384 $340,974 $278,214
Ratios to average
net assets:**
Expenses (%)(a) 1.38(d) 1.38 1.38 1.38 1.38 1.38
Expenses, excluding
reimbursements (%)(a) 1.58(d) 1.69 1.77 1.75 1.74 1.79
Net investment
income (%) 1.05(d) 1.11 1.64 1.45 1.53 2.01
Portfolio turnover (%) 10 40(c) 101(b) 62 64 70
* 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 January 31, 2018, average net assets were
$440,290,000.
(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%)(+)
(+) Represents less than 0.01% of average net assets.
(b) Reflects increased trading activity due to changes in subadviser(s) and
asset allocation strategies.
(c) Reflects a return to normal trading levels after a prior year transition.
(d) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
38 | USAA FIRST START GROWTH FUND
================================================================================
EXPENSE EXAMPLE
January 31, 2018 (unaudited)
--------------------------------------------------------------------------------
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: direct costs, such
as wire fees, redemption fees, and low balance fees; and indirect costs,
including management fees, transfer agency fees, and other Fund operating
expenses. This example is intended to help you understand your indirect costs,
also referred to as "ongoing costs" (in dollars), of investing in the Fund and
to compare these costs with the ongoing costs of investing in other mutual
funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire six-month period of August 1, 2017, through
January 31, 2018.
ACTUAL EXPENSES
The line labeled "actual" in the table provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested at the beginning of the period, to estimate the
expenses that you paid over the period. Simply divide your account value by
$1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number in the "actual" line under the heading
"Expenses Paid During Period" to estimate the expenses you paid on your account
during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The line labeled "hypothetical" in the table provides information about
hypothetical account values and hypothetical expenses based on the Fund's actual
expense ratio and an assumed rate of return of 5% per year before expenses,
which is not the Fund's actual return. The hypothetical account values and
expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period. You may use this information to
================================================================================
EXPENSE EXAMPLE | 39
================================================================================
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 AUGUST 1, 2017 -
AUGUST 1, 2017 JANUARY 31, 2018 JANUARY 31, 2018
----------------------------------------------------------------
Actual $1,000.00 $1,091.50 $7.27
Hypothetical
(5% return before expenses) 1,000.00 1,018.25 7.02
*Expenses are equal to the Fund's annualized expense ratio of 1.38%, which is
net of any reimbursements and expenses paid indirectly, multiplied by the
average account value over the period, multiplied by 184 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 9.15% for the six-month period of
August 1, 2017, through January 31, 2018.
================================================================================
40 | USAA FIRST START 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)
=============================================================================
31703-0318 (C)2018, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA GROWTH FUND]
==============================================================
SEMIANNUAL REPORT
USAA GROWTH FUND
FUND SHARES (USAAX) o INSTITUTIONAL SHARES (UIGRX)
JANUARY 31, 2018
==============================================================
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
INVESTMENT OVERVIEW 2
FINANCIAL INFORMATION
Portfolio of Investments 3
Notes to Portfolio of Investments 9
Financial Statements 10
Notes to Financial Statements 13
EXPENSE EXAMPLE 29
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE
RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY
USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN
PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS
ABOUT THE FUND.
(C)2018, USAA. All rights reserved.
================================================================================
================================================================================
FUND OBJECTIVE
THE USAA GROWTH FUND (THE FUND) SEEKS LONG-TERM GROWTH OF CAPITAL.
--------------------------------------------------------------------------------
TYPES OF INVESTMENTS
The Fund invests its assets primarily in a diversified portfolio of equity
securities selected for their growth potential. Although the Fund will invest
primarily in U.S. securities, it may invest up to 20% of its total assets in
foreign securities including securities issued in emerging markets.
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* - 1/31/18 o
(% of Net Assets)
Amazon.com, Inc. ....................................................... 4.7%
Facebook, Inc. "A" ..................................................... 4.7%
Alibaba Group Holding Ltd. ADR ......................................... 4.3%
Oracle Corp. ........................................................... 3.7%
Cisco Systems, Inc. .................................................... 3.6%
Visa, Inc. "A" ......................................................... 3.3%
Microsoft Corp. ........................................................ 2.7%
Monster Beverage Corp. ................................................. 2.6%
Alphabet, Inc. "A" ..................................................... 2.5%
Varian Medical Systems, Inc. ........................................... 2.2%
o SECTOR ALLOCATION* - 1/31/18 o
[PIE CHART OF SECTOR ALLOCATION]
INFORMATION TECHNOLOGY 41.0%
HEALTH CARE 14.9%
CONSUMER DISCRETIONARY 12.3%
INDUSTRIALS 10.1%
CONSUMER STAPLES 8.4%
FINANCIALS 8.4%
ENERGY 2.0%
MATERIALS 1.1%
[END CHART]
*Does not include money market instruments.
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 3-8.
================================================================================
2 | USAA GROWTH FUND
================================================================================
PORTFOLIO OF INVESTMENTS
January 31, 2018 (unaudited)
--------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (98.2%)
COMMON STOCKS (98.2%)
CONSUMER DISCRETIONARY (12.3%)
------------------------------
APPAREL RETAIL (0.6%)
229,192 Ross Stores, Inc. $ 18,883
----------
AUTOMOTIVE RETAIL (0.6%)
72,853 O'Reilly Automotive, Inc.* 19,283
----------
BROADCASTING (0.5%)
598,147 Discovery Communications, Inc. "A"* 14,995
----------
CABLE & SATELLITE (0.6%)
437,807 Comcast Corp. "A" 18,620
----------
GENERAL MERCHANDISE STORES (0.7%)
217,296 Dollar General Corp. 22,408
----------
HOME IMPROVEMENT RETAIL (0.7%)
114,646 Home Depot, Inc. 23,032
----------
HOTELS, RESORTS & CRUISE LINES (0.6%)
275,307 Carnival Corp. 19,715
----------
INTERNET & DIRECT MARKETING RETAIL (4.7%)
101,479 Amazon.com, Inc.* 147,235
----------
RESTAURANTS (2.7%)
210,887 Darden Restaurants, Inc. 20,213
609,886 Yum China Holdings, Inc. 28,293
417,910 Yum! Brands, Inc. 35,351
----------
83,857
----------
SPECIALTY STORES (0.6%)
637,558 Dick's Sporting Goods, Inc. 20,058
----------
Total Consumer Discretionary 388,086
----------
CONSUMER STAPLES (8.4%)
-----------------------
DRUG RETAIL (0.5%)
210,662 CVS Health Corp. 16,577
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 3
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS (1.6%)
567,871 Procter & Gamble Co. $ 49,030
----------
PACKAGED FOODS & MEATS (2.0%)
3,659,481 Danone SA ADR 62,907
----------
SOFT DRINKS (4.3%)
1,135,060 Coca-Cola Co. 54,017
1,193,182 Monster Beverage Corp.* 81,411
----------
135,428
----------
Total Consumer Staples 263,942
----------
ENERGY (2.0%)
-------------
OIL & GAS EQUIPMENT & SERVICES (2.0%)
850,368 Schlumberger Ltd. 62,570
----------
FINANCIALS (8.4%)
-----------------
ASSET MANAGEMENT & CUSTODY BANKS (3.4%)
127,436 Ameriprise Financial, Inc. 21,499
868,307 SEI Investments Co. 65,253
192,958 T. Rowe Price Group, Inc. 21,540
----------
108,292
----------
CONSUMER FINANCE (2.2%)
481,318 American Express Co. 47,843
512,121 Synchrony Financial 20,321
----------
68,164
----------
FINANCIAL EXCHANGES & DATA (1.0%)
151,880 FactSet Research Systems, Inc. 30,481
----------
INVESTMENT BANKING & BROKERAGE (0.6%)
377,441 Charles Schwab Corp. 20,133
----------
LIFE & HEALTH INSURANCE (0.6%)
157,350 Prudential Financial, Inc. 18,696
----------
PROPERTY & CASUALTY INSURANCE (0.6%)
356,549 Progressive Corp. 19,289
----------
Total Financials 265,055
----------
HEALTH CARE (14.9%)
-------------------
BIOTECHNOLOGY (4.8%)
279,066 Amgen, Inc. 51,920
61,140 Biogen, Inc.* 21,265
128,342 Celgene Corp.* 12,983
================================================================================
4 | USAA GROWTH FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
246,133 Gilead Sciences, Inc. $ 20,626
117,261 Regeneron Pharmaceuticals, Inc.* 42,994
----------
149,788
----------
HEALTH CARE EQUIPMENT (2.2%)
537,193 Varian Medical Systems, Inc.* 68,492
----------
HEALTH CARE TECHNOLOGY (1.3%)
601,057 Cerner Corp.* 41,551
----------
MANAGED HEALTH CARE (2.8%)
125,074 Aetna, Inc. 23,366
92,895 Anthem, Inc. 23,024
97,515 Cigna Corp. 20,317
92,405 UnitedHealth Group, Inc. 21,880
----------
88,587
----------
PHARMACEUTICALS (3.8%)
330,356 Merck & Co., Inc. 19,574
393,321 Novartis AG 35,423
1,195,645 Novo Nordisk A/S ADR 66,358
----------
121,355
----------
Total Health Care 469,773
----------
INDUSTRIALS (10.1%)
-------------------
AEROSPACE & DEFENSE (0.7%)
60,621 Boeing Co. 21,482
----------
AGRICULTURAL & FARM MACHINERY (1.9%)
356,798 Deere & Co. 59,378
----------
AIR FREIGHT & LOGISTICS (3.1%)
833,785 Expeditors International of Washington, Inc. 54,155
356,246 United Parcel Service, Inc. "B" 45,357
----------
99,512
----------
AIRLINES (0.6%)
308,081 Southwest Airlines Co. 18,731
----------
BUILDING PRODUCTS (0.7%)
480,611 Masco Corp. 21,464
----------
CONSTRUCTION MACHINERY & HEAVY TRUCKS (0.6%)
103,811 Cummins, Inc. 19,517
----------
ELECTRICAL COMPONENTS & EQUIPMENT (0.6%)
103,366 Rockwell Automation, Inc. 20,393
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 5
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
INDUSTRIAL MACHINERY (1.3%)
117,164 Illinois Tool Works, Inc. $ 20,348
116,524 Stanley Black & Decker, Inc. 19,370
----------
39,718
----------
RAILROADS (0.6%)
152,542 Union Pacific Corp. 20,364
----------
Total Industrials 320,559
----------
INFORMATION TECHNOLOGY (41.0%)
------------------------------
APPLICATION SOFTWARE (4.0%)
99,067 Adobe Systems, Inc.* 19,789
558,494 Autodesk, Inc.* 64,573
198,627 Citrix Systems, Inc.* 18,425
243,903 Synopsys, Inc.* 22,588
----------
125,375
----------
COMMUNICATIONS EQUIPMENT (3.6%)
2,741,808 Cisco Systems, Inc. 113,895
----------
DATA PROCESSING & OUTSOURCED SERVICES (5.2%)
136,621 Automatic Data Processing, Inc. 16,890
194,739 Fidelity National Information Services, Inc. 19,934
269,245 Total System Services, Inc. 23,925
837,850 Visa, Inc. "A" 104,086
----------
164,835
----------
HOME ENTERTAINMENT SOFTWARE (0.7%)
293,002 Activision Blizzard, Inc. 21,721
----------
INTERNET SOFTWARE & SERVICES (14.1%)
665,910 Alibaba Group Holding Ltd. ADR* 136,039
67,414 Alphabet, Inc. "A"* 79,698
53,255 Alphabet, Inc. "C"* 62,305
487,942 eBay, Inc.* 19,801
787,689 Facebook, Inc. "A"* 147,211
----------
445,054
----------
IT CONSULTING & OTHER SERVICES (0.5%)
94,717 International Business Machines Corp. 15,505
----------
SEMICONDUCTOR EQUIPMENT (1.2%)
373,830 Applied Materials, Inc. 20,049
87,805 Lam Research Corp. 16,816
----------
36,865
----------
================================================================================
6 | USAA GROWTH FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
SEMICONDUCTORS (3.3%)
963,212 QUALCOMM, Inc. $ 65,739
190,402 Skyworks Solutions, Inc. 18,509
177,168 Texas Instruments, Inc. 19,430
----------
103,678
----------
SYSTEMS SOFTWARE (6.4%)
901,921 Microsoft Corp. 85,692
2,268,259 Oracle Corp. 117,019
----------
202,711
----------
TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (2.0%)
126,550 Apple, Inc. 21,188
382,835 NetApp, Inc. 23,544
209,176 Western Digital Corp. 18,613
----------
63,345
----------
Total Information Technology 1,292,984
----------
MATERIALS (1.1%)
----------------
METAL & GLASS CONTAINERS (1.1%)
301,215 Berry Global Group, Inc.* 17,829
292,730 Crown Holdings, Inc.* 16,993
----------
Total Materials 34,822
----------
Total Common Stocks (cost: $1,676,718) 3,097,791
----------
Total Equity Securities (cost: $1,676,718) 3,097,791
----------
MONEY MARKET INSTRUMENTS (1.7%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (1.7%)
51,896,452 State Street Institutional Treasury Money Market Fund Premier Class, 1.23%(a)
(cost: $51,896) 51,896
----------
Total Money Market Instruments (cost: $51,896) 51,896
----------
TOTAL INVESTMENTS (COST: $1,728,614) $3,149,687
==========
================================================================================
PORTFOLIO OF INVESTMENTS | 7
================================================================================
----------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
----------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
----------------------------------------------------------------------------------------------------------------
Equity Securities:
Common Stocks $3,097,791 $- $- $3,097,791
Money Market Instruments:
Government & U.S. Treasury Money
Market Funds 51,896 - - 51,896
----------------------------------------------------------------------------------------------------------------
Total $3,149,687 $- $- $3,149,687
----------------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
For the period of August 1, 2017, through January 31, 2018, 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.
================================================================================
8 | USAA GROWTH FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
January 31, 2018 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
Market values of securities are determined by procedures and practices
discussed in Note 1A to the financial statements.
The Portfolio of Investments category percentages shown represent the
percentages of the investments to net assets, and, in total, may not equal
100%. A category percentage of 0.0% represents less than 0.1% of net
assets. Investments in foreign securities were 9.5% of net assets at
January 31, 2018.
o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS
ADR American depositary receipts are receipts issued by a U.S. bank
evidencing ownership of foreign shares. Dividends are paid in U.S.
dollars.
o SPECIFIC NOTES
(a) Rate represents the money market fund annualized seven-day yield at
January 31, 2018.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 9
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
January 31, 2018 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $1,728,614) $3,149,687
Receivables:
Capital shares sold 1,734
Dividends and interest 1,714
Securities sold 6,437
----------
Total assets 3,159,572
----------
LIABILITIES
Payables:
Capital shares redeemed 2,055
Accrued management fees 1,779
Accrued transfer agent's fees 40
Other accrued expenses and payables 242
----------
Total liabilities 4,116
----------
Net assets applicable to capital shares outstanding $3,155,456
==========
NET ASSETS CONSIST OF:
Paid-in capital $1,694,226
Accumulated undistributed net investment income 44
Accumulated net realized gain on investments 40,113
Net unrealized appreciation of investments 1,421,073
----------
Net assets applicable to capital shares outstanding $3,155,456
==========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $1,628,394/49,644 capital shares
outstanding, no par value) $ 32.80
==========
Institutional Shares (net assets of $1,527,062/46,671 capital
shares outstanding, no par value) $ 32.72
==========
See accompanying notes to financial statements.
================================================================================
10 | USAA GROWTH FUND
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended January 31, 2018 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $91) $ 16,745
Interest 172
--------
Total income 16,917
--------
EXPENSES
Management fees 10,683
Administration and servicing fees:
Fund Shares 1,104
Institutional Shares 697
Transfer agent's fees:
Fund Shares 744
Institutional Shares 697
Custody and accounting fees:
Fund Shares 77
Institutional Shares 68
Postage:
Fund Shares 43
Institutional Shares 21
Shareholder reporting fees:
Fund Shares 20
Institutional Shares 4
Trustees' fees 17
Registration fees:
Fund Shares 26
Institutional Shares 12
Professional fees 63
Other 20
--------
Total expenses 14,296
Expenses paid indirectly:
Fund Shares (3)
Institutional Shares (3)
--------
Net expenses 14,290
--------
NET INVESTMENT INCOME 2,627
--------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain 61,392
Change in net unrealized appreciation/(depreciation) 401,007
--------
Net realized and unrealized gain 462,399
--------
Increase in net assets resulting from operations $465,026
========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 11
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended January 31, 2018 (unaudited), and year ended
July 31, 2017
----------------------------------------------------------------------------------------
1/31/2018 7/31/2017
----------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 2,627 $ 9,087
Net realized gain on investments 61,392 89,029
Change in net unrealized appreciation/(depreciation)
of investments 401,007 300,107
------------------------
Increase in net assets resulting from operations 465,026 398,223
------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares (2,594) (2,473)
Institutional Shares (3,529) (3,074)
------------------------
Total distributions of net investment income (6,123) (5,547)
------------------------
Net realized gains:
Fund Shares (33,714) (54,978)
Institutional Shares (31,877) (47,809)
------------------------
Total distributions of net realized gains (65,591) (102,787)
------------------------
Distributions to shareholders (71,714) (108,334)
------------------------
NET INCREASE IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS (NOTE 6)
Fund Shares 50,638 81,485
Institutional Shares 36,450 147,978
------------------------
Total net increase in net assets from
capital share transactions 87,088 229,463
------------------------
Net increase in net assets 480,400 519,352
NET ASSETS
Beginning of period 2,675,056 2,155,704
------------------------
End of period $3,155,456 $2,675,056
========================
Accumulated undistributed net investment income:
End of period $ 44 $ 3,540
========================
See accompanying notes to financial statements.
================================================================================
12 | USAA GROWTH FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
January 31, 2018 (unaudited)
--------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company Act
of 1940, as amended (the 1940 Act), is an open-end management investment
company organized as a Delaware statutory trust consisting of 51 separate funds.
The USAA 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
long-term growth of capital.
The Fund consists of two classes of shares: Growth Fund Shares (Fund Shares) and
Growth Fund Institutional Shares (Institutional Shares). Each class of shares
has equal rights to assets and earnings, except that each class bears certain
class-related expenses specific to the particular class. These expenses include
administration and servicing fees, transfer agent fees, postage, shareholder
reporting fees, and certain registration and custodian fees. Expenses not
attributable to a specific class, income, and realized gains or losses on
investments are allocated to each class of shares based on each class' relative
net assets. Each class has exclusive voting rights on matters related solely to
that class and separate voting rights on matters that relate to all classes. The
Institutional Shares are available for investment through a USAA discretionary
managed account program, and certain advisory programs sponsored by financial
intermediaries, such as brokerage firms, investment advisors, financial
planners, third-party administrators, and insurance companies. Institutional
Shares also are available to institutional investors, which include retirement
plans, endowments, foundations, and bank trusts, as well as other persons or
legal entities that the Fund may approve from time to time, or for purchase by a
USAA fund participating in a fund-of-funds investment strategy (USAA
fund-of-funds).
================================================================================
NOTES TO FINANCIAL STATEMENTS | 13
================================================================================
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
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.
================================================================================
14 | USAA GROWTH FUND
================================================================================
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 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 15
================================================================================
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
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.
================================================================================
16 | USAA GROWTH FUND
================================================================================
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 January 31, 2018, the Fund did not incur any
income tax, interest, or penalties, and has recorded no liability for net
unrecognized tax benefits relating to uncertain income tax positions. On
an ongoing basis, the Manager will monitor the Fund's tax basis to
determine if adjustments to this conclusion are necessary. The statute of
limitations on the Fund's tax return filings generally remain open for the
three preceding fiscal reporting year ends and remain subject to
examination by the Internal Revenue Service and state taxing authorities.
D. 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 17
================================================================================
the Fund's accounting records are maintained in U.S. dollars, foreign
currency amounts are translated into U.S. dollars on the following bases:
1. Purchases and sales of securities, income, and expenses at the exchange
rate obtained from an independent pricing service on the respective
dates of such transactions.
2. Market value of securities, other assets, and liabilities at the
exchange rate obtained from an independent pricing service on a daily
basis.
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held.
Such fluctuations are included with the net realized and unrealized gain or
loss from investments.
Separately, net realized foreign currency gains/losses may arise from sales
of foreign currency, currency gains/losses realized between the trade and
settlement dates on security transactions, and from the difference between
amounts of dividends, interest, and foreign withholding taxes recorded on
the Fund's books and the U.S. dollar equivalent of the amounts received.
At the end of the Fund's fiscal year, net realized foreign currency
gains/losses are reclassified from accumulated net realized gains/losses to
accumulated undistributed net investment income on the Statement of Assets
and Liabilities, as such amounts are treated as ordinary income/loss for
federal income tax purposes. Net unrealized foreign currency exchange
gains/losses arise from changes in the value of assets and liabilities,
other than investments in securities, resulting from changes in the
exchange rate.
G. EXPENSES PAID INDIRECTLY - 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 January 31,
2018, brokerage commission recapture credits reduced the expenses of the
Fund Shares and
================================================================================
18 | USAA GROWTH FUND
================================================================================
Institutional Shares by $3,000 and by $3,000, respectively. Additionally,
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.
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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 19
================================================================================
For the six-month period ended January 31, 2018, the Fund paid CAPCO facility
fees of $11,000, which represents 3.5% 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 January 31, 2018.
(3) DISTRIBUTIONS
The tax basis of distributions and accumulated undistributed net investment
income will be determined as of the Fund's tax year-end of July 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 taxes.
At July 31, 2017, the Fund had no capital loss carryforwards, for federal income
tax purposes.
For the six-month period ended January 31, 2018, the cost of securities,
including short-term securities, for federal income tax purposes, was
approximately the same as the cost reported in the financial statements.
Gross unrealized appreciation and depreciation of investments as of January 31,
2018, were $1,437,889,000 and $16,816,000, respectively, resulting in net
unrealized appreciation of $1,421,073,000.
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities, excluding
short-term securities, for the six-month period ended January 31, 2018, were
$222,524,000 and $213,129,000, respectively.
(5) SECURITIES LENDING
The Fund, through a 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
================================================================================
20 | USAA GROWTH FUND
================================================================================
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.
As of January 31, 2018, the Fund had no securities on loan.
(6) CAPITAL SHARE TRANSACTIONS
At January 31, 2018, there were an unlimited number of shares of capital stock
at no par value authorized for the Fund.
Capital share transactions for the Institutional Shares resulted from purchases
and sales by the affiliated USAA fund-of-funds as well as other persons or legal
entities that the Fund may approve from time to time. Capital share transactions
for all classes were as follows, in thousands:
SIX-MONTH PERIOD ENDED YEAR ENDED
JANUARY 31, 2018 JULY 31, 2017
---------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------
FUND SHARES:
Shares sold 3,555 $108,215 7,290 $ 190,473
Shares issued from reinvested
dividends 1,171 35,810 2,281 56,615
Shares redeemed (3,085) (93,387) (6,355) (165,603)
----------------------------------------------------
Net increase from capital share
transactions 1,641 $ 50,638 3,216 $ 81,485
====================================================
INSTITUTIONAL SHARES:
Shares sold 2,734 $ 82,050 10,628 $ 278,913
Shares issued from reinvested
dividends 1,161 35,400 2,053 50,879
Shares redeemed (2,680) (81,000) (6,953) (181,814)
----------------------------------------------------
Net increase from capital share
transactions 1,215 $ 36,450 5,728 $ 147,978
====================================================
================================================================================
NOTES TO FINANCIAL STATEMENTS | 21
================================================================================
(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 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 0.65% of the Fund's average net assets.
Prior to December 1, 2017, the base investment management fee was 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 Large-Cap Growth Funds Index. The Lipper
Large-Cap Growth Funds Index tracks the total return performance of funds
within the Lipper Large-Cap Growth Funds category.
================================================================================
22 | USAA GROWTH FUND
================================================================================
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). 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 Large-Cap Growth Funds Index over that period, even
if the class had overall negative returns during the performance period.
For the six-month period ended January 31, 2018, the Fund incurred total
management fees, paid or payable to the Manager, of $10,683,000, which
included a performance adjustment for the Fund Shares and Institutional
Shares of $246,000 and $200,000, respectively. For the Fund Shares and
Institutional Shares, the performance adjustments were 0.03% and 0.03%,
respectively.
B. SUBADVISORY ARRANGEMENT(S) - The Manager entered into Investment Subadvisory
Agreements with Loomis, Sayles & Company, L.P. (Loomis Sayles) and
Renaissance Investment Management (Renaissance), under which Loomis Sayles
and Renaissance each direct the investment and reinvestment of a portion of
the Fund's assets (as allocated from time to time by the Manager).
================================================================================
NOTES TO FINANCIAL STATEMENTS | 23
================================================================================
The Manager (not the Fund) pays Loomis Sayles a subadvisory fee in the
annual amount of 0.20% of the portion of the Fund's average net assets that
Loomis Sayles manages. For the six-month period ended January 31, 2018, the
Manager incurred subadvisory fees with respect to the Fund, paid or payable
to Loomis Sayles, of $1,831,000.
The Manager (not the Fund) pays Renaissance a subadvisory fee in the annual
amount of 0.20% of the portion of the Fund's average net assets that
Renaissance manages. For the six-month period ended January 31, 2018, the
Manager incurred subadvisory fees with respect to the Fund, paid or payable
to Renaissance, of $1,039,000.
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% and 0.10% of average net assets of the Funds Shares and
Institutional Shares, respectively. For the six-month period ended January
31, 2018, the Fund Shares and Institutional Shares incurred administration
and servicing fees, paid or payable to the Manager, of $1,104,000 and
$697,000, 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 January 31, 2018, the Fund reimbursed the
Manager $9,000 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 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 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 January 31,
2018,
================================================================================
24 | USAA GROWTH FUND
================================================================================
the Fund Shares and Institutional Shares incurred transfer agent's fees,
paid or payable to SAS, of $744,000 and $697,000, respectively.
E. UNDERWRITING SERVICES - USAA Investment Management Company provides
exclusive underwriting and distribution of the Fund's shares on a continuing
best-efforts basis and receives no fee or other compensation for these
services.
(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 January 31, 2018, 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 0.4
Target Retirement Income 0.5
Target Retirement 2020 1.3
Target Retirement 2030 3.8
Target Retirement 2040 5.3
Target Retirement 2050 3.3
Target Retirement 2060 0.3
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.
(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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 25
================================================================================
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 December 2017, the SEC issued Temporary Final Rule Release No.
33-10442, INVESTMENT COMPANY REPORTING MODERNIZATION (Temporary Rule), which
extends to April 2019 the compliance date on which funds in larger fund groups,
such as the Fund, are required to begin filing form N-PORT. In the interim, in
lieu of filing form N-PORT, the Temporary Rule requires that funds in larger
fund groups maintain in their records the information that is required to be
included in form N-PORT. The Temporary Rule does not affect the filing date or
requirements of form N-CEN.
In October 2016, the SEC issued Final Rule Release No. 33-10233, INVESTMENT
COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS (Liquidity Rule). The Liquidity Rule
requires funds to establish a liquidity risk management program and enhances
disclosures regarding funds' liquidity.
In February 2018, the SEC issued Interim Final Rule Release No. IC-33010,
INVESTMENT COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS; COMMISSION GUIDANCE FOR
IN-KIND ETFs, which extends, among others, the compliance dates for certain
disclosure requirements under the Liquidity Rule. The compliance date for the
liquidity disclosure required in form N-PORT has been extended to June 1, 2019
for larger entities such as the Fund. The compliance date for the liquidity
disclosure required in form N-CEN for large entities such as the Fund remains
December 1, 2018. The Fund is expected to comply with these compliance dates for
forms N-PORT and N-CEN. The Manager continues to evaluate the impact these rules
and amendments will have on the financial statements and other disclosures.
(10) NEW ACCOUNTING PRONOUNCEMENTS
In March 2017, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Update (ASU) 2017-08, Premium Amortization of Purchased Callable Debt
Securities. The amendments in the ASU shorten the premium amortization period on
a purchased callable debt security from the security's contractual life to the
earliest call date. It is anticipated that this change will enhance disclosures
by reducing losses recognized when a security is called on an earlier date. This
ASU is effective for fiscal years beginning after December 15, 2018. The Manager
continues to evaluate the impact this ASU will have on the financial statement
disclosures.
================================================================================
26 | USAA GROWTH FUND
================================================================================
(11) FINANCIAL HIGHLIGHTS - FUND SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JANUARY 31, YEAR ENDED JULY 31,
-------------------------------------------------------------------------------------
2018 2017 2016 2015 2014 2013
-------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 28.65 $ 25.53 $ 25.91 $ 23.62 $ 20.05 $ 15.71
-------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income .02 .09 .10 .28 .11 .13
Net realized and
unrealized gain 4.88 4.31 1.19 3.73 3.63 4.28
-------------------------------------------------------------------------------------
Total from investment
operations 4.90 4.40 1.29 4.01 3.74 4.41
-------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.05) (.05) (.11) (.28) (.17) (.07)
Realized capital gains (.70) (1.23) (1.56) (1.44) - -
-------------------------------------------------------------------------------------
Total distributions (.75) (1.28) (1.67) (1.72) (.17) (.07)
-------------------------------------------------------------------------------------
Net asset value at
end of period $ 32.80 $ 28.65 $ 25.53 $ 25.91 $ 23.62 $ 20.05
=====================================================================================
Total return (%)* 17.31 18.04 5.25 17.50 18.71 28.13
Net assets at end
of period (000) $1,628,394 $1,375,305 $1,143,344 $1,262,075 $1,101,533 $796,024
Ratios to average
net assets:**
Expenses (%)(a) 1.03(c) 1.09 1.11 1.08(b) 1.00 1.00
Expenses, excluding
reimbursements (%)(a) 1.03(c) 1.09 1.11 1.11 1.12 1.19
Net investment
income (%) .15(c) .36 .36 .25 .39 .51
Portfolio turnover (%) 8 17 18 31 31 28
* 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 January 31, 2018, average net assets were
$1,462,098,000.
(a) Reflects total annual operating expenses of the Fund Shares before
reductions of any expenses paid indirectly. The Fund Shares' expenses paid
indirectly decreased the expense ratios by less than 0.01%.
(b) Prior to December 1, 2014, the Manager had voluntarily agreed to limit the
annual expenses of the Fund Shares to 1.00% of the Fund Shares' average net
assets.
(c) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 27
================================================================================
(11) FINANCIAL HIGHLIGHTS (CONTINUED) - INSTITUTIONAL SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JANUARY 31, YEAR ENDED JULY 31,
-------------------------------------------------------------------------------------
2018 2017 2016 2015 2014 2013
-------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 28.59 $ 25.48 $ 25.86 $ 23.57 $ 20.02 $ 15.71
-------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income .03 .12 .15 .30 .10 .10(a)
Net realized and
unrealized gain 4.88 4.30 1.16 3.72 3.62 4.32(a)
-------------------------------------------------------------------------------------
Total from investment
operations 4.91 4.42 1.31 4.02 3.72 4.42(a)
-------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.08) (.08) (.13) (.29) (.17) (.11)
Realized capital gains (.70) (1.23) (1.56) (1.44) - -
-------------------------------------------------------------------------------------
Total distributions (.78) (1.31) (1.69) (1.73) (.17) (.11)
-------------------------------------------------------------------------------------
Net asset value at
end of period $ 32.72 $ 28.59 $ 25.48 $ 25.86 $ 23.57 $ 20.02
=====================================================================================
Total return (%)* 17.36 18.14 5.34 17.57 18.66 28.22
Net assets at end of
period (000) $1,527,062 $1,299,751 $1,012,360 $865,996 $717,579 $664,513
Ratios to average
net assets:**
Expenses (%)(b) .96(c) 1.01 1.02 1.01 1.00 .99
Net investment
income (%) .22(c) .43 .47 .31 .39 .53
Portfolio turnover (%) 8 17 18 31 31 28
* 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 January 31, 2018, average net assets were
$1,385,004,000.
(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) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
28 | USAA GROWTH FUND
================================================================================
EXPENSE EXAMPLE
January 31, 2018 (unaudited)
--------------------------------------------------------------------------------
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: direct costs, such
as wire fees, redemption fees, and low balance fees; and indirect costs,
including management fees, transfer agency fees, and other Fund operating
expenses. This example is intended to help you understand your indirect costs,
also referred to as "ongoing costs" (in dollars), of investing in the Fund and
to compare these costs with the ongoing costs of investing in other mutual
funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire six-month period of August 1, 2017, through
January 31, 2018.
ACTUAL EXPENSES
The line labeled "actual" under each share class in the table provides
information about actual account values and actual expenses. You may use the
information in this line, together with the amount you invested at the beginning
of the period, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number for your share
class in the "actual" line under the heading "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The line labeled "hypothetical" under each share class in the table provides
information about hypothetical account values and hypothetical expenses based on
the Fund's actual expense ratios for each class and an assumed rate of return of
5% per year before expenses, which is not the Fund's actual return. The
hypothetical account values and expenses may not be used to estimate the 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
================================================================================
EXPENSE EXAMPLE | 29
================================================================================
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 AUGUST 1, 2017 -
AUGUST 1, 2017 JANUARY 31, 2018 JANUARY 31, 2018
----------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $1,173.10** $5.64**
Hypothetical
(5% return before expenses) 1,000.00 1,020.01** 5.24**
INSTITUTIONAL SHARES
Actual 1,000.00 1,173.60** 5.26**
Hypothetical
(5% return before expenses) 1,000.00 1,020.37** 4.89**
*Expenses are equal to the annualized expense ratio of 1.03% for Fund Shares
and 0.96% for Institutional Shares, which are net of any reimbursements and
expenses paid indirectly, multiplied by the average account value over the
period, multiplied by 184 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 17.31% for Fund Shares and 17.36% for Institutional Shares for the
six-month period of August 1, 2017, through January 31, 2018.
**The Fund's annualized expense ratio of 1.03% for Fund Shares and 0.96% for
Institutional Shares above reflects a decrease in management fees from 0.75%
to 0.65% effective December 1, 2017. Had the decrease been in effect for the
entire six-month period of August 1, 2017, through January 31, 2018,
================================================================================
30 | USAA GROWTH FUND
================================================================================
the Fund's expense ratio would have been 0.97% for Fund Shares and 0.90% for
Institutional Shares, which is net of expenses paid indirectly, and the
values in the table above would be as shown below.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD
ACCOUNT VALUE ACCOUNT VALUE AUGUST 1, 2017 -
AUGUST 1, 2017 JANUARY 31, 2018 JANUARY 31, 2018
----------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $1,173.30 $5.31
Hypothetical
(5% return before expenses) 1,000.00 1,020.32 4.94
INSTITUTIONAL SHARES
Actual 1,000.00 1,174.00 4.93
Hypothetical
(5% return before expenses) 1,000.00 1,020.67 4.58
================================================================================
EXPENSE EXAMPLE | 31
================================================================================
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)
=============================================================================
23420-0318 (C)2018, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA HIGH INCOME FUND]
==============================================================
SEMIANNUAL REPORT
USAA HIGH INCOME FUND
FUND SHARES (USHYX) o INSTITUTIONAL SHARES (UIHIX)
o ADVISER SHARES (UHYOX) o R6 SHARES (URHIX)
JANUARY 31, 2018
==============================================================
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
INVESTMENT OVERVIEW 2
FINANCIAL INFORMATION
Portfolio of Investments 4
Notes to Portfolio of Investments 32
Financial Statements 37
Notes to Financial Statements 41
EXPENSE EXAMPLE 65
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE
RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY
USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN
PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS
ABOUT THE FUND.
(C)2018, USAA. All rights reserved.
================================================================================
================================================================================
FUND OBJECTIVE
THE USAA HIGH INCOME FUND (THE FUND) SEEKS TO PROVIDE AN ATTRACTIVE TOTAL RETURN
PRIMARILY THROUGH HIGH CURRENT INCOME AND SECONDARILY THROUGH CAPITAL
APPRECIATION.
--------------------------------------------------------------------------------
TYPES OF INVESTMENTS
The Fund primarily invests its assets in a broad range of U.S. dollar-
denominated high-yield securities, including bonds (often referred to as "junk"
bonds), convertible securities, leveraged loans, or preferred stocks, with an
emphasis on non-investment-grade debt securities. Although the Fund will invest
primarily in U.S. securities, it may invest without limit in dollar-denominated
foreign securities and to a limited extent in non-dollar-denominated foreign
securities, including in each case emerging-markets 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 set 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* - 1/31/18 o
(% of Net Assets)
SPDR Bloomberg Barclays
High Yield Bond ETF** .................................................. 3.1%
iShares iBoxx $ High Yield
Corporate Bond ETF** ................................................... 1.9%
NuStar Logistics, LP, 7.63% .............................................. 1.3%
CSC Holdings, LLC, 10.88% ................................................ 1.1%
Valeant Pharmaceuticals
International, Inc., 6.13% ............................................. 1.0%
ArcelorMittal, 7.50% ..................................................... 1.0%
HCA, Inc., 5.88% ......................................................... 1.0%
Sprint Corp., 7.25% ...................................................... 1.0%
Sprint Corp., 7.63% ...................................................... 0.9%
Clear Channel Worldwide
Holdings, Inc., 7.63% .................................................. 0.9%
You will find a complete list of securities that the Fund owns on pages 4-31.
*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.
================================================================================
2 | USAA HIGH INCOME FUND
================================================================================
o SECTOR ALLOCATION* - 1/31/18 o
[PIE CHART OF SECTOR ALLOCATION]
ENERGY 17.2%
CONSUMER DISCRETIONARY 14.1%
MATERIALS 12.3%
FINANCIALS 11.3%
INDUSTRIALS 8.1%
TELECOMMUNICATION SERVICES 8.1%
HEALTH CARE 7.1%
UTILITIES 4.3%
CONSUMER STAPLES 4.0%
INFORMATION TECHNOLOGY 3.1%
REAL ESTATE 1.4%
MUNICIPAL 0.6%
[END CHART]
*Does not include futures, 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
January 31, 2018 (unaudited)
-----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------
BONDS (88.6%)
COLLATERALIZED MORTGAGE OBLIGATION (0.1%)
FINANCIALS (0.1%)
-----------------
$ 4,280 Countrywide Home Loans 3 mo.
LIBOR + 9.00% 2.52%(a) 2/25/2035 $ 1,071
1,489 Wells Fargo Mortgage Backed Securities Trust 3.49(b) 4/25/2035 1,450
----------
Total Financials 2,521
----------
Total Collateralized Mortgage Obligations (cost $2,799) 2,521
----------
COMMERCIAL MORTGAGE SECURITIES (1.7%)
FINANCIALS (1.7%)
-----------------
COMMERCIAL MORTGAGE-BACKED SECURITIES (1.7%)
104 Banc of America Commercial Mortgage, Inc.(c) 5.41(b) 12/10/2042 100
5,000 Banc of America Commercial Mortgage, Inc. 6.12(b) 2/10/2051 4,997
5,000 Bear Stearns Commercial Mortgage Securities Trust 5.53(b) 1/12/2045 4,735
7,337 Bear Stearns Commercial Mortgage Securities, Inc.(c) 5.66(b) 9/11/2041 7,440
2,997 Citigroup Commercial Mortgage Trust 6.19(b) 12/10/2049 1,913
9,523 Credit Suisse Commercial Mortgage Trust 1.75(b) 2/15/2040 9,491
2,428 Freddie Mac(+) 3.12(b) 10/25/2031 2,387
5,000 Freddie Mac(+) 3.15(b) 11/25/2025 5,063
168 GMAC Commercial Mortgage Securities, Inc. 4.96(b) 12/10/2041 168
1,981 Merrill Lynch Mortgage Trust 5.05(b) 8/12/2039 1,961
----------
38,255
----------
INTEREST-ONLY COMMERCIAL MORTGAGE BACKED SECURITIES (0.0%)
267 Credit Suisse First Boston Corp.(d) 1.79(b) 5/17/2040 -
----------
Total Financials 38,255
----------
Total Commercial Mortgage Securities (cost: $39,423) 38,255
----------
CONVERTIBLE SECURITIES (0.2%)
ENERGY (0.1%)
-------------
OIL & GAS EXPLORATION & PRODUCTION (0.1%)
3,254 Comstock Resources, Inc.(e) 7.75 04/01/2019 3,121
----------
================================================================================
4 | USAA HIGH INCOME FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------
MATERIALS (0.1%)
----------------
GOLD (0.1%)
$ 627 Hycroft Mining Corp(d),(f),(g) 15.00% 10/22/2020 $ 946
----------
Total Convertible Securities (cost: $3,824) 4,067
----------
CORPORATE OBLIGATIONS (64.6%)
CONSUMER DISCRETIONARY (12.8%)
------------------------------
ADVERTISING (1.2%)
5,000 Advantage Sales & Marketing, Inc.
3 mo. LIBOR + 6.50%(h) 8.27 7/25/2022 4,701
5,000 Checkout Holding Corp. 1 mo. LIBOR + 6.750%(h) 8.32 4/11/2022 2,091
21,000 Clear Channel Worldwide Holdings, Inc. 7.63 3/15/2020 20,790
----------
27,582
----------
APPAREL RETAIL (0.8%)
10,000 L Brands, Inc. 6.95 3/01/2033 9,925
2,500 L Brands, Inc. 6.75 7/01/2036 2,531
5,000 Men's Wearhouse, Inc. 7.00 7/01/2022 4,988
----------
17,444
----------
AUTO PARTS & EQUIPMENT (0.4%)
4,733 Midas Intermediate Holdco II, LLC /Midas
Intermediate Holdco II Finance, Inc.(c) 7.87 10/01/2022 4,862
3,000 TI Group Automotive Systems, LLC(c) 8.75 7/15/2023 3,206
----------
8,068
----------
AUTOMOBILE MANUFACTURERS (0.1%)
3,000 Tesla, Inc.(c) 5.30 8/15/2025 2,867
----------
BROADCASTING (0.4%)
2,240 iHeartCommunications, Inc. 3 mo. LIBOR + 6.75%(h) 8.44 1/30/2019 1,724
4,310 iHeartCommunications, Inc. 3 mo. LIBOR + 7.50%(h) 9.20 7/30/2019 3,305
5,000 Salem Media Group, Inc.(c) 6.75 6/01/2024 4,912
----------
9,941
----------
CABLE & SATELLITE (2.8%)
5,000 Cablevision Systems Corp. 8.00 4/15/2020 5,381
5,000 CCO Holdings, LLC / CCO Holdings Capital Corp. 5.75 1/15/2024 5,163
5,000 CCO Holdings, LLC / CCO Holdings Capital Corp.(c) 5.75 2/15/2026 5,187
5,500 CCO Holdings, LLC / CCO Holdings Capital Corp.(c) 5.50 5/01/2026 5,624
5,000 CCO Holdings, LLC / CCO Holdings Capital Corp.(c) 5.13 5/01/2027 4,900
1,000 CCO Holdings, LLC / CCO Holdings Capital Corp.(c) 5.00 2/01/2028 969
5,000 CSC Holdings, LLC(c) 10.12 1/15/2023 5,653
21,018 CSC Holdings, LLC(c) 10.87 10/15/2025 25,084
================================================================================
PORTFOLIO OF INVESTMENTS | 5
================================================================================
-----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------
$ 1,000 CSC Holdings, LLC(c),(i) 5.38% 2/01/2028 $ 1,000
3,000 Radiate Holdco, LLC / Radiate Finance, Inc.(c),(j) 6.87 2/15/2023 3,030
----------
61,991
----------
CASINOS & GAMING (1.2%)
2,500 Churchill Downs, Inc.(c),(j) 4.75 1/15/2028 2,478
1,500 Downstream Development Authority of the
Quapaw Tribe of Oklahoma(c),(k) 10.50 2/15/2023 1,550
2,000 Eldorado Resorts, Inc. 7.00 8/01/2023 2,140
2,500 Eldorado Resorts, Inc. 6.00 4/01/2025 2,622
2,472 Inn of the Mountain Gods Resort & Casino(c),(l) 9.25 11/30/2020 2,261
2,000 Scientific Games International, Inc.(c) 7.00 1/01/2022 2,115
3,000 Scientific Games International, Inc. 10.00 12/01/2022 3,300
4,000 Scientific Games International, Inc.(c),(k) 5.00 10/15/2025 4,015
6,000 Wynn Las Vegas, LLC /Wynn Las Vegas Capital
Corp.(c) 5.25 5/15/2027 5,929
----------
26,410
----------
DEPARTMENT STORES (0.8%)
3,936 J.C. Penney Co., Inc. 3 mo. LIBOR+ 4.25%(h) 5.73 6/23/2023 3,810
5,000 J.C. Penney Corp., Inc.(l) 5.65 6/01/2020 4,944
2,000 Neiman Marcus Group Ltd, LLC(c) 8.00 10/15/2021 1,285
8,837 Neiman Marcus Group Ltd., LLC 3
mo. LIBOR + 3.25%(h) 4.80 10/25/2020 7,605
----------
17,644
----------
HOME FURNISHINGS (0.4%)
2,030 Comfort Holding, LLC 1 mo. LIBOR + 10.00%(h) 11.55 2/03/2025 1,878
6,848 Serta Simmons Bedding, LLC 1 mo. LIBOR
+ 8.00%(h),(k) 9.56 11/08/2024 6,467
----------
8,345
----------
HOMEBUILDING (0.9%)
4,000 Ashton Woods USA, LLC / Ashton Woods
Finance Co.(c) 6.75 8/01/2025 4,030
3,000 AV Homes, Inc. 6.62 5/15/2022 3,139
3,000 Beazer Homes USA, Inc.(c) 5.88 10/15/2027 3,000
3,000 M/I Homes, Inc. 6.75 1/15/2021 3,120
3,000 M/I Homes, Inc. 5.63 8/01/2025 3,067
3,000 Weekley Homes, LLC /Weekley Finance Corp.(c) 6.62 8/15/2025 3,023
----------
19,379
----------
HOTELS, RESORTS & CRUISE LINES (0.1%)
3,000 Hilton Worldwide Finance, LLC / Hilton Worldwide
Finance Corp. 4.88 4/01/2027 3,075
----------
================================================================================
6 | USAA HIGH INCOME FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------
INTERNET & DIRECT MARKETING RETAIL (0.2%)
$ 5,000 Netflix, Inc.(c) 4.88% 4/15/2028 $ 4,969
----------
LEISURE FACILITIES (0.4%)
10,000 Constellation Merger Sub, Inc.(c) 8.50 9/15/2025 9,800
----------
LEISURE PRODUCTS (0.1%)
3,000 Mattel, Inc.(c),(i) 6.75 12/31/2025 3,053
----------
MOVIES & ENTERTAINMENT (0.5%)
3,000 AMC Entertainment Holdings, Inc.(l) 5.88 11/15/2026 2,925
3,000 AMC Entertainment Holdings, Inc.(l) 6.12 5/15/2027 2,940
5,000 National CineMedia, LLC 5.75 8/15/2026 4,700
----------
10,565
----------
PUBLISHING (0.2%)
2,921 Cengage Learning Acquisitions, Inc.
3 mo. LIBOR + 1.735%(h) 5.81 6/07/2023 2,846
1,000 Meredith Corp.(c),(j) 6.87 2/01/2026 1,026
----------
3,872
----------
RESTAURANTS (0.5%)
217 Aramark Services, Inc.(c),(i) 5.00 2/01/2028 222
5,000 CEC Entertainment, Inc. 8.00 2/15/2022 4,975
1,500 Golden Nugget, Inc.(c) 6.75 10/15/2024 1,554
1,500 Golden Nugget, Inc.(c) 8.75 10/01/2025 1,605
3,000 NPC International, Inc. 2 mo. LIBOR + 2.00%(h) 9.15 4/18/2025 3,105
----------
11,461
----------
SPECIALTY STORES (1.7%)
2,495 Academy Ltd. 3 mo. LIBOR + 4.00%(h) 5.49 7/01/2022 2,017
5,432 Academy Ltd. 3 mo. LIBOR + 4.00%(h) 5.57 7/01/2022 4,392
8,000 Guitar Center, Inc.(c),(l) 6.50 4/15/2019 7,860
1,980 Petsmart, Inc. 3 mo. LIBOR + 3.00%(h) 4.57 3/11/2022 1,611
5,000 PetSmart, Inc.(c) 7.13 3/15/2023 3,169
2,000 PetSmart, Inc.(c) 5.88 6/01/2025 1,550
6,000 Staples, Inc. 3 mo. LIBOR + 5.00%(h) 5.49 9/12/2024 5,981
5,000 Staples, Inc.(c),(l) 8.50 9/15/2025 4,844
7,165 Toys R Us Property Co. I, LLC 1 mo.
LIBOR + 5.00%(h) 6.57 8/21/2019 6,430
----------
37,854
----------
TIRES & RUBBER (0.1%)
3,000 American Tire Distributors, Inc.(c),(i) 10.25 3/01/2022 3,120
----------
Total Consumer Discretionary 287,440
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 7
================================================================================
-----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES (1.6%)
-----------------------
FOOD RETAIL (1.2%)
$ 8,000 Albertson's Cos., LLC / Safeway, Inc. /
New Albertson's, Inc. / Albertson's, LLC 6.62% 6/15/2024 $ 7,640
12,000 Albertson's Cos., LLC / Safeway, Inc. /
New Albertson's, Inc. / Albertson's, LLC(i) 5.75 3/15/2025 10,770
7,000 BI-LO, LLC & BI-LO Finance Corp.(c),(l) 9.25 2/15/2019 6,939
----------
25,349
----------
PACKAGED FOODS & MEATS (0.4%)
3,000 Pilgrim's Pride Corp.(c) 5.88 9/30/2027 3,015
3,000 Post Holdings, Inc.(c) 8.00 7/15/2025 3,371
3,000 Post Holdings, Inc.(c) 5.75 3/01/2027 3,010
----------
9,396
----------
Total Consumer Staples 34,745
----------
ENERGY (12.8%)
--------------
COAL & CONSUMABLE FUELS (0.6%)
5,000 Alliance Resource Operating Partners,
LP / Alliance Resource Finance Corp.(c) 7.50 5/01/2025 5,431
3,000 Consol Mining Corp.(c) 11.00 11/15/2025 3,202
5,000 Peabody Energy Corp.(f),(g) 6.00 11/15/2018 -
2,000 Peabody Energy Corp.(c) 6.00 3/31/2022 2,085
2,000 Peabody Energy Corp.(c) 6.38 3/31/2025 2,108
----------
12,826
----------
OIL & GAS DRILLING (1.8%)
7,000 Diamond Offshore Drilling, Inc.(l) 7.87 8/15/2025 7,446
3,000 Ensco plc(l) 5.20 3/15/2025 2,625
3,000 Ensco plc(i) 7.75 2/01/2026 2,991
3,000 Nabors Industries, Inc.(l) 5.50 1/15/2023 3,015
3,000 Nabors Industries, Inc.(c),(j) 5.75 2/01/2025 2,951
5,000 Rowan Companies, Inc.(l) 7.38 6/15/2025 5,148
3,000 Transocean, Inc.(l) 8.37 12/15/2021 3,338
7,000 Transocean, Inc.(c) 9.00 7/15/2023 7,709
5,000 Transocean, Inc.(c) 7.50 1/15/2026 5,225
----------
40,448
----------
OIL & GAS EQUIPMENT & SERVICES (0.8%)
3,000 Archrock Partners, LP / Archrock Partners
Finance Corp. 6.00 4/01/2021 3,053
4,000 Brand Industrial Services, Inc.(c) 8.50 7/15/2025 4,170
5,000 CSI Compressco, LP / CSI Compressco Finance, Inc.(l) 7.25 8/15/2022 4,950
5,880 Weatherford International, Ltd. 5.13 9/15/2020 6,056
----------
18,229
----------
================================================================================
8 | USAA HIGH INCOME FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------
OIL & GAS EXPLORATION & PRODUCTION (3.2%)
$ 6,000 Bill Barrett Corp.(l) 7.00% 10/15/2022 $ 6,180
5,162 California Resources Corp.(c) 8.00 12/15/2022 4,355
2,000 California Resources Corp.(h),(k) 0.00 12/31/2022 2,042
1,297 California Resources Corp. 6.00 11/15/2024 966
3,000 Carrizo Oil & Gas, Inc. 8.25 7/15/2025 3,323
3,000 Chesapeake Energy Corp. 3 mo. LIBOR + 7.50%(h) 8.95 8/23/2021 3,217
868 Chesapeake Energy Corp.(c) 8.00 12/15/2022 934
2,000 Comstock Resources, Inc.(e) 10.00 3/15/2020 2,080
4,000 Devon Energy Corp. 5.85 12/15/2025 4,616
3,000 EP Energy, LLC / Everest Acquisition Finance, Inc. 7.75 9/01/2022 2,220
2,000 EV Energy Partners, LP / EV Energy Finance Corp. 8.00 4/15/2019 1,050
4,000 Murphy Oil Corp. 6.87 8/15/2024 4,283
3,000 Murphy Oil Corp. 5.75 8/15/2025 3,083
5,000 Newfield Exploration Co. 5.38 1/01/2026 5,306
4,114 Quicksilver Resources, Inc.(d),(h),(m) 0.00 6/21/2019 46
3,000 Resolute Energy Corp. 8.50 5/01/2020 3,030
2,408 Rex Energy Corp. 8.00 10/01/2020 915
7,000 Sandridge Energy, Inc.(f),(g) 7.50 2/15/2023 -
3,000 Southwestern Energy Co. 4.10 3/15/2022 2,963
7,000 Southwestern Energy Co. 6.70 1/23/2025 7,157
2,000 Southwestern Energy Co. 7.75 10/01/2027 2,093
3,000 SRC Energy, Inc.(c) 6.25 12/01/2025 3,105
2,000 Whiting Petroleum Corp.(c),(i) 6.63 1/15/2026 2,050
3,000 WildHorse Resource Development Corp. 6.87 2/01/2025 3,113
3,000 WPX Energy, Inc. 8.25 8/01/2023 3,457
----------
71,584
----------
OIL & GAS REFINING & MARKETING (1.0%)
2,000 Cheniere Corpus Christi Holdings, LLC 7.00 6/30/2024 2,279
5,000 Cheniere Corpus Christi Holdings, LLC 5.88 3/31/2025 5,397
4,000 CITGO Petroleum Corp.(c) 6.25 8/15/2022 4,037
5,000 EnLink Midstream Partners, LP(l) 6.00(n) -(o) 4,970
5,000 PBF Holding Co., LLC / PBF Finance Corp. 7.25 6/15/2025 5,279
----------
21,962
----------
OIL & GAS STORAGE & TRANSPORTATION (5.4%)
5,000 Andeavor Logistics, LP 6.87(n) -(o) 5,179
5,000 Blue Racer Midstream, LLC / Blue Racer
Finance Corp.(c) 6.13 11/15/2022 5,212
10,000 Boardwalk Pipelines, LP 4.95 12/15/2024 10,529
15,000 DCP Midstream Operating, LP 3 mo. LIBOR
+ 3.85%(c) 5.85(a) 5/21/2043 14,531
================================================================================
PORTFOLIO OF INVESTMENTS | 9
================================================================================
-----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------
$ 2,500 Energy Transfer Equity, LP 7.50% 10/15/2020 $ 2,754
5,000 Energy Transfer, LP 3 mo. LIBOR + 3.018% 4.79(a) 11/01/2066 4,500
12,915 Enterprise Products Operating, LLC
3 mo. LIBOR + 8.25% 4.26(a) 6/01/2067 12,896
9,000 Enterprise Products Operating, LLC
3 mo. LIBOR + 2.68% 7.03(a) 1/15/2068 9,101
3,000 Enterprise TE Partners LP 3 mo. LIBOR + 4.50% 4.26(a) 6/01/2067 2,876
3,000 Genesis Energy, LP / Genesis Energy Finance Corp. 6.50 10/01/2025 3,068
3,000 Holly Energy Partners, LP / Holly Energy
Finance Corp.(c) 6.00 8/01/2024 3,150
5,061 Kinder Morgan, Inc. 7.80 8/01/2031 6,471
5,000 Martin Midstream Partners, LP / Martin Midstream
Finance Corp. 7.25 2/15/2021 5,094
5,000 NGL Energy Partners, LP / NGL Energy
Finance Corp. 7.50 11/01/2023 5,238
5,000 Sabine Pass Liquefaction, LLC 5.88 6/30/2026 5,577
3,000 SemGroup Corp.(c) 6.37 3/15/2025 3,023
5,000 Southern Union Co. 3 mo. LIBOR + 3.018% 4.79(a) 11/01/2066 4,356
3,000 Targa Resources Partners, LP / Targa Resources
Partners Finance Corp. 5.25 5/01/2023 3,071
3,000 Transcontinental Gas Pipe Line Co., LLC 7.85 2/01/2026 3,805
10,000 Williams Companies, Inc. 4.55 6/24/2024 10,312
----------
120,743
----------
Total Energy 285,792
----------
FINANCIALS (6.7%)
-----------------
ASSET MANAGEMENT & CUSTODY BANKS (0.6%)
10,000 Prospect Capital Corp. 5.00 7/15/2019 10,179
----------
CONSUMER FINANCE (1.4%)
5,000 Ally Financial, Inc.(l) 5.75 11/20/2025 5,357
5,000 Credit Acceptance Corp. 6.12 2/15/2021 5,075
12,000 Navient Corp. 7.25 1/25/2022 13,039
1,000 Navient Corp. 6.13 3/25/2024 1,025
7,000 Navient Corp. 6.75 6/25/2025 7,350
----------
31,846
----------
DIVERSIFIED BANKS (0.3%)
3,312 APTIM Corp.(c) 7.75 6/15/2025 3,079
3,000 Trident Merger Sub, Inc.(c) 6.63 11/01/2025 3,022
----------
6,101
----------
================================================================================
10 | USAA HIGH INCOME FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------
INVESTMENT BANKING & BROKERAGE (0.0%)
$ 1,000 Lehman Brothers Holdings, Inc.(m) 1.00% 12/31/2049 $ 43
1,500 Lehman Brothers Treasury Co. B.V.(m) 6.88 12/29/2010 107
----------
150
----------
LIFE & HEALTH INSURANCE (1.0%)
5,000 American Equity Investment Life Holding Co. 5.00 6/15/2027 5,161
3,000 Global Atlantic Financial Co.(c) 8.63 4/15/2021 3,446
2,000 MetLife, Inc. 10.75 8/01/2069 3,325
10,000 Prudential Financial, Inc. 3 mo. LIBOR + 7.25% 5.20(a) 3/15/2044 10,612
----------
22,544
----------
MULTI-LINE INSURANCE (0.6%)
14,000 Genworth Holdings, Inc. 3 mo. LIBOR + 2.003% 3.42(a) 11/15/2066 6,234
8,000 Hartford Financial Services Group, Inc.
3 mo. LIBOR + 2.125%(c) 3.54(a) 2/12/2067 7,839
----------
14,073
----------
PROPERTY & CASUALTY INSURANCE (0.7%)
10,000 AmTrust Financial Services, Inc.(l) 6.12 8/15/2023 9,750
3,780 Hanover Insurance Group, Inc. 8.21 2/03/2027 4,453
2,000 Zenith National Insurance Capital Trust I(c) 8.55 8/01/2028 2,213
----------
16,416
----------
REGIONAL BANKS (1.4%)
5,000 Banc of California, Inc. 5.25 4/15/2025 5,080
5,000 Bank of the Ozarks, Inc. 3 mo. LIBOR + 4.425% 5.50(a) 7/01/2026 5,209
5,000 First Midwest Bancorp, Inc. 5.88 9/29/2026 5,357
10,409 Regions Bank 6.45 6/26/2037 13,000
1,790 Regions Financial Corp. 7.37 12/10/2037 2,444
----------
31,090
----------
SPECIALIZED FINANCE (0.2%)
5,000 National Rural Utilities Cooperative
Finance Corp. 4.75(n) 4/30/2043 5,220
----------
THRIFTS & MORTGAGE FINANCE (0.6%)
3,000 Ocwen Loan Servicing, LLC(c),(l) 8.37 11/15/2022 3,060
6,557 Walter Investment Management Corp.
3 mo. LIBOR + 2.778%(h) 5.32 12/18/2020 6,539
5,000 Walter Investment Management Corp. 7.88 12/15/2021 3,175
----------
12,774
----------
Total Financials 150,393
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 11
================================================================================
-----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------
HEALTH CARE (6.2%)
------------------
HEALTH CARE FACILITIES (3.5%)
$ 18,000 Community Health Systems, Inc. 6.87% 2/01/2022 $ 12,892
2,000 Encompass Health Corp. 5.75 9/15/2025 2,077
6,000 HCA, Inc. 5.25 4/15/2025 6,310
21,500 HCA, Inc. 5.88 2/15/2026 22,629
5,000 Kindred Healthcare, Inc. 6.37 4/15/2022 5,094
10,000 RegionalCare Hospital Partners Holdings, Inc.(c) 8.25 5/01/2023 10,550
14,000 Tenet Healthcare Corp.(l) 6.75 6/15/2023 13,844
5,000 Tenet Healthcare Corp.(c),(l) 7.00 8/01/2025 4,919
----------
78,315
----------
HEALTH CARE SERVICES (0.2%)
1,000 Davis Vision, Inc. 3 mo. LIBOR + 2.91%(h) 8.24 11/03/2025 1,013
3,000 DaVita, Inc. 5.13 7/15/2024 3,028
----------
4,041
----------
HEALTH CARE SUPPLIES (0.3%)
3,930 DJO Finco, Inc. / DJO Finance, LLC / DJO
Finance Corp.(c) 8.12 6/15/2021 3,812
2,000 Halyard Health, Inc. 6.25 10/15/2022 2,095
----------
5,907
----------
HEALTH CARE TECHNOLOGY (0.0%)
1,380 Press Ganey Holdings, Inc. 1 mo. LIBOR + 4.25%(h) 8.07 10/21/2024 1,406
----------
MANAGED HEALTH CARE (0.1%)
1,500 Centene Corp. 6.13 2/15/2024 1,598
----------
PHARMACEUTICALS (2.1%)
13,000 Endo Dac / Endo Finance, LLC / Endo Finco, Inc.(c) 6.00 7/15/2023 10,254
9,000 Mallinckrodt International Finance S.A.(l) 4.75 4/15/2023 7,425
4,000 Valeant Pharmaceuticals International, Inc.(c) 7.50 7/15/2021 4,025
3,000 Valeant Pharmaceuticals International, Inc.(c) 5.88 5/15/2023 2,718
26,000 Valeant Pharmaceuticals International, Inc.(c) 6.12 4/15/2025 23,372
----------
47,794
----------
Total Health Care 139,061
----------
INDUSTRIALS (6.5%)
------------------
AEROSPACE & DEFENSE (0.8%)
5,000 Arconic, Inc. 5.95 2/01/2037 5,499
15,000 Textron Financial Corp. 3 mo. LIBOR + 4.25%(c) 3.15(a) 2/15/2067 13,500
----------
18,999
----------
AGRICULTURE & FARM MACHINERY (0.1%)
3,000 Titan International, Inc.(c) 6.50 11/30/2023 3,120
----------
================================================================================
12 | USAA HIGH INCOME FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------
AIRLINES (1.3%)
$ 5,000 Continental Airlines, Inc. Pass-Through Trust 6.12% 4/29/2018 $ 5,044
15,761 Hawaiian Airlines Pass-Through Trust 4.95 7/15/2023 16,197
5,000 US Airways Group, Inc. Pass-Through Trust 5.45 6/03/2018 5,050
1,924 US Airways Group, Inc. Pass-Through Trust 9.75 4/22/2020 2,023
----------
28,314
----------
COMMERCIAL PRINTING (0.1%)
3,000 R.R. Donnelley & Sons Co.(l) 6.00 4/01/2024 2,873
----------
CONSTRUCTION & ENGINEERING (0.1%)
1,000 New Enterprise Stone & Lime Co., Inc.(c) 10.12 4/01/2022 1,091
----------
CONSTRUCTION MACHINERY & HEAVY TRUCKS (0.1%)
3,000 Navistar International Corp.(c) 6.63 11/01/2025 3,143
----------
DIVERSIFIED SUPPORT SERVICES (0.1%)
1,500 Matthews International Corp.(c) 5.25 12/01/2025 1,526
----------
ELECTRICAL COMPONENTS & EQUIPMENT (0.2%)
5,079 Artesyn Embedded Technologies, Inc.(c) 9.75 10/15/2020 5,016
----------
ENVIRONMENTAL & FACILITIES SERVICES (0.2%)
3,000 Covanta Holding Corp. 5.87 7/01/2025 3,060
975 Waste Pro USA, Inc.(c),(k) 5.50 2/15/2026 997
----------
4,057
----------
INDUSTRIAL MACHINERY (0.5%)
1,600 BlueLine Rental Finance Corp. / BlueLine
Rental, LLC(c) 9.25 3/15/2024 1,744
9,000 Xerium Technologies, Inc. 9.50 8/15/2021 9,169
----------
10,913
----------
MARINE (0.1%)
4,000 Navios Maritime Holdings, Inc. / Navios Maritime
Finance II US, Inc.(c) 7.38 1/15/2022 3,310
----------
SECURITY & ALARM SERVICES (0.4%)
2,488 Constellis Holdings, LLC 3 mo. LIBOR + 5.00%(h) 6.69 4/21/2024 2,523
2,500 Constellis Holdings, LLC 3 mo. LIBOR + 9.00%(h) 10.70 4/21/2025 2,535
3,000 Prime Security Services Borrower, LLC / Prime
Finance, Inc.(c) 9.25 5/15/2023 3,326
----------
8,384
----------
TRADING COMPANIES & DISTRIBUTORS (1.5%)
3,000 Ahern Rentals, Inc.(c) 7.37 5/15/2023 2,910
1,000 H&E Equipment Services, Inc.(c) 5.63 9/01/2025 1,040
2,397 Herc Rentals, Inc.(c) 7.75 6/01/2024 2,640
2,454 ILFC E-Capital Trust 3 mo. LIBOR + 7.50%(c) 4.37(a) 12/21/2065 2,405
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
-----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------
$ 16,362 ILFC E-Capital Trust II(c) 4.62%(b) 12/21/2065 $ 16,178
3,000 United Rentals North America, Inc. 5.50 7/15/2025 3,176
4,000 United Rentals North America, Inc. 5.50 5/15/2027 4,210
----------
32,559
----------
TRUCKING (1.0%)
3,000 Avis Budget Car Rental, LLC / Avis Budget
Finance, Inc.(c) 5.13 6/01/2022 3,026
12,000 Hertz Corp.(c) 7.63 6/01/2022 12,570
46 YRC Worldwide, Inc. 3 mo. LIBOR + 8.50%(h) 10.07 7/24/2022 47
6,057 YRC Worldwide, Inc. 3 mo. LIBOR + 8.50%(h) 10.27 7/24/2022 6,164
----------
21,807
----------
Total Industrials 145,112
----------
INFORMATION TECHNOLOGY (2.6%)
-----------------------------
APPLICATION SOFTWARE (0.6%)
5,000 Informatica, LLC(c) 7.13 7/15/2023 5,174
3,000 Mitchell International, Inc. 3 mo. LIBOR + 7.25%(h) 8.94 11/20/2025 3,041
2,908 Sirius Computer Solutions, Inc. 1 mo.
LIBOR + 4.25%(h) 5.82 10/30/2022 2,936
2,000 Solera LLC / Solera Finance Inc.(c) 10.50 3/01/2024 2,253
----------
13,404
----------
COMMUNICATIONS EQUIPMENT (0.3%)
3,000 Avaya, Inc. 1 mo. LIBOR + 4.75%(h) 6.31 12/15/2024 3,019
4,500 Aveta, Inc.(f),(g),(l) 7.00 4/01/2019 -
3,000 CommScope Technologies, LLC(c) 6.00 6/15/2025 3,172
----------
6,191
----------
DATA PROCESSING & OUTSOURCED SERVICES (0.5%)
5,000 First Data Corp.(c) 5.37 8/15/2023 5,169
6,000 First Data Corp.(c) 7.00 12/01/2023 6,334
1,000 Kronos, Inc. 3 mo. LIBOR + 8.25%(h) 9.63 11/01/2024 1,043
----------
12,546
----------
ELECTRONIC EQUIPMENT & INSTRUMENTS (0.1%)
1,500 Itron, Inc.(c),(i) 5.00 1/15/2026 1,511
----------
SEMICONDUCTORS (0.2%)
4,500 Micron Technology, Inc.(c),(l) 5.62 1/15/2026 4,748
----------
SYSTEMS SOFTWARE (0.6%)
2,500 BMC Software Finance, Inc.(c) 8.13 7/15/2021 2,516
6,000 Sophia, LP / Sophia Finance, Inc.(c) 9.00 9/30/2023 6,450
1,634 Veritas Bermuda Ltd. 3 mo. LIBOR + 4.50%(h) 6.19 1/27/2023 1,646
3,000 Veritas US, Inc. / Veritas Bermuda Ltd.(c),(l) 10.50 2/01/2024 3,067
----------
13,679
----------
================================================================================
14 | USAA HIGH INCOME FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------
TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (0.3%)
$ 5,000 Western Digital Corp. 10.50% 4/01/2024 $ 5,857
----------
Total Information Technology 57,936
----------
MATERIALS (5.0%)
----------------
ALUMINUM(0.2%)
5,000 Novelis Corp.(c) 5.87 9/30/2026 5,165
----------
COMMODITY CHEMICALS (0.3%)
3,000 Hexion, Inc. 6.63 4/15/2020 2,749
3,000 Hexion, Inc.(c) 10.37 2/01/2022 2,916
1,000 Olin Corp.(j) 5.00 2/01/2030 1,002
----------
6,667
----------
COPPER (1.2%)
7,000 Freeport-McMoRan, Inc. 3.55 3/01/2022 6,965
20,000 Freeport-McMoRan, Inc. 5.45 3/15/2043 20,600
----------
27,565
----------
DIVERSIFIED CHEMICALS (0.3%)
6,000 CF Industries, Inc. 5.15 3/15/2034 6,075
----------
DIVERSIFIED METALS & MINING (0.2%)
5,000 Compass Minerals International, Inc.(c) 4.88 7/15/2024 4,950
----------
FERTILIZERS & AGRICULTURAL CHEMICALS (0.2%)
3,000 CVR Partners, LP / CVR Nitrogen Finance Corp.(c) 9.25 6/15/2023 3,214
----------
METAL & GLASS CONTAINERS (0.6%)
6,000 BWAY Holding Co.(c) 7.25 4/15/2025 6,277
3,000 Plastipak Holdings, Inc.(c) 6.25 10/15/2025 3,128
3,250 Reynolds Group Issuer, Inc. / Reynolds Group Issuer,
LLC / Reynolds Group Issuer Lu(c) 7.00 7/15/2024 3,463
----------
12,868
----------
PAPER PACKAGING (0.5%)
3,150 Flex Acquisition Co., Inc.(c) 6.87 1/15/2025 3,239
7,000 Sealed Air Corp.(c) 6.88 7/15/2033 8,102
----------
11,341
----------
SPECIALTY CHEMICALS (0.2%)
2,000 Kraton Polymers, LLC / Kraton Polymers Capital
Corp. 10.50 4/15/2023 2,250
3,000 Kraton Polymers, LLC / Kraton Polymers Capital
Corp.(c) 7.00 4/15/2025 3,188
----------
5,438
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 15
================================================================================
-----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------
STEEL (1.3%)
$ 3,000 AK Steel Corp.(l) 7.00% 3/15/2027 $ 3,083
10,456 Allegheny Ludlum Corp. 6.95 12/15/2025 10,796
5,000 SunCoke Energy Partners, LP / SunCoke Energy
Partners Finance Corp.(c) 7.50 6/15/2025 5,262
3,000 United States Steel Corp. 6.88 8/15/2025 3,165
3,000 Warrior Met Coal, Inc.(c) 8.00 11/01/2024 3,165
3,000 Zekelman Industries, Inc.(c) 9.87 6/15/2023 3,367
----------
28,838
----------
Total Materials 112,121
----------
MUNICIPAL (0.1%)
----------------
HOSPITAL (0.1%)
3,000 Eastern Maine Healthcare Systems 5.02 7/01/2036 2,986
----------
REAL ESTATE (1.0%)
------------------
REAL ESTATE DEVELOPMENT (0.2%)
3,800 Crescent Communities, LLC & Crescent Ventures,
Inc.(c) 8.88 10/15/2021 4,047
----------
REITs-DIVERSIFIED (0.1%)
3,000 Uniti Group, LP / Uniti Group Finance, Inc. / CSL
Capital, LLC(c) 7.13 12/15/2024 2,677
----------
REITs-HEALTH CARE (0.2%)
2,000 MPT Operating Partnership, LP / MPT Finance Corp. 5.00 10/15/2027 1,986
3,000 Sabra Health Care, LP 5.12 8/15/2026 2,979
----------
4,965
----------
REITs-HOTEL & RESORT (0.1%)
2,000 Station Casinos, LLC(c) 5.00 10/01/2025 2,022
----------
REITs-SPECIALIZED (0.4%)
2,000 EPR Properties 4.75 12/15/2026 2,029
3,000 Equinix, Inc. 5.37 5/15/2027 3,157
1,000 Uniti Group, LP / Uniti Group Finance, Inc. / CSL
Capital, LLC(c) 6.00 4/15/2023 974
2,000 Uniti Group, LP / Uniti Group Finance, Inc. / CSL
Capital, LLC 8.25 10/15/2023 1,905
----------
8,065
----------
Total Real Estate 21,776
----------
TELECOMMUNICATION SERVICES (6.3%)
---------------------------------
ALTERNATIVE CARRIERS (1.4%)
10,000 CenturyLink, Inc. 5.80 3/15/2022 9,788
5,000 CenturyLink, Inc.(l) 6.75 12/01/2023 4,883
5,000 Cogent Communications Finance, Inc.(c) 5.63 4/15/2021 5,075
================================================================================
16 | USAA HIGH INCOME FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------
$ 5,000 Level 3 Financing, Inc. 6.13% 1/15/2021 $ 5,081
----------
5,000 Zayo Group, LLC / Zayo Capital, Inc. 6.37 5/15/2025 5,263
500 Zayo Group, LLC / Zayo Capital, Inc.(c) 5.75 1/15/2027 509
----------
30,599
----------
INTEGRATED TELECOMMUNICATION SERVICES (2.1%)
10,000 AT&T, Inc. 4.90 8/14/2037 10,167
2,000 CB Escrow Corp.(c) 8.00 10/15/2025 2,015
5,000 Cincinnati Bell, Inc.(c) 7.00 7/15/2024 4,837
20,000 Frontier Communications Corp. 11.00 9/15/2025 15,725
9,000 Frontier Communications Corp. 9.00 8/15/2031 5,917
3,000 Windstream Services, LLC /Windstream
Finance Corp.(l) 6.37 8/01/2023 1,763
14,039 Windstream Services, LLC /Windstream
Finance Corp.(c),(l) 6.38 8/01/2023 7,967
----------
48,391
----------
WIRELESS TELECOMMUNICATION SERVICES (2.8%)
20,000 Sprint Corp. 7.25 9/15/2021 21,304
20,000 Sprint Corp.(l) 7.63 2/15/2025 20,800
5,000 T-Mobile USA, Inc. 6.50 1/15/2024 5,325
10,000 T-Mobile USA, Inc. 6.00 4/15/2024 10,656
5,000 Trilogy International Partners, LLC / Trilogy
International Finance, Inc.(c) 8.87 5/01/2022 5,125
----------
63,210
----------
Total Telecommunication Services 142,200
----------
UTILITIES (3.0%)
----------------
ELECTRIC UTILITIES (0.6%)
4,000 DPL, Inc. 6.75 10/01/2019 4,240
10,000 PPL Capital Funding, Inc. 3 mo. LIBOR + 2.665% 4.36(a) 3/30/2067 9,950
----------
14,190
----------
GAS UTILITIES (0.2%)
4,000 Southern Star Central Corp.(c) 5.12 7/15/2022 4,130
----------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS (2.0%)
7,000 AES Corp. 7.38 7/01/2021 7,857
10,000 Calpine Corp.(l) 5.75 1/15/2025 9,500
5,000 Dynegy, Inc. 5.88 6/01/2023 5,144
5,000 Dynegy, Inc. 7.62 11/01/2024 5,427
7,000 Genon Energy, Inc.(l),(m) 9.87 10/15/2020 5,635
3,000 NRG Energy, Inc. 7.25 5/15/2026 3,282
3,000 NRG Energy, Inc.(c) 5.75 1/15/2028 3,008
5,000 Talen Energy Supply, LLC 6.50 6/01/2025 4,175
----------
44,028
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
-----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------
MULTI-UTILITIES (0.2%)
$ 6,000 Puget Sound Energy, Inc. 3 mo. LIBOR + 6.75% 4.01%(a) 6/01/2067 $ 5,970
----------
Total Utilities 68,318
----------
Total Corporate Obligations (cost: $1,413,649) 1,447,880
----------
EURODOLLAR AND YANKEE OBLIGATIONS (16.5%)
CONSUMER DISCRETIONARY (0.9%)
-----------------------------
CABLE & SATELLITE (0.6%)
4,000 Altice Financing S.A.(c) 7.50 5/15/2026 4,165
2,000 Altice Luxembourg S.A.(c) 7.75 5/15/2022 1,927
7,000 Altice Luxembourg S.A.(c),(l) 7.63 2/15/2025 6,449
----------
12,541
----------
HOMEBUILDING (0.2%)
3,000 Brookfield Residential Properties, Inc.(c) 6.38 5/15/2025 3,180
1,750 Mattamy Group Corp.(c) 6.87 12/15/2023 1,860
----------
5,040
----------
HOTELS, RESORTS & CRUISE LINES (0.1%)
3,000 Silversea Cruise Finance Ltd.(c) 7.25 2/01/2025 3,249
----------
Total Consumer Discretionary 20,830
----------
CONSUMER STAPLES (0.7%)
-----------------------
HOUSEHOLD PRODUCTS (0.4%)
8,000 Kronos Acquisition Holdings, Inc.(c) 9.00 8/15/2023 7,880
----------
PACKAGED FOODS & MEATS (0.3%)
1,000 JBS Investments GmbH(c),(l) 7.25 4/03/2024 1,006
3,000 JBS USA LUX S.A. / JBS USA Finance, Inc.(c) 5.87 7/15/2024 3,019
3,000 Minerva Luxembourg S.A.(c),(i) 5.88 1/19/2028 2,915
----------
6,940
----------
Total Consumer Staples 14,820
----------
ENERGY (2.4%)
-------------
INTEGRATED OIL & GAS (1.1%)
5,000 Petrobras Global Finance B.V. 8.37 5/23/2021 5,708
3,000 Petrobras Global Finance B.V. 7.37 1/17/2027 3,334
2,000 Petrobras Global Finance BV 6.13 1/17/2022 2,137
10,000 Petroleos Mexicanos(c) 6.50 3/13/2027 10,951
3,000 Tecpetrol S.A.(c),(i) 4.88 12/12/2022 2,950
----------
25,080
----------
================================================================================
18 | USAA HIGH INCOME FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------
OIL & GAS DRILLING (0.5%)
$ 10,000 Noble Holding International Ltd.(l) 7.70% 4/01/2025 $ 9,025
5,212 Schahin II Finance Co. SPV Ltd.(c),(m) 5.87 9/25/2023 756
----------
9,781
----------
OIL & GAS EXPLORATION & PRODUCTION (0.2%)
5,000 MEG Energy Corp.(c) 7.00 3/31/2024 4,356
----------
OIL & GAS STORAGE & TRANSPORTATION (0.6%)
13,000 Transcanada Trust 3 mo. LIBOR + 4.05% 5.63(a) 5/20/2075 13,796
----------
Total Energy 53,013
----------
FINANCIALS (1.0%)
-----------------
DIVERSIFIED BANKS (0.2%)
5,000 Royal Bank of Scotland Group plc 3 mo.
LIBOR + 6.75%(l) 4.01(a) -(o) 5,091
----------
PROPERTY & CASUALTY INSURANCE (0.7%)
10,000 QBE Capital Funding III Ltd. 3 mo.
LIBOR + 3.04%(c) 7.25(a) 5/24/2041 11,237
4,000 XLIT Ltd. 3 mo. LIBOR + 2.458% 4.18(a) -(o) 3,765
----------
15,002
----------
SPECIALIZED FINANCE (0.1%)
3,000 Park Aerospace Holdings Ltd.(c) 5.50 2/15/2024 2,978
----------
Total Financials 23,071
----------
HEALTH CARE (0.5%)
------------------
PHARMACEUTICALS (0.5%)
5,000 Teva Pharmaceutical Finance Netherlands III B.V. 4.10 10/01/2046 3,822
10,000 Teva Pharmaceutical Finance Netherlands III B.V. 3.15 10/01/2026 8,324
----------
Total Health Care 12,146
----------
INDUSTRIALS (1.5%)
------------------
AEROSPACE & DEFENSE (0.7%)
2,500 Bombardier, Inc.(c) 7.50 12/01/2024 2,634
12,000 Bombardier, Inc.(c) 7.50 3/15/2025 12,525
----------
15,159
----------
AIRLINES (0.8%)
2,500 Air Canada Pass-Through Trust(c) 6.63 5/15/2018 2,535
5,000 Air Canada Pass-Through Trust(c) 5.00 3/15/2020 5,108
4,083 Latam Air Pass-Through Trust 4.50 8/15/2025 4,081
4,429 Norwegian Air Pass-Through Trust(c) 7.50 5/10/2025 4,731
1,847 Virgin Australia Pass-Through Trust(c) 7.12 10/23/2018 1,880
----------
18,335
----------
Total Industrials 33,494
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
-----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------
MATERIALS (6.8%)
----------------
COMMODITY CHEMICALS (0.5%)
$ 10,000 Braskem Finance Ltd. 6.45% 2/03/2024 $ 11,338
----------
CONSTRUCTION MATERIALS (0.6%)
9,500 Cemex SAB de CV(c) 7.75 4/16/2026 10,782
3,000 Votorantim Cimentos S.A. 7.25 4/05/2041 3,333
----------
14,115
----------
COPPER (0.5%)
10,000 First Quantum Minerals Ltd.(c) 7.50 4/01/2025 10,751
----------
DIVERSIFIED METALS & MINING (1.5%)
10,000 Teck Resources Ltd. 4.75 1/15/2022 10,400
13,000 Teck Resources Ltd. 6.13 10/01/2035 14,706
5,000 Vedanta Resources plc(c) 8.25 6/07/2021 5,519
3,000 Vedanta Resources plc(c) 6.37 7/30/2022 3,135
----------
33,760
----------
GOLD (1.4%)
10,000 Eldorado Gold Corp.(c) 6.12 12/15/2020 9,850
10,000 Kinross Gold Corp. 5.95 3/15/2024 11,039
10,000 New Gold, Inc.(c) 6.25 11/15/2022 10,275
----------
31,164
----------
METAL & GLASS CONTAINERS (0.5%)
3,000 ARD Securities Finance SARL(c),(e),(i) 8.75(p) 1/31/2023 3,113
500 Ardagh Packaging Finance plc / Ardagh Holdings
USA, Inc.(c) 6.00 6/30/2021 513
5,500 Ardagh Packaging Finance plc / Ardagh Holdings
USA, Inc.(c) 7.25 5/15/2024 5,931
3,000 Ardagh Packaging Finance plc / Ardagh Holdings
USA, Inc.(c) 6.00 2/15/2025 3,105
----------
12,662
----------
PAPER PACKAGING (0.3%)
6,200 Smurfit Kappa Treasury Funding Ltd. 7.50 11/20/2025 7,518
----------
SPECIALTY CHEMICALS (0.2%)
3,000 Venator Finance Sarl / Venator Materials, LLC(c) 5.75 7/15/2025 3,105
----------
STEEL (1.3%)
18,000 ArcelorMittal 7.50 10/15/2039 23,310
4,500 Vale Overseas Ltd. 6.25 8/10/2026 5,230
----------
28,540
----------
Total Materials 152,953
----------
================================================================================
20 | USAA HIGH INCOME FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES (1.4%)
---------------------------------
ALTERNATIVE CARRIERS (0.4%)
$ 5,000 Intelsat Jackson Holdings S.A. 7.25% 10/15/2020 $ 4,387
5,000 Intelsat Jackson Holdings S.A.(c) 9.75 7/15/2025 4,611
----------
8,998
----------
INTEGRATED TELECOMMUNICATION SERVICES (0.5%)
10,000 SFR Group S.A.(c) 7.37 5/01/2026 9,887
----------
WIRELESS TELECOMMUNICATION SERVICES (0.5%)
2,000 Altice Finco S.A.(c) 7.62 2/15/2025 2,003
5,000 Digicel Ltd.(c) 6.00 4/15/2021 4,969
3,000 Digicel Ltd.(c) 6.75 3/01/2023 2,996
1,000 Intelsat Jackson Holdings S.A.(h) 6.63 1/14/2024 1,008
500 Wind Tre S.p.A.(c),(l) 5.00 1/20/2026 457
----------
11,433
----------
Total Telecommunication Services 30,318
----------
UTILITIES (1.3%)
----------------
ELECTRIC UTILITIES (1.0%)
10,000 Electricite de France S.A. 10 wk.
LIBOR + 3.709%(c) 5.25(a) -(o) 10,313
8,975 Enel S.p.A. 5-Yr. Semi-Annual USD
Swap + 5.880%(c) 8.75(a) 9/24/2073 11,140
----------
21,453
----------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS (0.3%)
7,000 AES Gener S.A. 5-Yr. Semi-Annual USD
Swap + 6.820%(c) 8.38(a) 12/18/2073 7,264
----------
Total Utilities 28,717
----------
Total Eurodollar and Yankee Obligations (cost: $336,719) 369,362
----------
-----------------------------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES
-----------------------------------------------------------------------------------------------------------------------------
EXCHANGE-TRADED FUNDS (5.0%)
498,550 iShares iBoxx $ High Yield Corporate Bond ETF(l) 43,524
1,888,700 SPDR Bloomberg Barclays High Yield Bond ETF 69,315
----------
Total Exchange-Traded Funds (cost: $111,554) 112,839
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 21
================================================================================
-----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------
FOREIGN GOVERNMENT OBLIGATIONS (0.2%)
$ 3,000 Bahamas Government International
Bond(c) (cost: $3,000) 6.00% 11/21/2028 $ 3,218
----------
MUNICIPAL OBLIGATIONS (0.3%)
CONNECTICUT (0.0%)
4,271 Mashantucket (Western) Pequot Tribe(e) 7.35(q) 7/01/2026 662
----------
ILLINOIS (0.1%)
2,000 Chicago IL 7.04 1/01/2029 2,165
----------
NEW JERSEY (0.2%)
1,500 Atlantic City 7.00 3/01/2028 1,749
2,500 EDA 5.71 6/15/2030 2,774
----------
4,523
----------
Total Municipal Obligations (cost: $8,604) 7,350
----------
U.S. TREASURY SECURITIES(r) (0.0%)
NOTES (0.0%)
550 2.00%, 2/15/2025(s) (cost: $543) 526
----------
Total Bonds (cost: $1,920,115) 1,986,018
----------
-----------------------------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES
-----------------------------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (8.0%)
COMMON STOCKS (3.6%)
CONSUMER DISCRETIONARY (0.4%)
-----------------------------
AUTO PARTS & EQUIPMENT (0.1%)
10,001 Lear Corp. 1,932
----------
CABLE & SATELLITE (0.1%)
77,900 Comcast Corp. 3,313
----------
CASINOS & GAMING (0.0%)
13,500 Las Vegas Sands Corp. 1,047
----------
HOME FURNISHINGS (0.1%)
27,070 Tempur Sealy International, Inc.* 1,614
----------
HOTELS, RESORTS & CRUISE LINES (0.1%)
25,400 Hyatt Hotels Corp.* 2,065
----------
Total Consumer Discretionary 9,971
----------
================================================================================
22 | USAA HIGH INCOME FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-----------------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES (0.1%)
-----------------------
DRUG RETAIL (0.1%)
18,400 CVS Health Corp. $ 1,448
----------
HOUSEHOLD PRODUCTS (0.0%)
11,242 Kimberly-Clark Corp. 1,315
----------
Total Consumer Staples 2,763
----------
ENERGY (0.5%)
-------------
COAL & CONSUMABLE FUELS (0.0%)
13,151 Peabody Energy Corp.* 532
----------
INTEGRATED OIL & GAS (0.2%)
8,522 Chevron Corp. 1,068
32,263 Royal Dutch Shell plc 2,266
----------
3,334
----------
OIL & GAS DRILLING (0.0%)
3,813 Paragon Litigation*(f) 128
2,542 Paragon Litigation*(f) 4
2,537 Paragon Offshore, Ltd.*(f) 58
----------
190
----------
OIL & GAS EQUIPMENT & SERVICES (0.1%)
98,146 Basic Energy Services, Inc.* 1,913
----------
OIL & GAS EXPLORATION & PRODUCTION (0.2%)
414,000 Approach Resources, Inc.*(l) 1,383
18,480 Nine Point Energy Holdings, Inc.*(d),(f),(g) 290
2,772 Sabine Oil & Gas Holdings, Inc.*(d),(t) 131
102,396 SandRidge Energy, Inc.* 1,832
4,982 SilverBow Resources, Inc.* 153
22,883 Thunderbird Resources Equity, Inc.*(d),(f),(g) 16
236,684 Ultra Petroleum Corp.* 1,652
----------
5,457
----------
Total Energy 11,426
----------
FINANCIALS (0.9%)
-----------------
ASSET MANAGEMENT & CUSTODY BANKS (0.1%)
202,000 Prospect Capital Corp.(l) 1,303
----------
CONSUMER FINANCE (0.0%)
13,639 Synchrony Financial 541
----------
DIVERSIFIED BANKS (0.1%)
18,507 JPMorgan Chase & Co. 2,141
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 23
================================================================================
-----------------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-----------------------------------------------------------------------------------------------------------------------------
FINANCIAL EXCHANGES & DATA (0.2%)
24,700 CME Group, Inc. $ 3,791
----------
LIFE & HEALTH INSURANCE (0.1%)
1,995 Brighthouse Financial, Inc.* 128
21,952 MetLife, Inc. 1,056
----------
1,184
----------
REGIONAL BANKS (0.3%)
27,800 BB&T Corp. 1,534
111,918 KeyCorp 2,395
109,207 Regions Financial Corp. 2,100
----------
6,029
----------
REITs-MORTGAGE (0.1%)
73,721 Annaly Capital Management, Inc. 777
17,142 Granite Point Mortgage Trust, Inc. 296
129,100 MFA Financial, Inc. 924
90,450 Two Harbors Investment Corp. 1,334
----------
3,331
----------
Total Financials 18,320
----------
HEALTH CARE (0.4%)
------------------
BIOTECHNOLOGY (0.1%)
22,300 AbbVie, Inc. 2,503
----------
HEALTH CARE EQUIPMENT (0.0%)
3,407 Diagnostic Services Holdings, Inc.(d),(f),(g) 262
----------
PHARMACEUTICALS (0.3%)
16,562 Johnson & Johnson 2,289
30,900 Merck & Co., Inc. 1,831
14,607 Novartis AG 1,315
----------
5,435
----------
Total Health Care 8,200
----------
INDUSTRIALS (0.1%)
------------------
AIRLINES (0.1%)
23,000 United Continental Holdings, Inc.* 1,560
----------
COMMERCIAL PRINTING (0.0%)
590 Quad/Graphics, Inc. 13
----------
INDUSTRIAL CONGLOMERATES (0.0%)
35,316 General Electric Co. 571
----------
Total Industrials 2,144
----------
================================================================================
24 | USAA HIGH INCOME FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-----------------------------------------------------------------------------------------------------------------------------
INFORMATION TECHNOLOGY (0.5%)
-----------------------------
APPLICATION SOFTWARE (0.1%)
99,023 Avaya Holdings Corp.* $ 2,068
----------
DATA PROCESSING & OUTSOURCED SERVICES (0.1%)
13,899 Automatic Data Processing, Inc. 1,718
----------
SEMICONDUCTORS (0.2%)
42,500 Intel Corp. 2,046
18,500 QUALCOMM, Inc. 1,263
----------
3,309
----------
SYSTEMS SOFTWARE (0.1%)
33,200 Microsoft Corp. 3,154
----------
Total Information Technology 10,249
----------
MATERIALS (0.4%)
----------------
COMMODITY CHEMICALS (0.1%)
19,215 LyondellBasell Industries N.V. 2,303
----------
CONSTRUCTION MATERIALS (0.0%)
596 CB Paracelsus Healthcare*(f),(g) -
----------
GOLD (0.2%)
245,000 Alamos Gold, Inc. 1,465
56,750 Goldcorp, Inc. 813
33,650 Newmont Mining Corp. 1,363
----------
3,641
----------
PAPER PRODUCTS (0.0%)
14,947 Clearwater Paper Corp.* 703
534 Resolute Forest Products, Inc.* 6
----------
709
----------
SPECIALTY CHEMICALS (0.1%)
172,882 MPM Holdings, Inc.* 3,449
----------
Total Materials 10,102
----------
REAL ESTATE (0.1%)
------------------
REITs-SPECIALIZED (0.1%)
17,000 Crown Castle International Corp. 1,917
----------
TELECOMMUNICATION SERVICES (0.2%)
---------------------------------
ALTERNATIVE CARRIERS (0.0%)
63,000 CenturyLink, Inc. 1,122
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 25
================================================================================
-----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
$(000)/SHARES SECURITY (000)
-----------------------------------------------------------------------------------------------------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (0.2%)
50,503 AT&T, Inc. $ 1,891
28,650 Verizon Communications, Inc. 1,549
----------
3,440
----------
Total Telecommunication Services 4,562
----------
Total Common Stocks (cost: $79,286) 79,654
----------
PREFERRED STOCKS (4.4%)
CONSUMER STAPLES (1.6%)
-----------------------
AGRICULTURAL PRODUCTS (1.6%)
400,000 CHS, Inc., 7.10%, cumulative redeemable, 3 mo. LIBOR + 4.298% 10,884
200,000 CHS, Inc., 7.88%, cumulative redeemable * 5,756
200,000 Dairy Farmers of America, Inc., 7.88%, cumulative redeemable(c),(o) 20,635
----------
Total Consumer Staples 37,275
----------
ENERGY (1.4%)
-------------
OIL & GAS EXPLORATION & PRODUCTION (0.1%)
3,800 Chesapeake Energy Corp., 5.75%*(c),(o) 2,336
464 Nine Point Energy Holdings, Inc., 0.00%*(d),(f),(g) 464
----------
2,800
----------
OIL & GAS STORAGE & TRANSPORTATION (1.3%)
1,127,328 NuStar Logistics, LP, 7.63%, 3 mo. LIBOR + 6.734%(a),(o) 28,860
----------
Total Energy 31,660
----------
FINANCIALS (0.9%)
-----------------
DIVERSIFIED BANKS (0.3%)
8,000 U.S. Bancorp, 3.50%, Higher of 3 mo. LIBOR + 1.02% or 3.5%(a),(o) 7,240
----------
LIFE & HEALTH INSURANCE (0.3%)
274,059 Delphi Financial Group, Inc., 4.61%, cumulative redeemable,
3 mo. LIBOR + 3.19%(a) 6,440
----------
PROPERTY & CASUALTY INSURANCE (0.1%)
$ 3,000 Catlin Insurance Co. Ltd., 7.25%, 3 mo. LIBOR + 2.975%(a),(c),(l),(o) 2,948
----------
REGIONAL BANKS (0.1%)
1,515 M&T Bank Corp., 6.38%, cumulative redeemable*(o) 1,549
----------
REINSURANCE (0.0%)
3,000 American Overseas Group Ltd., 7.50%, non-cumulative,
3 mo. LIBOR + 3.557%(a),(d),(f),(g) 750
----------
================================================================================
26 | USAA HIGH INCOME FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-----------------------------------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE (0.1%)
80,000 Freddie Mac(+), 8.38%, Higher of 3 mo. LIBOR +4.16% or 7.875%(a),(j),(o) $ 635
20,000 Freddie Mac(+), 6.02%(o) 128
----------
763
----------
Total Financials 19,690
----------
REAL ESTATE (0.3%)
------------------
REITs-RESIDENTIAL (0.3%)
100,000 Equity Residential Properties Trust, 8.29%, Series K, depositary shares,
cumulative redeemable 6,487
----------
TELECOMMUNICATION SERVICES (0.2%)
---------------------------------
ALTERNATIVE CARRIERS (0.2%)
200,000 Qwest Corp., 6.50% 4,104
----------
Preferred Stocks (cost: $98,903) 99,216
----------
WARRANTS (0.0%)
ENERGY (0.0%)
-------------
OIL & GAS EXPLORATION & PRODUCTION (0.0%)
5,500 Comstock Resources, Inc.* 34
8,791 Sabine & Oil Gas Holdings, Inc.*(d),(t) 62
1,565 Sabine Oil & Gas Holdings, Inc.*(d) 9
13,764 SandRidge Energy, Inc.* 14
5,795 SandRidge Energy, Inc.* 5
----------
Total Energy 124
----------
Total Warrants (cost $0) 124
----------
Total Equity Securities (cost: $178,189) 178,994
----------
-----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON
(000) RATE MATURITY
-----------------------------------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS (2.7%)
COMMERCIAL PAPER (2.7%)
$ 2,335 Constellation Brands, Inc.(c) 1.86% 2/07/2018 2,334
7,009 FMC Corp.(c) 2.00 2/12/2018 7,005
5,000 Newell Rubbermaid, Inc.(c) 1.88 2/06/2018 4,999
7,500 Newell Rubbermaid, Inc.(c) 1.90 2/08/2018 7,497
5,694 Public Services Co. 1.90 2/09/2018 5,692
10,916 Southern Power Co.(c) 1.74 2/01/2018 10,916
================================================================================
PORTFOLIO OF INVESTMENTS | 27
================================================================================
-----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------
$ 14,470 Union Electric Co. 1.72% 2/09/2018 $ 14,464
8,000 Xcel Energy, Inc.(c) 1.60 2/02/2018 8,000
----------
Total Commercial Paper (cost: $60,907) 60,907
----------
-----------------------------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES
-----------------------------------------------------------------------------------------------------------------------------
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (0.0%)
50,869 State Street Institutional Treasury Money Market
Fund Premier Class, 1.23%(u) (cost: $51) 51
----------
Total Money Market Instruments (cost: $60,958) 60,958
----------
SHORT-TERM INVESTMENTS PURCHASED WITH CASH
COLLATERAL FROM SECURITIES LOANED (4.1%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (4.1%)
167,824 Federated Government Obligations Fund
Institutional Class, 1.19%(u) 168
825,367 Fidelity Government Fund Portfolio Class I, 1.22%(u) 825
16,897,456 Goldman Sachs Financial Square Government Fund
Institutional Class, 1.21%(u) 16,897
55,000,000 HSBC US Government Money Market Fund
Institutional Class, 1.28%(u) 55,000
707,758 Invesco Government & Agency Portfolio
Institutional Class, 1.24%(u) 708
482,252 Morgan Stanley Institutional Liquidity Funds
Government Portfolio Institutional Class, 1.21%(u) 482
17,942,710 Western Asset Institutional Government Reserves
Institutional Class, 1.22%(u) 17,943
----------
Total Short-Term Investments Purchased with Cash Collateral
from Securities Loaned (cost: $92,023) 92,023
----------
TOTAL INVESTMENTS (COST: $2,251,285) $2,317,993
==========
================================================================================
28 | USAA HIGH INCOME FUND
================================================================================
UNREALIZED
NOTIONAL APPRECIATION/
NUMBER OF EXPIRATION AMOUNT CONTRACT (DEPRECIATION)
CONTRACTS SECURITY DATE (000) VALUE (000) (000)
-----------------------------------------------------------------------------------------------------------------------------
FUTURES (1.6%)
SHORT FUTURES
EQUITY CONTRACTS
450 Russell 2000 Mini 03/16/2018 USD(34,294) $(35,460) $(1,166)
-------- -------
TOTAL SHORT FUTURES $(35,460) $(1,166)
-------- -------
TOTAL FUTURES $(35,460) $(1,166)
======== =======
-----------------------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
-----------------------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
-----------------------------------------------------------------------------------------------------------------------------
Bonds:
Collateralized Mortgage Obligation $ - $ 2,521 $ - $ 2,521
Commercial Mortgage Securities - 38,255 - 38,255
Convertible Securities - 3,121 946 4,067
Corporate Obligations - 1,447,880 - 1,447,880
Eurodollar and Yankee Obligations - 369,362 - 369,362
Exchange-Traded Funds 112,839 - - 112,839
Foreign Government Obligations - 3,218 - 3,218
Municipal Obligations - 7,350 - 7,350
U.S. Treasury Securities 526 - - 526
Equity Securities:
Common Stocks 78,765 321 568 79,654
Preferred Stocks - 98,002 1,214 99,216
Warrants 53 71 - 124
Money Market Instruments:
Commercial Paper - 60,907 - 60,907
Government & U.S. Treasury Money
Market Funds 51 - - 51
Short-Term Investments Purchased with Cash
Collateral from Securities Loaned:
Government & U.S. Treasury Money
Market Funds 92,023 - - 92,023
-----------------------------------------------------------------------------------------------------------------------------
Total $284,257 $2,031,008 $2,728 $2,317,993
-----------------------------------------------------------------------------------------------------------------------------
LIABILITIES LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
-----------------------------------------------------------------------------------------------------------------------------
Futures(1) $ (1,166) $ - $ - $ (1,166)
-----------------------------------------------------------------------------------------------------------------------------
Total $ (1,166) $ - $ - $ (1,166)
-----------------------------------------------------------------------------------------------------------------------------
(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 Investments in which significant unobservable Inputs (Level 3)
were used in determining value:
----------------------------------------------------------------------------------------------------------------------------
RECONCILIATION OF LEVEL 3 INVESTMENTS
----------------------------------------------------------------------------------------------------------------------------
CORPORATE CONVERTIBLE COMMON PREFERRED
($ IN 000s) OBLIGATIONS SECURITIES STOCKS STOCKS
----------------------------------------------------------------------------------------------------------------------------
Balance as of July 31, 2017 $ 290 $1,095 $ 182 $1,214
Purchases - 44 871 -
Sales (871) - - -
Transfers into Level 3 - - - -
Transfers out of Level 3 - - - -
Net realized gain (loss) on investments - - - -
Change in net unrealized
appreciation/(depreciation)
of investments 581 (193) (485) -
----------------------------------------------------------------------------------------------------------------------------
Balance as of January 31, 2018 $ - $ 946 $ 568 $1,214
----------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------
FAIR VALUE LEVEL TRANSFERS
--------------------------------------------------------------------------------
For the period of August 1, 2017, through January 31, 2018, there were no
transfers of securities between levels. The Fund's policy is to recognize any
transfers in and transfers out as of the beginning of the reporting period in
which the event or circumstance that caused the transfer occurred.
================================================================================
30 | USAA HIGH INCOME FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
QUANTITATIVE INFORMATION ABOUT LEVEL 3 FAIR VALUE MEASUREMENTS**
------------------------------------------------------------------------------------------------------------------
FAIR VALUE AT SIGNIFICANT
JANUARY 31, 2018 VALUATION UNOBSERVABLE
ASSETS ($ IN 000's) TECHNIQUE(S) INPUT(S) RANGE
------------------------------------------------------------------------------------------------------------------
EQUITY SECURITIES:
Common Stocks $278 Market Revenue 0.5x - 0.6x
Comparables Multiple(a)
EBITDA
Multiple(a) 4.1x - 5.0x
Discount for lack
of marketability(b) 25%
Last
Transaction
Price $ 0.69
Comparable
Discount
Adjustment(b) 95%
BONDS:
Convertible Securities $946 Market Average
Comparables Value Per
Recoverable
Ounce(a) $63.64
Comparable
Discount
Adjustment(b) 40%
------------------------------------------------------------------------------------------------------------------
(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, earnings per share, or average
value per recoverable ounce will increase the value of the security while an
increase in the discount for lack of marketability or comparable discount
adjustment will decrease the value of the security.
================================================================================
PORTFOLIO OF INVESTMENTS | 31
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
January 31, 2018 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
Market values of securities are determined by procedures and practices
discussed in Note 1A to the financial statements.
The Portfolio of Investments category percentages shown represent the
percentages of the investments to net assets, and, in total, may not equal
100%. A category percentage of 0.0% represents less than 0.1% of net assets.
Investments in foreign securities were 17.0% of net assets at January 31,
2018.
The Fund may rely on certain Securities and Exchange Commission (SEC)
exemptive orders or rules that permit funds meeting various conditions to
invest in an exchange-traded fund (ETF) in amounts exceeding limits set
forth in the Investment Company Act of 1940, as amended, that would
otherwise be applicable.
o CATEGORIES AND DEFINITIONS
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
================================================================================
32 | USAA HIGH INCOME FUND
================================================================================
mortgage-backed securities reflect an interest in, and are secured by,
mortgage loans on commercial real property. These securities represent
ownership in a pool of loans and are divided into pieces (tranches) with
varying maturities. The stated final maturity of such securities represents
the date the final principal payment will be made for the last outstanding
loans in the pool. The weighted average life is the average time for
principal to be repaid, which is calculated by assuming prepayment rates of
the underlying loans. The weighted average life is likely to be
substantially shorter than the stated final maturity as a result of
scheduled principal payments and unscheduled principal prepayments. Stated
interest rates on commercial mortgage-backed securities may change slightly
over time as underlying mortgages paydown.
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.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 33
================================================================================
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
EDA Economic Development Authority
LIBOR London Interbank Offered Rate
REITs Real estate investment trusts - 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.
o SPECIFIC NOTES
(a) Variable-rate security - interest rate is adjusted periodically. The
interest rate disclosed represents the rate at January 31, 2018.
(b) Stated interest rates may change slightly over time as underlying
mortgages paydown.
(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 January 31, 2018, was $2,976,000, which represented 0.1% of the
Fund's net assets.
(e) 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.
================================================================================
34 | USAA HIGH INCOME FUND
================================================================================
(f) Security was fair valued at January 31, 2018, by the Manager in
accordance with valuation procedures approved by the Board. The total
value of all such securities was $2,918,000, which represented 0.1% of
the Fund's net assets.
(g) Security was fair valued at Level 3.
(h) 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 all in interest
rate of all contracts within the loan facility. The interest rate is
adjusted periodically, and the rate disclosed represents the current
rate at January 31, 2018. 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.
(i) The security, or a portion thereof, is segregated to cover the value of
open futures contracts at January 31, 2018.
(j) At January 31, 2018, the security, or a portion thereof, was segregated
to cover delayed-delivery and/or when-issued purchases.
(k) Security or a portion of the security purchased on a delayed-delivery
or when-issued basis.
(l) The security, or a portion thereof, was out on loan as of January 31,
2018.
(m) At January 31, 2018, the issuer was in default with respect to interest
and/or principal payments.
(n) Fixed to Floating security that initially pays a fixed rate and
converts to a floating rate coupon at a specified date in the future.
The rate presented is a fixed rate.
(o) Security is perpetual and has no final maturity date but may be subject
to calls at various dates in the future.
(p) All of the coupon is PIK.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 35
================================================================================
(q) A portion of the 7.35% coupon is PIK (6.35% cash, 1.00% PIK).
(r) Rates for U.S. Treasury notes or bonds represent the stated coupon
payment rate at time of issuance.
(s) Securities with a value of $526,000 are segregated as collateral for
initial margin requirements on open futures contracts.
(t) Restricted security that is not registered under the Securities Act of
1933.
(u) Rate represents the money market fund annualized seven-day yield at
January 31, 2018.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
36 | USAA HIGH INCOME FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
January 31, 2018 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value
(including securities on loan of $88,793)(cost of $2,251,285) $2,317,993
Cash 1,444
Receivables:
Capital shares sold 1,522
USAA Asset Management Company (Note 7C) 2
Dividends and interest 30,261
Securities sold 1,718
Other 81
----------
Total assets 2,353,021
----------
LIABILITIES
Payables:
Upon return of securities loaned 92,023
Securities purchased 15,744
Capital shares redeemed 1,624
Variation margin on futures contracts 1,163
Accrued management fees 877
Accrued transfer agent's fees 66
Other accrued expenses and payables 327
----------
Total liabilities 111,824
----------
Net assets applicable to capital shares outstanding $2,241,197
==========
NET ASSETS CONSIST OF:
Paid-in capital $2,243,246
Accumulated undistributed net investment income 1,011
Accumulated net realized loss on investments and
futures transactions (68,602)
Net unrealized appreciation of investments and futures contracts 65,542
----------
Net assets applicable to capital shares outstanding $2,241,197
==========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $1,243,841/151,325
capital shares outstanding, no par value) $ 8.22
==========
Institutional Shares (net assets of $982,217/119,692
capital shares outstanding, no par value) $ 8.21
==========
Adviser Shares (net assets of $9,992/1,213
capital shares outstanding, no par value) $ 8.24
==========
R6 Shares (net assets of $5,147/627 capital shares
outstanding, no par value) $ 8.21
==========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 37
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended January 31, 2018 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $18) $ 7,774
Interest 64,007
Securities lending (net) 449
--------
Total income 72,230
--------
EXPENSES
Management fees 5,086
Administration and servicing fees:
Fund Shares 927
Institutional Shares 492
Adviser Shares 8
R6 Shares 1
Transfer agent's fees:
Fund Shares 869
Institutional Shares 492
Adviser Shares 3
Distribution and service fees (Note 7E):
Adviser Shares 13
Custody and accounting fees:
Fund Shares 98
Institutional Shares 78
Adviser Shares 1
Postage:
Fund Shares 40
Institutional Shares 45
Shareholder reporting fees:
Fund Shares 23
Institutional Shares 8
Trustees' fees 17
Registration fees:
Fund Shares 23
Institutional Shares 14
Adviser Shares 8
R6 Shares 10
Professional fees 56
Other 21
--------
Total expenses 8,333
================================================================================
38 | USAA HIGH INCOME FUND
================================================================================
Expenses reimbursed:
Adviser Shares $ (4)
R6 Shares (9)
--------
Net expenses 8,320
--------
NET INVESTMENT INCOME 63,910
--------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FUTURES CONTRACTS
Net realized gain (loss) on:
Unaffiliated transactions 90
Affiliated transactions (Note 9) 3,150
Futures transactions (2,291)
Change in net unrealized appreciation/(depreciation) of:
Investments (11,999)
Futures contracts (1,076)
--------
Net realized and unrealized loss (12,126)
--------
Increase in net assets resulting from operations $ 51,784
========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 39
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended January 31, 2018 (unaudited), and year ended July 31,
2017
-----------------------------------------------------------------------------------------------------------------
1/31/2018 7/31/2017
-----------------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 63,910 $ 126,185
Net realized gain on investments 3,240 16,001
Net realized loss on futures transactions (2,291) (5,360)
Change in net unrealized appreciation/(depreciation) of:
Investments (11,999) 85,130
Futures contracts (1,076) 1,067
----------------------------------
Increase in net assets resulting from operations 51,784 223,023
----------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares (35,390) (67,577)
Institutional Shares (29,277) (57,663)
Adviser Shares (276) (529)
R6 Shares* (152) (201)
----------------------------------
Distributions to shareholders (65,095) (125,970)
----------------------------------
NET INCREASE IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS (NOTE 6)
Fund Shares 24,877 69,402
Institutional Shares 17,650 (65,157)
Adviser Shares (49) 488
R6 Shares* - 5,000
----------------------------------
Total net increase in net assets from
capital share transactions 42,478 9,733
----------------------------------
Net increase in net assets 29,167 106,786
NET ASSETS
Beginning of period 2,212,030 2,105,244
----------------------------------
End of period $2,241,197 $2,212,030
==================================
Accumulated undistributed net investment income:
End of period $ 1,011 $ 2,196
==================================
*R6 Shares commenced operations on December 1, 2016.
See accompanying notes to financial statements.
================================================================================
40 | USAA HIGH INCOME FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
January 31, 2018 (unaudited)
--------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company Act
of 1940, as amended (the 1940 Act), is an open-end management investment
company organized as a Delaware statutory trust consisting of 51 separate funds.
The USAA High Income Fund (the Fund) qualifies as a registered investment
company under Accounting Standards Codification Topic 946. The information
presented in this semiannual report pertains only to the Fund, which is
classified as diversified under the 1940 Act. The Fund's investment objective is
to seek to provide an attractive total return primarily through high current
income and secondarily through capital appreciation.
The Fund consists of four classes of shares: High Income Fund Shares (Fund
Shares), High Income Fund Institutional Shares (Institutional Shares), High
Income Fund Adviser Shares (Adviser Shares), and High Income 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, investment advisors, financial planners, third-party
administrators, and
================================================================================
NOTES TO FINANCIAL STATEMENTS | 41
================================================================================
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, illiquid securities and fair value
determinations, pricing movements, and daily stale price monitoring.
================================================================================
42 | USAA HIGH INCOME FUND
================================================================================
The value of each security is determined (as of the close of trading on the
New York Stock Exchange (NYSE) on each business day the NYSE is open) as set
forth below:
1. Debt securities with maturities greater than 60 days are valued each
business day by a pricing service (the Service) approved by the Board.
The Service uses an evaluated mean between quoted bid and 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. 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.
3. 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 43
================================================================================
Fund's net asset value (NAV) may not take place at the same time the
prices of certain foreign securities held by the Fund are determined.
In many cases, events affecting the values of foreign securities that
occur between the time of their last quoted sale or official closing
price and the close of normal trading on the NYSE on a day the Fund's
NAV is calculated will not need to be reflected in the value of the
Fund's foreign securities. However, the Manager will monitor for events
that would materially affect the value of the Fund's foreign securities
and the Committee will consider such available information that it
deems relevant and will determine a fair value for the affected foreign
securities in accordance with valuation procedures. In addition,
information from an external vendor or other sources may be used to
adjust the foreign market closing prices of foreign equity securities
to reflect what the Committee believes to be the fair value of the
securities as of the close of the NYSE. Fair valuation of affected
foreign equity securities may occur frequently based on an assessment
that events which occur on a fairly regular basis (such as U.S. market
movements) are significant. Such securities are categorized in Level 2
of the fair value hierarchy.
4. 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.
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. 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. In the event that price quotations or valuations are not readily
available, are not reflective of market value, or a significant event
has
================================================================================
44 | USAA HIGH INCOME FUND
================================================================================
been recognized in relation to a security or class of securities, the
securities are valued in good faith by the Committee in accordance with
valuation procedures approved by the Board. The effect of fair value
pricing is that securities may not be priced on the basis of quotations
from the primary market in which they are traded and the actual price
realized from the sale of a security may differ materially from the
fair value price. Valuing these securities at fair value is intended to
cause the Fund's NAV to be more reliable than it otherwise would be.
Fair value methods used by the Manager include, but are not limited to,
obtaining market quotations from secondary pricing services,
broker-dealers, other pricing services, or widely used quotation
systems. General factors considered in determining the fair value of
securities include fundamental analytical data, the nature and duration
of any restrictions on disposition of the securities, evaluation of
credit quality, and an evaluation of the forces that influenced the
market in which the securities are purchased and sold. Level 2
securities include equity securities that are valued using market
inputs and other observable factors deemed by the Manager to
appropriately reflect fair value.
B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The
three-level valuation hierarchy disclosed in the Portfolio of Investments is
based upon the transparency of inputs to the valuation of an asset or
liability as of the measurement date. The three levels are defined as
follows:
Level 1 - inputs to the valuation methodology are quoted prices (unadjusted)
in active markets for identical securities.
Level 2 - inputs to the valuation methodology are other significant
observable inputs, including quoted prices for similar securities, inputs
that are observable for the securities, either directly or indirectly, and
market-corroborated inputs such as market indexes.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 45
================================================================================
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 supported by
the value ascribed from a prior exchange offer, a prior tender offer, and an
original purchase 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 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
================================================================================
46 | USAA HIGH INCOME FUND
================================================================================
the actual counterparty to the transaction. The Fund's derivative agreements
held at January 31, 2018, did not include master netting provisions.
FUTURES CONTRACTS - The Fund is subject to equity price risk, interest rate
risk, and foreign currency exchange rate risk in the normal course of
pursuing its investment objectives. The Fund may use futures contracts to
gain exposure to, or hedge against, changes in the value of equities,
interest rates, or foreign currencies. A futures contract represents a
commitment for the future purchase or sale of an asset at a specified price
on a specified date. Upon entering into such contracts, the Fund is required
to deposit with the broker in either cash or securities an initial margin in
an amount equal to a certain percentage of the contract amount. Subsequent
payments (variation margin) are made or received by the Fund each day,
depending on the daily fluctuations in the value of the contract, and are
recorded for financial statement purposes as unrealized gains or losses.
When the contract is closed, the Fund records a realized gain or loss equal
to the difference between the value of the contract at the time it was
opened and the value at the time it was closed. Upon entering into such
contracts, the Fund bears the risk of interest or exchange rates or
securities prices moving unexpectedly in an unfavorable direction, in which
case, the Fund may not achieve the anticipated benefits of the futures
contracts.
FAIR VALUES OF DERIVATIVE INSTRUMENTS AS OF JANUARY 31, 2018* (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 $1,166**
appreciation of
investments and
futures contracts
-------------------------------------------------------------------------------------------------------------
* For open derivative instruments as of January 31, 2018, see the Portfolio
of Investments.
** Includes cumulative appreciation/(depreciation) of futures as reported on
the Portfolio of Investments. Only the variation margin from the last
business day of the reporting period is reported within the Statement of
Assets and Liabilities.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 47
================================================================================
THE EFFECT OF DERIVATIVE INSTRUMENTS ON THE STATEMENT OF OPERATIONS FOR THE
SIX-MONTH PERIOD ENDED JANUARY 31, 2018 (IN THOUSANDS)
CHANGE IN
UNREALIZED
DERIVATIVES NOT REALIZED GAIN APPRECIATION/
ACCOUNTED FOR AS STATEMENT OF (LOSS) ON (DEPRECIATION)
HEDGING INSTRUMENTS OPERATIONS LOCATION DERIVATIVES ON DERIVATIVES
-----------------------------------------------------------------------------------------
Equity contracts Net realized gain (loss) $(2,291) $(1,076)
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 January 31, 2018, the Fund did not incur any
income tax, interest, or penalties, and has recorded no liability for net
unrecognized tax benefits relating to uncertain income tax positions. On an
ongoing basis, the Manager will monitor the Fund's tax basis to determine if
adjustments to this conclusion are necessary. The statute of limitations on
the Fund's tax return filings generally remain open for the three preceding
fiscal reporting year ends and remain subject to examination by the Internal
Revenue Service and state taxing authorities.
E. 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
================================================================================
48 | USAA HIGH INCOME FUND
================================================================================
yield method for long-term securities and the straight-line method for
short-term securities.
F. FOREIGN CURRENCY TRANSLATIONS - The Fund's assets may be invested in the
securities of foreign issuers and may be traded in foreign currency. Since
the Fund's accounting records are maintained in U.S. dollars, foreign
currency amounts are translated into U.S. dollars on the following bases:
1. Purchases and sales of securities, income, and expenses at the exchange
rate obtained from an independent pricing service on the respective dates
of such transactions.
2. Market value of securities, other assets, and liabilities at the exchange
rate obtained from an independent pricing service on a daily basis.
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss
from investments.
Separately, net realized foreign currency gains/losses may arise from sales
of foreign currency, currency gains/losses realized between the trade and
settlement dates on security transactions, and from the difference between
amounts of dividends, interest, and foreign withholding taxes recorded on
the Fund's books and the U.S. dollar equivalent of the amounts received. At
the end of the Fund's fiscal year, net realized foreign currency
gains/losses are reclassified from accumulated net realized gains/losses to
accumulated undistributed net investment income on the Statement of Assets
and Liabilities, as such amounts are treated as ordinary income/loss for
federal income tax purposes. Net unrealized 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 49
================================================================================
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 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.
As of January 31, 2018, the Fund's outstanding delayed-delivery commitments,
including interest purchased, were $8,828,000; which included when-issued
securities of $3,960,000.
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 January 31, 2018, there were no custodian and other bank credits.
I. REDEMPTION FEES - All share classes held in the Fund less than 180 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
January 31, 2018, the Fund Shares and Adviser Shares charged redemption fees
of $3,000 and $1,000, respectively.
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
================================================================================
50 | USAA HIGH INCOME FUND
================================================================================
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 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 January 31, 2018, the Fund paid CAPCO facility
fees of $9,000, which represents 2.7% 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 January 31, 2018.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 51
================================================================================
(3) DISTRIBUTIONS
The tax basis of distributions and accumulated undistributed net investment
income will be determined as of the Fund's tax year-end of July 31, 2018, in
accordance with applicable federal tax law.
Distributions of net investment income are made monthly. Distributions of
realized gains from security transactions not offset by capital losses are made
annually in the succeeding fiscal year or as otherwise required to avoid the
payment of federal taxes.
At July 31, 2017, the Fund had net capital loss carryforwards of $68,620,000,
for federal income tax purposes. It is unlikely that the Board will authorize
distribution of capital gains realized in the future until the capital loss
carryforwards have been used.
As of January 31, 2018, the cost of securities, including short-term securities,
for federal income tax purposes, was approximately the same as the cost reported
in the financial statements.
Gross unrealized appreciation and depreciation of investments as of January 31,
2018, were $159,976,000 and $93,268,000, respectively, resulting in net
unrealized appreciation of $66,708,000.
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities, excluding
short-term securities, for the six-month period ended January 31, 2018, were
$353,883,000 and $275,375,000, respectively.
(5) SECURITIES LENDING
The Fund, through a 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
================================================================================
52 | USAA HIGH INCOME FUND
================================================================================
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 January 31, 2018, 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
-------------------------------------------------------------------------------
$88,793,000 $- $92,023,000
-------------------------------------------------------------------------------
(6) CAPITAL SHARE TRANSACTIONS
At January 31, 2018, there were an unlimited number of shares of capital stock
at no par value authorized for the Fund.
Capital share transactions for the Institutional Shares resulted from purchases
and sales by the affiliated USAA fund-of-funds as well as other
================================================================================
NOTES TO FINANCIAL STATEMENTS | 53
================================================================================
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
JANUARY 31, 2018 JULY 31, 2017
------------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------
FUND SHARES:
Shares sold 15,335 $ 125,983 29,360 $ 239,353
Shares issued from reinvested
dividends 4,013 32,838 7,674 62,476
Shares redeemed* (16,323) (133,944) (28,572) (232,427)
--------------------------------------------------------------
Net increase from
capital share transactions 3,025 $ 24,877 8,462 $ 69,402
==============================================================
INSTITUTIONAL SHARES:
Shares sold 7,370 $ 60,477 16,858 $ 137,350
Shares issued from reinvested
dividends 3,451 28,223 6,840 55,601
Shares redeemed* (8,671) (71,050) (31,672) (258,108)
--------------------------------------------------------------
Net increase (decrease) from
capital share transactions 2,150 $ 17,650 (7,974) $ (65,157)
==============================================================
ADVISER SHARES:
Shares sold 87 $ 718 163 $ 1,332
Shares issued from reinvested
dividends 15 120 27 223
Shares redeemed* (108) (887) (131) (1,067)
--------------------------------------------------------------
Net increase (decrease) from
capital share transactions (6) $ (49) 59 $ 488
==============================================================
R6 SHARES (COMMENCED ON
DECEMBER 1, 2016):
Shares sold - $ - 627 $ 5,000
Shares issued from reinvested
dividends - - - -
Shares redeemed* - - - -
--------------------------------------------------------------
Net increase from capital
share transactions - $ - 627 $ 5,000
==============================================================
*Net of redemption fees, if any.
================================================================================
54 | USAA HIGH INCOME 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, 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 January 31, 2018, 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 0.50% of the Fund's average net assets.
The performance adjustment is calculated separately for each share class on
a monthly basis by comparing each class' performance over the performance
period to that of the Lipper High Yield Bond Funds Index. The Lipper High
Yield Bond Funds Index tracks the total return performance of funds within
the Lipper High Yield Funds category.
The performance period for each class consists of the current month plus the
previous 35 months. The performance period for the R6 Shares commenced on
December 1, 2016, and includes 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 of the share class are calculated
over a rolling 36-month period.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 55
================================================================================
Each class' annual performance adjustment rate is multiplied by the average
net assets of each respective class over the entire performance period,
which is then multiplied by a fraction, the numerator of which is the number
of days in the month and the denominator of which is 365 (366 in leap
years). The resulting amount is then added to (in the case of
overperformance) or subtracted from (in the case of underperformance) the
base fee.
Under the performance fee arrangement, each class will pay a positive
performance fee adjustment for a performance period whenever the class
outperforms the Lipper High Yield Bond Funds Index over that period, even if
the class had overall negative returns during the performance period.
For the six-month period ended January 31, 2018, the Fund incurred total
management fees, paid or payable to the Manager, of $5,086,000, which
included a performance adjustment for the Fund Shares, Institutional Shares,
Adviser Shares, and R6 Shares of $(285,000), $(212,000), $(3,000), and less
than $(500), respectively. For the Fund Shares, Institutional Shares,
Adviser Shares, and R6 Shares the performance adjustments were (0.05%),
(0.04%), (0.05%), and (0.01%), respectively.
B. ADMINISTRATION AND SERVICING FEES - The Manager provides certain
administration and servicing functions for the Fund. For such services, the
Manager receives a fee accrued daily and paid monthly at an annualized rate
of 0.15% of average net assets of the Fund Shares and 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 January 31, 2018,
the Fund Shares, Institutional Shares, Adviser Shares, and R6 Shares
incurred administration and servicing fees, paid or payable to the Manager,
of $927,000, $492,000, $8,000, 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
================================================================================
56 | USAA HIGH INCOME FUND
================================================================================
the Manager. For the six-month period ended January 31, 2018, the Fund
reimbursed the Manager $8,000 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 November 30, 2018, to limit
the total annual operating expenses of the Adviser Shares and R6 Shares to
1.00% and 0.65%, 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 that amount. This expense limitation arrangement may
not be changed or terminated through November 30, 2018, without approval of
the Board, and may be changed or terminated by the Manager at any time after
that date. Prior to December 1, 2017, the Adviser Shares' expense limitation
was 1.05% of average net assets. For the six-month period ended January 31,
2018, the Adviser Shares and R6 Shares incurred reimbursable expenses of
$4,000 and $9,000, respectively, of which $2,000 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 January 31, 2018, the Fund Shares,
Institutional Shares, Adviser Shares, and R6 Shares incurred transfer
agent's fees, paid or payable to SAS, of $869,000, $492,000, $3,000, 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 57
================================================================================
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 January 31,
2018, the Adviser Shares incurred distribution and service (12b-1) fees of
$13,000.
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 January 31, 2018, 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
Target Retirement Income 0.5
Target Retirement 2020 1.0
Target Retirement 2030 1.7
Target Retirement 2040 1.6
Target Retirement 2050 0.3
Target Retirement 2060 0.0*
* Represents less than 0.1%
The Manager is indirectly wholly owned by United Services Automobile Association
(USAA), a large, diversified financial services institution. At January 31,
2018, USAA and its affiliates owned 617,000 Adviser Shares
================================================================================
58 | USAA HIGH INCOME FUND
================================================================================
and 627,000 R6 Shares, which represents 50.9% of the Adviser Shares outstanding,
100.0% of the R6 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) SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
During the six-month period ended January 31, 2018, 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
------------------------------------------------------------------------------------------
High Income Core Intermediate-Term Bond ETF $ 1,840,000 $ 351,000
High Income Income 17,134,000 2,000,000
High Income Intermediate-Term Bond 8,441,000 661,000
High Income Short-Term Bond 5,309,000 138,000
(10) 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 December 2017, the
SEC issued Temporary Final Rule Release No. 33-10442, INVESTMENT COMPANY
REPORTING MODERNIZATION (Temporary Rule), which extends to April 2019 the
compliance date on which funds in larger fund groups, such as the Fund, are
required to begin filing form N-PORT. In the interim, in lieu of filing form
N-PORT, the Temporary Rule
================================================================================
NOTES TO FINANCIAL STATEMENTS | 59
================================================================================
requires that funds in larger fund groups maintain in their records the
information that is required to be included in form N-PORT. The Temporary Rule
does not affect the filing date or requirements of form N-CEN.
In October 2016, the SEC issued Final Rule Release No. 33-10233, INVESTMENT
COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS (Liquidity Rule). The Liquidity Rule
requires funds to establish a liquidity risk management program and enhances
disclosures regarding funds' liquidity.
In February 2018, the SEC issued Interim Final Rule Release No. IC-33010,
INVESTMENT COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS; COMMISSION GUIDANCE FOR
IN-KIND ETFs, which extends, among others, the compliance dates for certain
disclosure requirements under the Liquidity Rule. The compliance date for the
liquidity disclosure required in form N-PORT has been extended to June 1, 2019
for larger entities such as the Fund. The compliance date for the liquidity
disclosure required in form N-CEN for large entities such as the Fund remains
December 1, 2018. The Fund is expected to comply with these compliance dates for
forms N-PORT and N-CEN. The Manager continues to evaluate the impact these rules
and amendments will have on the financial statements and other disclosures.
(11) NEW ACCOUNTING PRONOUNCEMENTS
In March 2017, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Update (ASU) 2017-08, Premium Amortization of Purchased Callable Debt
Securities. The amendments in the ASU shorten the premium amortization period on
a purchased callable debt security from the security's contractual life to the
earliest call date. It is anticipated that this change will enhance disclosures
by reducing losses recognized when a security is called on an earlier date. This
ASU is effective for fiscal years beginning after December 15, 2018. The Manager
continues to evaluate the impact this ASU will have on the financial statement
disclosures.
================================================================================
60 | USAA HIGH INCOME FUND
================================================================================
(12) FINANCIAL HIGHLIGHTS - FUND SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JANUARY 31, YEAR ENDED JULY 31,
------------------------------------------------------------------------------------------
2018 2017 2016 2015 2014 2013
------------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 8.27 $ 7.90 $ 8.17 $ 8.91 $ 8.79 $ 8.42
------------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .23 .47 .48 .47 .50 .55
Net realized and
unrealized gain (loss) (.04) .37 (.28) (.68) .29 .46
------------------------------------------------------------------------------------------
Total from investment
operations .19 .84 .20 (.21) .79 1.01
------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.24) (.47) (.47) (.47) (.51) (.53)
Realized capital gains - - - (.06) (.16) (.11)
------------------------------------------------------------------------------------------
Total distributions (.24) (.47) (.47) (.53) (.67) (.64)
------------------------------------------------------------------------------------------
Redemption fees added
to beneficial interests .00(b) .00(b) .00(b) .00(b) .00(b) -
------------------------------------------------------------------------------------------
Net asset value at
end of period $ 8.22 $ 8.27 $ 7.90 $ 8.17 $ 8.91 $ 8.79
==========================================================================================
Total return (%)* 2.31 10.92 2.95 (2.42) 9.35 12.39
Net assets at end of
period (000) $1,243,841 $1,225,990 $1,105,081 $1,322,058 $1,521,633 $1,250,728
Ratios to average
net assets:**
Expenses (%)(a) .78(c) .83 .82 .89 .89 .94
Net investment
income (%) 5.68(c) 5.80 6.22 5.46 5.71 6.15
Portfolio turnover (%) 13 21 36 16 21 47
* 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 January 31, 2018, average net assets were
$1,225,981,000.
(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%)(+)
(+) Represents less than 0.01% of average net assets.
(b) Represents less than $0.01 per share.
(c) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 61
================================================================================
(12) FINANCIAL HIGHLIGHTS (CONTINUED) - INSTITUTIONAL SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JANUARY 31, YEAR ENDED JULY 31,
----------------------------------------------------------------------------------------
2018 2017 2016 2015 2014 2013
----------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 8.26 $ 7.90 $ 8.16 $ 8.91 $ 8.78 $ 8.41
----------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .24 .48 .48 .48 .52 .54
Net realized and
unrealized gain (loss) (.04) .36 (.26) (.69) .29 .49
----------------------------------------------------------------------------------------
Total from investment
operations .20 .84 .22 (.21) .81 1.03
----------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.25) (.48) (.48) (.48) (.52) (.55)
Realized capital gains - - - (.06) (.16) (.11)
----------------------------------------------------------------------------------------
Total distributions (.25) (.48) (.48) (.54) (.68) (.66)
----------------------------------------------------------------------------------------
Redemption fees added to
beneficial interests - .00(b) .00(b) .00(b) - -
----------------------------------------------------------------------------------------
Net asset value at
end of period $ 8.21 $ 8.26 $ 7.90 $ 8.16 $ 8.91 $ 8.78
========================================================================================
Total return (%)* 2.43 10.89 3.19 (2.44) 9.61 12.63
Net assets at end of
period (000) $982,217 $970,767 $990,980 $811,060 $757,419 $764,558
Ratios to average
net assets:**
Expenses (%)(a) .69(c) .75 .71 .80 .76 .76
Net investment
income (%) 5.77(c) 5.89 6.32 5.55 5.87 6.22
Portfolio turnover (%) 13 21 36 16 21 47
* 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 January 31, 2018, average net assets were
$975,322,000.
(a) 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%)(+)
(+) Represents less than 0.01% of average net assets.
(b) Represents less than $0.01 per share.
(c) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
62 | USAA HIGH INCOME FUND
================================================================================
(12) FINANCIAL HIGHLIGHTS (CONTINUED) - ADVISER SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JANUARY 31, YEAR ENDED JULY 31,
--------------------------------------------------------------------------------------
2018 2017 2016 2015 2014 2013
--------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 8.28 $ 7.92 $ 8.18 $ 8.92 $ 8.79 $ 8.42
--------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .23 .46 .44 .45 .49 .52
Net realized and
unrealized gain (loss) (.04) .35 (.25) (.69) .27 .47
--------------------------------------------------------------------------------------
Total from investment
operations .19 .81 .19 (.24) .76 .99
--------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.23) (.45) (.45) (.45) (.48) (.51)
Realized capital gains - - - (.06) (.16) (.11)
--------------------------------------------------------------------------------------
Total distributions (.23) (.45) (.45) (.51) (.64) (.62)
--------------------------------------------------------------------------------------
Redemption fees added to
beneficial interests .00(b) .00(b) .00(b) .01 .01 .00(b)
--------------------------------------------------------------------------------------
Net asset value at
end of period $ 8.24 $ 8.28 $ 7.92 $ 8.18 $ 8.92 $ 8.79
======================================================================================
Total return (%)* 2.30 10.49 2.73 (2.67) 9.16 12.13
Net assets at end of
period (000) $9,992 $10,096 $9,183 $12,545 $9,218 $7,108
Ratios to average
net assets:**
Expenses (%)(a) 1.03(e),(f) 1.08(d) 1.15 1.16(c) 1.19 1.20
Expenses, excluding
reimbursements (%)(a) 1.12(e) 1.15 1.19 1.21 1.19 1.34
Net investment income (%) 5.43(e) 5.55 5.88 5.19 5.41 5.85
Portfolio turnover (%) 13 21 36 16 21 47
* 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 January 31, 2018, average net assets were
$10,043,000.
(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%)
(+) Represents less than 0.01% of average net assets.
(b) Represents less than $0.01 per share.
(c) Prior to December 1, 2014, the Manager voluntarily agreed to limit the
annual expense of the Adviser Shares to 1.20% of the Adviser Shares' average
net assets.
(d) Prior to December 1, 2016, the Manager voluntarily agreed to limit the
annual expenses of the Adviser Shares to 1.15% of the Adviser Shares' average
net assets.
(e) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(f) Prior to December 1, 2017, the Manager voluntarily agreed to limit the
annual expenses of the Fund Shares to 1.05% of the Adviser Shares' average
net assets.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 63
================================================================================
(12) FINANCIAL HIGHLIGHTS (CONTINUED) - R6 SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED YEAR ENDED
JANUARY 31, JULY 31,
--------------------------------------
2018 2017***
--------------------------------------
Net Asset value at beginning of period $ 8.26 $ 7.98
--------------------------------
Income (loss) from investment operations:
Net investment income .24 .32
Net realized and unrealized gain (loss) (.05) .28
--------------------------------
Total from investment operations .19 .60
--------------------------------
Less distributions from:
Net investment income (.24) (.32)
--------------------------------
Net asset value at end of period $ 8.21 $ 8.26
================================
Total return (%)* 2.39 7.64
Net assets at end of period (000) $5,147 $5,177
Ratios to average net assets:**
Expenses (%)(a) .65 .65
Expenses, excluding reimbursements (%)(a) .97 1.26
Net investment income (%) 5.81 5.88
Portfolio turnover (%) 13 21
* 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 January 31, 2018, average net assets were
$5,143,000.
*** R6 Shares commenced operations on December 1, 2016.
(a) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
64 | USAA HIGH INCOME FUND
================================================================================
EXPENSE EXAMPLE
January 31, 2018 (unaudited)
--------------------------------------------------------------------------------
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: direct costs, such
as wire fees, redemption fees, and low balance fees; and indirect costs,
including management fees, transfer agency fees, distribution and service
(12b-1) fees, and other Fund operating expenses. This example is intended to
help you understand your indirect costs, also referred to as "ongoing costs" (in
dollars), of investing in the Fund and to compare these costs with the ongoing
costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire six-month period of August 1, 2017, through
January 31, 2018.
ACTUAL EXPENSES
The line labeled "actual" under each share class in the table provides
information about actual account values and actual expenses. You may use the
information in this line, together with the amount you invested at the beginning
of the period, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number for your share
class in the "actual" line under the heading "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The line labeled "hypothetical" under each share class in the table provides
information about hypothetical account values and hypothetical expenses based on
the Fund's actual expense ratios for each class and an assumed rate of return of
5% per year before expenses, which is not the Fund's actual return. The
hypothetical account values and expenses may not be used to estimate the 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%
================================================================================
EXPENSE EXAMPLE | 65
================================================================================
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 AUGUST 1, 2017 -
AUGUST 1, 2017 JANUARY 31, 2018 JANUARY 31, 2018
---------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $1,023.10 $3.98
Hypothetical
(5% return before expenses) 1,000.00 1,021.27 3.97
INSTITUTIONAL SHARES
Actual 1,000.00 1,024.30 3.52
Hypothetical
(5% return before expenses) 1,000.00 1,021.73 3.52
ADVISER SHARES
Actual 1,000.00 1,023.00** 5.25**
Hypothetical
(5% return before expenses) 1,000.00 1,020.01** 5.24**
R6 SHARES
Actual 1,000.00 1,023.90 3.32
Hypothetical
(5% return before expenses) 1,000.00 1,021.93 3.31
*Expenses are equal to the annualized expense ratio of 0.78% for Fund Shares,
0.69% for Institutional Shares, 1.03% for Adviser Shares, and 0.65% for R6
Shares, which are net of any reimbursements and expenses paid indirectly,
multiplied by the average account value over the period, multiplied by 184
days/365 days (to reflect the one-half-year period). The Fund's actual ending
account values are based on its actual total returns of 2.31% for Fund Shares,
2.43% for Institutional Shares, 2.30% for Adviser Shares, and 2.39% for R6
Shares, for the six-month period of August 1, 2017, through January 31, 2018.
================================================================================
66 | USAA HIGH INCOME FUND
================================================================================
**The Fund's annualized expense ratio of 1.03% for the Adviser Shares above
reflects a change effective December 1, 2017, in the rate of the Manager's
expense limitation for the Adviser Shares from 1.05% to 1.00% of the Adviser
Shares' average annual net assets. Had the expense limitation ratio of 1.00%,
which is net of expenses paid indirectly, been in effect for the entire
six-month period of August 1, 2017, through January 31, 2018, the values in
the table above would be as shown below.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD
ACCOUNT VALUE ACCOUNT VALUE AUGUST 1, 2017 -
AUGUST 1, 2017 JANUARY 31, 2018 JANUARY 31, 2018
-------------------------------------------------------------
ADVISER SHARES
Actual $1,000.00 $1,023.00 $5.10
Hypothetical
(5% return before expenses) 1,000.00 1,020.16 5.09
================================================================================
EXPENSE EXAMPLE | 67
================================================================================
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)
=============================================================================
40051-0318 (C)2018, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA INCOME FUND]
==============================================================
SEMIANNUAL REPORT
USAA INCOME FUND
FUND SHARES (USAIX) o INSTITUTIONAL SHARES (UIINX)
o ADVISER SHARES (UINCX) o R6 SHARES (URIFX)
JANUARY 31, 2018
==============================================================
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
INVESTMENT OVERVIEW 2
FINANCIAL INFORMATION
Portfolio of Investments 4
Notes to Portfolio of Investments 44
Financial Statements 50
Notes to Financial Statements 54
EXPENSE EXAMPLE 75
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 INCOME FUND (THE FUND) SEEKS MAXIMUM CURRENT INCOME WITHOUT UNDUE RISK
TO PRINCIPAL.
--------------------------------------------------------------------------------
TYPES OF INVESTMENTS
The Fund invests its assets primarily in U.S. dollar-denominated debt
securities, including, among others, obligations of U.S., state, and local
governments; their agencies and instrumentalities; mortgage- and asset-backed
securities; corporate debt securities, and repurchase agreements that have been
selected for their high yields relative to the risk involved. The Fund will
invest primarily in investment-grade securities but also may invest up to 10% of
its net assets in below-investment-grade securities, which are sometimes
referred as high-yield or "junk" bonds.
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
--------------------------------------------------------------------------------
PORTFOLIO RATINGS MIX - 1/31/18
[PIE CHART OF PORTFOLIO RATINGS MIX]
AAA 20.8%
AA 12.2%
A 31.7%
BBB 28.2%
Below Investment-Grade 5.5%
Unrated 1.6%
[END CHART]
This chart reflects the highest long-term rating from a Nationally Recognized
Statistical Rating Organization (NRSRO), with the four highest long-term credit
ratings labeled, in descending order of credit quality, AAA, AA, A, and BBB.
These categories represent investment-grade quality. NRSRO ratings are shown
because they provide independent analysis of the credit quality of the Fund's
investments. USAA Asset Management Company (the Manager) also performs its own
fundamental credit analysis of each security. As part of its fundamental credit
analysis, the Manager considers various criteria, including industry specific
actions, peer comparisons, payment ranking, and structure specific
characteristics. Any of the Fund's securities that are not rated by an NRSRO
appear in the chart above as "Unrated," but these securities are analyzed and
monitored by the Manager on an ongoing basis. Government securities that are
issued or guaranteed as to principal and interest by the U.S. government and
pre-refunded and escrowed-to-maturity municipal bonds that are not rated are
treated as AAA for credit quality purposes.
Percentages are of the total market value of the Fund's investments.
You will find a complete list of securities that the Fund owns on pages 4-43.
================================================================================
2 | USAA INCOME FUND
================================================================================
o TOP 10 HOLDINGS* - 1/31/18 o
(% of Net Assets)
COUPON RATE % MATURITY DATE % OF NET ASSETS
-------------------------------------------------
U.S. Treasury Notes ........ 2.00 2/15/2025 1.0
U.S. Treasury
Inflation-Indexed Notes .. 2.38 1/15/2025 0.9
U.S. Treasury Bonds ........ 2.50 2/15/2045 0.8
U.S. Treasury Notes ........ 2.63 11/15/2020 0.7
U.S. Treasury Bonds ........ 2.50 2/15/2046 0.7
U.S. Treasury Notes ........ 3.63 2/15/2020 0.7
U.S. Treasury Notes ........ 3.50 5/15/2020 0.6
U.S. Treasury Notes ........ 1.63 2/15/2026 0.6
U.S. Treasury Bonds ........ 2.75 8/15/2042 0.5
U.S. Treasury Bonds ........ 3.88 8/15/2040 0.4
O ASSET ALLOCATION** - 1/31/18 O
[PIE CHART OF SECTOR ALLOCATION]
CORPORATE OBLIGATIONS 48.3%
EURODOLLAR AND YANKEE OBLIGATIONS 17.2%
U.S. TREASURY SECURITIES 10.5%
MUNICIPAL OBLIGATIONS 8.0%
COMMERCIAL MORTGAGE SECURITIES 6.2%
ASSET-BACKED SECURITIES 2.6%
MONEY MARKET INSTRUMENTS 1.8%
COLLATERALIZED LOAN OBLIGATIONS 1.5%
PREFERRED STOCKS 1.2%
U.S. GOVERNMENT AGENCY ISSUES 1.1%
COMMON STOCKS 0.5%
FOREIGN GOVERNMENT OBLIGATIONS 0.4%
[END CHART]
*Does not include money market instruments and short-term investments purchased
with cash collateral from securities loaned.
**Does not include short-term investments purchased with cash collateral from
securities loaned.
Percentages are of net assets of the Fund and may not equal 100%.
================================================================================
INVESTMENT OVERVIEW | 3
================================================================================
PORTFOLIO OF INVESTMENTS
January 31, 2018 (unaudited)
-----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------
BONDS (95.8%)
ASSET-BACKED SECURITIES (2.6%)
FINANCIALS (2.3%)
-----------------
ASSET-BACKED FINANCING (2.3%)
$ 9,650 AmeriCredit Automobile Receivables Trust 2.71% 9/08/2022 $ 9,574
1,486 ARL First, LLC 1 mo. LIBOR + 1.75%(a) 3.31(b) 12/15/2042 1,492
2,000 Avis Budget Rental Car Funding AESOP, LLC(a) 4.42 9/20/2019 2,007
3,000 Avis Budget Rental Car Funding AESOP, LLC(a) 3.52 2/20/2020 2,990
1,334 Avis Budget Rental Car Funding AESOP, LLC(a) 3.75 7/20/2020 1,336
6,500 California Republic Auto Receivables Trust 2.91 12/15/2022 6,394
2,938 Centre Point Funding, LLC(a) 2.61 8/20/2021 2,920
5,954 CIT Education Loan Trust 3 mo.
LIBOR + 0.30%(a) 1.97(b) 6/25/2042 5,368
8,500 CIT Equipment Collateral(a) 2.15 2/20/2020 8,500
2,000 Citibank Credit Card Issuance Trust 5.35 2/07/2020 2,001
3,000 Credit Acceptance Auto Loan Trust(a) 3.30 7/17/2023 3,004
15,000 Element Rail Leasing I, LLC(a) 3.67 4/19/2044 15,100
3,000 Hertz Vehicle Financing II, LP(a) 2.65 7/25/2022 2,947
8,667 Hertz Vehicle Financing II, LP(a) 3.29 10/25/2023 8,648
20,000 Louisiana Environmental Facilities and
Community Dev. 3.24 8/01/2028 19,931
2,750 MMAF Equipment Finance, LLC(a) 2.68 7/16/2027 2,684
10,000 MMAF Equipment Finance, LLC(a) 2.49 2/19/2036 9,880
3,000 Navient Student Loan Trust 1 mo.
LIBOR + 1.50% 3.06(b) 8/25/2050 2,993
955 Nelnet Student Loan Trust 3 mo.
LIBOR + 0.28% 1.94(b) 9/22/2035 861
15,625 NP SPE II, LLC 4.22 10/21/2047 15,491
8,500 OneMain Direct Auto Receivables Trust(a) 2.82 7/15/2024 8,429
1,944 Renew Financial(a) 3.22 9/22/2053 1,905
5,000 SBA Tower Trust(a) 2.90 10/15/2044 5,015
6,530 SCF Equipment Trust, LLC(a) 3.41 12/20/2023 6,473
5,810 SLM Student Loan Trust 3 mo. LIBOR + 0.23% 1.98(b) 1/25/2041 5,467
2,168 SLM Student Loan Trust 3 mo. LIBOR + 0.55% 2.29(b) 10/25/2065 2,074
3,750 TCF Auto Receivables Owner Trust(a) 2.89 7/15/2021 3,739
================================================================================
4 | USAA INCOME FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------
$ 10,000 Trip Rail Master Funding, LLC(a) 4.08% 4/15/2044 $ 9,919
3,334 Trip Rail Master Funding, LLC(a) 3.74 8/15/2047 3,245
623 Westlake Automobile Receivables Trust(a) 2.45 1/15/2021 623
4,500 Westlake Automobile Receivables Trust(a) 6.41 5/15/2023 4,704
----------
Total Financials 175,714
----------
TELECOMMUNICATION SERVICES (0.1%)
---------------------------------
TELECOMMUNICATIONS (0.1%)
10,000 Crown Castle Towers, LLC(a) 3.22 5/15/2042 10,100
----------
UTILITIES (0.2%)
----------------
ELECTRIC UTILITIES (0.2%)
15,000 Hawaii Dept. of Business Economic Dev. & Tourism 3.25 1/01/2031 14,897
----------
Total Asset-Backed Securities (cost: $200,789) 200,711
----------
COLLATERALIZED LOAN OBLIGATIONS (1.5%)
FINANCIALS (1.5%)
-----------------
3,500 American Money Management Corp. 3 mo.
LIBOR + 1.50%(a) 3.22(b) 10/15/2028 3,522
3,500 CIFC Funding Ltd. 3 mo. LIBOR + 1.70%(a) 3.44(b) 4/23/2029 3,519
4,000 Dryden Senior Loan Fund 3 mo. LIBOR + 2.00%(a) 3.75(b) 7/20/2029 4,095
10,000 Dryden Senior Loan Fund 3 mo. LIBOR + 1.10%(a) 2.82(b) 1/15/2031 10,014
2,500 Dryden Senior Loan Fund 3 mo.
LIBOR + 1.01%(a),(c),(d) 1.00(b) 5/15/2031 2,500
10,000 Eaton Vance Ltd. 3 mo. LIBOR + 1.25%(a) 2.73(b) 1/20/2030 10,012
10,000 Grippen Park Ltd. 3 mo. LIBOR + 1.26%(a) 3.00(b) 1/20/2030 10,039
5,000 Loomis Sayles Ltd. 3 mo. LIBOR + 1.53%(a) 3.25(b) 10/15/2027 5,015
5,000 Magnetite VII Ltd. 3 mo. LIBOR + 0.80%(a),(c),(d) 1.00(b) 1/15/2028 5,000
10,000 Oaktree EIF Ltd. 3 mo. LIBOR + 2.00%(a) 3.75(b) 10/20/2027 10,046
10,000 Race Point Ltd. 3 mo. LIBOR + 1.60%(a) 3.35(b) 7/25/2028 10,037
7,000 Stewart Park Ltd. 3 mo. LIBOR + 1.25%(a) 2.97(b) 1/15/2030 7,004
6,500 Teachers Insurance and Annuity Association of
America 3 mo. LIBOR + 1.70%(a) 3.44(b) 7/20/2028 6,533
7,000 Teachers Insurance and Annuity Association of
America 3 mo. LIBOR + 1.70%(a) 3.44(b) 4/20/2029 7,034
9,750 Trinitas Ltd. 3 mo. LIBOR + 1.70% 3.45(b) 10/25/2028 9,815
10,000 Trinitas Ltd. 3 mo. LIBOR + 1.32%(a) 3.07(b) 7/25/2029 10,041
3,000 Voya Ltd. 3 mo. LIBOR + 1.60%(a) 3.33(b) 4/17/2030 3,022
----------
Total Financials 117,248
----------
Total Collateralized Loan Obligations (cost: $116,722) 117,248
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 5
================================================================================
-----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------
COMMERCIAL MORTGAGE SECURITIES (6.2%)
FINANCIALS (6.2%)
-----------------
COMMERCIAL MORTGAGE-BACKED SECURITIES (4.8%)
$ 2,537 Banc of America Commercial Mortgage, Inc. 5.76%(e) 7/10/2044 $ 1,700
2,125 Caesars Palace Las Vegas Trust(a) 4.14 10/15/2034 2,177
10,000 Citigroup Commercial Mortgage Trust 3.36 7/10/2047 10,129
2,500 Citigroup Commercial Mortgage Trust 3.62 7/10/2047 2,568
4,000 Citigroup Commercial Mortgage Trust 3.86 7/10/2047 4,062
9,500 Citigroup Commercial Mortgage Trust 3.79(e) 9/15/2050 9,560
8,600 Commercial Mortgage Trust 3.25 10/15/2045 8,500
5,925 Commercial Mortgage Trust(a) 3.42 10/15/2045 5,962
6,000 Commercial Mortgage Trust 2.77 12/10/2045 5,934
4,000 Commercial Mortgage Trust 3.61(e) 6/10/2046 4,114
5,000 Commercial Mortgage Trust 3.80 8/10/2047 5,182
7,500 Commercial Mortgage Trust 4.08 8/10/2047 7,732
15,000 Commercial Mortgage Trust 3.90 7/10/2050 15,560
2,000 Commercial Mortgage Trust 4.29(e) 7/10/2050 2,075
11,250 Fannie Mae(+) 2.15 1/25/2023 10,950
4,834 Fannie Mae(+) 2.64(e) 11/25/2024 4,758
15,000 Freddie Mac(+) 2.81 1/25/2025 14,910
7,000 Freddie Mac(+) 3.00 12/25/2025 7,012
12,000 Freddie Mac(+) 2.85 3/25/2026 11,820
20,000 Freddie Mac(+) 2.65 8/25/2026 19,428
10,000 Freddie Mac(+) 3.41 12/25/2026 10,276
9,000 Freddie Mac(+) 3.43(e) 1/25/2027 9,260
4,533 Freddie Mac(+) 3.24 8/25/2027 4,587
5,759 Freddie Mac(+) 3.19(e) 9/25/2027 5,805
8,766 Freddie Mac(+) 3.30(e) 11/25/2027 8,920
15,500 Freddie Mac(+) 3.51 4/25/2030 15,863
4,455 Freddie Mac(+) 3.46 11/25/2032 4,356
2,500 GE Capital Commercial Mortgage Corp. 5.61(e) 12/10/2049 2,510
4,743 GS Mortgage Securities Corp. II 3.38 5/10/2045 4,814
5,000 GS Mortgage Securities Trust 3.28 2/10/2046 4,961
5,000 GS Mortgage Securities Trust(a) 3.68 2/10/2046 5,014
5,000 GS Mortgage Securities Trust 4.24 8/10/2046 5,291
6,000 GS Mortgage Securities Trust 3.76 7/10/2048 6,208
15,000 J.P. Morgan Chase Commercial Mortgage
Securities Trust(a) 5.66(e) 11/15/2043 15,710
5,697 J.P. Morgan Chase Commercial Mortgage
Securities Trust 4.82(e) 5/15/2045 5,972
10,000 J.P. Morgan Chase Commercial Mortgage
Securities Trust 4.27 6/15/2045 10,400
9,000 J.P. Morgan Chase Commercial Mortgage
Securities Trust 4.44(e) 2/15/2047 9,469
================================================================================
6 | USAA INCOME FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------
$ 4,931 J.P. Morgan Chase Commercial Mortgage
Securities Trust 5.37% 5/15/2047 $ 4,939
2,750 Morgan Stanley Capital I, Inc.(a) 5.20(e) 6/15/2044 2,825
3,000 Morgan Stanley Capital I, Inc. 3.77 3/15/2045 3,043
3,200 Morgan Stanley Capital I, Inc. 3.46 5/15/2046 3,191
7,000 Morgan Stanley Capital I, Inc. 4.03(e) 5/15/2048 7,127
9,375 UBS Commercial Mortgage Trust 4.17 5/10/2045 9,708
15,000 UBS Commercial Mortgage Trust 4.82 5/10/2045 15,930
2,313 UBS-Barclays Commercial Mortgage Trust(a) 4.18 5/10/2063 2,379
1,500 WF-RBS Commercial Mortgage Trust(a) 5.25(e) 6/15/2044 1,590
5,000 WF-RBS Commercial Mortgage Trust 3.35 5/15/2045 4,983
10,000 WF-RBS Commercial Mortgage Trust 4.09(e) 6/15/2045 10,286
5,000 WF-RBS Commercial Mortgage Trust 3.24 12/15/2045 4,943
20,000 WF-RBS Commercial Mortgage Trust 3.65 12/15/2046 20,418
----------
374,911
----------
INTEREST-ONLY COMMERCIAL MORTGAGE BACKED SECURITIES (0.4%)
36,807 Commercial Mortgage Trust(f) 1.88(e) 5/15/2045 2,396
62,646 Commercial Mortgage Trust(f) 1.80(e) 10/15/2045 3,904
66,610 Freddie Mac(+) 1.55(e) 10/25/2018 526
65,425 Freddie Mac(+) 1.50(e) 3/25/2019 835
58,013 Freddie Mac(+) 1.37(e) 1/25/2022 2,506
91,971 Freddie Mac(+) 1.42(e) 5/25/2022 4,595
70,218 Freddie Mac(+) 1.46(e) 6/25/2022 3,688
68,529 Freddie Mac(+) 0.87(e) 10/25/2022 2,295
93,732 Freddie Mac(+) 1.01(e) 11/25/2022 3,679
190,667 GS Mortgage Securities Trust(a),(f) 0.21(e) 5/03/2032 3,412
27,706 GS Mortgage Securities Trust(f) 2.22(e) 5/10/2045 1,656
51,762 UBS Commercial Mortgage Trust(a),(f) 2.08(e) 5/10/2045 3,652
27,411 WF Commercial Mortgage Trust(a),(f) 1.80(e) 10/15/2045 1,846
----------
34,990
----------
MORTGAGE-BACKED PASS-THROUGH SECURITIES (1.0%)
3,500 Fannie Mae(+) 2.79(e) 2/25/2027 3,426
2,500 Fannie Mae(+) 2.96(e) 2/25/2027 2,468
9,500 Fannie Mae(+) 3.17 3/25/2027 9,436
10,000 Freddie Mac(+) 3.02 1/25/2025 10,071
17,000 Freddie Mac(+) 2.77 5/25/2025 16,823
8,000 Freddie Mac(+) 3.01 7/25/2025 8,037
10,000 Freddie Mac(+) 2.59 5/25/2026 9,619
7,500 Freddie Mac(+) 3.29(e) 3/25/2029 7,556
4,855 Freddie Mac(+) 3.12(e) 10/25/2031 4,772
3,500 Freddie Mac(+) 1.60 8/15/2051 3,401
----------
75,609
----------
Total Financials 485,510
----------
Total Commercial Mortgage Securities (cost: $482,521) 485,510
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 7
================================================================================
-----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------
CORPORATE OBLIGATIONS (48.3%)
CONSUMER DISCRETIONARY (3.0%)
-----------------------------
APPAREL RETAIL (0.2%)
$ 10,000 L Brands, Inc. 5.62% 2/15/2022 $ 10,586
5,000 Mens Wearhouse, Inc.(g) 5.00 6/18/2021 4,981
----------
15,567
----------
AUTOMOBILE MANUFACTURERS (0.3%)
10,000 Ford Motor Co. 4.35 12/08/2026 10,120
15,000 Hyundai Capital America(a) 3.25 9/20/2022 14,839
----------
24,959
----------
AUTOMOTIVE RETAIL (0.3%)
15,048 Advance Auto Parts 4.50 12/01/2023 15,667
5,000 Autozone, Inc. 3.75 6/01/2027 5,013
----------
20,680
----------
BROADCASTING (0.3%)
15,000 Discovery Communications, LLC 3.95 3/20/2028 14,657
5,000 Sirius XM Radio, Inc.(a) 5.38 7/15/2026 5,131
----------
19,788
----------
CABLE & SATELLITE (0.8%)
5,000 CCO Holdings, LLC / CCO Holdings
Capital Corp.(a) 5.75 2/15/2026 5,187
20,000 Charter Communications Operating, LLC 6.39 10/23/2035 23,296
2,442 CSC Holdings, LLC 1 mo. LIBOR + 2.25%(g) 3.81 7/17/2025 2,450
3,000 CSC Holdings, LLC(a) 5.50 4/15/2027 3,045
10,000 NBC Universal Enterprise, Inc.(a) 1.97 4/15/2019 9,960
10,000 NBC Universal Media, LLC 5.15 4/30/2020 10,583
10,000 Time Warner Cable, Inc. 6.75 7/01/2018 10,183
----------
64,704
----------
CASINOS & GAMING (0.0%)
3,000 International Game Technology(a) 6.50 2/15/2025 3,353
----------
DEPARTMENT STORES (0.1%)
3,887 J.C. Penney Co., Inc. 3 mo. LIBOR+ 4.25%(g) 5.73 6/23/2023 3,762
----------
HOME FURNISHINGS (0.0%)
539 Serta Simmons Bedding, LLC 3 mo.
LIBOR + 3.50%(g) 4.90 11/08/2023 529
1,936 Serta Simmons Bedding, LLC 3 mo.
LIBOR + 3.50%(g) 5.19 11/08/2024 1,901
----------
2,430
----------
================================================================================
8 | USAA INCOME FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------
HOMEBUILDING (0.2%)
$ 4,000 KB Home 7.62% 5/15/2023 $ 4,580
5,000 Lennar Corp. 4.50 11/15/2019 5,131
5,000 Lennar Corp. 4.13 1/15/2022 5,077
4,000 Lennar Corp. 4.87 12/15/2023 4,165
----------
18,953
----------
HOTELS, RESORTS & CRUISE LINES (0.2%)
5,000 Hilton Worldwide Finance, LLC / Hilton Worldwide
Finance Corp. 4.87 4/01/2027 5,125
5,000 Hyatt Hotels Corp. 3.38 7/15/2023 5,024
3,000 Royal Caribbean Cruises Ltd. 5.25 11/15/2022 3,257
----------
13,406
----------
HOUSEWARES & SPECIALTIES (0.1%)
7,500 Newell Brands, Inc. 3.85 4/01/2023 7,651
----------
INTERNET & DIRECT MARKETING RETAIL (0.2%)
12,000 Amazon.com, Inc.(a) 3.87 8/22/2037 12,401
4,000 QVC, Inc. 3.13 4/01/2019 4,008
----------
16,409
----------
MOVIES & ENTERTAINMENT (0.1%)
2,235 Metropolitan Opera Association, Inc. 2.14 10/01/2018 2,226
2,285 Metropolitan Opera Association, Inc. 2.40 10/01/2019 2,275
----------
4,501
----------
PUBLISHING (0.0%)
3,448 McGraw-Hill Global Education Intermediate
Holdings, LLC 1 mo. LIBOR + 4.00%(g) 5.57 5/04/2022 3,449
----------
RESTAURANTS (0.1%)
2,716 1011778 B.C. Unlimited Liability Co. 1 mo.
LIBOR + 2.25%(g) 3.82 2/16/2024 2,735
1,746 1011778 B.C. Unlimited Liability Co. 3 mo.
LIBOR + 2.25%(g) 3.94 2/16/2024 1,758
1,167 Aramark Services, Inc. 1 mo.
LIBOR + 2.00%(g) 3.57 3/11/2025 1,178
----------
5,671
----------
SPECIALTY STORES (0.1%)
7,572 Harbor Freight Tools USA, Inc. 1 mo.
LIBOR + 2.50%(g) 4.07 8/18/2023 7,615
----------
Total Consumer Discretionary 232,898
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 9
================================================================================
-----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES (2.0%)
-----------------------
AGRICULTURAL PRODUCTS (0.1%)
$ 4,000 Bunge Ltd. Finance Corp. 8.50% 6/15/2019 $ 4,312
2,000 Bunge Ltd. Finance Corp. 3.25 8/15/2026 1,897
----------
6,209
----------
DRUG RETAIL (0.3%)
6,531 CVS Pass-Through Trust 6.03 12/10/2028 7,208
4,008 CVS Pass-Through Trust(a) 7.51 1/10/2032 4,847
4,202 CVS Pass-Through Trust(a) 5.93 1/10/2034 4,689
10,000 Walgreens Boots Alliance, Inc. 3.80 11/18/2024 10,151
----------
26,895
----------
FOOD RETAIL (0.1%)
1,975 Albertson's, LLC 3 mo. LIBOR + 3.00%(g) 4.68 12/21/2022 1,967
4,101 Albertson's, LLC 3 mo. LIBOR + 3.00%(g) 4.46 6/22/2023 4,083
----------
6,050
----------
HOUSEHOLD PRODUCTS (0.2%)
4,875 Energizer Holdings, Inc. 1 mo.
LIBOR + 2.00%(g) 3.63 6/30/2022 4,899
10,000 SC Johnson & Son, Inc.(a) 4.35 9/30/2044 10,463
----------
15,362
----------
HYPERMARKETS & SUPER CENTERS (0.2%)
20,000 Costco Wholesale Corp. 1.70 12/15/2019 19,792
----------
PACKAGED FOODS & MEATS (0.9%)
10,000 Flowers Foods, Inc. 3.50 10/01/2026 9,711
10,000 J.M. Smucker Co. 3.50 10/15/2021 10,252
5,000 J.M. Smucker Co. 4.25 3/15/2035 5,170
2,978 JBS USA, LLC 3 mo. LIBOR + 2.50%(g) 4.10 10/30/2022 2,961
10,000 Kraft Heinz Foods Co. 3.50 6/06/2022 10,121
13,899 Kraft Heinz Foods Co.(a) 4.87 2/15/2025 14,622
10,000 Kraft Heinz Foods Co. 3.95 7/15/2025 10,140
3,500 Mead Johnson Nutrition Co. 4.13 11/15/2025 3,647
----------
66,624
----------
SOFT DRINKS (0.1%)
5,000 PepsiCo, Inc. 4.25 10/22/2044 5,388
----------
TOBACCO (0.1%)
10,000 Reynolds American, Inc. 4.00 6/12/2022 10,339
----------
Total Consumer Staples 156,659
----------
================================================================================
10 | USAA INCOME FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------
ENERGY (6.4%)
-------------
COAL & CONSUMABLE FUELS (0.0%)
$ 2,347 Peabody Energy Corp. 1 mo. LIBOR + 3.50%(g) 5.07% 3/31/2022 $ 2,383
----------
INTEGRATED OIL & GAS (0.5%)
15,000 Chevron Corp. 2.95 5/16/2026 14,702
10,000 ConocoPhillips Co. 4.15 11/15/2034 10,679
10,000 Occidental Petroleum Corp. 3.40 4/15/2026 10,092
5,000 Occidental Petroleum Corp. 3.00 2/15/2027 4,878
----------
40,351
----------
OIL & GAS DRILLING (0.4%)
3,000 Nabors Industries, Inc. 9.25 1/15/2019 3,165
7,000 Nabors Industries, Inc. 4.63 9/15/2021 6,877
10,000 Noble Holding International Ltd.(h) 4.90 8/01/2020 10,250
5,000 Rowan Companies, Inc. 4.87 6/01/2022 4,875
5,000 Rowan Companies, Inc. 4.75 1/15/2024 4,575
----------
29,742
----------
OIL & GAS EQUIPMENT & SERVICES (0.6%)
20,000 Halliburton Co. 3.80 11/15/2025 20,499
15,000 Schlumberger Holdings Corp.(a) 4.00 12/21/2025 15,598
5,000 Weatherford Bermuda 9.63 3/01/2019 5,375
5,000 Weatherford Bermuda(h) 4.50 4/15/2022 4,750
----------
46,222
----------
OIL & GAS EXPLORATION & PRODUCTION (1.0%)
4,605 Chesapeake Energy Corp.(a) 8.00 12/15/2022 4,956
10,000 ConocoPhillips Co. 4.95 3/15/2026 11,159
15,000 EOG Resources, Inc. 3.90 4/01/2035 15,291
4,000 EQT Corp. 8.12 6/01/2019 4,275
7,500 Hess Corp. 4.30 4/01/2027 7,554
5,000 Murphy Oil Corp. 5.75 8/15/2025 5,138
6,730 Newfield Exploration Co. 5.63 7/01/2024 7,235
5,000 Newfield Exploration Co. 5.38 1/01/2026 5,306
5,000 QEP Resources, Inc.(h) 6.87 3/01/2021 5,425
2,000 Southwestern Energy Co. 6.70 1/23/2025 2,045
7,000 Southwestern Energy Co. 7.50 4/01/2026 7,333
----------
75,717
----------
OIL & GAS REFINING & MARKETING (0.5%)
14,000 EnLink Midstream Partners, LP 4.15 6/01/2025 14,046
5,000 EnLink Midstream Partners, LP 4.85 7/15/2026 5,200
10,000 Marathon Petroleum Corp. 4.75 9/15/2044 10,635
10,000 Phillips 66 4.65 11/15/2034 10,965
----------
40,846
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 11
================================================================================
-----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------
OIL & GAS STORAGE & TRANSPORTATION (3.4%)
$ 15,000 Boardwalk Pipelines, LP 4.95% 12/15/2024 $ 15,793
10,000 Boardwalk Pipelines, LP 4.45 7/15/2027 10,074
10,000 Buckeye Partners, LP 2.65 11/15/2018 10,022
10,000 Buckeye Partners, LP 5.60 10/15/2044 10,585
15,000 Columbia Pipeline Group Co. 4.50 6/01/2025 15,850
15,000 DCP Midstream Operating, LP 3 mo.
LIBOR + 3.85%(a) 5.85(b) 5/21/2043 14,531
9,307 Enable Oklahoma Intrastate
Transmission, LLC(a) 6.25 3/15/2020 9,855
4,000 Enbridge Energy Partners, LP 3 mo.
LIBOR + 3.798% 5.49(b) 10/01/2077 4,015
3,000 Energy Transfer, LP 9.00 4/15/2019 3,225
7,000 Energy Transfer, LP 5.20 2/01/2022 7,454
5,000 Energy Transfer, LP 4.75 1/15/2026 5,184
17,010 Energy Transfer, LP 3 mo.
LIBOR+ 3.018% 4.79(b) 11/01/2066 15,309
5,000 Enterprise Products Operating, LLC 3.90 2/15/2024 5,175
9,250 Enterprise Products Operating, LLC 3 mo.
LIBOR + 2.68% 7.03(b) 1/15/2068 9,354
6,437 EQT Midstream Partners, LP 4.00 8/01/2024 6,436
14,000 EQT Midstream Partners, LP 4.13 12/01/2026 13,825
10,000 Florida Gas Transmission Co.(a) 5.45 7/15/2020 10,611
7,500 MPLX, LP 4.00 2/15/2025 7,591
6,067 Northwest Pipeline, LLC(a) 4.00 4/01/2027 6,113
10,000 ONEOK Partners, LP 4.90 3/15/2025 10,687
3,000 Plains All American Pipeline, LP 3.85 10/15/2023 3,004
5,000 Questar Pipeline Co. 5.83 2/01/2018 5,000
7,000 Regency Energy Partners 4.50 11/01/2023 7,187
7,000 Sabine Pass Liquefaction, LLC 5.62 2/01/2021 7,460
5,000 Spectra Energy Partners, LP 3.38 10/15/2026 4,881
10,000 TC PipeLines, LP 4.65 6/15/2021 10,328
3,000 Transcontinental Gas Pipe Line Co., LLC 7.85 2/01/2026 3,805
10,000 Western Gas Partners, LP 5.38 6/01/2021 10,553
6,250 Western Gas Partners, LP 4.65 7/01/2026 6,449
15,000 Williams Companies, Inc. 4.55 6/24/2024 15,469
----------
265,825
----------
Total Energy 501,086
----------
FINANCIALS (14.4%)
------------------
ASSET MANAGEMENT & CUSTODY BANKS (0.8%)
10,000 Ares Capital Corp. 4.87 11/30/2018 10,194
10,000 Ares Capital Corp. 3.50 2/10/2023 9,755
5,000 Ares Capital Corp. 4.25 3/01/2025 4,946
================================================================================
12 | USAA INCOME FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------
$ 5,000 Main Street Capital Corp. 4.50% 12/01/2019 $ 5,049
4,500 Main Street Capital Corp. 4.50 12/01/2022 4,509
10,000 Prospect Capital Corp. 5.00 7/15/2019 10,179
15,000 State Street Corp. 3 mo. LIBOR + 1.00% 2.59(b) 6/01/2077 13,507
----------
58,139
----------
CONSUMER FINANCE (0.8%)
5,000 Capital One Bank USA, N.A. 3.37 2/15/2023 4,978
20,000 Capital One Financial Corp. 4.75 7/15/2021 21,129
10,000 Capital One Financial Corp. 3.75 4/24/2024 10,158
15,000 Capital One Financial Corp. 3.75 3/09/2027 14,929
10,000 Citizens Bank, N.A. 2.45 12/04/2019 9,957
----------
61,151
----------
DIVERSIFIED BANKS (1.8%)
3,000 Bank of America Corp. 3 mo. LIBOR + 3.63% 5.40(b) -(i) 3,044
4,864 Bank of America Corp. 4.00 4/01/2024 5,056
10,000 Bank of America Corp. 4.20 8/26/2024 10,382
5,000 Bank of America Corp. 3.95 4/21/2025 5,093
8,000 Bank of America Corp. 3 mo.
LIBOR + 1.512% 3.70(b) 4/24/2028 8,089
4,383 Bank of America Corp. 3 mo.
LIBOR + 1.04%(a),(j) 3.42(b) 12/20/2028 4,314
20,000 Citigroup, Inc. 4.40 6/10/2025 20,804
5,000 Citigroup, Inc. 4.45 9/29/2027 5,220
10,000 Citigroup, Inc. 3 mo. LIBOR + 1.39% 3.67(b) 7/24/2028 10,029
20,000 JPMorgan Chase & Co. 2.95 10/01/2026 19,230
5,000 JPMorgan Chase & Co. 4.25 10/01/2027 5,222
5,000 U.S. Bancorp 3.10 4/27/2026 4,881
16,800 USB Realty Corp. 3 mo.
LIBOR + 1.147%(a) 2.87(b) -(i) 15,183
20,000 Wells Fargo & Co. 3.00 10/23/2026 19,368
----------
135,915
----------
FINANCIAL EXCHANGES & DATA (0.3%)
15,000 Intercontinental Exchange, Inc. 3.10 9/15/2027 14,687
10,000 S&P Global, Inc. 4.00 6/15/2025 10,412
----------
25,099
----------
INVESTMENT BANKING & BROKERAGE (0.1%)
10,000 Morgan Stanley 4.88 11/01/2022 10,677
----------
LIFE & HEALTH INSURANCE (2.0%)
20,000 Athene Global Funding(a),(h) 3.00 7/01/2022 19,594
8,000 Athene Holding Ltd. 4.13 1/12/2028 7,911
10,000 Global Atlantic Financial Co.(a) 8.62 4/15/2021 11,486
10,000 Jackson National Life Global Funding(a) 2.50 6/27/2022 9,739
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
-----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------
$ 20,000 Jackson National Life Global Funding(a) 3.25% 1/30/2024 $ 19,862
10,000 Lincoln National Corp. 4.20 3/15/2022 10,382
15,000 Lincoln National Corp. 3 mo. LIBOR + 2.358% 3.78(b) 5/17/2066 14,456
10,000 MetLife, Inc. 4.13 8/13/2042 10,091
4,000 Ohio National Financial Services, Inc.(a) 6.37 4/30/2020 4,284
5,000 Ohio National Financial Services, Inc.(a) 6.62 5/01/2031 5,998
10,000 Primerica, Inc. 4.75 7/15/2022 10,600
10,000 Prudential Financial, Inc. 3 mo. LIBOR + 3.92% 5.62(b) 6/15/2043 10,889
17,050 StanCorp Financial Group, Inc. 5.00 8/15/2022 18,068
5,000 TIAA Asset Management Finance Co., LLC(a) 4.13 11/01/2024 5,196
----------
158,556
----------
MULTI-LINE INSURANCE (1.5%)
10,000 American International Group, Inc. 3.87 1/15/2035 9,740
11,500 Genworth Holdings, Inc. 3 mo.
LIBOR + 2.003%(h) 3.42(b) 11/15/2066 5,121
14,000 Hartford Financial Services Group, Inc.
3 mo. LIBOR + 2.125%(a) 3.54(b) 2/12/2067 13,719
25,500 Kemper Corp. 4.35 2/15/2025 25,530
10,000 Loews Corp. 2.63 5/15/2023 9,767
5,000 Loews Corp. 3.75 4/01/2026 5,110
10,000 MassMutual Global Funding II(a) 3.60 4/09/2024 10,285
10,000 MassMutual Global Funding II(a) 2.75 6/22/2024 9,780
29,505 Nationwide Mutual Insurance Co.
3 mo. LIBOR + 2.29%(a) 3.88(b) 12/15/2024 29,426
----------
118,478
----------
MULTI-SECTOR HOLDINGS (0.1%)
10,000 Berkshire Hathaway Finance Corp. 1.30 5/15/2018 9,981
----------
PROPERTY & CASUALTY INSURANCE (1.4%)
5,000 Allstate Corp. 3 mo. LIBOR + 2.938% 5.75(b) 8/15/2053 5,450
10,000 AmTrust Financial Services, Inc. 6.12 8/15/2023 9,750
18,050 Chubb Corp. 3 mo. LIBOR + 2.25% 3.97(b) 3/29/2067 18,028
15,000 Chubb INA Holdings, Inc. 3.35 5/15/2024 15,152
13,086 Hanover Insurance Group, Inc. 4.50 4/15/2026 13,432
7,500 Mercury General Corp. 4.40 3/15/2027 7,571
19,300 Oil Insurance Ltd. 3 mo. LIBOR + 2.982%(a) 4.68(b) -(i) 18,769
10,000 Old Republic International Corp. 3.88 8/26/2026 9,890
10,000 ProAssurance Corp. 5.30 11/15/2023 10,686
----------
108,728
----------
REGIONAL BANKS (4.5%)
5,000 AmSouth Bancorp. 6.75 11/01/2025 5,794
15,000 Banc of California, Inc. 5.25 4/15/2025 15,239
5,000 Bank of the Ozarks, Inc. 3 mo. LIBOR + 4.425% 5.50(b) 7/01/2026 5,209
================================================================================
14 | USAA INCOME FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------
$ 5,000 BankUnited, Inc. 4.88% 11/17/2025 $ 5,234
15,000 Citizens Financial Group, Inc.(a) 4.15 9/28/2022 15,323
5,500 Citizens Financial Group, Inc. 3.75 7/01/2024 5,474
8,000 CoBiz Financial, Inc. 3 mo. LIBOR+ 3.17% 5.62(b) 6/25/2030 8,480
20,000 Compass Bank 3.88 4/10/2025 19,886
3,500 Cullen/Frost Bankers, Inc. 4.50 3/17/2027 3,590
10,000 Cullen/Frost Capital Trust II 3 mo.
LIBOR + 1.55% 3.03(b) 3/01/2034 8,955
10,000 Eagle Bancorp, Inc. 3 mo. LIBOR + 3.85% 5.00(b) 8/01/2026 10,065
5,000 Fifth Third Bancorp 2.30 3/01/2019 4,990
10,000 Fifth Third Bank 3.85 3/15/2026 10,105
3,500 First Maryland Capital Trust I 3 mo.
LIBOR + 1.00% 2.72(b) 1/15/2027 3,347
10,000 First Niagara Financial Group, Inc. 7.25 12/15/2021 11,412
10,000 First Republic Bank 2.38 6/17/2019 9,960
10,000 FirstMerit Bank, N.A. 4.27 11/25/2026 10,239
3,250 Fulton Financial Corp. 3.60 3/16/2022 3,222
10,000 Fulton Financial Corp. 4.50 11/15/2024 10,239
5,000 Hilltop Holdings, Inc. 5.00 4/15/2025 5,062
5,000 Home Bancshares, Inc. 3 mo. LIBOR + 3.575% 5.62(b) 4/15/2027 5,220
10,000 Huntington Bancshares, Inc. 4.35 2/04/2023 10,313
20,000 Key Bank N.A. 3.40 5/20/2026 19,682
5,000 LegacyTexas Financial Group 3 mo.
LIBOR + 3.89% 5.50(b) 12/01/2025 5,068
5,000 Manufacturers & Traders Trust Co. 3.40 8/17/2027 4,970
4,417 MB Financial Bank, N.A. 3 mo.
LIBOR + 1.873%(j) 4.00(b) 12/01/2027 4,416
20,000 MUFG Americas Holdings Corp. 3.00 2/10/2025 19,518
10,000 MUFG Union Bank, N.A. 2.25 5/06/2019 9,974
22,685 People's United Financial, Inc. 3.65 12/06/2022 23,072
7,000 PNC Bank, N.A. 4.20 11/01/2025 7,391
10,000 PNC Financial Services 2.85 11/09/2022 9,916
5,000 PNC Financial Services 3.15 5/19/2027 4,898
10,000 Santander Holdings USA, Inc. 2.65 4/17/2020 9,973
5,818 Santander Holdings USA, Inc.(a) 4.40 7/13/2027 5,924
5,000 Sterling National Bank 3 mo.
LIBOR + 3.937% 5.25(b) 4/01/2026 5,061
6,021 Susquehanna Bancshares, Inc. 5.37 8/15/2022 6,530
10,000 TCF National Bank 6.25 6/08/2022 10,748
4,062 Townebank/Portsmouth VA 3 mo.
LIBOR + 2.55% 4.50(b) 7/30/2027 4,164
10,000 Union Bankshares Corp. 3 mo. LIBOR + 3.175% 5.00(b) 12/15/2026 10,380
5,000 Webster Financial Corp. 4.38 2/15/2024 5,078
----------
354,121
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 15
================================================================================
-----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------
REINSURANCE (0.1%)
$ 10,000 Alterra Finance, LLC 6.25% 9/30/2020 $ 10,805
----------
REITS - HEALTH CARE (0.1%)
10,000 Welltower, Inc. 6.12 4/15/2020 10,724
----------
REITS - MORTGAGE (0.0%)
2,500 Starwood Property Trust, Inc.(a) 3.63 2/01/2021 2,509
----------
REITS - OFFICE (0.1%)
5,000 Alexandria Real Estate Equities, Inc. 4.60 4/01/2022 5,256
----------
REITS - RESIDENTIAL (0.1%)
7,000 UDR, Inc. 4.63 1/10/2022 7,366
----------
REITS - SPECIALIZED (0.1%)
4,000 EPR Properties(k) 7.75 7/15/2020 4,475
----------
SPECIALIZED FINANCE (0.2%)
15,000 National Rural Utilities Cooperative Finance
Corp. 3 mo. LIBOR + 7.50% 4.75(b) 4/30/2043 15,660
----------
THRIFTS & MORTGAGE FINANCE (0.4%)
5,000 Astoria Financial Corp. 3.50 6/08/2020 5,020
10,000 EverBank Financial Corp. 5.75 7/02/2025 11,015
10,000 Flagstar Bancorp, Inc. 6.12 7/15/2021 10,554
----------
26,589
----------
Total Financials 1,124,229
----------
HEALTH CARE (2.7%)
------------------
BIOTECHNOLOGY (0.5%)
5,000 AbbVie, Inc. 3.20 11/06/2022 5,018
10,000 AbbVie, Inc. 3.60 5/14/2025 10,108
15,000 Baxalta, Inc. 4.00 6/23/2025 15,268
10,000 Gilead Sciences, Inc. 3.65 3/01/2026 10,236
----------
40,630
----------
HEALTH CARE EQUIPMENT (0.6%)
10,000 Becton Dickinson & Co.(a) 3.00 5/15/2026 10,018
10,000 Becton Dickinson & Co. 3.70 6/06/2027 9,871
10,000 Covidien International Finance S.A. 2.95 6/15/2023 9,945
10,000 Medtronic, Inc. 4.38 3/15/2035 10,985
2,000 Teleflex, Inc. 4.87 6/01/2026 2,048
----------
42,867
----------
HEALTH CARE FACILITIES (0.6%)
5,000 HCA, Inc. 5.00 3/15/2024 5,219
15,000 HCA, Inc. 5.25 4/15/2025 15,775
================================================================================
16 | USAA INCOME FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------
$ 2,500 HCA, Inc. 4.50% 2/15/2027 $ 2,497
3,900 Northwell Healthcare, Inc. 3.39 11/01/2027 3,786
10,000 Premier Health Partners 2.91 11/15/2026 9,361
8,500 SSM Health Care 3.83 6/01/2027 8,656
2,000 Tenet Healthcare Corp. 4.50 4/01/2021 2,020
1,000 Vanderbilt University Medical Center 4.17 7/01/2037 1,008
----------
48,322
----------
HEALTH CARE SERVICES (0.2%)
15,000 Express Scripts Holding Co. 3.40 3/01/2027 14,513
----------
MANAGED HEALTH CARE (0.2%)
10,000 Cigna Corp. 3.05 10/15/2027 9,550
5,000 UnitedHealth Group, Inc. 3.10 3/15/2026 4,931
----------
14,481
----------
PHARMACEUTICALS (0.6%)
15,000 Actavis Funding SCS 3.80 3/15/2025 15,084
20,000 Mallinckrodt International Finance S.A.(h) 4.75 4/15/2023 16,500
5,000 Mylan N.V. 3.75 12/15/2020 5,106
5,000 Mylan N.V. 3.95 6/15/2026 4,978
5,000 Valeant Pharmaceuticals International, Inc.(a) 6.75 8/15/2021 4,962
----------
46,630
----------
Total Health Care 207,443
----------
INDUSTRIALS (5.1%)
------------------
AEROSPACE & DEFENSE (0.5%)
17,750 Arconic, Inc. 5.13 10/01/2024 18,826
10,000 Lockheed Martin Corp. 3.60 3/01/2035 9,975
10,000 Raytheon Co. 4.20 12/15/2044 10,906
----------
39,707
----------
AIR FREIGHT & LOGISTICS (0.1%)
10,000 FedEx Corp. 3.90 2/01/2035 10,029
----------
AIRLINES (1.7%)
8,307 American Airlines, Inc. Pass-Through Trust 3.70 4/01/2028 8,400
9,290 American Airlines, Inc. Pass-Through Trust 4.00 3/22/2029 9,513
5,000 American Airlines, Inc. Pass-Through Trust 4.00 8/15/2030 5,123
10,000 American Airlines, Inc. Pass-Through Trust 3.60 4/15/2031 9,950
39 Continental Airlines, Inc. Pass-Through Trust 7.87 1/02/2020 40
1,906 Continental Airlines, Inc. Pass-Through Trust 5.50 4/29/2022 1,992
7,785 Continental Airlines, Inc. Pass-Through Trust 4.15 10/11/2025 8,123
3,987 Continental Airlines, Inc. Pass-Through Trust 4.00 4/29/2026 4,141
8,033 Delta Air Lines Pass-Through Trust 3.87 1/30/2029 8,229
13,590 Hawaiian Airlines, Inc. Pass-Through Trust 3.90 7/15/2027 13,849
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
-----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------
$ 13,453 Spirit Airlines Pass Through Trust 4.10% 10/01/2029 $ 13,855
10,000 Spirit Airlines Pass Through Trust 3.38 8/15/2031 9,772
7,000 United Airlines, Inc. Pass-Through Trust 3.70 6/01/2024 7,133
4,262 United Airlines, Inc. Pass-Through Trust 4.30 2/15/2027 4,485
17,706 United Airlines, Inc. Pass-Through Trust 3.75 3/03/2028 18,073
2,902 US Airways Group, Inc. Pass-Through Trust 6.25 10/22/2024 3,189
7,727 US Airways Group, Inc. Pass-Through Trust 3.95 5/15/2027 7,983
----------
133,850
----------
CONSTRUCTION MACHINERY & HEAVY TRUCKS (0.2%)
4,875 Terex Corp. 3 mo. LIBOR + 2.25%(g) 3.94 1/31/2024 4,916
10,000 Wabtec Corp. 3.45 11/15/2026 9,606
----------
14,522
----------
ELECTRICAL COMPONENTS & EQUIPMENT (0.5%)
15,000 Eaton Corp. 2.75 11/02/2022 14,862
10,000 Eaton Corp. 3.10 9/15/2027 9,657
10,000 Hubbell, Inc. 3.35 3/01/2026 9,953
5,000 Hubbell, Inc. 3.50 2/15/2028 4,972
----------
39,444
----------
INDUSTRIAL CONGLOMERATES (0.4%)
15,000 General Electric Capital Corp. / LJ VP
Holdings, LLC(a) 3.80 6/18/2019 15,278
11,842 General Electric Co. 3 mo. LIBOR+ 3.33% 5.00(b) -(i) 12,005
----------
27,283
----------
INDUSTRIAL MACHINERY (0.3%)
5,000 Hillenbrand, Inc.(h) 5.50 7/15/2020 5,288
1,500 Ingersoll-Rand Co. 9.00 8/15/2021 1,764
10,000 Snap On, Inc. 3.25 3/01/2027 9,909
5,000 Stanley Black & Decker, Inc. 3 mo.
LIBOR + 4.304% 5.75(b) 12/15/2053 5,175
----------
22,136
----------
RAILROADS (1.0%)
8,000 Burlington Northern Santa Fe, LLC 3.75 4/01/2024 8,388
10,000 Burlington Northern Santa Fe, LLC 3.65 9/01/2025 10,343
7,000 Burlington Northern Santa Fe, LLC 3.90 8/01/2046 7,294
7,000 Kansas City Southern Co. 3.13 6/01/2026 6,655
5,000 TTX Co.(a) 4.15 1/15/2024 5,175
10,000 TTX Co.(a) 3.60 1/15/2025 9,992
5,000 Union Pacific Corp. 7.87 1/15/2019 5,254
10,000 Union Pacific Corp. 3.38 2/01/2035 9,829
10,000 Union Pacific Corp. 4.25 4/15/2043 10,839
----------
73,769
----------
================================================================================
18 | USAA INCOME FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------
TRADING COMPANIES & DISTRIBUTORS (0.3%)
$ 10,000 Air Lease Corp. 3.63% 4/01/2027 $ 9,802
10,000 ILFC E-Capital Trust 3 mo. LIBOR+ 7.50%(a) 4.37(b) 12/21/2065 9,800
5,000 International Lease Finance Corp.(a) 7.12 9/01/2018 5,138
----------
24,740
----------
TRUCKING (0.1%)
5,000 J.B. Hunt Transport Services, Inc. 3.85 3/15/2024 5,086
5,000 Ryder System, Inc. 3.45 11/15/2021 5,071
----------
10,157
----------
Total Industrials 395,637
----------
INFORMATION TECHNOLOGY (2.1%)
-----------------------------
APPLICATION SOFTWARE (0.1%)
5,902 Solera, LLC 1 mo. LIBOR + 3.25%(g) 4.82 3/03/2023 5,954
----------
COMMUNICATIONS EQUIPMENT (0.2%)
5,000 Cisco Systems, Inc. 2.90 3/04/2021 5,043
10,000 Cisco Systems, Inc. 2.60 2/28/2023 9,868
----------
14,911
----------
DATA PROCESSING & OUTSOURCED SERVICES (0.1%)
5,000 Total System Services, Inc. 4.80 4/01/2026 5,354
----------
ELECTRONIC EQUIPMENT & INSTRUMENTS (0.0%)
2,604 Keysight Technologies, Inc. 4.60 4/06/2027 2,705
----------
ELECTRONIC MANUFACTURING SERVICES (0.1%)
10,000 Molex Electronic Technologies, LLC(a) 3.90 4/15/2025 10,032
----------
HOME ENTERTAINMENT SOFTWARE (0.1%)
7,500 Activision Blizzard 3.40 9/15/2026 7,420
----------
INTERNET SOFTWARE & SERVICES (0.1%)
4,250 Verisign, Inc. 5.25 4/01/2025 4,526
----------
IT CONSULTING & OTHER SERVICES (0.1%)
5,000 IBM Corp. 7.63 10/15/2018 5,190
----------
SEMICONDUCTOR EQUIPMENT (0.3%)
10,000 Applied Materials, Inc. 3.30 4/01/2027 9,940
10,000 Applied Materials, Inc. 5.10 10/01/2035 11,951
----------
21,891
----------
SEMICONDUCTORS (0.3%)
5,000 Analog Devices, Inc. 4.50 12/05/2036 5,249
5,000 Broadcom Corp. / Broadcom Cayman L.P.(a) 3.62 1/15/2024 4,939
7,000 QUALCOMM, Inc. 3.25 5/20/2027 6,700
10,000 QUALCOMM, Inc. 4.65 5/20/2035 10,599
----------
27,487
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
-----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------
SYSTEMS SOFTWARE (0.5%)
$ 10,000 Microsoft Corp. 3.30% 2/06/2027 $ 10,099
20,000 Microsoft Corp. 4.20 11/03/2035 22,025
10,000 Microsoft Corp. 3.45 8/08/2036 9,993
----------
42,117
----------
TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (0.2%)
7,500 Dell International, LLC / EMC Corp.(a) 4.42 6/15/2021 7,783
2,500 Dell International, LLC / EMC Corp.(a) 5.88 6/15/2021 2,600
3,000 Western Digital Corp. 7.37 4/01/2023 3,274
----------
13,657
----------
Total Information Technology 161,244
----------
MATERIALS (2.1%)
----------------
COMMODITY CHEMICALS (0.3%)
10,000 Chevron Phillips Chemical Co.(a) 3.40 12/01/2026 10,010
1,925 LYB International Finance II B.V. 3.50 3/02/2027 1,908
10,000 Westlake Chemical Corp. 3.60 8/15/2026 9,971
----------
21,889
----------
CONSTRUCTION MATERIALS (0.1%)
3,000 Eagle Materials, Inc. 4.50 8/01/2026 3,131
----------
COPPER (0.1%)
5,000 Freeport-McMoRan, Inc. 3.10 3/15/2020 5,019
5,000 Freeport-McMoRan, Inc. 4.00 11/14/2021 5,077
----------
10,096
----------
DIVERSIFIED CHEMICALS (0.5%)
7,500 CF Industries, Inc.(a) 4.50 12/01/2026 7,740
20,000 Dow Chemical Co. 4.25 10/01/2034 20,898
10,000 E.I. du Pont de Nemours & Co. 2.80 2/15/2023 9,952
----------
38,590
----------
FERTILIZERS & AGRICULTURAL CHEMICALS (0.2%)
5,000 Monsanto Co. 3.38 7/15/2024 5,016
5,000 Monsanto Co. 3.95 4/15/2045 4,952
5,000 Mosaic Co. 4.05 11/15/2027 4,965
----------
14,933
----------
METAL & GLASS CONTAINERS (0.2%)
3,000 Ball Corp. 5.00 3/15/2022 3,176
5,000 Ball Corp. 5.25 7/01/2025 5,319
8,718 Reynolds Group Holdings, Inc. 1 mo.
LIBOR + 2.75%(g) 4.32 2/05/2023 8,795
2,500 Reynolds Group Holdings Ltd.(a) 5.12 7/15/2023 2,571
----------
19,861
----------
================================================================================
20 | USAA INCOME FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------
PAPER PACKAGING (0.4%)
$ 5,000 Crown Americas LLC / Crown Americas
Capital Corp. 4.25% 9/30/2026 $ 4,875
2,000 Graphic Packaging International, Inc. 4.13 8/15/2024 2,040
5,000 International Paper Co. 3.80 1/15/2026 5,103
7,500 International Paper Co. 3.00 2/15/2027 7,171
4,738 Klockner-Pentaplast of America, Inc.
3 mo. LIBOR + 4.25%(g) 5.94 6/30/2022 4,772
5,000 Sealed Air Corp.(a) 6.87 7/15/2033 5,787
----------
29,748
----------
SPECIALTY CHEMICALS (0.0%)
2,900 Sherwin-Williams Co. 3.45 6/01/2027 2,870
----------
STEEL (0.3%)
5,000 Allegheny Ludlum Corp. 6.95 12/15/2025 5,163
10,000 Allegheny Technologies, Inc. 5.95 1/15/2021 10,375
8,890 Worthington Industries 4.30 8/01/2032 8,705
----------
24,243
----------
Total Materials 162,790
----------
MUNICIPAL (0.2%)
----------------
HOSPITAL (0.2%)
17,000 Eastern Maine Healthcare Systems 5.02 7/01/2036 16,919
----------
REAL ESTATE (2.4%)
------------------
REITS - DIVERSIFIED (0.3%)
7,500 Spirit Realty LP 4.45 9/15/2026 7,343
15,000 Washington REIT 3.95 10/15/2022 15,270
----------
22,613
----------
REITS - HEALTH CARE (0.2%)
4,901 MPT Operating Partnership, LP / MPT
Finance Corp. 5.25 8/01/2026 5,073
7,500 Physicians Realty, LP 4.30 3/15/2027 7,502
4,000 Sabra Health Care, LP 5.13 8/15/2026 3,972
----------
16,547
----------
REITS - HOTEL & RESORT (0.0%)
5,000 Hospitality Property Trust 4.95 2/15/2027 5,186
----------
REITS - OFFICE (0.6%)
5,000 Alexandria Real Estate Equities, Inc. 4.50 7/30/2029 5,203
10,000 Boston Properties, LP 5.87 10/15/2019 10,500
10,000 Boston Properties, LP 3.85 2/01/2023 10,326
7,500 Columbia Property Trust Operating Partnership, LP 3.65 8/15/2026 7,224
2,500 Hudson Pacific Properties, LP 3.95 11/01/2027 2,440
================================================================================
PORTFOLIO OF INVESTMENTS | 21
================================================================================
-----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------
$ 4,444 SL Green Operating Partnership, LP 3.25% 10/15/2022 $ 4,396
5,000 VEREIT Operating Partnership, LP 3.00 2/06/2019 5,028
----------
45,117
----------
REITS - RESIDENTIAL (0.3%)
5,000 AvalonBay Communities, Inc. 3.63 10/01/2020 5,131
5,000 AvalonBay Communities, Inc. 3.45 6/01/2025 5,038
2,679 AvalonBay Communities, Inc. 3.20 1/15/2028 2,621
9,000 ERP Operating, LP 2.85 11/01/2026 8,591
----------
21,381
----------
REITS - RETAIL (0.6%)
7,000 Federal Realty Investment Trust 3.00 8/01/2022 6,988
10,000 Federal Realty Investment Trust 2.75 6/01/2023 9,752
1,852 Federal Realty Investment Trust 3.25 7/15/2027 1,801
5,000 National Retail Properties, Inc. 4.00 11/15/2025 5,068
5,000 Realty Income Corp. 4.12 10/15/2026 5,161
6,000 Realty Income Corp. 3.00 1/15/2027 5,695
10,000 Simon Property Group, LP 4.13 12/01/2021 10,440
----------
44,905
----------
REITS - SPECIALIZED (0.4%)
10,000 Crown Castle International Corp. 5.25 1/15/2023 10,868
8,000 EPR Properties 4.75 12/15/2026 8,115
6,000 Sabra Health Care LP / Sabra Capital Corp. 5.38 6/01/2023 6,165
4,388 Uniti Group, LP 1 mo. LIBOR + 3.00%(g) 4.57 10/24/2022 4,238
----------
29,386
----------
Total Real Estate 185,135
----------
TELECOMMUNICATION SERVICES (1.5%)
---------------------------------
ALTERNATIVE CARRIERS (0.2%)
10,000 CenturyLink, Inc. 5.80 3/15/2022 9,787
2,000 CenturyLink, Inc.(h) 6.75 12/01/2023 1,953
5,000 Qwest Corp. 6.75 12/01/2021 5,363
----------
17,103
----------
INTEGRATED TELECOMMUNICATION SERVICES (1.1%)
25,000 AT&T, Inc. 4.50 5/15/2035 24,697
10,000 AT&T, Inc. 5.25 3/01/2037 10,599
10,000 AT&T, Inc. 4.90 8/14/2037 10,167
10,000 Centel Capital Corp. 9.00 10/15/2019 10,809
10,000 Frontier Communications Corp. 11.00 9/15/2025 7,863
8,909 Frontier Communications Corp. 7.87 1/15/2027 5,657
10,000 Verizon Communications, Inc. 4.40 11/01/2034 10,161
5,000 Verizon Communications, Inc. 4.13 8/15/2046 4,693
----------
84,646
----------
================================================================================
22 | USAA INCOME FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES (0.2%)
$ 4,661 Grain Spectrum Funding II(a) 3.29% 10/10/2034 $ 4,649
10,313 Sprint Spectrum Co., LLC/Sprint
Spectrum Co. II, LLC / Sprint
Spectrum Co.(a) 3.36 3/20/2023 10,377
----------
15,026
----------
Total Telecommunication Services 116,775
----------
UTILITIES (6.4%)
----------------
ELECTRIC UTILITIES (3.6%)
5,000 Atlantic City Electric Co. 3.38 9/01/2024 4,979
15,000 Cleco Corporate Holdings, LLC 3.74 5/01/2026 14,778
5,000 Cleveland Electric Illuminating Co. 8.87 11/15/2018 5,257
5,000 Delmarva Power & Light Co. 4.15 5/15/2045 5,327
7,000 Duke Energy Carolinas 3.88 3/15/2046 7,192
10,000 Duke Energy Indiana, LLC 3.75 5/15/2046 9,860
10,000 Duke Energy Progress, Inc. 4.15 12/01/2044 10,681
3,500 Duquesne Light Holdings, Inc.(a) 5.90 12/01/2021 3,843
4,000 Entergy Arkansas, Inc. 3.05 6/01/2023 3,993
7,000 Entergy Louisiana, LLC 4.95 1/15/2045 7,192
5,000 Entergy Mississippi, Inc. 3.25 12/01/2027 4,919
10,000 Entergy Texas, Inc. 2.55 6/01/2021 9,843
15,000 Entergy Texas, Inc. 3.45 12/01/2027 14,905
3,500 FirstEnergy Corp. 3.90 7/15/2027 3,543
5,000 Georgia Power Co. 3.25 4/01/2026 4,932
10,000 Gulf Power Co. 3.30 5/30/2027 9,860
7,500 ITC Holdings Corp.(a) 3.35 11/15/2027 7,356
3,168 Mississippi Power Co. 4.25 3/15/2042 3,020
10,000 Monongahela Power Co.(a) 4.10 4/15/2024 10,502
5,000 Nevada Power Co. 7.12 3/15/2019 5,262
4,000 NextEra Energy Capital Holdings, Inc. 3 mo.
LIBOR + 2.125% 3.71(b) 6/15/2067 3,841
5,000 Oglethorpe Power Corp. 6.10 3/15/2019 5,186
5,000 Oncor Electric Delivery Co., LLC 3.75 4/01/2045 5,048
15,000 Pacific Gas & Electric Co. 2.95 3/01/2026 14,286
5,000 Potomac Electric Power 4.15 3/15/2043 5,334
26,130 PPL Capital Funding, Inc. 3 mo.
LIBOR + 2.665% 4.36(b) 3/30/2067 25,999
10,000 Public Service Electric 3.80 3/01/2046 10,213
5,000 South Carolina Electric & Gas Co. 5.30 5/15/2033 5,606
5,000 South Carolina Electric & Gas Co. 4.10 6/15/2046 5,032
================================================================================
PORTFOLIO OF INVESTMENTS | 23
================================================================================
-----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------
$ 10,000 Southern California Edison Co. 3 mo.
LIBOR + 4.199% 6.25%(b) -(i) $ 10,763
10,000 Southern Co. 3.25 7/01/2026 9,686
5,000 System Energy Resources, Inc. 4.10 4/01/2023 5,145
10,000 Tri-State Generation & Transmission
Association, Inc. 4.70 11/01/2044 10,692
10,000 Tri-State Generation & Transmission
Association, Inc. 4.25 6/01/2046 10,098
10,000 Xcel Energy, Inc. 3.30 6/01/2025 9,999
----------
284,172
----------
GAS UTILITIES (0.8%)
4,000 Atmos Energy Corp. 8.50 3/15/2019 4,259
10,000 Atmos Energy Corp. 4.13 10/15/2044 10,641
10,000 National Fuel Gas Co. 4.90 12/01/2021 10,462
10,000 National Fuel Gas Co. 5.20 7/15/2025 10,625
10,000 National Fuel Gas Co. 3.95 9/15/2027 9,744
7,000 Southern Co. Gas Capital Corp. 3.25 6/15/2026 6,776
11,880 Spire, Inc. 3.54 2/27/2024 11,774
----------
64,281
----------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS (0.3%)
5,000 AES Corp. 4.88 5/15/2023 5,145
10,000 AES Corp. 5.50 4/15/2025 10,450
4,875 Calpine Corp. 3 mo. LIBOR + 2.50%(g) 4.20 1/15/2024 4,905
----------
20,500
----------
MULTI-UTILITIES (1.3%)
5,000 Ameren Illinois Co. 9.75 11/15/2018 5,290
15,000 Berkshire Hathaway Energy Co. 4.50 2/01/2045 16,518
5,000 Black Hills Corp. 5.87 7/15/2020 5,347
10,000 Black Hills Corp. 4.25 11/30/2023 10,355
10,000 Consumers Energy Co. 3.95 7/15/2047 10,504
15,000 Northern States Power Co. 4.00 8/15/2045 15,678
20,000 Northern States Power Co. 3.60 5/15/2046 19,831
5,000 Puget Sound Energy, Inc. 3 mo. LIBOR + 6.75% 4.01(b) 6/01/2067 4,975
15,000 WEC Energy Group, Inc. 3 mo. LIBOR + 2.113% 3.53(b) 5/15/2067 14,620
----------
103,118
----------
OIL & GAS STORAGE & TRANSPORTATION (0.1%)
5,000 ONEOK, Inc. 4.25 2/01/2022 5,183
----------
RENEWABLE ENERGY (0.0%)
1,000 NextEra Energy Operating Partners, LP(a) 4.25 9/15/2024 1,008
----------
================================================================================
24 | USAA INCOME FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------
WATER UTILITIES (0.3%)
$ 10,000 American Water Capital Corp. 2.95% 9/01/2027 $ 9,704
15,000 Aquarion Co., Inc.(a) 4.00 8/15/2024 15,556
----------
25,260
----------
Total Utilities 503,522
----------
Total Corporate Obligations (cost: $3,694,853) 3,766,908
----------
EURODOLLAR AND YANKEE OBLIGATIONS (17.2%)
CONSUMER DISCRETIONARY (0.3%)
-----------------------------
AUTOMOBILE MANUFACTURERS (0.2%)
10,000 American Honda Finance Corp.(a) 7.62 10/01/2018 10,366
5,000 Daimler Finance, N.A., LLC(a) 2.25 7/31/2019 4,983
----------
15,349
----------
PUBLISHING (0.1%)
10,000 Pearson Funding Four plc(a) 3.75 5/08/2022 9,868
----------
Total Consumer Discretionary 25,217
----------
CONSUMER STAPLES (1.1%)
-----------------------
BREWERS (0.3%)
20,000 Anheuser-Busch InBev S.A./N.V. 4.70 2/01/2036 22,140
----------
DISTILLERS & VINTNERS (0.1%)
10,000 Pernod Ricard S.A.(a),(h) 4.25 7/15/2022 10,459
----------
PACKAGED FOODS &MEATS (0.1%)
4,000 Kerry Group Financial Services(a) 3.20 4/09/2023 3,970
5,000 Smithfield Foods, Inc.(a) 4.25 2/01/2027 5,030
----------
9,000
----------
TOBACCO (0.6%)
5,000 BAT Capital Corp.(a) 4.39 8/15/2037 5,156
20,000 BAT International Finance plc(a) 3.95 6/15/2025 20,498
20,000 Imperial Brands Finance plc(a) 4.25 7/21/2025 20,645
----------
46,299
----------
Total Consumer Staples 87,898
----------
ENERGY (1.1%)
-------------
INTEGRATED OIL & GAS (0.8%)
15,000 BP Capital Markets plc 3.59 4/14/2027 15,268
5,000 BP Capital Markets plc 3.28 9/19/2027 4,953
10,000 BP Capital Markets plc 3.72 11/28/2028 10,264
4,000 Husky Energy, Inc. 7.25 12/15/2019 4,320
10,000 Petrobras Global Finance BV 6.12 1/17/2022 10,685
================================================================================
PORTFOLIO OF INVESTMENTS | 25
================================================================================
-----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------
$ 6,000 Petroleos Mexicanos Co.(a) 5.37% 3/13/2022 $ 6,369
10,000 Shell International Finance B.V. 3.63 8/21/2042 9,736
----------
61,595
----------
OIL & GAS DRILLING (0.0%)
5,000 Noble Holding International Ltd.(h) 7.70 4/01/2025 4,512
----------
OIL & GAS EXPLORATION & PRODUCTION (0.1%)
5,000 Woodside Finance Ltd.(a) 8.75 3/01/2019 5,318
----------
OIL & GAS STORAGE & TRANSPORTATION (0.2%)
6,000 APT Pipelines Ltd.(a) 4.25 7/15/2027 6,112
12,124 TransCanada PipeLines Ltd. 3 mo. LIBOR + 2.21% 3.63(b) 5/15/2067 11,639
----------
17,751
----------
Total Energy 89,176
----------
FINANCIALS (7.3%)
-----------------
ASSET BACKED FINANCING (0.1%)
10,000 BNP Paribas S.A.(a) 4.38 5/12/2026 10,310
----------
DIVERSIFIED BANKS (5.7%)
15,000 ABN AMRO Bank N.V.(a) 4.75 7/28/2025 15,728
10,000 ABN AMRO Bank N.V.(a) 4.80 4/18/2026 10,545
10,000 Australia & New Zealand Banking Group Ltd.(a) 4.40 5/19/2026 10,251
7,500 Bank of Montreal 3 mo. LIBOR + 1.432% 3.80(b) 12/15/2032 7,326
10,000 Bank of Nova Scotia 4.50 12/16/2025 10,428
5,000 Banque Federative du Credit Mutuel S.A.(a) 2.70 7/20/2022 4,919
12,300 Barclays Bank plc 4.84 5/09/2028 12,624
10,000 BBVA Bancomer S.A. Texas Agency(a) 4.37 4/10/2024 10,375
5,000 BNP Paribas S.A. 3 mo. LIBOR + 1.29%(a) 7.19(b) -(i) 5,794
5,000 BNP Paribas S.A.(a) 4.37 9/28/2025 5,171
4,000 BNP Paribas S.A.(a) 4.62 3/13/2027 4,209
3,462 Boral Finance Proprietary Ltd.(a) 3.75 5/01/2028 3,418
9,200 BPCE S.A.(a) 3.00 5/22/2022 9,117
9,524 BPCE S.A.(a) 3.50 10/23/2027 9,239
10,000 BPCE S.A.(a) 3.25 1/11/2028 9,704
3,568 Canadian Imperial Bank of Commerce(a) 7.26 4/10/2032 4,142
5,000 Caribbean Development Bank(a) 4.38 11/09/2027 5,206
10,000 Cooperatieve Rabobank U.A. 3.88 2/08/2022 10,353
16,903 Cooperatieve Rabobank U.A. 3.95 11/09/2022 17,368
8,000 Cooperatieve Rabobank U.A. 5 yr.
Semi-Annual Swap + 1.892% 4.00(b) 4/10/2029 8,041
14,286 Credit Agricole London(a) 3.25 10/04/2024 14,065
15,000 Credit Agricole London(a) 4.13 1/10/2027 15,462
10,000 Credit Suisse Group Funding Ltd. 4.55 4/17/2026 10,550
5,000 HBOS plc(a) 6.75 5/21/2018 5,066
================================================================================
26 | USAA INCOME FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------
$ 15,000 HSBC Bank plc 6 mo. LIBOR + 0.25% 2.13%(b) -(i) $ 13,909
10,000 HSBC Holdings plc 3.90 5/25/2026 10,211
5,000 HSBC Holdings plc 4.38 11/23/2026 5,158
14,100 ING Groep N.V. 3.95 3/29/2027 14,452
25,000 Lloyds Banking Group plc 3.75 1/11/2027 24,956
5,000 Lloyds Banking Group plc 3 mo.
LIBOR + 1.205%(j) 3.57(b) 11/07/2028 4,881
20,000 Mizuho Financial Group, Inc. 3.17 9/11/2027 19,221
5,000 National Australia Bank Ltd. 3.00 1/20/2023 4,964
11,000 Nordea Bank AB(a) 4.87 5/13/2021 11,581
20,000 Royal Bank of Canada 4.65 1/27/2026 21,253
10,000 Royal Bank of Scotland Group plc 6.12 12/15/2022 10,866
7,000 Royal Bank of Scotland Group plc 3.88 9/12/2023 7,075
5,000 Royal Bank of Scotland Group plc 4.80 4/05/2026 5,295
5,000 Santander UK Group Holdings plc 3.57 1/10/2023 5,020
20,000 Santander UK plc(a) 5.00 11/07/2023 21,133
5,000 Santander UK plc 4.00 3/13/2024 5,185
10,000 Swedbank AB(a) 1.75 3/12/2018 9,996
7,500 Swedbank AB(a) 2.65 3/10/2021 7,474
10,000 Toronto-Dominion Bank 5 yr. Semi-Annual
Swap + 2.205% 3.63(b) 9/15/2031 9,787
10,000 Westpac Banking Corp. 3 mo. LIBOR + 2.236% 4.32(b) 11/23/2031 10,205
----------
441,723
----------
DIVERSIFIED CAPITAL MARKETS (0.3%)
21,400 Credit Suisse Group AG(a) 3.57 1/09/2023 21,559
4,445 Credit Suisse Group AG 3 mo.
LIBOR + 3.141%(a),(j) 3.87(b) 1/12/2029 4,427
----------
25,986
----------
LIFE & HEALTH INSURANCE (0.1%)
6,000 Great-West Life & Annuity Insurance Capital, LP
3 mo. LIBOR + 2.538%(a) 3.96(b) 5/16/2046 5,955
----------
OTHER DIVERSIFIED FINANCIAL SERVICES (0.2%)
5,500 ING Bank N.V. 3 mo. LIBOR + 2.70% 4.13(b) 11/21/2023 5,558
10,000 Orix Corp. 3.70 7/18/2027 9,885
----------
15,443
----------
PROPERTY & CASUALTY INSURANCE (0.5%)
20,000 QBE Capital Funding III Ltd. 3 mo.
LIBOR + 3.04%(a) 7.25(b) 5/24/2041 22,475
7,500 Suncorp Metway Ltd.(a) 2.80 5/04/2022 7,400
5,000 XLIT Ltd. 3 mo. LIBOR + 2.458% 4.18(b) -(i) 4,706
5,000 XLIT Ltd. 4.45 3/31/2025 5,054
----------
39,635
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 27
================================================================================
-----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE (0.4%)
$ 20,000 Nationwide Building Society(a) 4.00% 9/14/2026 $ 19,934
12,000 Nationwide Building Society 3 mo.
LIBOR + 1.849%(a) 4.12(b) 10/18/2032 11,877
----------
31,811
----------
Total Financials 570,863
----------
GOVERNMENT (0.2%)
-----------------
FOREIGN GOVERNMENT (0.2%)
10,000 Italy Government International Bond 5.38 6/15/2033 11,689
----------
HEALTH CARE (0.3%)
------------------
PHARMACEUTICALS (0.3%)
10,000 GlaxoSmithKline Capital, Inc. 4.20 3/18/2043 10,775
15,000 Teva Pharmaceutical Finance Netherlands III BV(h) 3.15 10/01/2026 12,486
----------
Total Health Care 23,261
----------
INDUSTRIALS (3.3%)
------------------
AEROSPACE & DEFENSE (0.1%)
3,000 DAE Funding LLC(a) 5.00 8/01/2024 2,985
5,000 Rolls-Royce Holdings plc(a) 3.62 10/14/2025 5,083
----------
8,068
----------
AGRICULTURE & FARM MACHINERY (0.3%)
15,000 CNH Industrial N.V. 4.50 8/15/2023 15,656
5,000 CNH Industrial N.V. 3.85 11/15/2027 4,966
----------
20,622
----------
AIRLINES (1.1%)
4,106 Air Canada Pass-Through Trust(a) 5.37 11/15/2022 4,311
20,647 Air Canada Pass-Through Trust(a) 4.13 11/15/2026 21,306
9,120 Air Canada Pass-Through Trust(a) 3.60 9/15/2028 9,145
5,566 Air Canada Pass-Through Trust(a) 3.75 6/15/2029 5,700
16,751 British Airways Pass-Through Trust(a) 4.62 12/20/2025 17,602
3,070 Latam Airlines Pass-Through Trust 4.20 8/15/2029 3,104
8,363 Turkish Airlines Pass-Through Trust(a) 4.20 9/15/2028 8,153
1,452 Virgin Australia Trust(a) 6.00 4/23/2022 1,488
4,090 Virgin Australia Trust(a) 5.00 4/23/2025 4,261
10,000 WestJet Airlines Ltd.(a) 3.50 6/16/2021 10,073
----------
85,143
----------
AIRPORT SERVICES (0.4%)
10,000 Heathrow Funding Ltd.(a) 4.87 7/15/2021 10,669
15,000 Sydney Airport Finance Co. Proprietary Ltd.(a) 3.90 3/22/2023 15,344
10,000 Sydney Airport Finance Co. Proprietary Ltd. 3.63 4/28/2026 9,903
----------
35,916
----------
================================================================================
28 | USAA INCOME FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED SUPPORT SERVICES (0.1%)
$ 5,500 Brambles USA, Inc.(a) 4.13% 10/23/2025 $ 5,631
----------
INDUSTRIAL CONGLOMERATES (1.1%)
7,500 CK Hutchison International 16 Ltd.(a) 2.75 10/03/2026 7,006
10,000 CK Hutchison International 17 II Ltd.(a) 3.25 9/29/2027 9,587
10,000 CK Hutchison International 17 Ltd.(a) 3.50 4/05/2027 9,779
5,000 Hutchison Whampoa International 11 Ltd.(a) 4.62 1/13/2022 5,265
10,000 Hutchison Whampoa International 14 Ltd.(a) 3.62 10/31/2024 10,111
20,000 Siemens Financieringsmaatschappij N.V.(a) 3.25 5/27/2025 19,935
10,000 Siemens Financieringsmaatschappij N.V.(a) 3.40 3/16/2027 10,075
12,250 Smiths Group plc(a) 3.63 10/12/2022 12,166
----------
83,924
----------
RAILROADS (0.1%)
12,000 Canadian National Railway Co. 2.75 3/01/2026 11,648
----------
TRADING COMPANIES & DISTRIBUTORS (0.1%)
7,000 Aercap Ireland Cap Ltd. 4.63 7/01/2022 7,332
----------
Total Industrials 258,284
----------
INFORMATION TECHNOLOGY (0.1%)
-----------------------------
ELECTRONIC MANUFACTURING SERVICES (0.1%)
4,800 Tyco Electronics Group S.A. 3.13 8/15/2027 4,718
----------
INTERNET SOFTWARE & SERVICES (0.0%)
3,000 Tencent Holdings Ltd.(a) 3.92 1/19/2038 2,978
----------
Total Information Technology 7,696
----------
MATERIALS (2.1%)
----------------
COMMODITY CHEMICALS (0.1%)
10,000 Braskem Finance Ltd. 6.45 2/03/2024 11,338
----------
CONSTRUCTION MATERIALS (0.2%)
10,000 Holcim U.S. Finance Sarl & Cie SCS(a) 6.00 12/30/2019 10,550
4,000 Votorantim Cimentos S.A. 7.25 4/05/2041 4,444
----------
14,994
----------
DIVERSIFIED METALS &MINING (0.4%)
2,500 Anglo American Capital plc(a) 3.75 4/10/2022 2,530
5,000 Anglo American Capital plc(a) 4.87 5/14/2025 5,281
6,667 Anglo American Capital plc(a) 4.00 9/11/2027 6,604
5,000 Glencore Funding, LLC(a) 4.13 5/30/2023 5,147
15,000 Glencore Funding, LLC(a) 4.00 3/27/2027 14,885
----------
34,447
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 29
================================================================================
-----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------
FERTILIZERS & AGRICULTURAL CHEMICALS (0.2%)
$ 10,000 Potash Corp. of Saskatchewan, Inc. 3.00% 4/01/2025 $ 9,595
2,000 Yara International ASA(a) 7.88 6/11/2019 2,133
----------
11,728
----------
GOLD (0.4%)
15,000 Goldcorp, Inc. 3.70 3/15/2023 15,235
10,000 Kinross Gold Corp. 5.95 3/15/2024 11,039
2,000 Kinross Gold Corp.(a) 4.50 7/15/2027 2,025
----------
28,299
----------
METAL & GLASS CONTAINERS (0.1%)
1,000 Ardagh Packaging Finance plc / Ardagh
Holdings USA, Inc.(a) 4.25 9/15/2022 1,008
7,500 CCL Industries, Inc.(a) 3.25 10/01/2026 7,051
----------
8,059
----------
PAPER PRODUCTS (0.1%)
5,000 Amcor Finance USA, Inc.(a) 3.63 4/28/2026 4,836
----------
PRECIOUS METALS & MINERALS (0.2%)
13,000 Fresnillo plc(a) 5.50 11/13/2023 14,172
----------
SPECIALTY CHEMICALS (0.1%)
10,000 Air Liquide Finance S.A.(a) 3.50 9/27/2046 9,522
----------
STEEL (0.3%)
10,000 ArcelorMittal 6.75 2/25/2022 11,125
5,000 Vale Overseas Ltd. 4.37 1/11/2022 5,200
5,000 Vale Overseas Ltd. 6.25 8/10/2026 5,812
----------
22,137
----------
Total Materials 162,103
----------
REAL ESTATE (0.4%)
------------------
REITS - RETAIL (0.4%)
5,000 Scentre Group Trust(a) 2.38 4/28/2021 4,908
10,000 Scentre Group Trust(a) 3.25 10/28/2025 9,661
20,000 WEA Finance, LLC /Westfield
UK & Europe Finance plc(a) 3.75 9/17/2024 20,360
----------
Total Real Estate 34,929
----------
TELECOMMUNICATION SERVICES (0.2%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (0.2%)
15,000 Deutsche Telekom International Finance B.V.(a) 3.60 1/19/2027 14,936
----------
================================================================================
30 | USAA INCOME FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000)(I) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------
UTILITIES (0.8%)
----------------
ELECTRIC UTILITIES (0.8%)
$ 5,000 Comision Federal de Electricidad(a) 4.75% 2/23/2027 $ 5,184
5,000 EDP Finance B.V.(a) 5.25 1/14/2021 5,324
25,000 Electricite de France S.A. 10 wk.
LIBOR + 3.709%(a) 5.25(b) -(i) 25,781
6,000 Emera U.S. Finance, LP 3.55 6/15/2026 5,874
5,000 Enel Finance International N.V.(a) 3.62 5/25/2027 4,900
10,000 Fortis, Inc. 3.06 10/04/2026 9,475
3,500 Transelec S.A.(a) 3.87 1/12/2029 3,491
----------
Total Utilities 60,029
----------
Total Eurodollar and Yankee Obligations
(cost: $1,311,997) 1,343,510
----------
FOREIGN GOVERNMENT OBLIGATIONS (0.4%)
CAD15,000 Province of Alberta 2.55 12/15/2022 12,236
CAD20,000 Province of Ontario 2.85 6/02/2023 16,517
----------
Total Foreign Government Obligations (cost: $34,595) 28,753
----------
MUNICIPAL OBLIGATIONS (8.0%)
ARIZONA (0.1%)
3,500 School Facilities Board 2.38 9/01/2019 3,500
----------
CALIFORNIA (0.8%)
5,000 Industry Public Facilities Auth. (INS - Assured
Guaranty Municipal Corp.) 3.47 1/01/2021 5,034
5,000 Industry Public Facilities Auth. (INS - Assured
Guaranty Municipal Corp.) 3.82 1/01/2022 5,087
1,250 Las Virgenes Unified School District 5.54 8/01/2025 1,382
850 Placentia Yorba Linda Unified School District 5.40 8/01/2021 911
5,000 Port of Oakland 4.50 5/01/2030 5,340
11,700 Port of Oakland 4.50 5/01/2032 12,414
4,250 Riverside Community College District 3.49 8/01/2023 4,318
3,000 Riverside Community College District 3.61 8/01/2024 3,051
10,000 San Jose Redev. Agency Successor Agency 3.12 8/01/2028 9,675
5,250 San Marcos Redevelopment Agency 4.02 10/01/2025 5,411
6,500 San Marcos Redevelopment Agency 4.47 10/01/2029 6,788
2,000 Torrance Unified School District 5.52 8/01/2021 2,166
2,590 Vista Redevelopment Agency (INS - Assured
Guaranty Municipal Corp.) 4.12 9/01/2030 2,614
----------
64,191
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 31
================================================================================
-----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------
COLORADO (0.1%)
$ 5,000 El Paso County 4.47% 10/01/2035 $ 5,234
----------
CONNECTICUT (0.2%)
2,589 Mashantucket (Western) Pequot Tribe(m) 7.35(n) 7/01/2026 401
3,845 Town of Hamden 4.93 8/15/2030 3,912
10,000 Town of Stratford 5.75 8/15/2030 11,055
----------
15,368
----------
FLORIDA (0.7%)
3,250 City of Jacksonville 2.00 10/01/2019 3,222
3,000 City of Jacksonville 2.37 10/01/2020 2,975
10,000 Community Hospitals of Indiana 4.24 5/01/2025 10,355
9,200 Liberty County IDA(o) 1.30 10/01/2028 9,200
8,250 Miami-Dade County 2.70 10/01/2026 7,776
10,000 Miami-Dade County School Board (INS -
Assured Guaranty Municipal Corp.) 5.38 5/01/2031 10,940
6,000 Palm Beach County School Board 5.40 8/01/2025 6,746
2,500 Tohopekaliga Water Auth. 5.25 10/01/2036 2,818
----------
54,032
----------
GEORGIA (0.1%)
5,000 Appling County Dev. Auth. 2.40 1/01/2038 4,961
2,000 Atlanta & Fulton County Recreation Auth. 3.80 12/15/2037 1,982
1,500 Atlanta & Fulton County Recreation Auth. 4.01 12/15/2046 1,518
----------
8,461
----------
HAWAII (0.4%)
1,250 City and County of Honolulu 2.51 11/01/2022 1,233
5,000 City and County of Honolulu 2.51 11/01/2022 4,934
900 City and County of Honolulu 2.81 11/01/2023 895
730 City and County of Honolulu 2.91 11/01/2024 724
680 City and County of Honolulu 3.06 11/01/2025 680
775 City and County of Honolulu 3.16 11/01/2026 778
625 City and County of Honolulu 3.27 11/01/2027 631
690 City and County of Honolulu 3.37 11/01/2028 698
3,000 Department of Budget and Finance 3.25 1/01/2025 3,100
7,235 Hawaiian Electric Co., Inc. 3.10 5/01/2026 7,356
7,000 State 2.80 10/01/2027 6,742
----------
27,771
----------
ILLINOIS (0.6%)
2,750 Art Institute of Chicago 3.23 3/01/2022 2,727
6,500 Chicago Midway Airport 5.00 1/01/2025 7,369
8,000 Chicago Midway Airport 5.00 1/01/2026 9,023
================================================================================
32 | USAA INCOME FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------
$ 5,000 Chicago O'Hare International Airport 5.00% 1/01/2021 $ 5,424
6,500 Chicago Wastewater Transmission 5.84 1/01/2035 7,432
2,025 Finance Auth. 3.55 8/15/2029 1,999
3,000 Finance Auth. 3.60 8/15/2030 2,961
2,000 State 5.66 3/01/2018 2,005
5,570 State 5.00 8/01/2019 5,764
4,500 Winnebago 3.80 12/01/2026 4,473
----------
49,177
----------
INDIANA (0.3%)
4,955 Finance Auth. 4.36 7/15/2029 5,240
4,260 Finance Auth. 4.53 7/15/2031 4,479
1,500 Finance Auth. 3.62 7/01/2036 1,478
9,520 State 2.13 7/15/2019 9,484
5,000 Univ. of Notre Dame 3.44 2/15/2045 4,870
----------
25,551
----------
KANSAS (0.1%)
10,000 Dev. Finance Auth. 4.73 4/15/2037 10,750
----------
KENTUCKY (0.1%)
2,335 Economic Development Finance Auth. 3.72 12/01/2026 2,328
1,985 Economic Development Finance Auth. 3.82 12/01/2027 1,980
1,000 Economic Development Finance Auth. 3.92 12/01/2028 1,000
1,500 Economic Development Finance Auth. 4.02 12/01/2029 1,501
1,300 Economic Development Finance Auth. 4.12 12/01/2030 1,304
1,000 Economic Development Finance Auth.
(INS - Assured Guaranty Municipal Corp.) 3.62 12/01/2025 997
----------
9,110
----------
MAINE (0.1%)
5,000 Municipal Bond Bank 4.25 6/01/2023 5,257
----------
MARYLAND (0.1%)
2,290 EDC 4.05 6/01/2027 2,264
2,390 EDC 4.15 6/01/2028 2,362
2,495 EDC 4.25 6/01/2029 2,466
1,325 EDC 4.35 6/01/2030 1,309
1,385 EDC 4.40 6/01/2031 1,367
----------
9,768
----------
MASSACHUSETTS (0.1%)
4,250 Boston Medical Center Corp. 4.52 7/01/2026 4,335
----------
MINNESOTA (0.1%)
10,000 Rochester Health Care Facilities 4.50 11/15/2038 10,991
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 33
================================================================================
-----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------
MISSISSIPPI (0.2%)
$ 1,800 State 2.83% 12/01/2024 $ 1,778
2,000 State 3.02 12/01/2025 1,990
10,000 State 3.73 10/01/2032 10,095
----------
13,863
----------
NEW JERSEY (0.8%)
5,000 EDA 2.42 6/15/2018 5,000
14,310 EDA 4.45 6/15/2020 14,760
7,300 EDA (PRE) 5.25 9/01/2022 8,056
2,700 EDA 5.25 9/01/2022 2,901
2,500 EDA 5.70 6/15/2030 2,774
3,000 EDA 4.02 7/01/2039 3,015
6,080 Princeton Theological Seminary 4.10 7/01/2023 6,340
500 South Jersey Port Corp. 5.00 1/01/2025 548
1,000 South Jersey Port Corp. 5.00 1/01/2026 1,097
1,000 South Jersey Port Corp. 5.00 1/01/2027 1,100
500 South Jersey Port Corp. 5.00 1/01/2028 552
5,000 Transportation Trust Fund Auth. 1.76 12/15/2018 4,964
5,000 Transportation Trust Fund Auth. (INS -
AMBAC Assurance Corp.) 5.25 12/15/2022 5,571
3,320 Transportation Trust Fund Auth. 5.50 12/15/2022 3,727
----------
60,405
----------
NEW MEXICO (0.0%)
1,250 Sandoval County 2.32 6/01/2019 1,239
1,000 Sandoval County 2.73 6/01/2020 989
----------
2,228
----------
NEW YORK (0.7%)
5,000 City Transitional Finance Auth. 5.00 2/01/2035 5,434
5,000 Energy Research & Dev. Auth. 2.38 7/01/2026 5,064
2,500 Horace Mann School 3.27 7/01/2027 2,438
10,000 Long Island Power Auth. 5.25 5/01/2022 10,620
2,500 Long Island Power Auth. 3.98 9/01/2025 2,519
2,500 Long Island Power Auth. 4.13 9/01/2026 2,536
7,000 MTA (ETM) 1.47 7/01/2018 6,986
10,825 Municipal Water Finance Auth. 5.25 6/15/2040 11,346
6,500 NYU Hospitals Center 4.17 7/01/2037 6,584
600 Town of Oyster Bay 3.55 2/01/2019 600
1,830 Town of Oyster Bay 3.80 2/01/2020 1,833
1,500 Town of Oyster Bay 3.95 2/01/2021 1,506
----------
57,466
----------
NORTH CAROLINA (0.1%)
5,000 City of Kannapolis 7.28 3/01/2027 5,397
----------
================================================================================
34 | USAA INCOME FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------
OHIO (0.4%)
$ 10,000 Air Quality Dev. Auth. 3.75% 12/01/2023 $ 3,950
10,000 Cleveland Public Power 5.50 11/15/2038 10,347
15,000 Mercy Healthcare System 3.38 11/01/2025 14,706
5,000 Water Dev. Auth. 4.00 12/01/2033 1,975
----------
30,978
----------
OKLAHOMA (0.0%)
1,365 Development Finance Auth. 5.88 8/01/2037 1,437
----------
PENNSYLVANIA (0.4%)
5,045 Commonwealth Financing Auth. 3.86 6/01/2038 5,113
1,375 Economic Development Financing Auth. 3.20 11/15/2027 1,337
10,000 State IDA(a) 3.56 7/01/2024 9,767
10,000 Philadelphia School District 5.06 9/01/2042 10,754
3,625 Scranton School District 4.12 6/15/2034 3,589
1,625 State Public School Building Auth. (INS -
Build America Mutual Assurance Co.) 2.84 12/01/2019 1,626
1,300 State Public School Building Auth. (INS -
Build America Mutual Assurance Co.) 4.08 12/01/2023 1,341
----------
33,527
----------
SOUTH CAROLINA (0.1%)
10,000 Public Service Auth. 4.77 12/01/2045 10,527
----------
TENNESSEE (0.2%)
2,000 Jackson Energy Auth. 2.90 4/01/2022 2,002
2,745 Jackson Energy Auth. 3.05 4/01/2023 2,755
3,915 Jackson Energy Auth. 3.20 4/01/2024 3,938
8,000 Metropolitan Nashville & Davidson County
Health & Educational Board 4.05 7/01/2026 8,339
----------
17,034
----------
TEXAS (1.0%)
7,000 Baylor Scott & White Holdings 3.09 11/15/2025 6,792
20,000 Baylor Scott & White Holdings 2.65 11/15/2026 18,764
1,550 City of Austin CCD 6.76 8/01/2030 1,905
2,000 City of Austin CCD 6.91 8/01/2035 2,495
9,000 Colony Local Dev. Corp. (INS - Berkshire
Hathaway Assurance Corp.) 4.38 10/01/2033 8,933
12,570 Dallas-Fort Worth International Airport Facilities 4.00 11/01/2021 13,201
2,265 Dallas-Fort Worth International Airport Facilities 4.44 11/01/2021 2,363
5,000 Houston Utility System 5.00 11/15/2033 5,426
2,000 McLennan County Public Facility 3.90 6/01/2029 2,064
3,000 North Texas Tollway Auth. 5.00 9/01/2031 3,337
4,305 Pedernales Electric Cooperative, Inc.(a) 5.95 11/15/2022 4,559
================================================================================
PORTFOLIO OF INVESTMENTS | 35
================================================================================
-----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------
$ 1,700 Port of Corpus Christi Auth. 3.29% 12/01/2023 $ 1,701
1,500 Port of Corpus Christi Auth. 3.39 12/01/2024 1,504
1,000 Port of Corpus Christi Auth. 3.49 12/01/2025 1,005
----------
74,049
----------
WASHINGTON (0.2%)
10,000 State 5.25 2/01/2036 11,058
----------
Total Municipal Obligations (cost: $612,295) 621,465
----------
U.S. GOVERNMENT AGENCY ISSUES(P) (1.1%)
AGENCY SPONSORED MORTGAGE-BACKED (0.1%)
2,960 Government National Mortgage Assn. I 5.00 8/15/2033 3,208
50 Government National Mortgage Assn. I 6.00 8/15/2028 56
45 Government National Mortgage Assn. I 6.00 9/15/2028 50
115 Government National Mortgage Assn. I 6.00 9/15/2028 128
1,282 Government National Mortgage Assn. I 6.00 9/15/2028 1,440
239 Government National Mortgage Assn. I 6.00 10/15/2028 271
123 Government National Mortgage Assn. I 6.00 1/15/2029 137
19 Government National Mortgage Assn. I 6.00 1/15/2029 21
190 Government National Mortgage Assn. I 6.00 1/15/2029 211
230 Government National Mortgage Assn. I 6.00 1/15/2033 259
5 Government National Mortgage Assn. I 6.50 6/15/2023 5
138 Government National Mortgage Assn. I 6.50 7/15/2023 153
4 Government National Mortgage Assn. I 6.50 7/15/2023 4
22 Government National Mortgage Assn. I 6.50 9/15/2023 25
132 Government National Mortgage Assn. I 6.50 10/15/2023 147
69 Government National Mortgage Assn. I 6.50 10/15/2023 76
15 Government National Mortgage Assn. I 6.50 10/15/2023 17
168 Government National Mortgage Assn. I 6.50 12/15/2023 186
72 Government National Mortgage Assn. I 6.50 12/15/2023 80
31 Government National Mortgage Assn. I 6.50 1/15/2024 34
51 Government National Mortgage Assn. I 6.50 2/15/2024 56
49 Government National Mortgage Assn. I 6.50 4/15/2026 54
232 Government National Mortgage Assn. I 6.50 5/15/2028 260
455 Government National Mortgage Assn. I 6.50 10/15/2031 504
28 Government National Mortgage Assn. I 7.00 5/15/2023 29
25 Government National Mortgage Assn. I 7.00 5/15/2023 27
20 Government National Mortgage Assn. I 7.00 5/15/2023 21
14 Government National Mortgage Assn. I 7.00 5/15/2023 14
54 Government National Mortgage Assn. I 7.00 6/15/2023 56
69 Government National Mortgage Assn. I 7.00 6/15/2023 72
32 Government National Mortgage Assn. I 7.00 8/15/2023 32
10 Government National Mortgage Assn. I 7.00 8/15/2023 11
61 Government National Mortgage Assn. I 7.00 8/15/2023 64
================================================================================
36 | USAA INCOME FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------
$ 10 Government National Mortgage Assn. I 7.00% 8/15/2023 $ 11
38 Government National Mortgage Assn. I 7.00 9/15/2023 39
13 Government National Mortgage Assn. I 7.00 1/15/2026 13
22 Government National Mortgage Assn. I 7.00 3/15/2026 23
7 Government National Mortgage Assn. I 7.00 3/15/2026 7
145 Government National Mortgage Assn. I 7.00 10/15/2027 164
260 Government National Mortgage Assn. I 7.00 6/15/2029 284
129 Government National Mortgage Assn. I 7.00 6/15/2029 139
19 Government National Mortgage Assn. I 7.00 7/15/2029 19
218 Government National Mortgage Assn. I 7.00 8/15/2031 247
71 Government National Mortgage Assn. I 7.00 7/15/2032 79
65 Government National Mortgage Assn. I 7.50 7/15/2023 69
133 Government National Mortgage Assn. I 7.50 6/15/2026 143
58 Government National Mortgage Assn. I 7.50 6/15/2026 62
80 Government National Mortgage Assn. I 7.50 7/15/2026 86
103 Government National Mortgage Assn. I 7.50 5/15/2027 110
142 Government National Mortgage Assn. I 7.50 2/15/2028 160
100 Government National Mortgage Assn. I 7.50 12/15/2028 115
75 Government National Mortgage Assn. I 7.50 8/15/2029 85
509 Government National Mortgage Assn. II 5.50 4/20/2033 559
481 Government National Mortgage Assn. II 6.00 8/20/2032 540
348 Government National Mortgage Assn. II 6.00 9/20/2032 391
166 Government National Mortgage Assn. II 6.50 8/20/2031 188
----------
11,241
----------
MORTGAGE-BACKED PASS-THROUGH SECURITIES (0.8%)
9,332 Fannie Mae(+) 2.50 2/01/2028 9,253
1,641 Fannie Mae(+) 5.00 6/01/2033 1,772
370 Fannie Mae(+) 5.50 7/01/2021 383
2,077 Fannie Mae(+) 5.50 9/01/2035 2,299
828 Fannie Mae(+) 5.50 10/01/2035 904
252 Fannie Mae(+) 5.50 1/01/2036 277
893 Fannie Mae(+) 5.50 4/01/2036 983
973 Fannie Mae(+) 5.50 2/01/2037 1,068
865 Fannie Mae(+) 5.50 3/01/2037 949
468 Fannie Mae(+) 5.50 11/01/2037 511
1,216 Fannie Mae(+) 5.50 5/01/2038 1,333
774 Fannie Mae(+) 6.00 5/01/2036 870
671 Fannie Mae(+) 6.00 6/01/2036 753
970 Fannie Mae(+) 6.00 8/01/2037 1,085
228 Fannie Mae(+) 6.50 4/01/2031 258
5 Fannie Mae(+) 6.50 7/01/2031 5
414 Fannie Mae(+) 6.50 3/01/2032 462
================================================================================
PORTFOLIO OF INVESTMENTS | 37
================================================================================
-----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------
$ 11 Fannie Mae(+) 7.00% 10/01/2022 $ 11
6 Fannie Mae(+) 7.00 3/01/2023 6
10,531 Freddie Mac(+) 3.50 5/01/2042 10,691
12,360 Freddie Mac(+) 3.50 6/01/2046 12,504
4,389 Freddie Mac(+) 3.50 8/01/2046 4,455
9,256 Freddie Mac(+) 3.50 5/01/2047 9,364
130 Freddie Mac(+) 5.00 6/01/2020 132
472 Freddie Mac(+) 5.00 1/01/2021 487
528 Freddie Mac(+) 5.50 11/01/2020 544
200 Freddie Mac(+) 5.50 12/01/2020 205
757 Freddie Mac(+) 5.50 12/01/2035 835
530 Freddie Mac(+) 5.50 4/01/2036 582
----------
62,981
----------
OTHER U.S. GOVERNMENT SECURITIES (0.2%)
8,621 Totem Ocean Trailer Express, Inc., Title XI 6.36 4/15/2028 9,481
5,085 Washington Aircraft 1 Co. Ltd. (NBGA -
Export-Import Bank of the United States) 2.64 9/15/2026 5,037
----------
14,518
----------
Total U.S. Government Agency Issues (cost: $85,880) 88,740
----------
U.S. TREASURY SECURITIES (10.5%)
BONDS (4.0%)(S)
12,950 2.25%, 8/15/2046 11,223
70,000 2.50%, 2/15/2045 64,326
60,000 2.50%, 2/15/2046 54,961
40,000 2.75%, 8/15/2042 38,869
10,000 2.75%, 11/15/2042 9,710
10,000 2.75%, 8/15/2047 9,617
22,000 2.75%, 11/15/2047 21,166
10,000 2.88%, 11/15/2046 9,872
25,000 3.00%, 11/15/2044 25,327
5,000 3.00%, 11/15/2045 5,063
5,000 3.37%, 5/15/2044 5,411
30,000 3.88%, 8/15/2040 34,905
20,000 4.25%, 11/15/2040 24,542
----------
314,992
----------
INFLATION-INDEXED NOTES (0.9%)
58,887 2.38%, 1/15/2025 66,294
----------
NOTES (5.6%)(S)
20,000 1.63%, 8/15/2022 19,265
20,000 1.63%, 11/15/2022 19,204
================================================================================
38 | USAA INCOME FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
(000) SECURITY (000)
-----------------------------------------------------------------------------------------------------------------------------
$ 50,000 1.63%, 2/15/2026 $ 46,109
25,000 2.00%, 2/15/2022 24,585
10,000 2.00%, 2/15/2023 9,749
80,000 2.00%, 2/15/2025 76,574
10,000 2.25%, 11/15/2024 9,746
5,000 2.25%, 11/15/2025 4,844
10,000 2.25%, 2/15/2027 9,625
10,000 2.25%, 8/15/2027 9,605
10,000 2.25%, 11/15/2027 9,599
10,000 2.38%, 5/15/2027 9,717
5,000 2.50%, 5/15/2024 4,963
25,000 2.62%, 8/15/2020 25,230
55,000 2.63%, 11/15/2020 55,501
5,000 3.37%, 11/15/2019 5,110
45,000 3.50%, 5/15/2020 46,297
50,000 3.63%, 2/15/2020 51,456
----------
437,179
----------
Total U.S. Treasury Securities (cost: $819,925) 818,465
----------
Total Bonds (cost: $7,359,577) 7,471,310
----------
-----------------------------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES
-----------------------------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (1.7%)
COMMON STOCKS (0.5%)
CONSUMER STAPLES (0.0%)
-----------------------
HOUSEHOLD PRODUCTS (0.0%)
24,000 Kimberly-Clark Corp. 2,808
----------
ENERGY (0.1%)
-------------
INTEGRATED OIL & GAS (0.1%)
23,780 Chevron Corp. 2,981
55,000 Royal Dutch Shell plc ADR "A" 3,863
----------
Total Energy 6,844
----------
FINANCIALS (0.2%)
-----------------
ASSET MANAGEMENT & CUSTODY BANKS (0.0%)
202,000 Prospect Capital Corp.(h) 1,303
----------
CONSUMER FINANCE (0.0%)
24,649 Synchrony Financial 978
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 39
================================================================================
-----------------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-----------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED BANKS (0.1%)
$ 50,000 Bank of Montreal $ 4,115
25,000 Canadian Imperial Bank of Commerce 2,476
----------
6,591
----------
REGIONAL BANKS (0.0%)
126,414 Regions Financial Corp. 2,431
----------
REITS - MORTGAGE (0.1%)
89,000 AGNC Investment Corp. 1,672
135,632 Annaly Capital Management, Inc. 1,430
18,213 Granite Point Mortgage Trust, Inc. 314
199,850 MFA Financial, Inc. 1,431
96,100 Two Harbors Investment Corp. 1,417
----------
6,264
----------
Total Financials 17,567
----------
HEALTH CARE (0.0%)
------------------
PHARMACEUTICALS (0.0%)
44,920 Merck & Co., Inc. 2,662
----------
INDUSTRIALS (0.0%)
------------------
INDUSTRIAL CONGLOMERATES (0.0%)
55,835 General Electric Co. 903
----------
INFORMATION TECHNOLOGY (0.1%)
-----------------------------
SEMICONDUCTORS (0.1%)
63,943 Intel Corp. 3,078
18,500 QUALCOMM, Inc. 1,263
----------
Total Information Technology 4,341
----------
TELECOMMUNICATION SERVICES (0.0%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (0.0%)
44,050 AT&T, Inc. 1,650
21,000 Verizon Communications, Inc. 1,135
----------
Total Telecommunication Services 2,785
----------
UTILITIES (0.1%)
----------------
ELECTRIC UTILITIES (0.0%)
27,500 Southern Co. 1,240
----------
MULTI-UTILITIES (0.1%)
44,000 CMS Energy Corp. 1,969
15,200 Dominion Energy, Inc. 1,162
----------
3,131
----------
Total Utilities 4,371
----------
Total Common Stocks (cost: $32,236) 42,281
----------
================================================================================
40 | USAA INCOME FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
$(000)/SHARES SECURITY (000)
-----------------------------------------------------------------------------------------------------------------------------
PREFERRED STOCKS (1.2%)
CONSUMER STAPLES (0.3%)
-----------------------
AGRICULTURAL PRODUCTS (0.3%)
200,000 CHS, Inc., 7.88%, cumulative redeemable(i) $ 5,756
172,520 Dairy Farmers of America, Inc., 7.88%, cumulative
redeemable(a),(i) 17,800
----------
Total Consumer Staples 23,556
----------
FINANCIALS (0.2%)
-----------------
DIVERSIFIED BANKS (0.0%)
40,000 Citigroup Capital XIII, 7.68%, 3 mo. LIBOR + 6.37%(b) 1,091
----------
PROPERTY & CASUALTY INSURANCE (0.1%)
$ 5,000 Catlin Insurance Co. Ltd., 7.25%, 3 mo. LIBOR + 2.975%(a),(b) 4,912
----------
REGIONAL BANKS (0.1%)
10,800 M&T Bank Corp., 6.38%, cumulative redeemable 11,043
----------
Total Financials 17,046
----------
REAL ESTATE (0.6%)
------------------
REITS - INDUSTRIAL (0.3%)
344,500 ProLogis, Inc., 8.54% 23,894
----------
REITS - RESIDENTIAL (0.3%)
142,500 Equity Residential Properties Trust, 8.29%, Series K,
depositary shares, cumulative redeemable 9,245
250,000 Mid-America Apartment Communities, Inc., 8.50%(i),(r) 16,450
----------
Total Real Estate 49,589
----------
UTILITIES (0.1%)
----------------
ELECTRIC UTILITIES (0.1%)
200,000 Entergy Texas, Inc., 5.63% (h) 5,120
----------
Preferred Stocks (cost: $79,037) 95,311
----------
Total Equity Securities (cost: $111,273) 137,592
----------
-----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON
(000) RATE MATURITY
-----------------------------------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS (1.8%)
COMMERCIAL PAPER (1.8%)
$ 13,586 Brown-Forman Corp.(a) 1.55% 2/14/2018 13,579
15,000 Ei Du Pont De Nemours(a) 1.70 2/16/2018 14,989
5,276 Florida Power Co. 1.63 3/02/2018 5,269
30,993 Landesbank Baden-Wurttemberg 1.46 2/06/2018 30,987
================================================================================
PORTFOLIO OF INVESTMENTS | 41
================================================================================
-----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------
$ 12,900 Northern Gas Corp. 1.60% 2/01/2018 $ 12,900
14,031 Snap-On, Inc.(a) 1.62 2/07/2018 14,027
7,500 Southern California Edison Co.(a) 1.60 2/02/2018 7,500
5,900 Southern California Edison Co.(a) 1.58 2/05/2018 5,899
21,832 Southern California Edison Co.(a) 1.63 2/22/2018 21,811
3,110 Southern California Edison Co.(a) 1.65 2/23/2018 3,107
7,936 Virginia Electric & Power Co. 1.70 2/27/2018 7,926
----------
Total Commercial Paper (cost: $137,994) 137,994
----------
-----------------------------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES
-----------------------------------------------------------------------------------------------------------------------------
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (0.0%)
717,618 State Street Institutional Treasury Money Market Fund
Premier Class, 1.23%(q) (cost: $717) 717
----------
Total Money Market Instruments (cost: $138,711) 138,711
----------
SHORT-TERM INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED (0.6%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (0.6%)
49,020 Federated Government Obligations Fund Institutional Class, 1.19%(q) 49
177,963 Fidelity Government Fund Portfolio Class I, 1.22%(q) 178
3,133,454 Goldman Sachs Financial Square Government Fund
Institutional Class, 1.21%(q) 3,134
31,024,960 Invesco Government & Agency Portfolio
Institutional Class, 1.24%(q) 31,025
9,984,181 Morgan Stanley Institutional Liquidity Funds Government
Portfolio Institutional Class, 1.21%(q) 9,984
1,587,283 Western Asset Institutional Government Reserves
Institutional Class, 1.22%(q) 1,587
----------
Total Short-Term Investments Purchased with Cash Collateral
from Securities Loaned (cost: $45,957) 45,957
----------
TOTAL INVESTMENTS (COST: $7,655,518) $7,793,570
==========
================================================================================
42 | USAA INCOME FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
-----------------------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
-----------------------------------------------------------------------------------------------------------------------------
Bonds:
Asset-Backed Securities $ - $ 200,711 $- $ 200,711
Collateralized Loan Obligations - 117,248 - 117,248
Commercial Mortgage Securities - 485,510 - 485,510
Corporate Obligations - 3,766,908 - 3,766,908
Eurodollar and Yankee Obligations - 1,343,510 - 1,343,510
Foreign Government Obligations - 28,753 - 28,753
Municipal Obligations - 621,465 - 621,465
U.S. Government Agency Issues - 88,740 - 88,740
U.S. Treasury Securities 818,465 - - 818,465
Equity Securities:
Common Stocks 42,281 - - 42,281
Preferred Stocks - 95,311 - 95,311
Money Market Instruments:
Commercial Paper - 137,994 - 137,994
Government & U.S. Treasury Money
Market Funds 717 - - 717
Short-Term Investments Purchased with
Cash Collateral from Securities Loaned:
Government & U.S. Treasury Money
Market Funds 45,957 - - 45,957
-----------------------------------------------------------------------------------------------------------------------------
Total $907,420 $6,886,150 $- $7,793,570
-----------------------------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
For the period of August 1, 2017, through January 31, 2018, 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 | 43
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
January 31, 2018 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
Market values of securities are determined by procedures and practices
discussed in Note 1A to the financial statements.
The Portfolio of Investments category percentages shown represent the
percentages of the investments to net assets, and, in total, may not equal
100%. A category percentage of 0.0% represents less than 0.1% of net assets.
Investments in foreign securities were 20.1% of net assets at January 31,
2018.
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 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
================================================================================
44 | USAA INCOME FUND
================================================================================
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 LOAN OBLIGATIONS (CLOs) - Collateralized loan obligations are
securities issued by entities that are collateralized by a pool of loans.
CLOs are issued in multiple classes (tranches), and can be equity or debt
with specific adjustable or fixed interest rates, and varying maturities.
The cash flow from the underlying loans is used to pay off each tranche
separately within the debt, or senior tranches. Equity, or subordinated
tranches, typically are not paid a cash flow but do offer ownership in the
CLO itself in the event of a sale.
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 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.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 45
================================================================================
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.
CAD Canadian dollars
CCD Community College District
EDA Economic Development Authority
EDC Economic Development Corp.
ETM Escrowed to final maturity
IDA Industrial Development Authority/Agency
LIBOR London Interbank Offered Rate
MTA Metropolitan Transportation Authority
PRE Pre-refunded to a date prior to maturity
REITs Real estate investment trusts - 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.
Title XI The Title XI Guarantee Program provides a guarantee of payment of
principal and interest of debt obligations issued by U.S. merchant
marine and U.S. shipyards by enabling owners of eligible vessels
and shipyards to obtain financing at attractive terms. The
guarantee carries the full faith and credit of the U.S.
government.
CREDIT ENHANCEMENTS - Adds the financial strength of the provider of the
enhancement to support the issuer's ability to repay the principal and
interest payments when due. The enhancement may be provided by a
high-quality bank, insurance company or other corporation, or a collateral
trust. The enhancements do not guarantee the market values of the
securities.
INS Principal and interest payments are insured by the name listed.
Although bond insurance reduces the risk of loss due to
================================================================================
46 | USAA INCOME FUND
================================================================================
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.
NBGA Principal and interest payments or, under certain circumstances,
underlying mortgages, are guaranteed by a nonbank guarantee agreement
from the name listed.
o SPECIFIC NOTES
(a) Restricted security that is not registered under the Securities Act of
1933. A resale of this security in the United States may occur in an
exempt transaction to a qualified institutional buyer as defined by
Rule 144A, and as such has been deemed liquid by USAA Asset Management
Company (the Manager) under liquidity guidelines approved by USAA
Mutual Funds Trust's Board of Trustees (the Board), unless otherwise
noted as illiquid.
(b) Variable-rate security - interest rate is adjusted periodically. The
interest rate disclosed represents the rate at January 31, 2018.
(c) Security or a portion of the security purchased on a delayed-delivery
or when-issued basis.
(d) Security was fair valued at January 31, 2018, by the Manager in
accordance with valuation procedures approved by the Board.
(e) Stated interest rates may change slightly over time as underlying
mortgages paydown.
(f) Security deemed illiquid by the Manager, under liquidity guidelines
approved by the Board. The aggregate market value of these securities
at January 31, 2018, was $16,866,000, which represented 0.2% of the
Fund's net assets.
(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 all in interest
rate of all contracts within the loan facility. The interest rate is
adjusted periodically, and the rate disclosed represents the current
rate at
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 47
================================================================================
January 31, 2018. 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) The security, or a portion thereof, was out on loan as of January 31,
2018.
(i) Security is perpetual and has no final maturity date but may be subject
to calls at various dates in the future.
(j) Fixed to Floating security that initially pays a fixed rate and
converts to a floating rate coupon at a specified date in the future.
The rate presented is a fixed rate.
(k) Restricted security that is not registered under the Securities Act of
1933.
(l) In U.S. dollars unless otherwise noted.
(m) 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.
(n) A portion of the 7.35% coupon is PIK (6.35% cash, 1.00% PIK).
(o) Variable-rate demand notes (VRDNs) - Provide the right to sell the
security at face value on either that day or within the rate-reset
period. VRDNs will normally trade as if the maturity is the earlier
put date, even though stated maturity is longer. The interest rate is
adjusted at a stipulated daily, weekly, monthly, quarterly, or other
specified time interval to reflect current market conditions. These
securities do not indicate a reference rate and spread in their
description.
(p) 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
================================================================================
48 | USAA INCOME FUND
================================================================================
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.
(q) Rate represents the money market fund annualized seven-day yield at
January 31, 2018.
(r) At January 31, 2018, the security, or a portion thereof, was segregated
to cover delayed-delivery and/or when-issued purchases.
(s) Rates for U.S. Treasury notes or bonds represent the stated coupon
payment rate at time of issuance.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 49
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
January 31, 2018 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (including
securities on loan of $44,330)(cost of $7,655,518) $7,793,570
Cash 128
Receivables:
Capital shares sold 11,267
Dividends and interest 69,843
Other 76
----------
Total assets 7,874,884
----------
LIABILITIES
Payables:
Upon return of securities loaned 45,957
Securities purchased 22,058
Capital shares redeemed 5,802
Accrued management fees 1,865
Accrued transfer agent's fees 169
Other accrued expenses and payables 594
----------
Total liabilities 76,445
----------
Net assets applicable to capital shares outstanding $7,798,439
==========
NET ASSETS CONSIST OF:
Paid-in capital $7,665,633
Overdistribution of net investment income (6,241)
Accumulated net realized gain on investments 993
Net unrealized appreciation of investments 138,052
Net unrealized appreciation of foreign currency translations 2
----------
Net assets applicable to capital shares outstanding $7,798,439
==========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $3,871,561/298,184 capital shares
outstanding, no par value) $ 12.98
==========
Institutional Shares (net assets of $3,786,596/291,840 capital
shares outstanding, no par value) $ 12.97
==========
Adviser Shares (net assets of $119,974/9,264 capital shares
outstanding, no par value) $ 12.95
==========
R6 Shares (net assets of $20,308/1,565 capital shares
outstanding, no par value) $ 12.98
==========
See accompanying notes to financial statements.
================================================================================
50 | USAA INCOME FUND
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended January 31, 2018 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $34) $ 4,333
Interest 142,111
Securities lending (net) 245
---------
Total income 146,689
---------
EXPENSES
Management fees 9,168
Administration and servicing fees:
Fund Shares 2,845
Institutional Shares 1,883
Adviser Shares 96
R6 Shares 3
Transfer agent's fees:
Fund Shares 2,045
Institutional Shares 1,883
Adviser Shares 60
R6 Shares 1
Distribution and service fees (Note 7E):
Adviser Shares 160
Custody and accounting fees:
Fund Shares 205
Institutional Shares 209
Adviser Shares 7
Postage:
Fund Shares 76
Institutional Shares 50
Adviser Shares 4
Shareholder reporting fees:
Fund Shares 43
Institutional Shares 9
Adviser Shares 1
Trustees' fees 17
Registration fees:
Fund Shares 54
Institutional Shares 34
Adviser Shares 8
R6 Shares 13
================================================================================
FINANCIAL STATEMENTS | 51
================================================================================
Professional fees $ 81
Other 56
---------
Total expenses 19,011
---------
Expenses reimbursed:
R6 Shares (9)
---------
Net expenses 19,002
---------
NET INVESTMENT INCOME 127,687
---------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY
Net realized gain (loss) on:
Unaffiliated transactions 2,508
Affiliated transactions (Note 9) 2
Foreign currency transactions (4)
Change in net unrealized appreciation/(depreciation) of:
Investments (106,668)
Foreign currency translations (2)
---------
Net realized and unrealized loss (104,164)
---------
Increase in net assets resulting from operations $ 23,523
=========
See accompanying notes to financial statements.
================================================================================
52 | USAA INCOME FUND
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended January 31, 2018 (unaudited), and year ended
July 31, 2017
---------------------------------------------------------------------------------------------------------------------------
1/31/2018 7/31/2017
---------------------------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 127,687 $ 237,622
Net realized gain on investments 2,510 21,825
Net realized loss on foreign currency transactions (4) (6)
Net realized loss on futures transactions - (1,391)
Change in net unrealized appreciation/(depreciation) of:
Investments (106,668) (110,844)
Foreign currency translations (2) 4
Futures contracts - (2,234)
----------------------------------
Increase in net assets resulting from operations 23,523 144,976
----------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares (66,958) (116,327)
Institutional Shares (67,307) (116,467)
Adviser Shares (2,104) (4,547)
R6 Shares* (241) (118)
----------------------------------
Total distributions of net investment income (136,610) (237,459)
----------------------------------
Net realized gains:
Fund Shares (7,223) -
Institutional Shares (7,104) -
Adviser Shares (237) -
R6 Shares* (37) -
----------------------------------
Total distributions of net realized gains (14,601) -
----------------------------------
Distributions to shareholders (151,211) -
----------------------------------
NET INCREASE IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS (NOTE 6)
Fund Shares 317,330 271,867
Institutional Shares 203,801 571,527
Adviser Shares (8,932) (37,928)
R6 Shares* 15,529 5,000
----------------------------------
Total net increase in net assets from capital share transactions 527,728 810,466
----------------------------------
Net increase in net assets 400,040 717,983
NET ASSETS
Beginning of period 7,398,399 6,680,416
----------------------------------
End of period $7,798,439 $7,398,399
==================================
Accumulated undistributed (overdistribution of) net
investment income:
End of period $ (6,241) $ 2,682
==================================
* R6 Shares commenced operations on December 1, 2016.
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 53
================================================================================
NOTES TO FINANCIAL STATEMENTS
January 31, 2018 (unaudited)
--------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company Act
of 1940, as amended (the 1940 Act), is an open-end management investment
company organized as a Delaware statutory trust consisting of 51 separate funds.
The USAA Income Fund (the Fund) qualifies as a registered investment company
under Accounting Standards Codification Topic 946. The information presented in
this semiannual report pertains only to the Fund, which is classified as
diversified under the 1940 Act. The Fund's investment objective is to seek
maximum current income without undue risk to principal.
The Fund consists of four classes of shares: Income Fund Shares (Fund Shares),
Income Fund Institutional Shares (Institutional Shares), Income Fund Adviser
Shares (Adviser Shares), and Income 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, investment advisors, financial planners, third-party administrators, and
insurance
================================================================================
54 | USAA INCOME FUND
================================================================================
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, illiquid securities and fair value
determinations, pricing movements, and daily stale price monitoring.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 55
================================================================================
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. 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.
3. 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
================================================================================
56 | USAA INCOME FUND
================================================================================
prices of certain foreign securities held by the Fund are determined.
In many cases, events affecting the values of foreign securities that
occur between the time of their last quoted sale or official closing
price and the close of normal trading on the NYSE on a day the Fund's
NAV is calculated will not need to be reflected in the value of the
Fund's foreign securities. However, the Manager will monitor for events
that would materially affect the value of the Fund's foreign securities
and the Committee will consider such available information that it
deems relevant and will determine a fair value for the affected foreign
securities in accordance with valuation procedures. In addition,
information from an external vendor or other sources may be used to
adjust the foreign market closing prices of foreign equity securities
to reflect what the Committee believes to be the fair value of the
securities as of the close of the NYSE. Fair valuation of affected
foreign equity securities may occur frequently based on an assessment
that events which occur on a fairly regular basis (such as U.S. market
movements) are significant. Such securities are categorized in Level 2
of the fair value hierarchy.
4. 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.
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. 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. In the event that price quotations or valuations are not readily
available, are not reflective of market value, or a significant event
has been recognized in relation to a security or class of securities,
the
================================================================================
NOTES TO FINANCIAL STATEMENTS | 57
================================================================================
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.
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.
================================================================================
58 | USAA INCOME FUND
================================================================================
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 January 31, 2018, the Fund did not incur any
income tax, interest, or penalties, and has recorded no liability for net
unrecognized tax benefits relating to uncertain income tax positions. On an
ongoing basis, the Manager will monitor the Fund's tax basis to determine if
adjustments to this conclusion are necessary. The statute of limitations on
the Fund's tax return filings generally remain open for the three preceding
fiscal reporting year ends and remain subject to examination by the Internal
Revenue Service and state taxing authorities.
D. 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 are amortized over the life of
the respective securities, using the effective yield method for long-term
securities and the straight-line method for short-term securities.
F. 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 | 59
================================================================================
the Fund's accounting records are maintained in U.S. dollars, foreign
currency amounts are translated into U.S. dollars on the following bases:
1. Purchases and sales of securities, income, and expenses at the exchange
rate obtained from an independent pricing service on the respective
dates of such transactions.
2. Market value of securities, other assets, and liabilities at the
exchange rate obtained from an independent pricing service on a daily
basis.
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss
from investments.
Separately, net realized foreign currency gains/losses may arise from sales
of foreign currency, currency gains/losses realized between the trade and
settlement dates on security transactions, and from the difference between
amounts of dividends, interest, and foreign withholding taxes recorded on
the Fund's books and the U.S. dollar equivalent of the amounts received. At
the end of the Fund's fiscal year, net realized foreign currency
gains/losses are reclassified from accumulated net realized gains/losses to
accumulated undistributed net investment income on the Statement of Assets
and Liabilities, as such amounts are treated as ordinary income/loss for
federal income tax purposes. Net unrealized foreign currency exchange
gains/losses arise from changes in the value of assets and liabilities,
other than investments in securities, resulting from changes in the exchange
rate.
G. 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
================================================================================
60 | USAA INCOME FUND
================================================================================
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. As of January 31, 2018, the Fund's outstanding
delayed-delivery commitments, including interest purchased, were $7,500,000;
all of which 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 January 31, 2018, 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.
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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 61
================================================================================
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 January 31, 2018, the Fund paid CAPCO facility
fees of $30,000, which represents 9.5% 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 January 31, 2018.
(3) DISTRIBUTIONS
The tax basis of distributions and accumulated undistributed net investment
income will be determined as of the Fund's tax year-end of July 31, 2018, in
accordance with applicable federal tax law.
Distributions of net investment income are made monthly. Distributions of
realized gains from security transactions not offset by capital losses are made
annually in the succeeding fiscal year or as otherwise required to avoid the
payment of federal taxes.
At July 31, 2017, the Fund had no capital loss carryforwards, for federal income
tax purposes.
For the six-month period ended January 31, 2018, the cost of securities,
including short-term securities, for federal income tax purposes, was
approximately the same as the cost reported in the financial statements.
Gross unrealized appreciation and depreciation of investments as of January 31,
2018, were $232,781,000 and $94,729,000, respectively, resulting in net
unrealized appreciation of $138,052,000.
================================================================================
62 | USAA INCOME FUND
================================================================================
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities, excluding
short-term securities, for the six-month period ended January 31, 2018, were
$698,580,000 and $254,389,000, respectively.
(5) SECURITIES LENDING
The Fund, through a 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 January 31, 2018, 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
-------------------------------------------------------------------------------
$44,330,000 $- $45,957,000
(6) CAPITAL SHARE TRANSACTIONS
At January 31, 2018, there were an unlimited number of shares of capital stock
at no par value authorized for the Fund.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 63
================================================================================
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
JANUARY 31, 2018 JULY 31, 2017
------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------
FUND SHARES:
Shares sold 42,009 $ 553,423 61,042 $ 798,768
Shares issued from
reinvested dividends 5,416 71,264 8,485 111,019
Shares redeemed (23,343) (307,357) (48,783) (637,920)
-------------------------------------------------------------
Net increase from capital
share transactions 24,082 $ 317,330 20,744 $ 271,867
=============================================================
INSTITUTIONAL SHARES:
Shares sold 27,801 $ 366,390 70,484 $ 921,425
Shares issued from
reinvested dividends 5,505 72,381 8,645 113,016
Shares redeemed (17,822) (234,970) (35,421) (462,914)
-------------------------------------------------------------
Net increase from capital
share transactions 15,484 $ 203,801 43,708 $ 571,527
=============================================================
ADVISER SHARES:
Shares sold 233 $ 3,070 395 $ 5,169
Shares issued from
reinvested dividends 177 2,322 347 4,530
Shares redeemed (1,090) (14,324) (3,634) (47,627)
-------------------------------------------------------------
Net decrease from
capital share transactions (680) $ (8,932) (2,892) $ (37,928)
=============================================================
R6 SHARES (COMMENCED ON
DECEMBER 1, 2016):
Shares sold 1,224 $ 16,162 390 $ 5,000
Shares issued from
reinvested dividends 13 173 - -
Shares redeemed (62) (806) - -
-------------------------------------------------------------
Net increase from capital
share transactions 1,175 $ 15,529 390 $ 5,000
=============================================================
================================================================================
64 | USAA INCOME 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, 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 January 31, 2018, 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 0.24% 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 A Rated Bond Funds Index. The Lipper A Rated
Bond Funds Index tracks the total return performance of funds within the
Lipper Corporate Debt Funds A Rated category.
The performance period for each class consists of the current month plus the
previous 35 months. 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 of the share class are calculated
over a rolling 36-month period.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 65
================================================================================
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 A Rated Bond Funds Index over that period, even if
the class had overall negative returns during the performance period.
For the six-month period ended January 31, 2018, the Fund incurred total
management fees, paid or payable to the Manager, of $9,168,000, which
included a performance adjustment for the Fund Shares, Institutional Shares,
Adviser Shares, and R6 Shares of $(81,000), $34,000, $(24,000), and less
than $500, respectively. For the Fund Shares, Institutional Shares, Adviser
Shares, and R6 Shares, the performance adjustments were less than (0.01)%,
less than 0.01%, (0.04)% and less than (0.01)%, respectively.
B. ADMINISTRATION AND SERVICING FEES - The Manager provides certain
administration and servicing functions for the Fund. For such services, the
Manager receives a fee accrued daily and paid monthly at an annualized rate
of 0.15% of average net assets of the Fund Shares and 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 January 31, 2018,
the Fund Shares, Institutional Shares, Adviser Shares, and R6 Shares
incurred administration and servicing fees, paid or payable to the Manager,
of $2,845,000, $1,883,000, $96,000, and $3,000, respectively.
In addition to the services provided under its Administration and Servicing
Agreement with the Fund, the Manager also provides certain compliance and
legal services for the benefit of the Fund. The Board has approved the
reimbursement of a portion of these expenses incurred by
================================================================================
66 | USAA INCOME FUND
================================================================================
the Manager. For the six-month period ended January 31, 2018, the Fund
reimbursed the Manager $26,000 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 November 30, 2018, to limit
the total annual operating expenses of the R6 Shares to 0.39% of its average
net assets, excluding extraordinary expenses and before reductions of any
expenses paid indirectly, and will reimburse the R6 Shares for all expenses
in excess of that amount. This expense limitation arrangement may not be
changed or terminated through November 30, 2018, without the 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 January 31, 2018, the R6 Shares
incurred reimbursable expenses of $9,000, of which less than $500 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 January 31, 2018, the Fund Shares,
Institutional Shares, Adviser Shares, and R6 Shares incurred transfer
agent's fees, paid or payable to SAS, of $2,045,000, $1,883,000, $60,000,
and $1,000, respectively.
E. DISTRIBUTION AND SERVICE (12b-1) fees - The Fund has adopted a plan pursuant
to Rule 12b-1 under the 1940 Act with respect to the Adviser Shares. Under
the plan, the Adviser Shares pay fees to USAA Investment Management Company
(IMCO), the distributor, for distribution and shareholder services. IMCO
pays all or a portion of
================================================================================
NOTES TO FINANCIAL STATEMENTS | 67
================================================================================
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 January
31, 2018, the Adviser Shares incurred distribution and service (12b-1) fees
of $160,000.
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 January 31, 2018, the USAA
fund-of-funds owned the following percentages of the total outstanding shares of
the Fund:
AFFILIATED USAA FUND OWNERSHIP %
--------------------------------------------------------------------------------
Cornerstone Conservative 0.6
Target Retirement Income 0.9
Target Retirement 2020 1.3
Target Retirement 2030 1.7
Target Retirement 2040 0.8
Target Retirement 2050 0.3
Target Retirement 2060 0.0*
* Represents less than 0.1%
The Manager is indirectly wholly owned by United Services Automobile Association
(USAA), a large, diversified financial services institution. At January 31,
2018, USAA and its affiliates owned 390,000 R6 Shares, which represents 25% of
the R6 Shares outstanding, and 0.1% of the Fund's total outstanding shares.
================================================================================
68 | USAA INCOME FUND
================================================================================
Certain trustees and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Fund.
(9) SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
During the six-month period ended January 31, 2018, 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
----------------------------------------------------------------------------------------
Income Core Intermediate-Term Bond ETF $ 1,013,000 $ 2,000
High Income Income 17,134,000 2,000,000
(10) 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 December 2017, the
SEC issued Temporary Final Rule Release No. 33-10442, INVESTMENT COMPANY
REPORTING MODERNIZATION (Temporary Rule), which extends to April 2019 the
compliance date on which funds in larger fund groups, such as the Fund, are
required to begin filing form N-PORT. In the interim, in lieu of filing form
N-PORT, the Temporary Rule requires that funds in larger fund groups maintain in
their records the information that is required to be included in form N-PORT.
The Temporary Rule does not affect the filing date or requirements of form
N-CEN.
In October 2016, the SEC issued Final Rule Release No. 33-10233, INVESTMENT
COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS (Liquidity Rule). The Liquidity Rule
requires funds to establish a liquidity risk management program and enhances
disclosures regarding funds' liquidity.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 69
================================================================================
In February 2018, the SEC issued Interim Final Rule Release No. IC-33010,
INVESTMENT COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS; COMMISSION GUIDANCE FOR
IN-KIND ETFS, which extends, among others, the compliance dates for certain
disclosure requirements under the Liquidity Rule. The compliance date for the
liquidity disclosure required in form N-PORT has been extended to June 1, 2019
for larger entities such as the Fund. The compliance date for the liquidity
disclosure required in form N-CEN for large entities such as the Fund remains
December 1, 2018. The Fund is expected to comply with these compliance dates for
forms N-PORT and N-CEN. The Manager continues to evaluate the impact these rules
and amendments will have on the financial statements and other disclosures.
(11) NEW ACCOUNTING PRONOUNCEMENT
In March 2017, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Update (ASU) 2017-08, Premium Amortization of Purchased Callable Debt
Securities. The amendments in the ASU shorten the premium amortization period on
a purchased callable debt security from the security's contractual life to the
earliest call date. It is anticipated that this change will enhance disclosures
by reducing losses recognized when a security is called on an earlier date. This
ASU is effective for fiscal years beginning after December 15, 2018. The Manager
continues to evaluate the impact this ASU will have on the financial statement
disclosures.
================================================================================
70 | USAA INCOME FUND
================================================================================
(12) FINANCIAL HIGHLIGHTS - FUND SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JANUARY 31, YEAR ENDED JULY 31,
--------------------------------------------------------------------------------------
2018 2017 2016 2015 2014 2013
--------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 13.20 $ 13.40 $ 12.99 $ 13.28 $ 13.10 $ 13.43
--------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .22 .44 .47 .47 .51 .49
Net realized and
unrealized gain (loss) (.19) (.20) .40 (.27) .18 (.32)
--------------------------------------------------------------------------------------
Total from investment
operations .03 .24 .87 .20 .69 .17
--------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.23) (.44) (.46) (.46) (.51) (.47)
Realized capital gains (.02) - - (.01) (.00)(a) (.03)
Return of capital - - - (.02) - -
--------------------------------------------------------------------------------------
Total distributions (.25) (.44) (.46) (.49) (.51) (.50)
--------------------------------------------------------------------------------------
Net asset value at
end of period $ 12.98 $ 13.20 $ 13.40 $ 12.99 $ 13.28 $ 13.10
======================================================================================
Total return (%)* 0.28 1.91 6.88 1.45 5.43 1.30
Net assets at end
of period (000) $3,871,561 $3,617,550 $3,394,088 $3,544,344 $2,859,427 $2,659,263
Ratios to average
net assets:**
Expenses (%)(b) .52(c) .49 .51 .53 .59 .58
Net investment income (%) 3.29(c) 3.40 3.61 3.36 3.55 3.53
Portfolio turnover (%) 3 9 11 10 14 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 January 31, 2018, average net assets were
$3,764,118,000.
(a) Represents less than $0.01 per share.
(b) Reflects total annual operating expenses of the Fund Shares before
reductions of any expenses paid indirectly. The Fund Shares' expenses paid
indirectly decreased the expense ratios as follows:
- - - - - (.00%)(+)
(+) Represents less than 0.01% of average net assets.
(c) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 71
================================================================================
(12) FINANCIAL HIGHLIGHTS (CONTINUED) - INSTITUTIONAL SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JANUARY 31, YEAR ENDED JULY 31,
--------------------------------------------------------------------------------------
2018 2017 2016 2015 2014 2013
--------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 13.19 $ 13.39 $ 12.99 $ 13.28 $ 13.09 $ 13.42
--------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .22 .45 .48 .49 .53 .48
Net realized and
unrealized gain (loss) (.18) (.20) .39 (.28) .19 (.29)
--------------------------------------------------------------------------------------
Total from investment
operations .04 .25 .87 .21 .72 .19
--------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.24) (.45) (.47) (.47) (.53) (.49)
Realized capital gains (.02) - - (.01) (.00)(a) (.03)
Return of capital - - - (.02) - -
--------------------------------------------------------------------------------------
Total distributions (.26) (.45) (.47) (.50) (.53) (.52)
--------------------------------------------------------------------------------------
Net asset value at
end of period $ 12.97 $ 13.19 $ 13.39 $ 12.99 $ 13.28 $ 13.09
======================================================================================
Total return (%)* 0.31 1.97 6.89 1.51 5.63 1.42
Net assets at end
of period (000) $3,786,596 $3,644,795 $3,114,810 $2,227,221 $2,098,035 $1,847,503
Ratios to average
net assets:**
Expenses (%)(b) .46(c) .43 .44 .46 .48 .47
Net investment income (%) 3.35(c) 3.45 3.66 3.43 3.65 3.63
Portfolio turnover (%) 3 9 11 10 14 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 January 31, 2018, average net assets were
$3,735,657,000.
(a) Represents less than $0.01 per share.
(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%)(+)
(+) Represents less than 0.01% of average net assets.
(c) Annualized. The ratio is not necessarily indicative of 12 months of operations.
================================================================================
72 | USAA INCOME FUND
================================================================================
(12) FINANCIAL HIGHLIGHTS (CONTINUED) - ADVISER SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JANUARY 31, YEAR ENDED JULY 31,
--------------------------------------------------------------------------------------
2018 2017 2016 2015 2014 2013
--------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 13.16 $ 13.36 $ 12.96 $ 13.25 $ 13.08 $13.41
------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .21 .42 .44 .44 .37(a) .43
Net realized and
unrealized gain (loss) (.18) (.21) .38 (.27) .28(a) (.30)
------------------------------------------------------------------------------------
Total from investment
operations .03 .21 .82 .17 .65(a) .13
------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.22) (.41) (.42) (.43) (.48) (.43)
Realized capital gains (.02) - - (.01) (.00)(b) (.03)
Return of capital - - - (.02) - -
------------------------------------------------------------------------------------
Total distributions (.24) (.41) (.42) (.46) (.48) (.46)
------------------------------------------------------------------------------------
Net asset value at
end of period $ 12.95 $ 13.16 $ 13.36 $ 12.96 $ 13.25 $13.08
====================================================================================
Total return (%)* 0.25 1.67 6.53 1.23 5.11 .99
Net assets at end
of period (000) $119,974 $130,912 $171,518 $222,494 $42,542 $5,875
Ratios to average
net assets:**
Expenses (%)(c) .74(e) .72 .77 .79(d) .88 .90
Expenses, excluding
reimbursements (%)(c) .74(e) .72 .77 .79 .88 1.08
Net investment income (%) 3.07(e) 3.17 3.36 3.10 3.13 3.21
Portfolio turnover (%) 3 9 11 10 14 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 January 31, 2018, average net assets were
$126,809,000.
(a) Calculated using average shares.
(b) Represents less than $0.01 per share.
(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%)(+)
(+) Represents less than 0.01% of average net assets.
(d) Prior to December 1, 2014, the Manager had voluntarily agreed to limit the
annual expenses of the Adviser Shares to 0.90% of the Adviser Shares'
average net assets.
(e) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 73
================================================================================
(12) 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
JANUARY 31, JULY 31,
--------------------------------------
2018 2017***
--------------------------------------
Net asset value at beginning of period $ 13.19 $12.83
----------------------------------
Income (loss) from investment operations:
Net investment income .24(a) .30
Net realized and unrealized gain (.19)(a) .36
----------------------------------
Total from investment operations .05(a) .66
----------------------------------
Less distributions from:
Net investment income (.24) (.30)
Realized capital gains (.02) -
----------------------------------
Total distributions (.26) (.30)
----------------------------------
Net asset value at end of period $ 12.98 $13.19
==================================
Total return (%)* 0.44 5.22
Net assets at end of period (000) $20,308 $5,142
Ratios to average net assets:**
Expenses (%)(b) .39 .39
Expenses, excluding reimbursements (%)(b) .53 .99
Net investment income (%)(b) 3.43 3.50
Portfolio turnover (%) 3 9
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended January 31, 2018, average net assets were
$12,018,121.
*** R6 Shares commenced operations on December 1, 2016.
(a) Calculated using average shares. For the six-month period ended January 31,
2018, average shares were 876,000.
(b) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
74 | USAA INCOME FUND
================================================================================
EXPENSE EXAMPLE
January 31, 2018 (unaudited)
--------------------------------------------------------------------------------
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: direct costs, such
as wire fees, redemption fees, and low balance fees; and indirect costs,
including management fees, transfer agency fees, distribution and service
(12b-1) fees, and other Fund operating expenses. This example is intended to
help you understand your indirect costs, also referred to as "ongoing costs" (in
dollars), of investing in the Fund and to compare these costs with the ongoing
costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire six-month period of August 1, 2017, through
January 31, 2018.
ACTUAL EXPENSES
The line labeled "actual" under each share class in the table provides
information about actual account values and actual expenses. You may use the
information in this line, together with the amount you invested at the beginning
of the period, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number for your share
class in the "actual" line under the heading "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The line labeled "hypothetical" under each share class in the table provides
information about hypothetical account values and hypothetical expenses based on
the Fund's actual expense ratios for each class and an assumed rate of return of
5% per year before expenses, which is not the Fund's actual return. The
hypothetical account values and expenses may not be used to estimate the actual
ending account balance or expenses you paid for the period. You may use this
information to compare the ongoing costs of
================================================================================
EXPENSE EXAMPLE | 75
================================================================================
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 AUGUST 1, 2017 -
AUGUST 1, 2017 JANUARY 31, 2018 JANUARY 31, 2018
-------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $1,002.80 $2.63
Hypothetical
(5% return before expenses) 1,000.00 1,022.58 2.65
INSTITUTIONAL SHARES
Actual 1,000.00 1,003.10 2.32
Hypothetical
(5% return before expenses) 1,000.00 1,022.89 2.35
ADVISER SHARES
Actual 1,000.00 1,002.50 3.74
Hypothetical
(5% return before expenses) 1,000.00 1,021.48 3.77
R6 SHARES
Actual 1,000.00 1,004.40 1.97
Hypothetical
(5% return before expenses) 1,000.00 1,023.24 1.99
*Expenses are equal to the annualized expense ratio of 0.52% for Fund Shares,
0.46% for Institutional Shares, 0.74% for Adviser Shares, and 0.39% for R6
Shares, which are net of any reimbursements and expenses paid indirectly,
multiplied by the average account value over the period, multiplied by 184
days/365 days (to reflect the one-half-year period). The Fund's actual ending
account values are based on its actual total returns of 0.28% for Fund Shares,
0.31% for Institutional Shares, 0.25% for Adviser Shares, and 0.44% for R6
Shares, for the six-month period of August 1, 2017, through January 31, 2018.
================================================================================
76 | USAA INCOME FUND
================================================================================
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Jefferson C. Boyce
Dawn M. Hawley
Paul L. McNamara
Richard Y. Newton III
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
--------------------------------------------------------------------------------
ADMINISTRATOR AND USAA Asset Management Company
INVESTMENT ADVISER P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
UNDERWRITER AND USAA Investment Management Company
DISTRIBUTOR P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
--------------------------------------------------------------------------------
CUSTODIAN 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)
=============================================================================
23424-0318 (C)2018, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA INCOME STOCK FUND]
=============================================================
SEMIANNUAL REPORT
USAA INCOME STOCK FUND
FUND SHARES (USISX) o INSTITUTIONAL SHARES (UIISX)
o R6 SHARES (URISX)
JANUARY 31, 2018
=============================================================
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
INVESTMENT OVERVIEW 2
FINANCIAL INFORMATION
Portfolio of Investments 3
Notes to Portfolio of Investments 13
Financial Statements 15
Notes to Financial Statements 19
EXPENSE EXAMPLE 38
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE
RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY
USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN
PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS
ABOUT THE FUND.
(C)2018, USAA. All rights reserved.
================================================================================
================================================================================
FUND OBJECTIVE
THE USAA INCOME STOCK FUND (THE FUND) SEEKS CURRENT INCOME WITH THE PROSPECT OF
INCREASING DIVIDEND INCOME AND THE POTENTIAL FOR CAPITAL APPRECIATION.
--------------------------------------------------------------------------------
TYPES OF INVESTMENTS
The Fund normally invests at least 80% of its assets in common stocks, with at
least 65% of the Fund's assets normally invested in common stocks of companies
that pay dividends. This 80% policy may be changed upon at least 60 days'
written notice to shareholders. Although the Fund will invest primarily in U.S.
securities, it may invest up to 20% of its total assets in foreign securities
including securities in emerging markets.
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* - 1/31/18 o
(% of Net Assets)
Pfizer, Inc. .............................................................. 2.2%
Microsoft Corp. ........................................................... 2.2%
Johnson & Johnson ......................................................... 2.1%
JPMorgan Chase & Co. ...................................................... 2.0%
Occidental Petroleum Corp. ................................................ 1.9%
Bank of America Corp. ..................................................... 1.8%
Merck & Co., Inc. ......................................................... 1.8%
AbbVie, Inc. .............................................................. 1.7%
Wal-Mart Stores, Inc. ..................................................... 1.7%
Cisco Systems, Inc. ....................................................... 1.6%
o SECTOR ALLOCATION* - 1/31/18 o
[PIE CHART OF SECTOR ALLOCATION]
FINANCIALS 17.0%
INFORMATION TECHNOLOGY 13.8%
INDUSTRIALS 12.8%
HEALTH CARE 11.4%
CONSUMER STAPLES 11.1%
UTILITIES 9.2%
ENERGY 8.3%
CONSUMER DISCRETIONARY 5.3%
TELECOMMUNICATION SERVICES 4.6%
MATERIALS 3.0%
REAL ESTATE 1.7%
[END CHART]
*Does not include 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%.
You will find a complete list of securities that the Fund owns on pages 3-12.
================================================================================
2 | USAA INCOME STOCK FUND
================================================================================
PORTFOLIO OF INVESTMENTS
January 31, 2018 (unaudited)
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (98.2%)
COMMON STOCKS (98.2%)
CONSUMER DISCRETIONARY (5.3%)
-----------------------------
ADVERTISING (0.5%)
175,215 Omnicom Group, Inc. $ 13,430
----------
AUTO PARTS & EQUIPMENT (0.5%)
259,590 Magna International, Inc. 14,836
----------
AUTOMOBILE MANUFACTURERS (0.4%)
118,575 Daimler AG ADR 10,861
----------
CASINOS & GAMING (0.3%)
133,032 Las Vegas Sands Corp. 10,313
----------
DISTRIBUTORS (0.4%)
119,821 Genuine Parts Co. 12,470
----------
HOME IMPROVEMENT RETAIL (1.2%)
170,146 Home Depot, Inc. 34,182
----------
HOTELS, RESORTS & CRUISE LINES (0.3%)
131,089 Carnival Corp. 9,387
----------
MOVIES & ENTERTAINMENT (0.2%)
72,137 Time Warner, Inc. 6,878
----------
RESTAURANTS (1.5%)
199,906 Brinker International, Inc. 7,265
219,276 McDonald's Corp. 37,527
----------
44,792
----------
Total Consumer Discretionary 157,149
----------
CONSUMER STAPLES (11.1%)
------------------------
AGRICULTURAL PRODUCTS (0.2%)
61,100 Bunge Ltd. 4,853
----------
BREWERS (0.5%)
33,660 Anheuser-Busch InBev S.A. ADR 3,819
115,542 Molson Coors Brewing Co. "B" 9,708
----------
13,527
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 3
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
DRUG RETAIL (0.3%)
101,481 CVS Health Corp. $ 7,985
----------
FOOD DISTRIBUTORS (0.1%)
70,530 Sysco Corp. 4,434
----------
HOUSEHOLD PRODUCTS (2.3%)
94,145 Colgate-Palmolive Co. 6,989
182,177 Kimberly-Clark Corp. 21,315
458,786 Procter & Gamble Co. 39,612
----------
67,916
----------
HYPERMARKETS & SUPER CENTERS (1.7%)
459,098 Wal-Mart Stores, Inc. 48,940
----------
PACKAGED FOODS & MEATS (1.0%)
236,586 Campbell Soup Co. 11,013
224,359 Kraft Heinz Co. 17,588
----------
28,601
----------
PERSONAL PRODUCTS (0.7%)
374,200 Unilever N.V.(a) 21,513
----------
SOFT DRINKS (1.2%)
160,781 Coca-Cola Co. 7,652
249,424 Coca-Cola European Partners plc 10,017
153,835 PepsiCo, Inc. 18,506
----------
36,175
----------
TOBACCO (3.1%)
432,114 Altria Group, Inc. 30,395
428,705 British American Tobacco plc ADR 29,195
293,020 Philip Morris International, Inc. 31,420
----------
91,010
----------
Total Consumer Staples 324,954
----------
ENERGY (8.3%)
-------------
INTEGRATED OIL & GAS (4.8%)
204,710 Chevron Corp. 25,660
339,789 Exxon Mobil Corp. 29,664
759,943 Occidental Petroleum Corp. 56,973
410,114 Royal Dutch Shell plc ADR "A" 28,806
----------
141,103
----------
OIL & GAS DRILLING (0.3%)
111,045 Helmerich & Payne, Inc.(a) 7,999
----------
================================================================================
4 | USAA INCOME STOCK FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
OIL & GAS EQUIPMENT & SERVICES (0.8%)
158,035 Halliburton Co. $ 8,487
229,940 Schlumberger Ltd. 16,919
----------
25,406
----------
OIL & GAS EXPLORATION & PRODUCTION (0.9%)
389,674 ConocoPhillips 22,916
340,800 Peyto Exploration & Dev. Corp. 3,122
----------
26,038
----------
OIL & GAS REFINING & MARKETING (0.2%)
200,000 Keyera Corp. 5,628
----------
OIL & GAS STORAGE & TRANSPORTATION (1.2%)
638,233 Enterprise Products Partners, LP(a) 17,628
157,113 Magellan Midstream Partners, LP 11,216
242,020 Williams Companies, Inc. 7,597
----------
36,441
----------
Total Energy 242,615
----------
FINANCIALS (17.0%)
------------------
ASSET MANAGEMENT & CUSTODY BANKS (1.4%)
418,483 Bank of New York Mellon Corp. 23,728
31,178 BlackRock, Inc. 17,516
----------
41,244
----------
CONSUMER FINANCE (0.6%)
450,313 Synchrony Financial 17,868
----------
DIVERSIFIED BANKS (5.5%)
1,650,000 Bank of America Corp. 52,800
117,375 Commonwealth Bank of Australia ADR 7,468
520,000 JPMorgan Chase & Co. 60,148
488,635 U.S. Bancorp 27,921
200,517 Wells Fargo & Co. 13,190
----------
161,527
----------
FINANCIAL EXCHANGES & DATA (1.2%)
226,570 CME Group, Inc. 34,774
----------
INSURANCE BROKERS (1.1%)
324,007 Arthur J. Gallagher & Co. 22,136
117,376 Marsh & McLennan Companies, Inc. 9,803
----------
31,939
----------
INVESTMENT BANKING & BROKERAGE (0.5%)
282,950 Morgan Stanley 16,001
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 5
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
LIFE & HEALTH INSURANCE (0.4%)
230,348 MetLife, Inc. $ 11,073
----------
MULTI-LINE INSURANCE (0.5%)
547,107 Allianz SE ADR 13,853
----------
PROPERTY & CASUALTY INSURANCE (2.9%)
116,020 Allstate Corp. 11,459
207,860 Chubb Ltd. 32,457
399,900 Progressive Corp. 21,635
64,801 Travelers Cos., Inc. 9,715
277,390 XL Group Ltd. 10,219
----------
85,485
----------
REGIONAL BANKS (2.9%)
544,300 Fifth Third Bancorp 18,016
1,119,159 KeyCorp 23,950
43,404 M&T Bank Corp. 8,281
487,233 People's United Financial, Inc. 9,584
169,130 PNC Financial Services Group, Inc. 26,726
----------
86,557
----------
Total Financials 500,321
----------
HEALTH CARE (11.4%)
-------------------
BIOTECHNOLOGY (2.3%)
443,724 AbbVie, Inc. 49,795
55,020 Amgen, Inc. 10,236
101,930 Gilead Sciences, Inc. 8,542
----------
68,573
----------
HEALTH CARE EQUIPMENT (1.5%)
175,000 Abbott Laboratories 10,878
393,740 Medtronic plc 33,818
----------
44,696
----------
MANAGED HEALTH CARE (0.9%)
106,433 UnitedHealth Group, Inc. 25,201
----------
PHARMACEUTICALS (6.7%)
444,661 Johnson & Johnson 61,448
877,718 Merck & Co., Inc. 52,005
197,500 Novartis AG ADR 17,787
1,781,942 Pfizer, Inc. 66,003
----------
197,243
----------
Total Health Care 335,713
----------
================================================================================
6 | USAA INCOME STOCK FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
INDUSTRIALS (12.8%)
-------------------
AEROSPACE & DEFENSE (4.4%)
86,608 Boeing Co. $ 30,691
48,906 General Dynamics Corp. 10,881
69,985 Lockheed Martin Corp. 24,834
119,986 Raytheon Co. 25,070
276,211 United Technologies Corp. 38,120
----------
129,596
----------
AGRICULTURAL & FARM MACHINERY (0.4%)
60,401 Deere & Co. 10,052
----------
AIR FREIGHT & LOGISTICS (0.9%)
204,242 United Parcel Service, Inc. "B" 26,004
----------
BUILDING PRODUCTS (0.8%)
602,487 Johnson Controls International plc 23,575
----------
COMMERCIAL PRINTING (0.3%)
128,991 Deluxe Corp. 9,580
----------
CONSTRUCTION MACHINERY & HEAVY TRUCKS (0.3%)
104,310 PACCAR, Inc. 7,777
----------
ELECTRICAL COMPONENTS & EQUIPMENT (1.8%)
428,091 Eaton Corp. plc 35,947
224,359 Emerson Electric Co. 16,206
----------
52,153
----------
ENVIRONMENTAL & FACILITIES SERVICES (1.2%)
305,257 Republic Services, Inc. 21,002
168,728 Waste Management, Inc. 14,920
----------
35,922
----------
INDUSTRIAL CONGLOMERATES (1.3%)
109,428 3M Co. 27,412
69,080 Honeywell International, Inc. 11,030
----------
38,442
----------
INDUSTRIAL MACHINERY (0.8%)
56,200 Parker-Hannifin Corp. 11,320
77,500 Stanley Black & Decker, Inc. 12,883
----------
24,203
----------
RAILROADS (0.6%)
132,800 Union Pacific Corp. 17,729
----------
Total Industrials 375,033
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 7
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
INFORMATION TECHNOLOGY (13.8%)
------------------------------
COMMUNICATIONS EQUIPMENT (1.6%)
1,134,370 Cisco Systems, Inc. $ 47,122
----------
DATA PROCESSING & OUTSOURCED SERVICES (0.7%)
62,967 Automatic Data Processing, Inc. 7,784
204,185 Paychex, Inc. 13,936
----------
21,720
----------
SEMICONDUCTORS (5.7%)
142,440 Analog Devices, Inc. 13,087
28,595 Broadcom Ltd. 7,092
933,445 Cypress Semiconductor Corp. 16,139
562,088 Intel Corp.(a) 27,059
456,391 Maxim Integrated Products, Inc. 27,840
84,364 Microchip Technology, Inc. 8,033
508,229 QUALCOMM, Inc. 34,687
310,846 Texas Instruments, Inc. 34,091
----------
168,028
----------
SYSTEMS SOFTWARE (3.3%)
691,901 Microsoft Corp. 65,737
610,307 Oracle Corp. 31,486
----------
97,223
----------
TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (2.5%)
155,281 Apple, Inc. 25,999
1,324,700 HP, Inc. 30,892
178,345 Western Digital Corp. 15,869
----------
72,760
----------
Total Information Technology 406,853
----------
MATERIALS (3.0%)
----------------
DIVERSIFIED CHEMICALS (1.5%)
573,615 DowDuPont, Inc. 43,354
----------
FERTILIZERS & AGRICULTURAL CHEMICALS (0.6%)
60,960 Monsanto Co. 7,425
169,951 Nutrien Ltd.* 8,895
----------
16,320
----------
GOLD (0.2%)
1,698,720 Tahoe Resources, Inc. 7,457
----------
PAPER PACKAGING (0.4%)
251,869 Bemis Co., Inc. 11,772
----------
================================================================================
8 | USAA INCOME STOCK FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
STEEL (0.3%)
94,756 Reliance Steel & Aluminum Co. $ 8,300
----------
Total Materials 87,203
----------
REAL ESTATE (1.7%)
------------------
REITs - HEALTH CARE (0.6%)
299,554 Welltower, Inc. 17,964
----------
REITs - INDUSTRIAL (0.1%)
123,800 Duke Realty Corp. 3,270
----------
REITs - OFFICE (0.1%)
21,900 Boston Properties, Inc. 2,709
----------
REITs - RESIDENTIAL (0.1%)
39,900 Equity Residential 2,458
----------
REITs - RETAIL (0.1%)
13,500 Simon Property Group, Inc. 2,206
----------
REITs - SPECIALIZED (0.7%)
387,586 Iron Mountain, Inc. 13,577
41,570 Public Storage 8,138
----------
21,715
----------
Total Real Estate 50,322
----------
TELECOMMUNICATION SERVICES (4.6%)
---------------------------------
ALTERNATIVE CARRIERS (0.2%)
355,796 CenturyLink, Inc. 6,337
----------
INTEGRATED TELECOMMUNICATION SERVICES (2.3%)
975,579 AT&T, Inc. 36,536
585,933 Verizon Communications, Inc. 31,681
----------
68,217
----------
WIRELESS TELECOMMUNICATION SERVICES (2.1%)
430,900 Rogers Communications, Inc. "B" 21,028
1,209,353 Vodafone Group plc ADR 38,965
----------
59,993
----------
Total Telecommunication Services 134,547
----------
UTILITIES (9.2%)
----------------
ELECTRIC UTILITIES (5.7%)
206,775 American Electric Power Co., Inc. 14,222
474,425 Duke Energy Corp. 37,242
101,500 Edison International 6,347
234,141 Entergy Corp. 18,425
================================================================================
PORTFOLIO OF INVESTMENTS | 9
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
223,434 Eversource Energy $ 14,096
369,905 Exelon Corp. 14,245
283,327 FirstEnergy Corp. 9,322
267,764 Great Plains Energy, Inc. 8,333
117,174 NextEra Energy, Inc. 18,563
588,715 PPL Corp. 18,762
212,133 Southern Co. 9,569
----------
169,126
----------
MULTI-UTILITIES (3.5%)
387,586 Ameren Corp. 21,949
152,739 Black Hills Corp. 8,485
315,626 CMS Energy Corp. 14,124
207,853 Dominion Energy, Inc. 15,888
368,634 NiSource, Inc. 9,098
147,331 Vectren Corp. 8,933
362,521 WEC Energy Group, Inc. 23,310
----------
101,787
----------
Total Utilities 270,913
----------
Total Common Stocks (cost: $2,030,726) 2,885,623
----------
Total Equity Securities (cost: $2,030,726) 2,885,623
----------
--------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON
(000) RATE MATURITY
--------------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS (1.8%)
COMMERCIAL PAPER (0.7%)
$ 7,000 McCormick & Co.(b) 1.60% 2/08/2018 6,998
3,000 ONE Gas, Inc.(b) 1.50 2/01/2018 3,000
3,500 Snap-On, Inc.(b) 1.53 2/12/2018 3,498
2,000 Southern California Edison Co.(b) 1.58 2/05/2018 2,000
4,600 Tyson Foods, Inc.(b) 1.67 2/09/2018 4,598
----------
Total Commercial Paper (cost: $20,094) 20,094
----------
================================================================================
10 | USAA INCOME STOCK FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (1.1%)
33,460,021 State Street Institutional Treasury Money Market Fund
Premier Class, 1.23%(c) (cost: $33,460) $ 33,460
----------
Total Money Market Instruments (cost: $53,554) 53,554
----------
SHORT-TERM INVESTMENTS PURCHASED WITH CASH
COLLATERAL FROM SECURITIES LOANED (0.7%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (0.7%)
18,023 Federated Government Obligations Fund Institutional Class, 1.19%(c) 18
382,890 Fidelity Government Fund Portfolio Class I, 1.22%(c) 383
5,742,546 Goldman Sachs Financial Square Government Fund
Institutional Class, 1.21%(c) 5,742
12,189,789 Invesco Government & Agency Portfolio Institutional
Class, 1.24%(c) 12,190
728,225 Morgan Stanley Institutional Liquidity Funds Government
Portfolio Institutional Class, 1.21%(c) 728
2,213,560 Western Asset Institutional Government Reserves
Institutional Class, 1.22%(c) 2,214
----------
Total Short-Term Investments Purchased with Cash
Collateral from Securities Loaned (cost: $21,275) 21,275
----------
TOTAL INVESTMENTS (COST: $2,105,555) $2,960,452
==========
================================================================================
PORTFOLIO OF INVESTMENTS | 11
================================================================================
--------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
--------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
--------------------------------------------------------------------------------------------------------
Equity Securities:
Common Stocks $2,885,623 $ - $- $2,885,623
Money Market Instruments:
Commercial Paper - 20,094 - 20,094
Government & U.S. Treasury
Money Market Funds 33,460 - - 33,460
Short-Term Investments Purchased
with Cash Collateral from
Securities Loaned:
Government & U.S. Treasury
Money Market Funds 21,275 - - 21,275
--------------------------------------------------------------------------------------------------------
Total $2,940,358 $20,094 $- $2,960,452
--------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
For the period of August 1, 2017, through January 31, 2018, 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.
================================================================================
12 | USAA INCOME STOCK FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
January 31, 2018 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
Market values of securities are determined by procedures and practices
discussed in Note 1A to the financial statements.
The Portfolio of Investments category percentages shown represent the
percentages of the investments to net assets, and, in total, may not equal
100%. A category percentage of 0.0% represents less than 0.1% of net assets.
Investments in foreign securities were 8.5% of net assets at January 31,
2018.
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.
REITs Real estate investment trusts - 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.
o SPECIFIC NOTES
(a) The security, or a portion thereof, was out on loan as of January 31,
2018.
(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
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 13
================================================================================
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) Rate represents the money market fund annualized seven-day yield at
January 31, 2018
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
14 | USAA INCOME STOCK FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
January 31, 2018 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (including securities on
loan of $21,921) (cost of $2,105,555) $2,960,452
Receivables:
Capital shares sold 1,134
USAA Asset Management Company (Note 7D) 1
Dividends and interest 4,239
Securities sold 21,670
Other 5
----------
Total assets 2,987,501
----------
LIABILITIES
Payables:
Upon return of securities loaned 21,275
Securities purchased 24,014
Capital shares redeemed 1,681
Accrued management fees 1,246
Accrued transfer agent's fees 25
Other accrued expenses and payables 283
----------
Total liabilities 48,524
----------
Net assets applicable to capital shares outstanding $2,938,977
==========
NET ASSETS CONSIST OF:
Paid-in capital $2,044,168
Accumulated undistributed net investment income 2,453
Accumulated net realized gain on investments 37,459
Net unrealized appreciation of investments 854,897
----------
Net assets applicable to capital shares outstanding $2,938,977
==========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $1,791,538/86,561
capital shares outstanding, no par value) $ 20.70
==========
Institutional Shares (net assets of $1,134,351/54,862
capital shares outstanding, no par value) $ 20.68
==========
R6 Shares (net assets of $13,088/633
capital shares outstanding, no par value) $ 20.69
==========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 15
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended January 31, 2018 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $278) $ 39,934
Interest 317
Securities lending (net) 66
--------
Total income 40,317
--------
EXPENSES
Management fees 7,137
Administration and servicing fees:
Fund Shares 1,287
Institutional Shares 565
R6 Shares 2
Transfer agent's fees:
Fund Shares 693
Institutional Shares 565
Custody and accounting fees:
Fund Shares 83
Institutional Shares 55
Postage:
Fund Shares 41
Institutional Shares 17
Shareholder reporting fees:
Fund Shares 23
Institutional Shares 3
Trustees' fees 17
Registration fees:
Fund Shares 17
Institutional Shares 19
R6 Shares 12
Professional fees 103
Other 24
--------
Total expenses 10,663
Expenses paid indirectly:
Fund Shares (5)
Institutional Shares (3)
Expenses reimbursed:
R6 Shares (9)
--------
Net expenses 10,646
--------
NET INVESTMENT INCOME 29,671
--------
================================================================================
16 | USAA INCOME STOCK FUND
================================================================================
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY
Net realized gain on:
Investments $ 81,940
Foreign currency transactions 1
Change in net unrealized appreciation/(depreciation) of:
Investments 224,127
Foreign currency translations (1)
--------
Net realized and unrealized gain 306,067
--------
Increase in net assets resulting from operations $335,738
========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 17
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended January 31, 2018 (unaudited), and year ended
July 31, 2017
--------------------------------------------------------------------------------------------------------
1/31/2018 7/31/2017
--------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 29,671 $ 61,644
Net realized gain on investments 81,940 153,510
Net realized gain on foreign currency transactions 1 3
Change in net unrealized appreciation/(depreciation) of:
Investments 224,127 66,131
Foreign currency translations (1) 1
---------------------------
Increase in net assets resulting from operations 335,738 281,289
---------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares (16,266) (36,035)
Institutional Shares (10,886) (25,590)
R6 Shares* (101) (101)
---------------------------
Total distributions of net investment income (27,253) (61,726)
---------------------------
Net realized gains:
Fund Shares (97,225) -
Institutional Shares (62,598) -
R6 Shares* (735) -
---------------------------
Total distributions of net realized gains (160,558) -
---------------------------
Distributions to shareholders (187,811) (61,726)
---------------------------
NET INCREASE (DECREASE) IN NET ASSETS FROM
CAPITAL SHARE TRANSACTIONS (NOTE 6)
Fund Shares 51,852 (40,540)
Institutional Shares (22,101) (153,358)
R6 Shares* 7,349 5,000
---------------------------
Total net increase (decrease) in net assets
from capital share transactions 37,100 (188,898)
---------------------------
Net increase in net assets 185,027 30,665
NET ASSETS
Beginning of period 2,753,950 2,723,285
---------------------------
End of period $2,938,977 $2,753,950
===========================
Accumulated undistributed net investment income:
End of period $ 2,453 $ 35
===========================
*R6 Shares commenced operations on December 1, 2016.
See accompanying notes to financial statements.
================================================================================
18 | USAA INCOME STOCK FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
January 31, 2018 (unaudited)
--------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company Act
of 1940, as amended (the 1940 Act), is an open-end management investment
company organized as a Delaware statutory trust consisting of 51 separate funds.
The USAA Income Stock 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 current income with the prospect of increasing dividend income and the
potential for capital appreciation.
The Fund consists of three classes of shares: Income Stock Fund Shares (Fund
Shares), Income Stock Fund Institutional Shares (Institutional Shares), and
Income Stock 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,
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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 19
================================================================================
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 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, 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
================================================================================
20 | USAA INCOME STOCK FUND
================================================================================
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)
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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 21
================================================================================
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. 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
================================================================================
22 | USAA INCOME STOCK FUND
================================================================================
value pricing is that securities may not be priced on the basis of
quotations from the primary market in which they are traded and the
actual price realized from the sale of a security may differ materially
from the fair value price. Valuing these securities at fair value is
intended to cause the Fund's NAV to be more reliable than it otherwise
would be.
Fair value methods used by the Manager include, but are not limited to,
obtaining market quotations from secondary pricing services,
broker-dealers, other pricing services, or widely used quotation
systems. General factors considered in determining the fair value of
securities include fundamental analytical data, the nature and duration
of any restrictions on disposition of the securities, evaluation of
credit quality, and an evaluation of the forces that influenced the
market in which the securities are purchased and sold.
B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The
three-level valuation hierarchy disclosed in the Portfolio of Investments is
based upon the transparency of inputs to the valuation of an asset or
liability as of the measurement date. The three levels are defined as
follows:
Level 1 - inputs to the valuation methodology are quoted prices (unadjusted)
in active markets for identical securities.
Level 2 - inputs to the valuation methodology are other significant
observable inputs, including quoted prices for similar securities, inputs
that are observable for the securities, either directly or indirectly, and
market-corroborated inputs such as market indexes.
Level 3 - inputs to the valuation methodology are unobservable and
significant to the fair value measurement, including the Manager's own
assumptions in determining the fair value.
The inputs or methodologies used for valuing securities are not necessarily
an indication of the risks associated with investing in those securities.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 23
================================================================================
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 January 31, 2018, the Fund did not incur any
income tax, interest, or penalties, and has recorded no liability for net
unrecognized tax benefits relating to uncertain income tax positions. On an
ongoing basis, the Manager will monitor the Fund's tax basis to determine if
adjustments to this conclusion are necessary. The statute of limitations on
the Fund's tax return filings generally remain open for the three preceding
fiscal reporting year ends and remain subject to examination by the Internal
Revenue Service and state taxing authorities.
D. 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
================================================================================
24 | USAA INCOME STOCK 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.
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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 25
================================================================================
used to directly reduce the Fund's expenses. For the six-month period ended
January 31, 2018, brokerage commission recapture credits reduced the
expenses of the Fund Shares, Institutional Shares and R6 Shares by $5,000,
$3,000, and less than $500, respectively. For the six-month period ended
January 31, 2018 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
================================================================================
26 | USAA INCOME STOCK FUND
================================================================================
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 January 31, 2018, the Fund paid CAPCO facility
fees of $11,000, which represents 3.5% 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 January 31, 2018.
(3) DISTRIBUTIONS
The tax basis of distributions and accumulated undistributed net investment
income will be determined as of the Fund's tax year-end of July 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 taxes.
At July 31, 2017, the Fund had no capital loss carryforwards, for federal income
tax purposes.
As of January 31, 2018, the cost of securities, including short-term securities,
for federal income tax purposes, was approximately the same as the cost reported
in the financial statements.
Gross unrealized appreciation and depreciation of investments as of January 31,
2018, were $889,168,000 and $34,271,000, respectively, resulting in net
unrealized appreciation of $854,897,000.
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities, excluding
short-term securities, for the six-month period ended January 31, 2018, were
$276,675,000 and $375,871,000, respectively.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 27
================================================================================
(5) SECURITIES LENDING
The Fund, through a 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 January 31, 2018, 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
-------------------------------------------------------------------------------------
$21,921,000 $1,430,000 $21,275,000
(6) CAPITAL SHARE TRANSACTIONS
At January 31, 2018, there were an unlimited number of shares of capital stock
at no par value authorized for the Fund.
Capital share transactions for the Institutional Shares resulted from purchases
and sales by the affiliated USAA fund-of-funds as well as other
================================================================================
28 | USAA INCOME STOCK 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
JANUARY 31, 2018 JULY 31, 2017
---------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------
FUND SHARES:
Shares sold 2,464 $ 49,894 6,220 $ 116,373
Shares issued from
reinvested dividends 5,473 108,992 1,823 34,427
Shares redeemed (5,296) (107,034) (10,210) (191,340)
------------------------------------------------
Net increase (decrease) from
capital share transactions 2,641 $ 51,852 (2,167) $ (40,540)
================================================
INSTITUTIONAL SHARES:
Shares sold 2,782 $ 56,174 7,124 $ 133,076
Shares issued from
reinvested dividends 3,693 73,462 1,359 25,589
Shares redeemed (7,418) (151,737) (16,461) (312,023)
------------------------------------------------
Net decrease from
capital share transactions (943) $ (22,101) (7,978) $(153,358)
================================================
R6 SHARES (COMMENCED ON
DECEMBER 1, 2016):
Shares sold 354 $ 7,282 275 $ 5,000
Shares issued from
reinvested dividends 23 455 - -
Shares redeemed (19) (388) - -
------------------------------------------------
Net increase from
capital share transactions 358 $ 7,349 275 $ 5,000
================================================
(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 portion of the Fund's assets,
subject to the authority of and supervision by the Board. The Manager is
authorized to select (with
================================================================================
NOTES TO FINANCIAL STATEMENTS | 29
================================================================================
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 could range from 0% to
100% of the Fund's assets, and the Manager could change the allocations
without shareholder approval.
The investment management fee for the Fund is comprised of a base fee and a
performance adjustment. The Fund's base fee is accrued daily and paid
monthly at an annualized rate of 0.50% of the Fund's average net assets.
The performance adjustment is calculated separately for each share class on
a monthly basis by comparing each class' performance over the performance
period to that of the Lipper Equity Income Funds Index. The Lipper Equity
Income Funds Index tracks the total return performance of funds within the
Lipper Equity Income Funds category.
The performance period for each class consists of the current month plus the
previous 35 months. 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)
------------------------------------------------------------------
+/- 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.
================================================================================
30 | USAA INCOME STOCK FUND
================================================================================
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 Equity Income Funds Index over that period, even if
the class had overall negative returns during the performance period.
For the six-month period ended January 31, 2018, the Fund incurred total
management fees, paid or payable to the Manager, of $7,137,000. For the
six-month period ended January 31, 2018, the Fund Shares, Institutional
Shares, and R6 Shares did not incur any performance adjustment.
B. SUBADVISORY ARRANGEMENT(S) - The Manager entered into an Investment
Subadvisory Agreement with Epoch Investment Partners, Inc. (Epoch), under
which Epoch directs 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 Epoch a subadvisory fee in the annual amount
of 0.30% of the Fund's average net assets for the first $600 million of
assets that Epoch manages, 0.20% on the next $900 million of assets, and
0.18% on assets over $1.5 billion that Epoch manages. For the six-month
period ended January 31, 2018, the Manager incurred subadvisory fees with
respect to the Fund, paid or payable to Epoch of $1,670,000.
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, 0.10% of average net
assets of the Institutional Shares, and 0.05% of average
================================================================================
NOTES TO FINANCIAL STATEMENTS | 31
================================================================================
net assets of the R6 Shares. For the six-month period ended January 31,
2018, the Fund Shares, Institutional Shares, and R6 Shares incurred
administration and servicing fees, paid or payable to the Manager, of
$1,287,000, $565,000, and $2,000, respectively.
In addition to the services provided under its Administration and Servicing
Agreement with the Fund, the Manager also provides certain compliance and
legal services for the benefit of the Fund. The Board has approved the
reimbursement of a portion of these expenses incurred by the Manager. For
the six-month period ended January 31, 2018, 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.
D. EXPENSE LIMITATION - The Manager agreed, through November 30, 2018, to limit
the total annual operating expenses of the R6 Shares to 0.65% of its average
annual net assets, excluding extraordinary expenses and before reductions of
any expenses paid indirectly, and to reimburse the R6 Shares for all
expenses in excess of that amount. This expense limitation arrangement may
not be changed or terminated through November 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 January 31, 2018, the R6 Shares
incurred reimbursable expenses of $9,000, of which $1,000 was receivable
from the Manager.
E. TRANSFER AGENT'S FEES - USAA Transfer Agency Company, d/b/a USAA Shareholder
Account Services (SAS), an affiliate of the Manager, provides transfer agent
services to the Fund Shares 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 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 January 31, 2018, the Fund Shares, Institutional Shares, and R6
================================================================================
32 | USAA INCOME STOCK FUND
================================================================================
Shares incurred transfer agent's fees, paid or payable to SAS, of $693,000,
$565,000, and less than $500, respectively.
F. 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.
(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 January 31, 2018, 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 Income 0.0*
Target Retirement 2020 0.1
Target Retirement 2030 0.3
Target Retirement 2040 0.5
Target Retirement 2050 0.3
Target Retirement 2060 0.0*
* Represents less than 0.1%
The Manager is indirectly wholly owned by United Services Automobile Association
(USAA), a large, diversified financial services institution. At January 31,
2018, USAA and its affiliates owned 275,000 R6 Shares, which represents 0.4% of
the R6 Shares outstanding and 0.2% of the Fund's total outstanding shares.
Certain trustees and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Fund.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 33
================================================================================
(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 December 2017, the
SEC issued Temporary Final Rule Release No. 33-10442, INVESTMENT COMPANY
REPORTING MODERNIZATION (Temporary Rule), which extends to April 2019 the
compliance date on which funds in larger fund groups, such as the Fund, are
required to begin filing form N-PORT. In the interim, in lieu of filing form
N-PORT, the Temporary Rule requires that funds in larger fund groups maintain in
their records the information that is required to be included in form N-PORT.
The Temporary Rule does not affect the filing date or requirements of form
N-CEN.
In October 2016, the SEC issued Final Rule Release No. 33-10233, INVESTMENT
COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS (Liquidity Rule). The Liquidity Rule
requires funds to establish a liquidity risk management program and enhances
disclosures regarding funds' liquidity.
In February 2018, the SEC issued Interim Final Rule Release No. IC-33010,
INVESTMENT COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS; COMMISSION GUIDANCE FOR
IN-KIND ETFs, which extends, among others, the compliance dates for certain
disclosure requirements under the Liquidity Rule. The compliance date for the
liquidity disclosure required in form N-PORT has been extended to June 1, 2019
for larger entities such as the Fund. The compliance date for the liquidity
disclosure required in form N-CEN for large entities such as the Fund remains
December 1, 2018. The Fund is expected to comply with these compliance dates for
forms N-PORT and N-CEN. The Manager continues to evaluate the impact these rules
and amendments will have on the financial statements and other disclosures.
================================================================================
34 | USAA INCOME STOCK FUND
================================================================================
(10) FINANCIAL HIGHLIGHTS - FUND SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JANUARY 31, YEAR ENDED JULY 31,
-------------------------------------------------------------------------------------
2018 2017 2016 2015 2014 2013
-------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 19.68 $ 18.18 $ 17.79 $ 17.72 $ 16.29 $ 13.26
-------------------------------------------------------------------------------------
Income from
investment operations:
Net investment income .21 .42 .40 .44 .47 .24
Net realized and
unrealized gain 2.18 1.51 .97 .51 1.77 3.03
-------------------------------------------------------------------------------------
Total from investment
operations 2.39 1.93 1.37 .95 2.24 3.27
-------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.19) (.43) (.40) (.46) (.45) (.24)
Realized capital gains (1.18) - (.58) (.42) (.36) -
-------------------------------------------------------------------------------------
Total distributions (1.37) (.43) (.98) (.88) (.81) (.24)
-------------------------------------------------------------------------------------
Net asset value at
end of period $ 20.70 $ 19.68 $ 18.18 $ 17.79 $ 17.72 $ 16.29
=====================================================================================
Total return (%)* 12.48 10.71 8.29 5.36 14.06 24.89
Net assets at
end of period (000) $1,791,538 $1,651,374 $1,564,900 $1,657,268 $1,640,134 $1,453,425
Ratios to average
net assets:**
Expenses (%)(a) .76(c) .77 .80 .79 .80 .85
Net investment
income (%) 2.06(c) 2.24 2.42 2.38 2.77 1.67
Portfolio turnover (%) 10 23 19 12(b) 57 64
* 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 January 31, 2018, average net assets were
$1,703,077,000.
(a) Reflects total annual operating expenses of the Fund Shares before
reductions of any expenses paid indirectly. The Fund Shares' expenses paid
indirectly decreased the expense ratios by less than 0.01%.
(b) Reflects overall decrease in purchases and sales of securities.
(c) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 35
================================================================================
(10) FINANCIAL HIGHLIGHTS (CONTINUED) - INSTITUTIONAL SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JANUARY 31, YEAR ENDED JULY 31,
-----------------------------------------------------------------------------------
2018 2017 2016 2015 2014 2013
-----------------------------------------------------------------------------------
Net asset value at
beginning of period $ 19.66 $ 18.16 $ 17.77 $ 17.71 $ 16.28 $ 13.25
-----------------------------------------------------------------------------------
Income from
investment operations:
Net investment income .21 .43 .40 .45 .49 .26
Net realized and
unrealized gain 2.18 1.50 .98 .50 1.76 3.03
-----------------------------------------------------------------------------------
Total from investment
operations 2.39 1.93 1.38 .95 2.25 3.29
-----------------------------------------------------------------------------------
Less distributions from:
Net investment income (.19) (.43) (.41) (.47) (.46) (.26)
Realized capital gains (1.18) - (.58) (.42) (.36) -
-----------------------------------------------------------------------------------
Total distributions (1.37) (.43) (.99) (.89) (.82) (.26)
-----------------------------------------------------------------------------------
Net asset value at
end of period $ 20.68 $ 19.66 $ 18.16 $ 17.77 $ 17.71 $ 16.28
===================================================================================
Total return (%)* 12.51 10.76 8.36 5.37 14.16 25.08
Net assets at
end of period (000) $1,134,351 $1,097,164 $1,158,385 $1,080,528 $1,037,014 $880,414
Ratios to average
net assets:**
Expenses (%)(a) .73(c) .73 .75 .73 .73 .73
Net investment
income (%) 2.10(c) 2.30 2.47 2.45 2.85 1.83
Portfolio turnover (%) 10 23 19 12(b) 57 64
* 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 January 31, 2018, average net assets were
$1,120,167,000.
(a) 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%.
(b) Reflects overall decrease in purchases and sales of securities.
(c) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
36 | USAA INCOME STOCK 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
JANUARY 31, JULY 31,
----------------------------------
2018 2017***
----------------------------------
Net asset value at beginning of period $ 19.67 $18.17
-----------------------------
Income from investment operations:
Net investment income .23 .27
Net realized and unrealized gain 2.18 1.60
-----------------------------
Total from investment operations 2.41 1.87
-----------------------------
Less distributions from:
Net investment income (.21) (.37)
Realized capital gains (1.18) -
-----------------------------
Total distributions (1.39) (.37)
-----------------------------
Net asset value at end of period $ 20.69 $19.67
=============================
Total return (%)* 12.57 10.36
Net assets at end of period (000) $13,088 $5,412
Ratios to average net assets:**
Expenses (%)(a),(b) .65 .65
Expenses, excluding reimbursements (%)(a),(b) .84 1.24
Net investment income (%)(a) 2.21 2.13
Portfolio turnover (%) 10 23
* 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 January 31, 2018, average net assets were
$9,012,000.
*** R6 Shares commenced operations on December 1, 2016.
(a) Annualized. The ratio is not necessarily indicative of 12 months of
operations
(b) Reflects total annual operating expenses of the R6 Shares before reductions
of any expenses paid indirectly. The R6 Shares' expenses paid indirectly
decreased the expense ratios by less than 0.01%.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 37
================================================================================
EXPENSE EXAMPLE
January 31, 2018 (unaudited)
--------------------------------------------------------------------------------
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: direct costs, such
as wire fees, redemption fees, and low balance fees; and indirect costs,
including management fees, transfer agency fees, and other Fund operating
expenses. This example is intended to help you understand your indirect costs,
also referred to as "ongoing costs" (in dollars), of investing in the Fund and
to compare these costs with the ongoing costs of investing in other mutual
funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire six-month period of August 1, 2017, through
January 31, 2018.
ACTUAL EXPENSES
The line labeled "actual" under each share class in the table provides
information about actual account values and actual expenses. You may use the
information in this line, together with the amount you invested at the beginning
of the period, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number for your share
class in the "actual" line under the heading "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The line labeled "hypothetical" under each share class in the table provides
information about hypothetical account values and hypothetical expenses based on
the Fund's actual expense ratios for each class and an assumed rate of return of
5% per year before expenses, which is not the Fund's actual return. The
hypothetical account values and expenses may not be used to
================================================================================
38 | USAA INCOME STOCK FUND
================================================================================
estimate the actual ending account balance or expenses you paid for the period.
You may use this information to compare the ongoing costs of investing in the
Fund and other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any direct costs, such as wire fees,
redemption fees, or low balance fees. Therefore, the line labeled "hypothetical"
is useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if these direct
costs were included, your costs would have been higher.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE AUGUST 1, 2017 -
AUGUST 1, 2017 JANUARY 31, 2018 JANUARY 31, 2018
-------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $1,124.80 $4.07
Hypothetical
(5% return before expenses) 1,000.00 1,021.37 3.87
INSTITUTIONAL SHARES
Actual 1,000.00 1,125.10 3.91
Hypothetical
(5% return before expenses) 1,000.00 1,021.53 3.72
R6 SHARES
Actual 1,000.00 1,125.70 4.03
Hypothetical
(5% return before expenses) 1,000.00 1,021.17 4.08
*Expenses are equal to the annualized expense ratio of 0.76% for Fund Shares,
0.73% for Institutional Shares, and 0.65% for R6 Shares, which are net of any
reimbursements and expenses paid indirectly, multiplied by the average account
value over the period, multiplied by 184 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 12.48% for Fund Shares, 12.51% for Institutional
Shares, and 12.57% for R6 Shares for the six-month period of August 1, 2017,
through January 31, 2018.
================================================================================
EXPENSE EXAMPLE | 39
================================================================================
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)
=============================================================================
23422-0318 (C)2018, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA INTERMEDIATE-TERM BOND FUND]
============================================================
SEMIANNUAL REPORT
USAA INTERMEDIATE-TERM BOND FUND
FUND SHARES (USIBX) o INSTITUTIONAL SHARES (UIITX)
o ADVISER SHARES (UITBX) o R6 SHARES (URIBX)
JANUARY 31, 2018
============================================================
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
INVESTMENT OVERVIEW 2
FINANCIAL INFORMATION
Portfolio of Investments 4
Notes to Portfolio of Investments 33
Financial Statements 39
Notes to Financial Statements 43
EXPENSE EXAMPLE 65
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE
RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY
USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN
PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS
ABOUT THE FUND.
(C)2018, USAA. All rights reserved.
================================================================================
================================================================================
FUND OBJECTIVE
THE USAA INTERMEDIATE-TERM BOND FUND (THE FUND) SEEKS HIGH CURRENT INCOME
WITHOUT UNDUE RISK TO PRINCIPAL.
--------------------------------------------------------------------------------
TYPES OF INVESTMENTS
The Fund normally invests at least 80% of its assets in a broad range of debt
securities that have a dollar-weighted average portfolio maturity between three
to 10 years. The debt securities in which the Fund may invest include, among
others, obligations of U.S., state, and local governments, their agencies and
instrumentalities; mortgage- and asset-backed securities; corporate debt
securities; repurchase agreements; and other securities believed to have
debt-like characteristics. The Fund will invest primarily in investment-grade
securities, but also may invest up to 10% of its net assets in
below-investment-grade securities, which are sometimes referred to as high-yield
or "junk" bonds. The Fund's 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 PORTFOLIO RATINGS MIX - 1/31/18 o
[PIE CHART OF PORTFOLIO RATINGS MIX]
AAA 11.5%
AA 6.3%
A 21.6%
BBB 50.3%
BELOW INVESTMENT-GRADE 8.1%
UNRATED 2.2%
[END CHART]
This chart reflects the highest long-term rating from a Nationally Recognized
Statistical Rating Organization (NRSRO), with the four highest long-term credit
ratings labeled, in descending order of credit quality, AAA, AA, A, and BBB.
These categories represent investment-grade quality. NRSRO ratings are shown
because they provide independent analysis of the credit quality of the Fund's
investments. USAA Asset Management Company (the Manager) also performs its own
fundamental credit analysis of each security. As part of its fundamental credit
analysis, the Manager considers various criteria, including industry specific
actions, peer comparisons, payment ranking, and structure specific
characteristics. Any of the Fund's securities that are not rated by an NRSRO
appear in the chart above as "Unrated," but these securities are analyzed and
monitored by the Manager on an ongoing basis. Government securities that are
issued or guaranteed as to principal and interest by the U.S. government and
pre-refunded and escrowed-to-maturity municipal bonds that are not rated are
treated as AAA for credit quality purposes.
Percentages are of the total market value of the Fund's investments.
You will find a complete list of securities that the Fund owns on pages 4-32.
================================================================================
2 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
o ASSET ALLOCATION* - 1/31/18 o
[PIE CHART OF ASSET ALLOCATION*]
CORPORATE OBLIGATIONS 58.9%
EURODOLLAR AND YANKEE OBLIGATIONS 19.4%
COMMERCIAL MORTGAGE SECURITIES 5.9%
U.S. TREASURY SECURITIES 5.1%
MUNICIPAL OBLIGATIONS 4.5%
PREFERRED STOCKS 1.5%
MONEY MARKET INSTRUMENTS 1.4%
ASSET-BACKED SECURITIES 1.1%
COLLATERALIZED LOAN OBLIGATIONS 0.8%
FOREIGN GOVERNMENT OBLIGATIONS 0.3%
U.S. GOVERNMENT AGENCY ISSUES 0.2%
COLLATERALIZED MORTGAGE OBLIGATIONS 0.1%
[END CHART]
Percentages are of the net assets of the Fund and may not equal 100%.
*Does not include short-term investments purchased with cash collateral from
securities loaned.
================================================================================
INVESTMENT OVERVIEW | 3
================================================================================
PORTFOLIO OF INVESTMENTS
January 31, 2018 (unaudited)
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
BONDS (96.3%)
ASSET-BACKED SECURITIES (1.1%)
FINANCIALS (0.8%)
-----------------
ASSET-BACKED FINANCING (0.8%)
$ 2,855 Avis Budget Rental Car Funding AESOP, LLC(a) 3.75% 7/20/2020 $ 2,860
2,000 Element Rail Leasing I, LLC(a) 3.67 4/19/2044 2,013
2,316 Hertz Vehicle Financing II, LP 3.95 9/25/2019 2,321
1,000 Hertz Vehicle Financing II, LP(a) 2.65 7/25/2022 982
4,333 Hertz Vehicle Financing II, LP(a) 3.29 10/25/2023 4,323
333 Hertz Vehicle Financing, LLC(a) 6.44 2/25/2019 334
5,875 NP SPE II, LLC 4.22 10/21/2047 5,825
3,266 SCF Equipment Trust, LLC(a) 3.41 12/20/2023 3,237
2,251 SLM Student Loan Trust 3 mo. LIBOR + 0.22% 1.96(b) 1/25/2041 2,099
867 SLM Student Loan Trust 3 mo. LIBOR + 0.55% 2.29(b) 10/25/2065 830
928 Trinity Rail Leasing, LP (INS - AMBAC
Assurance Corp.)(a) 5.27 8/14/2027 945
2,471 Trinity Rail Leasing, LP(a) 5.90 5/14/2036 2,587
3,333 Trip Rail Master Funding, LLC(a) 3.74 8/15/2047 3,244
----------
Total Financials 31,600
----------
UTILITIES (0.3%)
----------------
ELECTRIC UTILITIES (0.3%)
15,000 Hawaii Dept. of Business Economic Dev. & Tourism 3.24 1/01/2031 14,897
----------
Total Asset-Backed Securities (cost: $46,544) 46,497
----------
COLLATERALIZED LOAN OBLIGATIONS (0.8%)
FINANCIALS (0.8%)
-----------------
3,500 CIFC Funding Ltd. 3 mo. LIBOR + 1.70%(a) 3.44(b) 4/23/2029 3,519
4,000 Dryden Senior Loan Fund 3 mo. LIBOR + 2.00%(a) 3.75(b) 7/20/2029 4,095
10,000 Oaktree EIF Ltd. 3 mo. LIBOR + 2.00%(a) 3.74(b) 10/20/2027 10,046
5,000 Race Point Ltd. 3 mo. LIBOR + 1.60%(a) 3.35(b) 7/25/2028 5,019
5,000 Race Point Ltd. 3 mo. LIBOR + 2.35%(a) 4.10(b) 7/25/2028 5,028
2,000 Stewart Park Ltd. 3 mo. LIBOR + 1.25%(a) 2.97(b) 1/15/2030 2,001
3,000 Voya Ltd. 3 mo. LIBOR + 1.60%(a) 3.33(b) 4/17/2030 3,022
----------
Total Financials 32,730
----------
Total Collateralized Loan Obligations (cost: $32,500) 32,730
----------
================================================================================
4 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATION (0.1%)
FINANCIALS (0.1%)
-----------------
$ 2,182 Structured Asset Mortgage Investments,
Inc. 1 mo. LIBOR +0.50% (cost: $2,136) 2.06%(b) 7/19/2035 $ 2,029
----------
COMMERCIAL MORTGAGE SECURITIES (5.9%)
FINANCIALS (5.9%)
-----------------
COMMERCIAL MORTGAGE-BACKED SECURITIES (5.5%)
1,714 Banc of America Commercial Mortgage, Inc. 6.12(c) 2/10/2051 1,712
1,479 Bear Stearns Commercial Mortgage Securities Trust 5.21(c) 2/11/2041 1,478
2,125 Caesars Palace Las Vegas Trust(a) 4.14 10/15/2034 2,177
7,000 CFCRE Commercial Mortgage Trust(a) 5.75(c) 12/15/2047 7,533
2,372 Citigroup Commercial Mortgage Trust 6.19(c) 12/10/2049 2,412
1,791 Commercial Mortgage Trust 5.79(c) 7/10/2038 1,794
753 Commercial Mortgage Trust 5.38 12/10/2046 759
3,000 Commercial Mortgage Trust 4.29(c) 7/10/2050 3,112
1,950 DB-UBS Mortgage Trust(a) 5.34(c) 8/10/2044 2,064
3,500 Fannie Mae(+) 2.78(c) 2/25/2027 3,426
2,500 Fannie Mae(+) 2.96(c) 2/25/2027 2,468
10,400 Freddie Mac(+) 3.06 12/25/2024 10,519
10,000 Freddie Mac(+) 2.81 1/25/2025 9,940
11,885 Freddie Mac(+) 3.33(c) 8/25/2025 12,193
20,000 Freddie Mac(+) 3.31 9/25/2025 20,474
13,140 Freddie Mac(+) 3.00 12/25/2025 13,163
15,000 Freddie Mac(+) 2.67 3/25/2026 14,656
12,000 Freddie Mac(+) 2.85 3/25/2026 11,820
20,000 Freddie Mac(+) 2.65 8/25/2026 19,428
5,000 Freddie Mac(+) 3.41 12/25/2026 5,138
5,000 Freddie Mac(+) 3.43(c) 1/25/2027 5,144
2,922 Freddie Mac(+) 3.30(c) 11/25/2027 2,973
891 Freddie Mac(+) 3.46 11/25/2032 871
3,000 FREMF Mortgage Trust(a) 3.49(c) 11/25/2023 2,950
126 GMAC Commercial Mortgage Securities, Inc. 4.81 5/10/2043 128
3,000 GS Mortgage Securities Trust(a) 4.95 1/10/2045 3,183
765 J.P. Morgan Chase Commercial Mortgage 4.99(c) 9/12/2037 779
2,405 J.P. Morgan Chase Commercial Mortgage 5.95(c) 4/17/2045 1,974
8,715 J.P. Morgan Chase Commercial Mortgage 3.51 5/15/2045 8,899
6,100 J.P. Morgan Chase Commercial Mortgage(a) 5.41(c) 8/15/2046 6,541
4,000 JPMorgan Chase & Co.(a) 5.66(c) 11/15/2043 4,189
3,944 JPMorgan Chase & Co. 5.37 5/15/2047 3,951
1,824 Merrill Lynch Mortgage Trust 6.44(c) 2/12/2051 1,822
================================================================================
PORTFOLIO OF INVESTMENTS | 5
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 2,000 Merrill Lynch Mortgage Trust(a) 6.44%(c) 2/12/2051 $ 1,999
5,000 Morgan Stanley Bank of America Merrill Lynch Trust 3.74 8/15/2047 5,155
281 Morgan Stanley Capital I, Inc. 4.77 7/15/2056 280
9,726 UBS Commercial Mortgage Trust 3.40 5/10/2045 9,909
4,756 UBS-Citigroup Commercial Mortgage Trust(a) 5.15 1/10/2045 5,037
3,000 Wells Fargo Commercial Mortgage Trust(a) 5.28(c) 11/15/2043 3,145
6,000 WF-RBS Commercial Mortgage Trust(a) 5.17(c) 2/15/2044 6,256
----------
221,451
----------
INTEREST-ONLY COMMERCIAL MORTGAGE BACKED SECURITIES (0.4%)
143,766 Fannie Mae(+) 0.55(c) 4/25/2022 2,724
39,976 Freddie Mac(+) 1.35(c) 12/25/2021 1,706
21,906 Freddie Mac(+) 1.67(c) 3/25/2022 1,258
69,507 Freddie Mac(+) 1.27(c) 8/25/2022 3,309
68,529 Freddie Mac(+) 0.87(c) 10/25/2022 2,295
24,772 JPMorgan Chase & Co.(d) 1.80(c) 10/15/2045 1,632
23,997 Morgan Stanley-BAML Trust(a),(d) 1.64(c) 11/15/2045 1,445
26,327 UBS Commercial Mortgage Trust(a),(d) 2.08(c) 5/10/2045 1,858
66,389 WF-RBS Commercial Mortgage Trust(a),(d) 1.58(c) 12/15/2045 3,982
----------
20,209
----------
Total Financials 241,660
----------
Total Commercial Mortgage Securities (cost: $242,215) 241,660
----------
CORPORATE OBLIGATIONS (58.9%)
CONSUMER DISCRETIONARY (3.4%)
-----------------------------
AUTOMOBILE MANUFACTURERS (0.5%)
10,000 Ford Motor Co. 4.35 12/08/2026 10,120
10,000 General Motors Financial Co., Inc. 4.35 1/17/2027 10,192
----------
20,312
----------
AUTOMOTIVE RETAIL (0.6%)
10,302 Advance Auto Parts 4.50 12/01/2023 10,726
10,000 Autozone, Inc. 3.75 6/01/2027 10,025
2,000 Penske Automotive Group, Inc. 3.75 8/15/2020 2,015
----------
22,766
----------
BROADCASTING (0.1%)
5,000 Discovery Communications, LLC 3.95 3/20/2028 4,886
998 E.W. Scripps Co. 1 mo. LIBOR + 2.25%(e) 3.82 10/02/2024 1,005
----------
5,891
----------
CABLE & SATELLITE (0.7%)
20,000 Charter Communications Operating, LLC / Charter
Communications Operating Capital 4.91 7/23/2025 20,943
2,442 CSC Holdings, LLC 1 mo. LIBOR + 2.25%(e) 3.81 7/17/2025 2,450
================================================================================
6 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 2,000 CSC Holdings, LLC(a) 5.50% 4/15/2027 $ 2,030
5,000 NBCUniversal Enterprise, Inc.(a) 1.97 4/15/2019 4,980
----------
30,403
----------
CASINOS & GAMING (0.1%)
3,500 MGM Resorts International 8.62 2/01/2019 3,701
----------
DEPARTMENT STORES (0.2%)
3,200 Dillard's, Inc.(f) 7.13 8/01/2018 3,263
981 J.C. Penney Co., Inc. 3 mo. LIBOR+ 4.25%(e) 5.73 6/23/2023 949
5,000 J.C. Penney Corp., Inc.(f) 5.65 6/01/2020 4,944
----------
9,156
----------
HOME FURNISHINGS (0.1%)
539 Serta Simmons Bedding, LLC 3 mo. LIBOR + 3.50%(e) 4.90 11/08/2023 529
1,936 Serta Simmons Bedding, LLC 3 mo. LIBOR + 3.50%(e) 5.19 11/08/2024 1,901
----------
2,430
----------
HOMEBUILDING (0.4%)
2,000 Beazer Homes USA, Inc. 8.75 3/15/2022 2,190
2,000 D.R. Horton, Inc. 5.75 8/15/2023 2,221
1,000 KB Home 7.62 5/15/2023 1,145
5,000 Lennar Corp. 4.50 11/15/2019 5,132
2,000 Lennar Corp. 4.13 1/15/2022 2,031
5,000 Toll Brothers Finance Corp. 4.87 3/15/2027 5,200
----------
17,919
----------
HOTELS, RESORTS & CRUISE LINES (0.1%)
2,000 Hilton Worldwide Finance, LLC / Hilton
Worldwide Finance Corp. 4.88 4/01/2027 2,050
----------
HOUSEWARES & SPECIALTIES (0.2%)
7,500 Newell Brands, Inc. 3.85 4/01/2023 7,651
----------
INTERNET & DIRECT MARKETING RETAIL (0.1%)
3,000 Amazon.com, Inc.(a) 3.88 8/22/2037 3,100
----------
RESTAURANTS (0.1%)
2,716 1011778 B.C. Unlimited Liability Co.
1 mo. LIBOR + 2.25%(e) 3.82 2/16/2024 2,735
1,746 1011778 B.C. Unlimited Liability Co.
3 mo. LIBOR + 2.25%(e) 3.94 2/16/2024 1,758
1,167 Aramark Services, Inc. 1 mo. LIBOR + 2.00%(e) 3.58 3/11/2025 1,178
----------
5,671
----------
SPECIALIZED CONSUMER SERVICES (0.1%)
2,000 Service Corp. International/US 5.38 5/15/2024 2,110
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 7
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
SPECIALTY STORES (0.1%)
$ 4,206 Harbor Freight Tools USA, Inc.
1 mo. LIBOR + 2.50%(e) 4.07% 8/18/2023 $ 4,231
----------
Total Consumer Discretionary 137,391
----------
CONSUMER STAPLES (2.3%)
-----------------------
AGRICULTURAL PRODUCTS (0.1%)
5,000 Bunge Ltd. Finance Corp. 3.25 8/15/2026 4,743
----------
DRUG RETAIL (0.6%)
5,000 CVS Health Corp. 4.87 7/20/2035 5,444
8,405 CVS Pass-Through Trust(a) 5.93 1/10/2034 9,378
10,000 Walgreens Boots Alliance, Inc. 3.80 11/18/2024 10,151
----------
24,973
----------
FOOD RETAIL (0.0%)
1,219 Albertson's, LLC 3 mo. LIBOR + 3.00%(e) 4.46 6/22/2023 1,213
----------
PACKAGED FOODS & MEATS (1.6%)
10,000 Flowers Foods, Inc. 3.50 10/01/2026 9,711
10,000 J.M. Smucker Co. 4.25 3/15/2035 10,340
1,489 JBS USA, LLC 3 mo. LIBOR + 2.50%(e) 4.10 10/30/2022 1,481
15,000 Kraft Heinz Foods Co. 3.50 6/06/2022 15,181
11,799 Kraft Heinz Foods Co.(a) 4.87 2/15/2025 12,413
1,042 McCormick & Co., Inc. 3.40 8/15/2027 1,034
3,500 Mead Johnson Nutrition Co. 4.13 11/15/2025 3,647
10,000 Tyson Foods, Inc. 3.95 8/15/2024 10,337
----------
64,144
----------
Total Consumer Staples 95,073
----------
ENERGY (9.2%)
-------------
INTEGRATED OIL & GAS (0.6%)
10,000 Chevron Corp. 2.95 5/16/2026 9,801
10,000 Occidental Petroleum Corp. 3.40 4/15/2026 10,092
5,000 Occidental Petroleum Corp. 3.00 2/15/2027 4,878
----------
24,771
----------
OIL & GAS DRILLING (0.3%)
10,000 Nabors Industries, Inc. 4.63 9/15/2021 9,825
1,000 Noble Holding International Ltd.(f) 4.90 8/01/2020 1,025
3,000 Noble Holding International Ltd. 3.95 3/15/2022 2,790
----------
13,640
----------
OIL & GAS EQUIPMENT & SERVICES (0.3%)
3,079 SEACOR Holdings, Inc.(f) 7.37 10/01/2019 3,171
2,000 SESI, LLC 7.13 12/15/2021 2,050
================================================================================
8 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 2,000 Weatherford Bermuda 9.62% 3/01/2019 $ 2,150
3,180 Weatherford International, Ltd. 5.13 9/15/2020 3,276
----------
10,647
----------
OIL & GAS EXPLORATION & PRODUCTION (1.6%)
1,113 Chesapeake Energy Corp.(a) 8.00 12/15/2022 1,198
10,000 ConocoPhillips Co. 4.95 3/15/2026 11,159
4,000 Devon Energy Corp. 5.85 12/15/2025 4,616
1,000 EQT Corp. 8.12 6/01/2019 1,069
3,000 EQT Corp. 4.88 11/15/2021 3,165
7,500 Hess Corp. 4.30 4/01/2027 7,554
7,000 Murphy Oil Corp. 5.75 8/15/2025 7,193
5,000 Newfield Exploration Co. 5.38 1/01/2026 5,306
5,000 Pioneer Natural Resources Co. 3.95 7/15/2022 5,160
1,000 Polar Tankers, Inc.(a) 5.95 5/10/2037 1,147
900 QEP Resources, Inc.(f) 6.80 3/01/2020 959
5,000 QEP Resources, Inc. 6.87 3/01/2021 5,425
10,000 Southwestern Energy Co.(f) 4.10 3/15/2022 9,875
2,000 Southwestern Energy Co. 6.70 1/23/2025 2,045
----------
65,871
----------
OIL & GAS REFINING & MARKETING (0.3%)
6,000 EnLink Midstream Partners, LP 4.15 6/01/2025 6,020
5,000 Marathon Petroleum Corp. 4.75 9/15/2044 5,317
2,000 Motiva Enterprises, LLC(a) 5.75 1/15/2020 2,098
----------
13,435
----------
OIL & GAS STORAGE & TRANSPORTATION (6.1%)
15,000 Boardwalk Pipelines, LP 4.95 12/15/2024 15,793
10,000 Buckeye Partners, LP 2.65 11/15/2018 10,022
10,000 Buckeye Partners, LP 4.35 10/15/2024 10,167
10,000 Columbia Pipeline Group Co. 4.50 6/01/2025 10,567
3,000 DCP Midstream Operating, LP 4.95 4/01/2022 3,143
4,000 DCP Midstream Operating, LP 3.88 3/15/2023 4,010
18,000 DCP Midstream Operating, LP 3 mo.
LIBOR + 3.85%(a) 5.85(b) 5/21/2043 17,437
9,306 Enable Oklahoma Intrastate Transmission, LLC(a) 6.25 3/15/2020 9,853
19,000 Enbridge Energy Partners, LP
3 mo. LIBOR + 3.798% 5.49(b) 10/01/2077 19,071
1,000 Energy Transfer Partners, LP 9.70 3/15/2019 1,077
13,500 Energy Transfer, LP 3 mo. LIBOR + 3.018% 4.79(b) 11/01/2066 12,150
1,000 Enterprise Products Operating, LLC
3 mo. LIBOR + 3.708% 5.48(b) 8/01/2066 1,003
11,800 Enterprise Products Operating, LLC
3 mo. LIBOR + 2.68% 7.03(b) 1/15/2068 11,933
================================================================================
PORTFOLIO OF INVESTMENTS | 9
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 5,000 EQT Midstream Partners, LP 4.00% 8/01/2024 $ 4,999
9,000 EQT Midstream Partners, LP 4.13 12/01/2026 8,887
3,000 Florida Gas Transmission Co.(a) 5.45 7/15/2020 3,183
2,000 Florida Gas Transmission Co., LLC(a) 7.90 5/15/2019 2,130
2,000 Kinder Morgan Energy Partners, LP 6.50 4/01/2020 2,151
7,000 Kinder Morgan Energy Partners, LP 5.00 10/01/2021 7,426
1,000 Kinder Morgan, Inc. 6.50 9/15/2020 1,086
6,000 Kinder Morgan, Inc.(a) 5.00 2/15/2021 6,340
7,500 MPLX, LP 4.00 2/15/2025 7,591
1,000 NGPL PipeCo, LLC(a) 4.88 8/15/2027 1,031
6,066 Northwest Pipeline, LLC(a) 4.00 4/01/2027 6,112
3,000 NuStar Logistics LP 4.75 2/01/2022 3,068
2,000 NuStar Logistics, LP 8.40 4/15/2018 2,025
5,000 NuStar Logistics, LP 4.80 9/01/2020 5,113
2,000 ONEOK Partners, LP 8.62 3/01/2019 2,125
5,000 ONEOK Partners, LP 4.90 3/15/2025 5,343
5,000 Plains All American Pipeline, LP 3.85 10/15/2023 5,007
1,000 Questar Pipeline Co. 5.83 2/01/2018 1,000
5,000 Regency Energy Partners, LP & Regency
Energy Finance Corp. 5.87 3/01/2022 5,404
6,000 Sabine Pass Liquefaction, LLC 5.62 2/01/2021 6,395
2,000 Southern Union Co. 3 mo. LIBOR + 3.018% 4.79(b) 11/01/2066 1,743
5,000 Spectra Energy Partners, LP 3.38 10/15/2026 4,881
2,000 Tennessee Gas Pipeline Co., LLC 7.00 10/15/2028 2,430
373 Tesoro Logistics, LP / Tesoro Logistics Finance Corp. 6.25 10/15/2022 393
3,000 Transcontinental Gas Pipe Line Co., LLC 7.85 2/01/2026 3,805
5,000 Western Gas Partners, LP 5.38 6/01/2021 5,277
6,250 Western Gas Partners, LP 4.65 7/01/2026 6,449
10,000 Williams Companies, Inc. 4.55 6/24/2024 10,312
----------
247,932
----------
Total Energy 376,296
----------
FINANCIALS (19.3%)
------------------
ASSET MANAGEMENT & CUSTODY BANKS (1.7%)
10,000 Ares Capital Corp. 4.87 11/30/2018 10,194
10,000 Ares Capital Corp. 3.50 2/10/2023 9,755
10,000 Ares Capital Corp. 4.25 3/01/2025 9,892
10,000 FS Investment Corp. 4.00 7/15/2019 10,072
5,000 Main Street Capital Corp. 4.50 12/01/2019 5,049
5,000 Main Street Capital Corp. 4.50 12/01/2022 5,010
11,400 Prospect Capital Corp. 5.00 7/15/2019 11,604
10,000 State Street Corp. 3 mo. LIBOR + 1.00% 2.59(b) 6/01/2077 9,005
----------
70,581
----------
================================================================================
10 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
CONSUMER FINANCE (0.4%)
$ 5,000 Capital One Financial Corp. 2.50% 5/12/2020 $ 4,968
10,000 Capital One Financial Corp. 3.75 3/09/2027 9,953
----------
14,921
----------
DIVERSIFIED BANKS (1.8%)
10,000 Bank of America Corp. 4.20 8/26/2024 10,382
10,000 Bank of America Corp. 3 mo. LIBOR + 1.512% 3.70(b) 4/24/2028 10,111
15,000 Citigroup, Inc. 4.40 6/10/2025 15,603
5,000 Citigroup, Inc. 3 mo. LIBOR + 1.39% 3.67(b) 7/24/2028 5,015
5,000 JPMorgan Chase & Co. 3 mo. LIBOR + 0.95%(f) 2.95 10/01/2026 4,807
2,000 JPMorgan Chase & Co. 3 mo. LIBOR + 0.95%(f) 2.64(c) 9/30/2034 1,860
10,000 JPMorgan Chase & Co. 2.73(c) 1/15/2087 9,160
7,500 USB Realty Corp. 3 mo. LIBOR + 1.147%(a) 2.87(b) -(g) 6,778
5,000 Wells Fargo & Co. 3.50 3/08/2022 5,097
5,000 Wells Fargo & Co. 3.00 10/23/2026 4,842
----------
73,655
----------
FINANCIAL EXCHANGES & DATA (0.2%)
10,000 S&P Global, Inc. 4.00 6/15/2025 10,412
----------
INVESTMENT BANKING & BROKERAGE (0.3%)
10,000 Morgan Stanley 4.88 11/01/2022 10,677
----------
LIFE & HEALTH INSURANCE (1.8%)
5,000 American Equity Investment Life Holding Co. 5.00 6/15/2027 5,161
10,000 Athene Global Funding(a) 3.00 7/01/2022 9,797
4,000 Athene Holding Ltd.(h) 4.13 1/12/2028 3,956
2,000 Global Atlantic Financial Co.(a) 8.62 4/15/2021 2,297
13,018 Lincoln National Corp. 3 mo. LIBOR + 2.358% 3.78(b) 5/17/2066 12,546
5,000 MetLife, Inc.(a) 9.25 4/08/2038 7,356
8,000 MetLife, Inc. 6.40 12/15/2066 9,221
1,000 Ohio National Financial Services, Inc.(a) 6.37 4/30/2020 1,071
2,000 Ohio National Financial Services, Inc.(a) 6.62 5/01/2031 2,399
5,000 Primerica, Inc. 4.75 7/15/2022 5,300
3,000 Principal Financial Global Fund, LLC
3 mo. LIBOR + 0.52% 2.23(b) 1/10/2031 2,762
10,000 Prudential Financial, Inc. 3 mo. LIBOR + 4.175% 5.88(b) 9/15/2042 10,963
----------
72,829
----------
MULTI-LINE INSURANCE (1.5%)
2,000 American International Group, Inc.
3 mo. LIBOR + 4.195% 8.17(b) 5/15/2068 2,725
10,000 Genworth Holdings, Inc. 3 mo. LIBOR + 2.003% 3.42(b) 11/15/2066 4,453
14,000 Hartford Financial Services Group, Inc.
3 mo. LIBOR + 2.125%(a) 3.54(b) 2/12/2067 13,719
================================================================================
PORTFOLIO OF INVESTMENTS | 11
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 15,000 Kemper Corp. 4.35% 2/15/2025 $ 15,018
5,000 Loews Corp. 3.75 4/01/2026 5,110
20,235 Nationwide Mutual Insurance Co.
3 mo. LIBOR + 2.29%(a) 3.88(b) 12/15/2024 20,180
----------
61,205
----------
MULTI-SECTOR HOLDINGS (0.4%)
5,000 Berkshire Hathaway Finance Corp. 1.30 5/15/2018 4,990
10,000 BNSF Funding Trust 3 mo. LIBOR+ 2.35% 6.61(b) 12/15/2055 11,550
----------
16,540
----------
PROPERTY & CASUALTY INSURANCE (3.3%)
2,000 Allied World Assurance Holdings Ltd. 5.50 11/15/2020 2,122
5,000 Allied World Assurance Holdings Ltd. 4.35 10/29/2025 4,972
15,000 Allstate Corp. 3 mo. LIBOR + 2.938% 5.75(b) 8/15/2053 16,350
5,000 Allstate Corp. 3 mo. LIBOR + 1.935% 3.35(b) 5/15/2067 4,950
7,500 AmTrust Financial Services, Inc.(f) 6.12 8/15/2023 7,312
1,535 Assured Guaranty U.S. Holdings, Inc. 7.00 6/01/2034 1,875
1,000 Assured Guaranty U.S. Holdings, Inc.
3 mo. LIBOR + 2.38% 3.97(b) 12/15/2066 894
21,500 Chubb Corp. 3 mo. LIBOR + 2.25% 3.97(b) 3/29/2067 21,473
7,000 Hanover Insurance Group, Inc. 4.50 4/15/2026 7,185
4,000 Markel Corp. 3.63 3/30/2023 4,052
12,350 Mercury General Corp. 4.40 3/15/2027 12,466
5,000 Navigators Group, Inc. 5.75 10/15/2023 5,259
15,000 Oil Insurance Ltd. 3 mo. LIBOR + 2.982%(a) 4.68(b) -(g) 14,588
7,000 Old Republic International Corp. 3.88 8/26/2026 6,923
10,025 OneBeacon US Holdings, Inc. 4.60 11/09/2022 10,195
10,000 ProAssurance Corp. 5.30 11/15/2023 10,686
5,000 RLI Corp. 4.87 9/15/2023 5,177
----------
136,479
----------
REGIONAL BANKS (6.3%)
10,000 Associated Banc-Corp. 4.25 1/15/2025 10,148
10,000 Banc of California, Inc. 5.25 4/15/2025 10,160
10,000 Bank of the Ozarks, Inc. 3 mo. LIBOR + 4.425% 5.50(b) 7/01/2026 10,418
5,000 BankUnited, Inc. 4.88 11/17/2025 5,234
15,000 Citizens Financial Group, Inc.(a) 4.15 9/28/2022 15,323
5,500 Citizens Financial Group, Inc. 3.75 7/01/2024 5,474
4,750 CoBiz Financial, Inc. 3 mo. LIBOR+ 3.17% 5.62(b) 6/25/2030 5,035
2,000 Cullen/Frost Bankers, Inc. 4.50 3/17/2027 2,052
10,000 Cullen/Frost Capital Trust II 3 mo. LIBOR + 1.55% 3.03(b) 3/01/2034 8,955
10,000 Eagle Bancorp, Inc. 3 mo. LIBOR + 3.85% 5.00(b) 8/01/2026 10,065
10,000 Fifth Third Bank 3.85 3/15/2026 10,105
5,000 First Financial Bancorp 5.13 8/25/2025 5,176
================================================================================
12 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 1,000 First Maryland Capital Trust I 3 mo. LIBOR + 1.00% 2.72%(b) 1/15/2027 $ 956
5,000 First Midwest Bancorp, Inc. 5.87 9/29/2026 5,357
10,000 First Niagara Financial Group, Inc. 7.25 12/15/2021 11,412
5,000 FirstMerit Bank, N.A. 4.27 11/25/2026 5,119
10,000 Fulton Financial Corp. 4.50 11/15/2024 10,239
5,000 Hilltop Holdings, Inc. 5.00 4/15/2025 5,062
3,000 Home Bancshares, Inc. 3 mo. LIBOR + 3.575% 5.63(b) 4/15/2027 3,132
10,000 Huntington Bancshares, Inc. 3.15 3/14/2021 10,085
10,000 Huntington Bancshares, Inc. 4.35 2/04/2023 10,313
10,000 Key Bank N.A. 3.40 5/20/2026 9,841
750 KeyCorp Capital II 6.87 3/17/2029 862
5,000 LegacyTexas Financial Group 3 mo. LIBOR + 3.89% 5.50(b) 12/01/2025 5,068
16,000 Manufacturers & Traders Trust Co.
3 mo. LIBOR + 0.64% 2.12(b) 12/01/2021 15,976
1,000 Manufacturers & Traders Trust Co. 3.40 8/17/2027 994
4,417 MB Financial Bank, N.A. 3 mo. LIBOR + 1.873% 4.00(i) 12/01/2027 4,416
5,000 MUFG Americas Holdings Corp. 3.50 6/18/2022 5,062
10,000 People's United Bank NA 4.00 7/15/2024 10,033
10,000 People's United Financial, Inc. 3.65 12/06/2022 10,171
5,818 Santander Holdings USA, Inc.(a) 4.40 7/13/2027 5,924
5,000 Sterling National Bank 3 mo. LIBOR + 3.937% 5.25(b) 4/01/2026 5,061
5,000 SunTrust Capital I 3 mo. LIBOR + 0.67% 2.09(b) 5/15/2027 4,675
5,000 TCF National Bank 4.60 2/27/2025 4,939
4,063 Townebank/Portsmouth VA 3 mo. LIBOR + 2.55% 4.50(b) 7/30/2027 4,165
5,000 Webster Financial Corp. 4.38 2/15/2024 5,078
1,000 Wilmington Trust Corp. 8.50 4/02/2018 1,011
3,500 Wintrust Financial Corp. 5.00 6/13/2024 3,530
----------
256,626
----------
REINSURANCE (0.1%)
5,000 Alleghany Corp. 5.63 9/15/2020 5,334
----------
REITs - HEALTH CARE (0.2%)
2,000 Senior Housing Properties Trust 6.75 12/15/2021 2,191
3,000 Welltower, Inc. 6.12 4/15/2020 3,217
2,000 Welltower, Inc. 4.95 1/15/2021 2,112
----------
7,520
----------
REITs - MORTGAGE (0.1%)
750 Starwood Property Trust, Inc.(a),(h) 3.62 2/01/2021 753
2,000 Starwood Property Trust, Inc. 5.00 12/15/2021 2,089
----------
2,842
----------
REITs - OFFICE (0.2%)
7,000 Alexandria Real Estate Equities, Inc. 4.60 4/01/2022 7,358
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
REITs - RESIDENTIAL (0.3%)
$ 10,000 UDR, Inc. 4.63% 1/10/2022 $ 10,523
----------
REITs - SPECIALIZED (0.3%)
5,000 American Tower Corp. 5.90 11/01/2021 5,508
6,000 EPR Properties(j) 7.75 7/15/2020 6,713
----------
12,221
----------
THRIFTS & MORTGAGE FINANCE (0.4%)
5,000 Astoria Financial Corp. 3.50 6/08/2020 5,020
10,000 EverBank Financial Corp. 5.75 7/02/2025 11,015
----------
16,035
----------
Total Financials 785,758
----------
HEALTH CARE (2.6%)
------------------
BIOTECHNOLOGY (0.1%)
5,000 Baxalta, Inc. 4.00 6/23/2025 5,089
----------
HEALTH CARE EQUIPMENT (0.5%)
9,000 Becton Dickinson & Co.(a) 3.00 5/15/2026 9,016
10,000 Becton Dickinson & Co. 3.70 6/06/2027 9,871
2,000 Teleflex, Inc. 4.88 6/01/2026 2,048
----------
20,935
----------
HEALTH CARE FACILITIES (0.6%)
10,000 HCA, Inc. 4.50 2/15/2027 9,987
2,000 HealthSouth Corp. 5.75 11/01/2024 2,048
545 Orlando Health(k) 3.78 10/01/2028 551
5,000 Premier Health Partners 2.91 11/15/2026 4,681
4,000 SSM Health Care 3.82 6/01/2027 4,073
1,445 Vanderbilt University Medical Center 4.17 7/01/2037 1,456
----------
22,796
----------
HEALTH CARE SERVICES (0.3%)
10,000 Express Scripts Holding Co. 3.00 7/15/2023 9,807
----------
MANAGED HEALTH CARE (0.1%)
5,000 UnitedHealth Group, Inc. 3.10 3/15/2026 4,931
----------
PHARMACEUTICALS (1.0%)
10,000 Actavis Funding SCS 3.80 3/15/2025 10,056
995 Endo Luxembourg Finance Company I S.a r.l.
1mo. LIBOR + 4.25%(e) 5.88 4/29/2024 998
5,000 Mallinckrodt International Finance S.A.(f) 4.75 4/15/2023 4,125
5,000 Mylan N.V. 3.75 12/15/2020 5,106
5,000 Mylan N.V. 3.95 6/15/2026 4,978
================================================================================
14 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 15,000 Zoetis, Inc. 3.25% 2/01/2023 $ 15,076
----------
40,339
----------
Total Health Care 103,897
----------
INDUSTRIALS (5.0%)
------------------
AEROSPACE & DEFENSE (0.9%)
10,000 Arconic, Inc. 5.40 4/15/2021 10,616
15,000 Lockheed Martin Corp. 3.60 3/01/2035 14,963
5,000 Spirit AeroSystems, Inc. 3.85 6/15/2026 4,987
5,000 United Technologies Corp. 3.10 6/01/2022 5,044
----------
35,610
----------
AIR FREIGHT & LOGISTICS (0.2%)
10,000 FedEx Corp. 3.90 2/01/2035 10,029
----------
AIRLINES (1.3%)
192 America West Airlines, Inc. Pass-Through Trust
(INS - AMBAC Assurance Corp.) 7.93 7/02/2020 197
7,752 American Airlines, Inc. Pass-Through Trust 4.00 1/15/2027 7,972
2,000 American Airlines, Inc. Pass-Through Trust 3.60 4/15/2031 1,990
399 Continental Airlines, Inc. Pass-Through Trust 6.54 8/02/2020 415
381 Continental Airlines, Inc. Pass-Through Trust
(INS - AMBAC Assurance Corp.) 6.24 9/15/2021 389
8,564 Continental Airlines, Inc. Pass-Through Trust 4.15 10/11/2025 8,935
7,759 Hawaiian Airlines, Inc. Pass-Through Trust 3.90 7/15/2027 7,907
5,678 United Airlines, Inc. Pass-Through Trust 4.63 3/03/2024 5,859
4,262 United Airlines, Inc. Pass-Through Trust 4.30 2/15/2027 4,485
549 US Airways Group, Inc. Pass-Through Trust
(INS - MBIA Insurance Corp.) 7.08 9/20/2022 588
2,902 US Airways Group, Inc. Pass-Through Trust 6.25 10/22/2024 3,189
1,874 US Airways Group, Inc. Pass-Through Trust 7.12 4/22/2025 2,128
7,727 US Airways Group, Inc. Pass-Through Trust 3.95 5/15/2027 7,983
----------
52,037
----------
CONSTRUCTION MACHINERY & HEAVY TRUCKS (0.4%)
4,851 Terex Corp. 3 mo. LIBOR + 2.25%(e) 3.94 1/31/2024 4,892
10,000 Wabtec Corp. 3.45 11/15/2026 9,605
----------
14,497
----------
INDUSTRIAL CONGLOMERATES (0.1%)
5,921 General Electric Co. 3 mo. LIBOR+ 3.33% 5.00(b) -(g) 6,002
----------
INDUSTRIAL MACHINERY (0.4%)
10,000 CNH Industrial Capital, LLC 3.38 7/15/2019 10,106
6,000 Stanley Black & Decker, Inc. 3 mo. LIBOR + 4.304% 5.75(b) 12/15/2053 6,210
----------
16,316
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 15
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
RAILROADS (0.3%)
$ 1,700 Union Pacific Corp. 3.25% 1/15/2025 $ 1,721
10,000 Union Pacific Corp. 2.75 3/01/2026 9,700
----------
11,421
----------
TRADING COMPANIES & DISTRIBUTORS (0.6%)
10,000 Air Lease Corp. 3.00 9/15/2023 9,816
7,000 ILFC E-Capital Trust Highest of 3 mo. LIBOR/
10 Year CMT/30 Year CMT +1.55%(a) 4.37(b) 12/21/2065 6,860
2,000 ILFC E-Capital Trust II Highest of 3 mo. LIBOR/
10 Year CMT/30 Year CMT + 1.80%(a) 4.62(b) 12/21/2065 1,977
6,000 International Lease Finance Corp.(a) 7.12 9/01/2018 6,165
----------
24,818
----------
TRUCKING (0.8%)
1,000 Avis Budget Car Rental, LLC / Avis Budget
Finance, Inc.(a) 5.13 6/01/2022 1,009
5,000 ERAC USA Finance, LLC(a) 3.30 10/15/2022 5,006
20,000 Penske Truck Leasing Co., LP / PTL Finance Corp.(a) 4.25 1/17/2023 20,925
5,000 Ryder System, Inc. 3.45 11/15/2021 5,070
----------
32,010
----------
Total Industrials 202,740
----------
INFORMATION TECHNOLOGY (1.6%)
-----------------------------
APPLICATION SOFTWARE (0.1%)
3,465 Solera, LLC 1mo. LIBOR + 3.25%(e) 4.82 3/03/2023 3,495
----------
COMMUNICATIONS EQUIPMENT (0.2%)
10,000 Cisco Systems, Inc. 2.60 2/28/2023 9,868
----------
ELECTRONIC EQUIPMENT & INSTRUMENTS (0.1%)
2,604 Keysight Technologies, Inc. 4.60 4/06/2027 2,705
----------
ELECTRONIC MANUFACTURING SERVICES (0.2%)
5,000 Jabil, Inc. 3.95 1/12/2028 4,903
5,000 Molex Electronic Technologies, LLC(a) 3.90 4/15/2025 5,016
----------
9,919
----------
HOME ENTERTAINMENT SOFTWARE (0.2%)
7,500 Activision Blizzard 3.40 9/15/2026 7,420
----------
SEMICONDUCTORS (0.4%)
5,000 Broadcom Corp. / Broadcom Cayman L.P.(a) 3.62 1/15/2024 4,939
10,000 QUALCOMM, Inc. 3.45 5/20/2025 9,787
3,000 QUALCOMM, Inc. 3.25 5/20/2027 2,872
----------
17,598
----------
SYSTEMS SOFTWARE (0.1%)
5,000 VMware, Inc. 3.90 8/21/2027 4,839
----------
================================================================================
16 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (0.3%)
$ 7,500 Dell International, LLC / EMC Corp.(a) 4.42% 6/15/2021 $ 7,783
2,500 Dell International, LLC / EMC Corp.(a) 5.88 6/15/2021 2,600
----------
10,383
----------
Total Information Technology 66,227
----------
MATERIALS (2.9%)
----------------
COMMODITY CHEMICALS (0.5%)
5,000 Chevron Phillips Chemical Co.(a) 3.40 12/01/2026 5,005
3,850 LYB International Finance II B.V. 3.50 3/02/2027 3,816
10,000 Westlake Chemical Corp. 3.60 8/15/2026 9,971
----------
18,792
----------
CONSTRUCTION MATERIALS (0.2%)
3,000 CRH America, Inc. 5.75 1/15/2021 3,221
5,000 Martin Marietta Materials, Inc. 4.25 7/02/2024 5,211
----------
8,432
----------
DIVERSIFIED CHEMICALS (0.2%)
7,500 CF Industries, Inc.(a) 4.50 12/01/2026 7,740
1,000 E.I. du Pont de Nemours & Co. 6.00 7/15/2018 1,018
----------
8,758
----------
DIVERSIFIED METALS & MINING (0.1%)
6,000 Freeport-McMoRan, Inc. 3.55 3/01/2022 5,970
----------
FERTILIZERS & AGRICULTURAL CHEMICALS (0.1%)
5,000 Mosaic Co. 4.05 11/15/2027 4,965
----------
METAL & GLASS CONTAINERS (0.1%)
1,000 Ball Corp. 5.00 3/15/2022 1,059
2,500 Ball Corp. 5.25 7/01/2025 2,659
----------
3,718
----------
PAPER PACKAGING (0.8%)
2,037 International Paper Co. 7.50 8/15/2021 2,345
5,000 International Paper Co. 4.75 2/15/2022 5,327
5,000 International Paper Co. 3.80 1/15/2026 5,103
7,500 International Paper Co. 3.00 2/15/2027 7,171
4,738 Klockner-Pentaplast of America, Inc.
3 mo. LIBOR + 4.25%(e) 5.94 6/30/2022 4,772
5,153 Sealed Air Corp.(a) 6.88 7/15/2033 5,965
----------
30,683
----------
PAPER PRODUCTS (0.1%)
3,000 Georgia-Pacific, LLC 7.25 6/01/2028 3,911
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
SPECIALTY CHEMICALS (0.2%)
$ 3,500 H.B. Fuller Co. 4.00% 2/15/2027 $ 3,386
2,900 Sherwin-Williams Co. 3.45 6/01/2027 2,870
----------
6,256
----------
STEEL (0.6%)
10,000 Allegheny Technologies, Inc. 5.95 1/15/2021 10,375
3,000 Allegheny Technologies, Inc. 7.87 8/15/2023 3,302
2,000 Carpenter Technology Corp. 5.20 7/15/2021 2,067
10,000 Worthington Industries, Inc. 4.55 4/15/2026 10,208
----------
25,952
----------
Total Materials 117,437
----------
MUNICIPAL (0.1%)
----------------
HOSPITAL (0.1%)
3,000 Boston Medical Center Corp. 3.91 7/01/2028 2,943
----------
REAL ESTATE (4.2%)
------------------
REITs - DIVERSIFIED (0.3%)
7,500 Spirit Realty LP 4.45 9/15/2026 7,343
5,000 Washington REIT 3.95 10/15/2022 5,090
----------
12,433
----------
REITs - HEALTH CARE (0.8%)
4,901 MPT Operating Partnership, LP / MPT Finance Corp. 5.25 8/01/2026 5,073
2,000 Nationwide Health Properties, Inc. 6.90 10/01/2037 2,584
10,000 Omega Healthcare Investors, Inc. 4.95 4/01/2024 10,305
7,500 Physicians Realty, LP 4.30 3/15/2027 7,502
4,000 Sabra Health Care, LP 5.12 8/15/2026 3,972
4,000 Sabra Health Care, LP / Sabra Capital Corp. 5.50 2/01/2021 4,107
----------
33,543
----------
REITs - HOTEL & RESORT (0.2%)
5,000 Hospitality Property Trust 4.95 2/15/2027 5,186
2,000 Hospitality Property Trust(k) 4.38 2/15/2030 1,965
----------
7,151
----------
REITs - OFFICE (0.7%)
2,000 Boston Properties, LP 5.88 10/15/2019 2,100
8,000 Boston Properties, LP 3.85 2/01/2023 8,261
7,500 Columbia Property Trust Operating Partnership, LP 3.65 8/15/2026 7,224
5,000 Hudson Pacific Properties, LP 3.95 11/01/2027 4,879
4,444 SL Green Operating Partnership, LP 3.25 10/15/2022 4,396
----------
26,860
----------
================================================================================
18 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
REITs - RESIDENTIAL (0.4%)
$ 5,550 AvalonBay Communities, Inc. 2.85% 3/15/2023 $ 5,481
9,000 ERP Operating, LP 2.85 11/01/2026 8,591
----------
14,072
----------
REITs - RETAIL (0.9%)
5,000 CBL & Associates, LP 5.25 12/01/2023 4,683
3,000 Federal Realty Investment Trust 3.00 8/01/2022 2,995
10,000 Federal Realty Investment Trust 2.75 6/01/2023 9,752
741 Federal Realty Investment Trust 3.25 7/15/2027 720
5,000 National Retail Properties, Inc. 4.00 11/15/2025 5,069
2,000 Realty Income Corp. 5.75 1/15/2021 2,148
2,100 Realty Income Corp. 3.25 10/15/2022 2,110
5,000 Realty Income Corp. 4.12 10/15/2026 5,161
6,000 Realty Income Corp. 3.00 1/15/2027 5,695
----------
38,333
----------
REITs - SPECIALIZED (0.9%)
5,000 American Tower Corp. 3.45 9/15/2021 5,074
21,204 CC Holdings GS V, LLC / Crown Castle GS III Corp. 3.85 4/15/2023 21,530
5,000 EPR Properties 4.75 12/15/2026 5,071
2,000 Sabra Health Care LP / Sabra Capital Corp. 5.38 6/01/2023 2,055
3,901 Uniti Group, LP 1mo. LIBOR + 3.00%(e) 4.57 10/24/2022 3,767
----------
37,497
----------
Total Real Estate 169,889
----------
TELECOMMUNICATION SERVICES (1.7%)
---------------------------------
ALTERNATIVE CARRIERS (0.4%)
2,000 CenturyLink, Inc. 6.45 6/15/2021 2,042
5,000 CenturyLink, Inc. 5.80 3/15/2022 4,894
2,000 CenturyLink, Inc.(f) 6.75 12/01/2023 1,953
6,000 Qwest Corp. 6.75 12/01/2021 6,435
----------
15,324
----------
INTEGRATED TELECOMMUNICATION SERVICES (0.9%)
10,000 AT&T, Inc. 4.50 5/15/2035 9,879
2,000 AT&T, Inc. 5.25 3/01/2037 2,120
3,000 Frontier Communications Corp. 6.25 9/15/2021 2,471
5,000 Frontier Communications Corp. 11.00 9/15/2025 3,931
10,000 Verizon Communications, Inc. 2.95 3/15/2022 9,967
10,000 Verizon Communications, Inc. 4.50 8/10/2033 10,281
----------
38,649
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES (0.4%)
$ 4,661 Grain Spectrum Funding II(a) 3.29% 10/10/2034 $ 4,649
10,313 Sprint Spectrum Co., LLC/Sprint Spectrum Co.
II, LLC / Sprint Spectrum Co.(a) 3.36 3/20/2023 10,377
1,000 T-Mobile USA, Inc.(h) 4.75 2/01/2028 1,005
----------
16,031
----------
Total Telecommunication Services 70,004
----------
UTILITIES (6.6%)
----------------
ELECTRIC UTILITIES (4.1%)
7,107 Bruce Mansfield Unit Pass-Through Trust 6.85 6/01/2034 2,861
15,000 Cleco Corporate Holdings, LLC 3.74 5/01/2026 14,778
1,000 DPL, Inc. 6.75 10/01/2019 1,060
10,000 Duke Energy Carolinas, LLC 2.50 3/15/2023 9,808
5,000 Duke Energy Indiana, LLC 3.75 5/15/2046 4,930
1,045 Duke Energy Progress, LLC 6.13 9/15/2033 1,311
13,000 Duquesne Light Holdings, Inc.(a) 6.40 9/15/2020 14,135
3,500 Duquesne Light Holdings, Inc.(a) 5.90 12/01/2021 3,843
10,000 Entergy Texas, Inc. 2.55 6/01/2021 9,843
3,500 FirstEnergy Corp. 3.90 7/15/2027 3,543
5,000 Georgia Power Co. 3.25 4/01/2026 4,932
2,000 Indiana Michigan Power Co. 7.00 3/15/2019 2,099
4,667 IPALCO Enterprises, Inc. 3.70 9/01/2024 4,638
3,750 ITC Holdings Corp.(a) 3.35 11/15/2027 3,678
2,000 Metropolitan Edison Co. 7.70 1/15/2019 2,097
3,000 N.V. Energy, Inc. 6.25 11/15/2020 3,276
1,000 Nevada Power Co. 6.50 5/15/2018 1,013
14,000 NextEra Energy Capital Holdings, Inc. 3 mo.
LIBOR + 2.068% 3.76(b) 10/01/2066 13,528
2,000 Oglethorpe Power Corp. 6.10 3/15/2019 2,074
5,000 Oncor Electric Delivery Co., LLC 3.75 4/01/2045 5,048
5,000 Pacific Gas & Electric Co. 2.95 3/01/2026 4,762
15,000 PPL Capital Funding, Inc. 3 mo. LIBOR + 2.665% 4.36(b) 3/30/2067 14,925
3,000 Public Service Co. of New Mexico 7.95 5/15/2018 3,051
6,900 Southern California Edison Co. 3 mo.
LIBOR + 4.199% 6.25(b) -(g) 7,426
10,000 Southern Co. 3.25 7/01/2026 9,686
5,000 System Energy Resources, Inc. 4.10 4/01/2023 5,145
4,000 Texas-New Mexico Power Co.(a) 9.50 4/01/2019 4,308
10,000 Xcel Energy, Inc. 3.30 6/01/2025 9,999
----------
167,797
----------
GAS UTILITIES (0.6%)
1,000 Atmos Energy Corp. 8.50 3/15/2019 1,065
4,000 National Fuel Gas Co. 4.90 12/01/2021 4,185
================================================================================
20 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 10,000 National Fuel Gas Co. 3.75% 3/01/2023 $ 9,999
1,000 National Fuel Gas Co. 7.38 6/13/2025 1,167
6,120 Spire, Inc. 3.54 2/27/2024 6,065
----------
22,481
----------
MULTI-UTILITIES (1.4%)
2,000 Ameren Illinois Co. 9.75 11/15/2018 2,116
3,000 Black Hills Corp. 5.88 7/15/2020 3,208
5,000 Black Hills Corp. 3.95 1/15/2026 5,098
2,000 CMS Energy Corp. 6.25 2/01/2020 2,137
3,000 CMS Energy Corp. 5.05 3/15/2022 3,220
5,000 Consumers Energy Co. 2.85 5/15/2022 5,000
6,050 Dominion Resources, Inc. 3 mo. LIBOR + 2.825% 4.52(b) 6/30/2066 6,027
8,000 Dominion Resources, Inc. 3 mo. LIBOR + 2.30% 3.99(b) 9/30/2066 7,592
8,000 Puget Sound Energy, Inc. 3 mo. LIBOR + 6.75% 4.01(b) 6/01/2067 7,960
2,000 Sempra Energy 9.80 2/15/2019 2,151
14,500 WEC Energy Group, Inc. 3 mo. LIBOR + 2.113% 3.53(b) 5/15/2067 14,133
----------
58,642
----------
OIL & GAS STORAGE & TRANSPORTATION (0.2%)
8,000 ONEOK, Inc. 4.25 2/01/2022 8,293
----------
WATER UTILITIES (0.3%)
10,000 Aquarion Co., Inc.(a) 4.00 8/15/2024 10,371
----------
Total Utilities 267,584
----------
Total Corporate Obligations (cost: $2,334,376) 2,395,239
----------
EURODOLLAR AND YANKEE OBLIGATIONS (19.4%)
CONSUMER DISCRETIONARY (0.2%)
-----------------------------
AUTOMOBILE MANUFACTURERS (0.1%)
5,000 Daimler Finance, N.A., LLC(a) 2.25 7/31/2019 4,983
----------
PUBLISHING (0.1%)
4,622 Pearson Funding Four plc(a) 3.75 5/08/2022 4,561
----------
Total Consumer Discretionary 9,544
----------
CONSUMER STAPLES (1.7%)
-----------------------
AGRICULTURAL PRODUCTS (0.2%)
8,000 Viterra, Inc.(a) 5.95 8/01/2020 8,577
----------
BREWERS (0.5%)
5,000 Anheuser-Busch InBev Worldwide, Inc. 3.75 1/15/2022 5,162
15,000 Anheuser-Busch InBev Worldwide, Inc. 3.65 2/01/2026 15,206
----------
20,368
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 21
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
DISTILLERS & VINTNERS (0.2%)
$ 10,000 Becle S.A. de C.V.(a) 3.75% 5/13/2025 $ 9,891
----------
FOOD RETAIL (0.1%)
109 Ahold Lease USA, Inc. Pass-Through Trust 7.82 1/02/2020 111
3,334 Alimentation Couche Tard, Inc.(a) 3.55 7/26/2027 3,264
----------
3,375
----------
PACKAGED FOODS & MEATS (0.1%)
5,000 Smithfield Foods, Inc.(a) 4.25 2/01/2027 5,031
----------
Tobacco (0.6%)
2,000 BAT Capital Corp.(a) 4.39 8/15/2037 2,062
10,000 BAT International Finance plc(a) 3.25 6/07/2022 10,042
10,000 Imperial Brands Finance plc(a) 4.25 7/21/2025 10,323
----------
22,427
----------
Total Consumer Staples 69,669
----------
ENERGY (1.8%)
-------------
INTEGRATED OIL & GAS (0.9%)
10,000 BP Capital Markets plc 3.72 11/28/2028 10,264
1,000 Husky Energy, Inc. 7.25 12/15/2019 1,080
10,000 Petrobras Global Finance B.V. 4.88 3/17/2020 10,300
5,000 Petroleos Mexicanos(f) 4.50 1/23/2026 4,948
10,000 Petroleos Mexicanos(a) 6.50 3/13/2027 10,951
----------
37,543
----------
OIL & GAS DRILLING (0.1%)
5,000 Noble Holding International Ltd. 7.70 4/01/2025 4,513
375 QGOG Atlantic/Alaskan Rigs Ltd.(a) 5.25 7/30/2019 369
----------
4,882
----------
OIL & GAS EXPLORATION & PRODUCTION (0.3%)
2,750 Aker BP ASA(a) 6.00 7/01/2022 2,892
4,500 Canadian Natural Resources Ltd. 3.85 6/01/2027 4,539
2,000 Woodside Finance Ltd.(a) 4.60 5/10/2021 2,077
----------
9,508
----------
OIL & GAS STORAGE & TRANSPORTATION (0.5%)
5,000 APT Pipelines Ltd.(a) 4.20 3/23/2025 5,121
1,275 Nakilat, Inc.(a) 6.07 12/31/2033 1,463
2,000 TransCanada PipeLines Ltd. 7.12 1/15/2019 2,090
11,860 TransCanada PipeLines Ltd. 3 mo. LIBOR + 2.21% 3.63(b) 5/15/2067 11,386
----------
20,060
----------
Total Energy 71,993
----------
================================================================================
22 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
FINANCIALS (5.9%)
-----------------
ASSET BACKED FINANCING (0.4%)
$ 15,000 BNP Paribas S.A.(a) 4.37% 5/12/2026 $ 15,465
----------
DIVERSIFIED BANKS (4.3%)
10,000 ABN AMRO Bank N.V.(a) 4.75 7/28/2025 10,486
10,000 ABN AMRO Bank N.V.(a) 4.80 4/18/2026 10,545
10,000 Australia & New Zealand Banking Group Ltd.(a) 4.40 5/19/2026 10,251
3,750 Bank of Montreal 3 mo. LIBOR + 1.432% 3.80(b) 12/15/2032 3,663
2,450 Barclays Bank plc 6 mo. LIBOR + 0.25% 2.19(c) -(g) 2,276
6,200 Barclays Bank plc 4.84 5/09/2028 6,363
1,154 Boral Finance Proprietary Ltd.(a) 3.75 5/01/2028 1,139
4,500 Cooperatieve Rabobank U.A. 1.70 3/19/2018 4,500
10,000 Cooperatieve Rabobank U.A. 3.88 2/08/2022 10,353
8,451 Cooperatieve Rabobank U.A. 3.95 11/09/2022 8,683
10,000 Credit Suisse Group Funding Ltd. 4.55 4/17/2026 10,550
10,000 HSBC Bank plc 6 mo. LIBOR + 0.25% 2.13(b) -(g) 9,273
10,000 HSBC Holdings plc 3.90 5/25/2026 10,211
5,900 ING Groep N.V. 3.95 3/29/2027 6,047
5,000 Lloyds Banking Group plc 3 mo. LIBOR + 1.205% 3.57(i) 11/07/2028 4,881
10,000 Nordea Bank AB(a) 4.25 9/21/2022 10,360
4,000 Royal Bank of Scotland Group plc
3 mo. LIBOR + 6.75%(f) 4.01(b) -(g) 4,073
10,000 Royal Bank of Scotland Group plc 6.12 12/15/2022 10,866
6,560 Santander Bank, N.A. 8.75 5/30/2018 6,698
15,000 Santander UK plc(a) 5.00 11/07/2023 15,850
7,500 Swedbank AB(a) 2.65 3/10/2021 7,474
10,000 Westpac Banking Corp. 3 mo. LIBOR + 2.236% 4.32(b) 11/23/2031 10,205
----------
174,747
----------
DIVERSIFIED CAPITAL MARKETS (0.0%)
2,222 Credit Suisse Group AG 3 mo. LIBOR + 3.141%(a) 3.87(i) 1/12/2029 2,213
----------
LIFE & HEALTH INSURANCE (0.2%)
7,000 Great-West Life & Annuity Insurance Capital, LP
3 mo. LIBOR + 2.538%(a) 3.96(b) 5/16/2046 6,947
----------
PROPERTY & CASUALTY INSURANCE (0.8%)
20,056 QBE Capital Funding III Ltd.
3 mo. LIBOR + 3.04%(a) 7.25(b) 5/24/2041 22,538
5,000 XLIT Ltd. 3 mo. LIBOR + 2.458% 4.18(b) -(g) 4,706
5,000 XLIT Ltd. 4.45 3/31/2025 5,054
----------
32,298
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 23
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE (0.2%)
$ 10,000 Nationwide Building Society(a) 4.00% 9/14/2026 $ 9,967
----------
Total Financials 241,637
----------
GOVERNMENT (0.1%)
-----------------
FOREIGN GOVERNMENT (0.1%)
5,000 Italy Government International Bond 5.38 6/15/2033 5,845
----------
HEALTH CARE (0.3%)
------------------
PHARMACEUTICALS (0.3%)
15,000 Teva Pharmaceutical Finance Netherlands III BV(f) 3.15 10/01/2026 12,486
----------
INDUSTRIALS (3.8%)
------------------
AEROSPACE & DEFENSE (0.3%)
10,000 BAE Systems Holdings, Inc.(a) 3.85 12/15/2025 10,170
1,000 Dae Funding, LLC(a) 4.00 8/01/2020 1,002
----------
11,172
----------
AGRICULTURE & FARM MACHINERY (0.1%)
5,000 CNH Industrial N.V. 3.85 11/15/2027 4,966
----------
AIRLINES (1.4%)
5,000 Air Canada Pass-Through Trust(a) 5.00 3/15/2020 5,109
3,463 Air Canada Pass-Through Trust(a) 5.37 11/15/2022 3,637
8,548 Air Canada Pass-Through Trust(a) 3.88 9/15/2024 8,622
8,092 Air Canada Pass-Through Trust(a) 4.13 11/15/2026 8,350
5,566 Air Canada Pass-Through Trust(a) 3.75 6/15/2029 5,700
12,563 British Airways Pass-Through Trust(a) 4.62 12/20/2025 13,201
3,069 Latam Airlines Pass-Through Trust 4.20 8/15/2029 3,103
1,452 Virgin Australia Trust(a) 6.00 4/23/2022 1,488
10,000 WestJet Airlines Ltd.(a) 3.50 6/16/2021 10,073
----------
59,283
----------
AIRPORT SERVICES (0.6%)
10,000 Heathrow Funding Ltd.(a) 4.87 7/15/2021 10,669
10,000 Sydney Airport Finance Co. Proprietary Ltd.(a) 3.90 3/22/2023 10,229
2,000 Sydney Airport Finance Co. Proprietary Ltd. 3.63 4/28/2026 1,981
----------
22,879
----------
DIVERSIFIED SUPPORT SERVICES (0.1%)
5,500 Brambles USA, Inc.(a) 4.13 10/23/2025 5,632
----------
INDUSTRIAL CONGLOMERATES (0.9%)
7,500 CK Hutchison International 16 Ltd.(a) 2.75 10/03/2026 7,006
5,000 CK Hutchison International 17 Ltd.(a) 3.50 4/05/2027 4,890
2,000 Hutchison Whampoa International 11 Ltd.(a) 4.63 1/13/2022 2,106
================================================================================
24 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 20,000 Siemens Financieringsmaatschappij N.V.(a) 3.25% 5/27/2025 $ 19,934
1,000 Siemens Financieringsmaatschappij N.V.(a) 6.12 8/17/2026 1,202
----------
35,138
----------
RAILROADS (0.3%)
4,261 Asciano Finance Ltd.(a) 4.62 9/23/2020 4,396
8,000 Canadian National Railway Co. 2.75 3/01/2026 7,766
----------
12,162
----------
TRADING COMPANIES & DISTRIBUTORS (0.1%)
3,000 Aercap Ireland Cap Ltd. 4.62 7/01/2022 3,142
----------
Total Industrials 154,374
----------
INFORMATION TECHNOLOGY (0.2%)
-----------------------------
ELECTRONIC MANUFACTURING SERVICES (0.2%)
5,000 Tyco Electronics Group S.A. 3.50 2/03/2022 5,106
1,200 Tyco Electronics Group S.A. 3.13 8/15/2027 1,179
----------
Total Information Technology 6,285
----------
MATERIALS (3.6%)
----------------
ALUMINUM(0.0%)
1,000 Alcoa Nederland Holding Co.(a) 6.75 9/30/2024 1,096
----------
COMMODITY CHEMICALS (0.3%)
10,000 Braskem Finance Ltd. 6.45 2/03/2024 11,338
----------
CONSTRUCTION MATERIALS (0.0%)
1,000 Votorantim Cimentos S.A. 7.25 4/05/2041 1,111
----------
COPPER (0.1%)
3,000 Southern Copper Corp. 3.87 4/23/2025 3,090
----------
DIVERSIFIED CHEMICALS (0.1%)
3,000 Incitec Pivot Finance, LLC(a) 6.00 12/10/2019 3,157
----------
DIVERSIFIED METALS &MINING (0.9%)
5,000 Anglo American Capital plc(a) 4.12 4/15/2021 5,130
2,500 Anglo American Capital plc(a) 3.75 4/10/2022 2,530
3,333 Anglo American Capital plc(a) 4.00 9/11/2027 3,301
15,000 Glencore Funding, LLC(a) 4.00 3/27/2027 14,885
3,000 Teck Resources Ltd. 4.75 1/15/2022 3,120
5,000 Teck Resources Ltd. 3.75 2/01/2023 5,031
----------
33,997
----------
FERTILIZERS & AGRICULTURAL CHEMICALS (0.4%)
10,000 Potash Corp. of Saskatchewan, Inc. 3.00 4/01/2025 9,595
7,230 Yara International ASA(a) 3.80 6/06/2026 7,083
----------
16,678
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 25
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
GOLD (0.7%)
$ 15,000 Goldcorp, Inc. 3.70% 3/15/2023 $ 15,236
10,000 Kinross Gold Corp. 5.95 3/15/2024 11,039
2,000 Kinross Gold Corp.(a) 4.50 7/15/2027 2,025
----------
28,300
----------
METAL & GLASS CONTAINERS (0.2%)
1,000 Ardagh Packaging Finance plc / Ardagh Holdings
USA, Inc.(a) 4.25 9/15/2022 1,009
7,500 CCL Industries, Inc.(a) 3.25 10/01/2026 7,051
----------
8,060
----------
PAPER PRODUCTS (0.1%)
5,000 Amcor Finance USA, Inc.(a) 3.63 4/28/2026 4,836
----------
PRECIOUS METALS & MINERALS (0.3%)
12,000 Fresnillo plc(a) 5.50 11/13/2023 13,082
----------
STEEL (0.5%)
2,000 ArcelorMittal 6.00 3/01/2021 2,150
4,000 ArcelorMittal 6.75 2/25/2022 4,450
2,000 Vale Overseas Ltd. 4.62 9/15/2020 2,112
5,000 Vale Overseas Ltd. 4.38 1/11/2022 5,200
5,000 Vale Overseas Ltd. 6.25 8/10/2026 5,811
19,723
----------
Total Materials 144,468
----------
REAL ESTATE (0.3%)
------------------
REITs - RETAIL (0.3%)
10,750 WEA Finance, LLC /Westfield UK & Europe
Finance plc(a) 3.75 9/17/2024 10,943
----------
UTILITIES (1.5%)
----------------
ELECTRIC UTILITIES (1.1%)
5,000 Comision Federal de Electricidad(a) 4.75 2/23/2027 5,184
6,000 EDP Finance B.V.(a) 4.12 1/15/2020 6,163
10,000 Electricite de France S.A. 10 wk. LIBOR + 3.709%(a) 5.25(b) -(g) 10,312
5,000 Emera U.S. Finance, LP 3.55 6/15/2026 4,895
5,000 Enel Finance International N.V.(a) 3.63 5/25/2027 4,900
10,000 Fortis, Inc. 3.06 10/04/2026 9,475
3,500 Transelec S.A.(a) 3.87 1/12/2029 3,491
----------
44,420
----------
GAS UTILITIES (0.1%)
5,000 Infraestructura Energetica Nova SAB de CV(a) 3.75 1/14/2028 4,876
----------
================================================================================
26 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS (0.3%)
$ 10,200 TransAlta Corp. 6.90% 5/15/2018 $ 10,332
----------
Total Utilities 59,628
----------
Total Eurodollar and Yankee Obligations (cost: $767,035) 786,872
----------
FOREIGN GOVERNMENT OBLIGATIONS (0.3%)
CAD 15,000 Province of Alberta (cost: $14,629) 2.55 12/15/2022 12,236
----------
MUNICIPAL OBLIGATIONS (4.5%)
CALIFORNIA (0.3%)
$ 245 Escondido Joint Powers Financing Auth.
(INS - National Public Finance) 5.53 9/01/2018 247
1,250 Las Virgenes Unified School District 5.54 8/01/2025 1,382
3,000 Long Beach Unified School District 5.91 8/01/2025 3,417
3,000 Los Alamitos Unified School District 6.19 2/01/2026 3,546
5,000 San Jose Redev. Agency Successor Agency 3.23 8/01/2027 4,939
----------
13,531
----------
COLORADO (0.0%)
1,000 State Board of Governors Univ. Enterprise System 4.90 3/01/2021 1,055
----------
CONNECTICUT (0.1%)
318 Mashantucket (Western) Pequot Tribe(l) 7.35(m) 7/01/2026 49
3,000 State Development Auth. 5.50 4/01/2021 3,297
----------
3,346
----------
FLORIDA (0.4%)
5,000 Miami-Dade County School Board
(INS - Assured Guaranty Municipal Corp.) 5.37 5/01/2031 5,470
3,300 Miami-Dade County Transit System 4.59 7/01/2021 3,424
4,000 Palm Beach County School Board 5.40 8/01/2025 4,497
2,000 State Department of Environmental Protection 5.76 7/01/2020 2,091
2,500 Tohopekaliga Water Auth. 5.25 10/01/2036 2,818
----------
18,300
----------
ILLINOIS (0.6%)
4,975 Chicago Midway Airport 5.00 1/01/2024 5,661
2,470 Chicago Midway Airport 5.00 1/01/2025 2,800
1,500 Finance Auth. 5.45 8/01/2038 1,581
5,000 State 5.66 3/01/2018 5,013
1,000 State 5.00 1/01/2019 1,022
5,000 State 5.00 8/01/2019 5,174
1,405 Will County 4.28 11/15/2018 1,428
----------
22,679
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 27
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
MAINE (0.5%)
$ 15,685 Eastern Maine Healthcare Systems 3.71% 7/01/2026 $ 14,736
5,000 Eastern Maine Healthcare Systems 5.02 7/01/2036 4,976
----------
19,712
----------
MARYLAND (0.3%)
3,000 Baltimore Board of School Commissioners 5.69 12/15/2025 3,365
2,295 EDC 4.05 6/01/2027 2,269
2,390 EDC 4.15 6/01/2028 2,362
2,490 EDC 4.25 6/01/2029 2,461
1,330 EDC 4.35 6/01/2030 1,314
1,385 EDC 4.40 6/01/2031 1,367
----------
13,138
----------
NEW JERSEY (0.7%)
10,000 EDA 4.45 6/15/2020 10,315
10,000 EDA 5.25 9/01/2026 10,605
2,500 EDA 5.71 6/15/2030 2,774
3,000 Transportation Trust Fund Auth. 5.75 12/15/2028 3,376
----------
27,070
----------
NEW YORK (0.9%)
5,000 Bon Secours Charity Health System, Inc. 5.25 11/01/2025 5,158
2,500 City Transitional Finance Auth. 5.00 2/01/2035 2,717
3,000 MTA 5.20 11/15/2018 3,071
5,000 MTA 6.74 11/15/2030 6,409
5,000 New York City 6.27 12/01/2037 6,573
3,000 Rensselaer Polytechnic Institute 5.60 9/01/2020 3,186
5,000 State Mortgage Agency 4.20 10/01/2027 5,119
110 Town of Oyster Bay 3.55 2/01/2019 110
1,825 Town of Oyster Bay 3.80 2/01/2020 1,828
1,500 Town of Oyster Bay 3.95 2/01/2021 1,506
----------
35,677
----------
NORTH CAROLINA (0.1%)
3,000 City of Kannapolis 7.28 3/01/2027 3,238
----------
OHIO (0.1%)
3,000 Miami Univ. 6.67 9/01/2028 3,579
----------
OKLAHOMA (0.0%)
1,365 Development Finance Auth. 5.88 8/01/2037 1,437
----------
PENNSYLVANIA (0.0%)
1,000 Economic Development Financing Auth. 3.20 11/15/2027 972
----------
================================================================================
28 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
TENNESSEE (0.1%)
$ 439 Keenan Dev. Association of Tennessee, LLC
(INS - XL Capital Assurance)(a) 5.02% 7/15/2028 $ 460
1,745 Metropolitan Nashville Airport Auth.
(INS -Assured Guaranty Municipal Corp.) 5.14 7/01/2018 1,766
----------
2,226
----------
TEXAS (0.3%)
5,000 Baylor Scott & White Holdings 2.65 11/15/2026 4,691
3,430 City of Austin CCD 6.76 8/01/2030 4,215
4,300 Harris County 4.45 11/15/2031 4,196
----------
13,102
----------
WASHINGTON (0.1%)
175 American Eagle Northwest, LLC(a) 4.97 12/15/2018 175
5,000 State 5.25 2/01/2036 5,529
----------
5,704
----------
Total Municipal Obligations (cost: $174,557) 184,766
----------
U.S. GOVERNMENT AGENCY ISSUES(n) (0.2%)
MORTGAGE-BACKED PASS-THROUGH SECURITIES (0.2%)
7,901 Fannie Mae(+) 2.50 7/01/2027 7,837
129 Freddie Mac(+) 5.00 9/01/2020 131
88 Freddie Mac(+) 5.50 4/01/2036 97
----------
Total U.S. Government Agency Issues (cost: $8,119) 8,065
----------
U.S. TREASURY SECURITIES(o) (5.1%)
BONDS (2.1%)
5,050 2.25%, 8/15/2046 4,376
50,000 2.50%, 2/15/2045 45,947
20,000 2.75%, 8/15/2042 19,434
5,000 2.75%, 11/15/2042 4,855
10,000 2.87%, 11/15/2046 9,872
----------
84,484
----------
NOTES (3.0%)
67,000 1.63%, 2/15/2026 61,787
10,000 2.25%, 11/15/2027 9,599
54,900 2.37%, 5/15/2027 53,347
----------
124,733
----------
Total U.S. Treasury Securities (cost: $219,477) 209,217
----------
Total Bonds (cost: $3,841,588) 3,919,311
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 29
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
$(000)/SHARES SECURITY (000)
-----------------------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (1.5%)
PREFERRED STOCKS (1.5%)
CONSUMER STAPLES (0.6%)
----------------------
AGRICULTURAL PRODUCTS (0.6%)
400,000 CHS, Inc., 7.10%, cumulative redeemable, 3 mo.
LIBOR + 4.298%(b),(g),(j) $ 10,884
150,000 Dairy Farmers of America, Inc., 7.88%, cumulative
redeemable(a),(g) 15,476
----------
Total Consumer Staples 26,360
----------
FINANCIALS (0.5%)
----------------
DIVERSIFIED BANKS (0.2%)
87,500 Citigroup Capital XIII, 7.68%, 3 mo. LIBOR + 6.37%(b) 2,386
50,000 HSBC Holdings plc, 6.20%(g) 1,303
5,000 U.S. Bancorp, 3.50%, Higher of 3 mo. LIBOR + 1.02% or 3.5%(b),(g) 4,525
----------
Total Diversified Banks 8,214
----------
LIFE & HEALTH INSURANCE (0.2%)
369,987 Delphi Financial Group, Inc., 4.61%, cumulative
redeemable, 3 mo. LIBOR + 3.19%(b) 8,695
----------
PROPERTY & CASUALTY INSURANCE (0.1%)
$ 3,000 Catlin Insurance Co. Ltd., 7.25%, 3 mo. LIBOR + 2.975%(a),(b),(f),(g) 2,947
----------
REGIONAL BANKS (0.0%)
2,000 CoBank ACB, 2.89%, 3 mo. LIBOR + 1.18%(a),(b),(g) 1,202
----------
REINSURANCE (0.0%)
2,000 American Overseas Group Ltd., 7.50%, non-cumulative, 3 mo.
LIBOR + 3.557%(b),(d),(p),(q) 500
----------
Total Financials 21,558
----------
REAL ESTATE (0.2%)
-----------------
REITs - RESIDENTIAL (0.2%)
100,000 Equity Residential Properties Trust, 8.29%, Series K,
depositary shares, cumulative redeemable(g) 6,487
----------
TELECOMMUNICATION SERVICES (0.2%)
--------------------------------
ALTERNATIVE CARRIERS (0.1%)
200,000 Qwest Corp., 6.50%(f) 4,104
----------
================================================================================
30 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER OF VALUE
SHARES SECURITY (000)
-----------------------------------------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES (0.1%)
2,000 Centaur Funding Corp., 9.08%(a) $ 2,299
----------
Total Telecommunication Services 6,403
----------
Preferred Stocks (cost: $60,106) 60,808
----------
Total Equity Securities (cost: $60,106) 60,808
----------
CAPTION>
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON
(000) RATE MATURITY
-----------------------------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS (1.4%)
COMMERCIAL PAPER (1.4%)
$ 9,315 Canadian Natural Resources(a) 1.85% 2/26/2018 9,303
4,445 Constellation Brands, Inc.(a) 1.86 2/07/2018 4,444
6,000 Energy Transfer Partners(a) 2.25 2/02/2018 6,000
7,600 OGE Energy Corp.(a) 1.69 2/05/2018 7,598
15,000 Spire, Inc.(a) 1.75 2/06/2018 14,996
13,354 Spire, Inc.(a) 1.73 2/15/2018 13,345
----------
Total Commercial Paper (cost: $55,686) 55,686
----------
CAPTION>
-----------------------------------------------------------------------------------------------------------------------
NUMBER OF
SHARES
-----------------------------------------------------------------------------------------------------------------------
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (0.0%)
341,442 State Street Institutional Treasury Money Market Fund
Premier Class, 1.23%(r) (cost: $342) 342
----------
Total Money Market Instruments (cost: $56,028) 56,028
----------
SHORT-TERM INVESTMENTS PURCHASED WITH CASH
COLLATERAL FROM SECURITIES LOANED (0.9%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (0.9%)
495,453 Federated Government Obligations Fund Institutional Class, 1.19%(r) 496
1,273,279 Fidelity Government Fund Portfolio Class I, 1.22%(r) 1,273
12,109,206 Goldman Sachs Financial Square Government Fund
Institutional Class, 1.21%(r) 12,109
21,869,731 Invesco Government & Agency Portfolio Institutional Class, 1.24%(r) 21,870
863,406 Morgan Stanley Institutional Liquidity Funds Government Portfolio
Institutional Class, 1.21%(r) 863
----------
Total Short-Term Investments Purchased with Cash Collateral from
Securities Loaned (cost: $36,611) 36,611
----------
TOTAL INVESTMENTS (COST: $3,994,333) $4,072,758
==========
================================================================================
PORTFOLIO OF INVESTMENTS | 31
================================================================================
-----------------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
-----------------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
-----------------------------------------------------------------------------------------------------------------------
Bonds:
Asset-Backed Securities $ - $ 46,497 $ - $ 46,497
Collateralized Loan Obligations - 32,730 - 32,730
Collateralized Mortgage Obligation - 2,029 - 2,029
Commercial Mortgage Securities - 241,660 - 241,660
Corporate Obligations - 2,395,239 - 2,395,239
Eurodollar and Yankee Obligations - 786,872 - 786,872
Foreign Government Obligations - 12,236 - 12,236
Municipal Obligations - 184,766 - 184,766
U.S. Government Agency Issues - 8,065 - 8,065
U.S. Treasury Securities 209,217 - - 209,217
Equity Securities:
Preferred Stocks 1,303 59,005 500 60,808
Money Market Instruments:
Commercial Paper - 55,686 - 55,686
Government & U.S. Treasury
Money Market Funds 342 - - 342
Short-Term Investments Purchased
with Cash Collateral from Securities Loaned:
Government & U.S. Treasury
Money Market Funds 36,611 - - 36,611
-----------------------------------------------------------------------------------------------------------------------
Total $247,473 $3,824,785 $500 $4,072,758
-----------------------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
-----------------------------------------------------------------------------------------------------------------------
RECONCILIATION OF LEVEL 3 INVESTMENTS
-----------------------------------------------------------------------------------------------------------------------
($ IN 000s) PREFERRED STOCKS
-----------------------------------------------------------------------------------------------------------------------
Balance as of July 31, 2017 $500
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 January 31, 2018 $500
-----------------------------------------------------------------------------------------------------------------------
For the period of August 1, 2017, through January 31, 2018, 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.
================================================================================
32 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
January 31, 2018 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
Market values of securities are determined by procedures and practices
discussed in Note 1A to the financial statements.
The Portfolio of Investments category percentages shown represent the
percentages of the investments to net assets, and, in total, may not equal
100%. A category percentage of 0.0% represents less than 0.1% of net
assets. Investments in foreign securities were 21.1% of net assets at
January 31, 2018.
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 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
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 33
================================================================================
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 paydown.
COLLATERALIZED LOAN OBLIGATIONS (CLOs) - Collateralized loan obligations
are securities issued by entities that are collateralized by a pool of
loans. CLOs are issued in multiple classes (tranches), and can be equity
or debt with specific adjustable or fixed interest rates, and varying
maturities. The cash flow from the underlying loans is used to pay off
each tranche separately within the debt, or senior tranches. Equity, or
subordinated tranches, typically are not paid a cash flow but do offer
ownership in the CLO itself in the event of a sale.
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
================================================================================
34 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
moderate their prepayment risk. CMBS IOs are subject to default-related
prepayments that may have a negative impact on yield.
o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS
CAD Canadian Dollar
CCD Community College District
CMT Constant Maturity Treasury
EDA Economic Development Authority
EDC Economic Development Corp.
LIBOR London Interbank Offered Rate
MTA Metropolitan Transportation Authority
REITs Real estate investment trusts - 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.
o CREDIT ENHANCEMENTS - Adds the financial strength of the provider of the
enhancement to support the issuer's ability to repay the principal and
interest payments when due. The enhancement may be provided by a
high-quality bank, insurance company or other corporation, or a collateral
trust. The enhancements do not guarantee the market values of the
securities.
INS Principal and interest payments are insured by the entity listed.
Although bond insurance reduces the risk of loss due to default by
an issuer, such bonds remain subject to the risk that value may
fluctuate for other reasons, and there is no assurance that the
insurance company will meet its obligations.
o SPECIFIC NOTES
(a) Restricted security that is not registered under the Securities Act of
1933. A resale of this security in the United States may occur in an
exempt transaction to a qualified institutional buyer as defined by
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 35
================================================================================
Rule 144A, and as such has been deemed liquid by USAA Asset Management
Company (the Manager) under liquidity guidelines approved by USAA Mutual
Funds Trust's Board of Trustees (the Board), unless otherwise noted as
illiquid.
(b) Variable-rate security - interest rate is adjusted periodically. The
interest rate disclosed represents the rate at January 31, 2018.
(c) Stated interest rates may change slightly over time as underlying
mortgages paydown.
(d) Security deemed illiquid by the Manager, under liquidity
guidelines approved by the Board. The aggregate market value of these
securities at January 31, 2018, was $9,417,000, which represented 0.2%
of the Fund's net assets.
(e) 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 all in interest
rate of all contracts within the loan facility. The interest rate is
adjusted periodically, and the rate disclosed represents the current
rate at January 31, 2018. 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.
(f) The security, or a portion thereof, was out on loan as of January
31, 2018.
(g) Security is perpetual and has no final maturity date but may be
subject to calls at various dates in the future.
(h) At January 31, 2018, the security, or a portion thereof, was
segregated to cover delayed-delivery and/or when-issued purchases.
(i) Fixed to Floating security that initially pays a fixed rate and
converts to a floating rate coupon at a specified date in the future.
The rate presented is a fixed rate.
================================================================================
36 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
(j) Restricted security that is not registered under the Securities Act
of 1933.
(k) Security or a portion of the security purchased on a
delayed-delivery or when-issued basis.
(l) 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.
(m) A portion of the 7.35% coupon is PIK (6.35% cash, 1.00% PIK).
(n) 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.
(o) Rates for U.S. Treasury notes or bonds represent the stated coupon
payment rate at time of issuance.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 37
================================================================================
(p) Security was fair valued at January 31, 2018, by the Manager in
accordance with valuation procedures approved by the Board. The total
value of all such securities was $500,000, which represented less than
0.1% of the Fund's net assets.
(q) Security was fair valued at Level 3.
(r) Rate represents the money market fund annualized seven-day yield
at January 31, 2018.
See accompanying notes to financial statements.
================================================================================
38 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
January 31, 2018 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (including
securities on loan of $35,394) (cost of $3,994,333) $4,072,758
Cash 43
Receivables:
Capital shares sold 6,879
USAA Asset Management Company (Note 7C) 2
Interest 39,754
Other 40
----------
Total assets 4,119,476
----------
LIABILITIES
Payables:
Upon return of securities loaned 36,611
Securities purchased 9,949
Capital shares redeemed 3,511
Dividends on capital shares 677
Accrued management fees 1,208
Accrued transfer agent's fees 86
Other accrued expenses and payables 331
----------
Total liabilities 52,373
----------
Net assets applicable to capital shares outstanding $4,067,103
==========
NET ASSETS CONSIST OF:
Paid-in capital $3,991,385
Undistributed net investment income 38
Accumulated net realized loss on investments (2,746)
Net unrealized appreciation of investments 78,425
Net unrealized appreciation of foreign currency translations 1
----------
Net assets applicable to capital shares outstanding $4,067,103
==========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $1,986,421/187,953 capital shares
outstanding, no par value) $ 10.57
==========
Institutional Shares (net assets of $2,015,870/190,707 capital shares
outstanding, no par value) $ 10.57
==========
Adviser Shares (net assets of $59,717/5,657 capital shares
outstanding, no par value) $ 10.56
==========
R6 Shares (net assets of $5,095/482 capital shares
outstanding, no par value) $ 10.57
==========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 39
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended January 31, 2018 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $1) $ 1,851
Interest 79,876
Securities lending (net) 161
--------
Total income 81,888
--------
EXPENSES
Management fees 6,724
Administration and servicing fees:
Fund Shares 1,501
Institutional Shares 1,004
Adviser Shares 49
R6 Shares 1
Transfer agent's fees:
Fund Shares 1,121
Institutional Shares 1,004
Adviser Shares 35
Distribution and service fees (Note 7E):
Adviser Shares 82
Custody and accounting fees:
Fund Shares 108
Institutional Shares 114
Adviser Shares 4
Postage:
Fund Shares 51
Institutional Shares 25
Adviser Shares 3
Shareholder reporting fees:
Fund Shares 30
Institutional Shares 5
Adviser Shares 1
Trustees' fees 16
Registration fees:
Fund Shares 40
Institutional Shares 31
Adviser Shares 13
R6 Shares 12
Professional fees 54
Other 31
--------
Total expenses 12,059
--------
================================================================================
40 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
Expenses reimbursed:
R6 Shares $ (12)
--------
Net expenses 12,047
--------
NET INVESTMENT INCOME 69,841
--------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY
Net realized gain (loss) on:
Affiliated transactions (Note 9) (27)
Unaffiliated transactions 4,155
Foreign currency transactions (2)
Change in net unrealized appreciation/(depreciation) of:
Investments (54,676)
--------
Net realized and unrealized loss (50,550)
--------
Increase in net assets resulting from operations $ 19,291
========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 41
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended January 31, 2018 (unaudited), and year ended July 31,
2017
--------------------------------------------------------------------------------------------------------
1/31/2018 7/31/2017
--------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 69,841 $ 139,073
Net realized gain on investments 4,128 6,327
Net realized loss on foreign currency transactions (2) (3)
Net realized gain on futures transactions - 142
Change in net unrealized appreciation/(depreciation) of:
Investments (54,676) (3,346)
Foreign currency translations - 1
Futures contracts - (3,695)
---------------------------
Increase in net assets resulting from operations 19,291 138,499
---------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares (33,837) (66,055)
Institutional Shares (34,595) (69,869)
Adviser Shares (1,024) (2,864)
R6 Shares* (94) (127)
---------------------------
Distributions to shareholders (69,550) (138,915)
---------------------------
NET INCREASE IN NET ASSETS FROM
CAPITAL SHARE TRANSACTIONS (NOTE 6)
Fund Shares 62,320 137,526
Institutional Shares (9,400) 277,279
Adviser Shares (13,920) (23,937)
R6 Shares* 2 5,000
---------------------------
Total net increase in net assets from
capital share transactions 39,002 395,868
---------------------------
Net increase (decrease) in net assets (11,257) 395,452
NET ASSETS
Beginning of period 4,078,360 3,682,908
---------------------------
End of period $4,067,103 $4,078,360
===========================
Undistributed (overdistribution of) net investment income:
End of period $ 38 $ (253)
===========================
*R6 Shares commenced operations on December 1, 2016.
See accompanying notes to financial statements.
================================================================================
42 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
January 31, 2018 (unaudited)
--------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company Act
of 1940, as amended (the 1940 Act), is an open-end management investment
company organized as a Delaware statutory trust consisting of 51 separate funds.
The USAA Intermediate-Term Bond Fund (the Fund) qualifies as a registered
investment company under Accounting Standards Codification Topic 946. The
information presented in this semiannual report pertains only to the Fund, which
is classified as diversified under the 1940 Act. The Fund's investment objective
is to seek high current income without undue risk to principal.
The Fund consists of four classes of shares: Intermediate-Term Bond Fund Shares
(Fund Shares), Intermediate-Term Bond Fund Institutional Shares (Institutional
Shares), Intermediate-Term Bond Fund Adviser Shares (Adviser Shares), and
Intermediate-Term Bond 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, investment advisors, financial planners, third-party administrators, and
insurance companies. Institutional
================================================================================
NOTES TO FINANCIAL STATEMENTS | 43
================================================================================
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, illiquid securities and fair value
determinations, pricing movements, and daily stale price monitoring.
================================================================================
44 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
The value of each security is determined (as of the close of trading on the
New York Stock Exchange (NYSE) on each business day the NYSE is open) as
set forth below:
1. Debt securities with maturities greater than 60 days are valued each
business day by a pricing service (the Service) approved by the Board.
The Service uses an evaluated mean between quoted bid and 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. 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.
3. 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 45
================================================================================
Fund's net asset value (NAV) may not take place at the same time the
prices of certain foreign securities held by the Fund are determined.
In many cases, events affecting the values of foreign securities that
occur between the time of their last quoted sale or official closing
price and the close of normal trading on the NYSE on a day the Fund's
NAV is calculated will not need to be reflected in the value of the
Fund's foreign securities. However, the Manager will monitor for events
that would materially affect the value of the Fund's foreign securities
and the Committee will consider such available information that it deems
relevant and will determine a fair value for the affected foreign
securities in accordance with valuation procedures. In addition,
information from an external vendor or other sources may be used to
adjust the foreign market closing prices of foreign equity securities to
reflect what the Committee believes to be the fair value of the
securities as of the close of the NYSE. Fair valuation of affected
foreign equity securities may occur frequently based on an assessment
that events which occur on a fairly regular basis (such as U.S. market
movements) are significant. Such securities are categorized in Level 2
of the fair value hierarchy.
4. 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.
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. 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. In the event that price quotations or valuations are not readily
available, are not reflective of market value, or a significant event has
================================================================================
46 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
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.
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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 47
================================================================================
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. However, these securities are included
in the Level 3 category due to limited market transparency and/or a lack of
corroboration to support the quoted prices.
Refer to the Portfolio of Investments for a reconciliation of investments
in which significant unobservable inputs (Level 3) were used in determining
value.
C. FEDERAL TAXES - The Fund's policy is to comply with the requirements of
the Internal Revenue Code of 1986, as amended, applicable to regulated
investment companies and to distribute substantially all of its taxable
income and net capital gains, if any, to its shareholders. Therefore, no
federal income tax provision is required.
For the six-month period ended January 31, 2018, the Fund did not incur
any income tax, interest, or penalties, and has recorded no liability for
net unrecognized tax benefits relating to uncertain income tax positions.
On an ongoing basis, the Manager will monitor the Fund's tax basis to
determine if adjustments to this conclusion are necessary. The statute of
limitations on the Fund's tax return filings generally remain open for the
three preceding fiscal reporting year ends and remain subject to
examination by the Internal Revenue Service and state taxing authorities.
D. INVESTMENTS IN SECURITIES - Securities transactions are accounted for 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. 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 INTERMEDIATE-TERM BOND 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.
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 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 49
================================================================================
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. As of January 31, 2018, the Fund's
outstanding delayed-delivery commitments, including interest purchased,
were $2,495,000; all of which were when-issued securities.
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 January 31, 2018, 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.
================================================================================
50 | USAA INTERMEDIATE-TERM BOND 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 January 31, 2018, the Fund paid CAPCO facility
fees of $16,000, which represents 5.0% 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 January 31, 2018.
(3) DISTRIBUTIONS
The tax basis of distributions and accumulated undistributed net investment
income will be determined as of the Fund's tax year-end of July 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 taxes.
At July 31, 2017, the Fund had net capital loss carryforwards of $6,882,000, for
federal income tax purposes. It is unlikely that the Board will authorize a
distribution of capital gains realized in the future until the capital loss
carryforwards have been used.
As of January 31, 2018, the cost of securities, including short-term securities,
for federal income tax purposes, was approximately the same as the cost reported
in the financial statements.
Gross unrealized appreciation and depreciation of investments as of January 31,
2018, were $127,857,000 and $49,432,000, respectively, resulting in net
unrealized appreciation of $78,425,000.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 51
================================================================================
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities, excluding
short-term securities, for the six-month period ended January 31, 2018, were
$254,346,000 and $225,808,000, respectively.
(5) SECURITIES LENDING
The Fund, through a 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 January 31, 2018, 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
----------------------------------------------------------------------------------
$35,394,000 $- $36,611,000
(6) CAPITAL SHARE TRANSACTIONS
At January 31, 2018, there were an unlimited number of shares of capital stock
at no par value authorized for the Fund.
================================================================================
52 | USAA INTERMEDIATE-TERM BOND 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
JANUARY 31, 2018 JULY 31, 2017
------------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------
FUND SHARES:
Shares sold 22,595 $ 241,350 43,575 $ 461,098
Shares issued from
reinvested dividends 3,025 32,290 5,926 62,779
Shares redeemed (19,796) (211,320) (36,564) (386,351)
------------------------------------------------------------
Net increase from
capital share transactions 5,824 $ 62,320 12,937 $ 137,526
============================================================
INSTITUTIONAL SHARES:
Shares sold 18,202 $ 194,387 53,445 $ 565,890
Shares issued from
reinvested dividends 3,051 32,572 6,202 65,716
Shares redeemed (22,048) (236,359) (33,445) (354,327)
------------------------------------------------------------
Net increase (decrease) from capital
share transactions (795) $ (9,400) 26,202 $ 277,279
============================================================
ADVISER SHARES:
Shares sold 240 $ 2,564 1,602 $ 17,032
Shares issued from
reinvested dividends 94 999 268 2,831
Shares redeemed (1,635) (17,483) (4,146) (43,800)
------------------------------------------------------------
Net decrease from capital
share transactions (1,301) $ (13,920) (2,276) $ (23,937)
============================================================
R6 SHARES (COMMENCED ON
DECEMBER 1, 2016):
Shares sold 1 $ 15 482 $ 5,000
Shares issued from
reinvested dividends -* -* -* -*
Shares redeemed (1) (13) -* -*
------------------------------------------------------------
Net increase from capital
share transactions - $ 2 482 $ 5,000
============================================================
*Represents less than 500 shares or $500.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 53
================================================================================
(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 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
January 31, 2018, 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, accrued daily and paid
monthly, is computed as a percentage of the Fund's average net assets at
annualized rates of 0.50% of the first $50 million of average net assets,
0.40% of that portion of average net assets over $50 million but not over
$100 million, and 0.30% of that portion of average net assets over $100
million. For the six-month period ended January 31, 2018, the Fund's
effective annualized base fee was 0.30% of the Fund's average net assets
for the same period.
The performance adjustment is calculated separately for each share class
on a monthly basis by comparing each class' performance over the
performance period to that of the Lipper Core Plus Bond Funds Index. The
Lipper Core Plus Bond Funds Index tracks the total return performance of
funds within the Lipper Core Plus Bond Funds category. The performance
period for each share class consists of the current month plus the previous
35 months. The performance for the R6 Shares commenced on December 1, 2016,
and includes the performance of the
================================================================================
54 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
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 of the share class are calculated
over a rolling 36-month period.
Each class' annual performance adjustment rate is multiplied by the
average net assets of each respective class over the entire performance
period, which is then multiplied by a fraction, the numerator of which is
the number of days in the month and the denominator of which is 365 (366 in
leap years). The resulting amount is then added to (in the case of
overperformance), or subtracted from (in the case of underperformance) the
base fee.
Under the performance fee arrangement, each class will pay a positive
performance fee adjustment for a performance period whenever the class
outperforms the Lipper Index over that period, even if the class had
overall negative returns during the performance period. For the six-month
period ended January 31, 2018, the Fund incurred total management fees,
paid or payable to the Manager, of $6,724,000, which included a performance
adjustment for the Fund Shares, Institutional Shares, Adviser Shares, and
R6 Shares of $258,000, $268,000, $2,000, and less than $500, respectively.
For the Fund Shares, Institutional Shares, Adviser Shares, R6 Shares, the
performance adjustments were 0.03%, 0.03%, 0.01%, and less than 0.01%,
respectively.
B. ADMINISTRATION AND SERVICING FEES - The Manager provides certain
administration and servicing functions for the Fund. For such services, the
Manager receives a fee accrued daily and paid monthly at an
================================================================================
NOTES TO FINANCIAL STATEMENTS | 55
================================================================================
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 January 31, 2018, the Fund Shares, Institutional Shares, Adviser
Shares, and R6 Shares incurred administration and servicing fees, paid or
payable to the Manager, of $1,501,000, $1,004,000, $49,000, 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 the
Manager. For the six-month period ended January 31, 2018, 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 November 30, 2018, to
limit the total annual operating expenses of the R6 Shares to 0.39% of its
average net assets, excluding extraordinary expenses and before reductions
of any expenses paid indirectly, and to reimburse the R6 Shares for all
expenses in excess of that amount. This expense limitation arrangement may
not be changed or terminated through November 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 January 31, 2018, the Fund
incurred reimbursable expenses from the Manager for the R6 Shares of
$12,000, of which $2,000 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
================================================================================
56 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
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 January 31, 2018, the Fund Shares, Institutional Shares,
Adviser Shares, and R6 Shares incurred transfer agent's fees, paid or
payable to SAS, of $1,121,000, $1,004,000, $35,000, and less than $500,
respectively.
E. DISTRIBUTION AND SERVICE (12b-1) FEES - The Fund has adopted a plan
pursuant to Rule 12b-1 under the 1940 Act with respect to the Adviser
Shares. Under the plan, the Adviser Shares pay fees to USAA Investment
Management Company (IMCO), the distributor, for distribution and
shareholder services. IMCO pays all or a portion of such fees to
intermediaries that make the Adviser Shares available for investment by
their customers. The fee is accrued daily and paid monthly at an annual
rate of 0.25% of the Adviser Shares' average net assets. Adviser Shares
are offered and sold without imposition of an initial sales charge or a
contingent deferred sales charge. For the six-month period ended January
31, 2018, the Adviser Shares incurred distribution and service (12b-1) fees
of $82,000.
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 January 31, 2018,
================================================================================
NOTES TO FINANCIAL STATEMENTS | 57
================================================================================
the USAA fund-of-funds owned the following percentages of the total outstanding
shares of the Fund:
AFFILIATED USAA FUND OWNERSHIP %
-------------------------------------------------------------------------------
Cornerstone Conservative 1.1
Target Retirement Income 0.4
Target Retirement 2020 1.1
Target Retirement 2030 2.1
Target Retirement 2040 1.5
Target Retirement 2050 0.6
Target Retirement 2060 0.0*
*Represents less than 0.1%
The Manager is indirectly wholly owned by United Services Automobile Association
(USAA), a large, diversified financial services institution. At January 31,
2018, USAA and its affiliates owned 482,000 R6 Shares, which represents 100% of
the R6 Shares outstanding, and 0.1% of the Fund's total outstanding shares.
Certain trustees and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Fund.
(9) SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
During the six-month period ended January 31, 2018, 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
---------------------------------------------------------------------------------
Intermediate-Term Bond Core $1,927,000 $(27,000)
Intermediate-Term
Bond ETF
High Income Intermediate-Term 8,441,000 661,000
Bond
================================================================================
58 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
(10) 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 December 2017, the
SEC issued Temporary Final Rule Release No. 33-10442, INVESTMENT COMPANY
REPORTING MODERNIZATION (Temporary Rule), which extends to April 2019 the
compliance date on which funds in larger fund groups, such as the Fund, are
required to begin filing form N-PORT. In the interim, in lieu of filing form
N-PORT, the Temporary Rule requires that funds in larger fund groups maintain in
their records the information that is required to be included in form N-PORT.
The Temporary Rule does not affect the filing date or requirements of form
N-CEN.
In October 2016, the SEC issued Final Rule Release No. 33-10233, INVESTMENT
COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS (Liquidity Rule). The Liquidity Rule
requires funds to establish a liquidity risk management program and enhances
disclosures regarding funds' liquidity.
In February 2018, the SEC issued Interim Final Rule Release No. IC-33010,
INVESTMENT COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS; COMMISSION GUIDANCE FOR
IN-KIND ETFs, which extends, among others, the compliance dates for certain
disclosure requirements under the Liquidity Rule. The compliance date for the
liquidity disclosure required in form N-PORT has been extended to June 1, 2019
for larger entities such as the Fund. The compliance date for the liquidity
disclosure required in form N-CEN for large entities such as the Fund remains
December 1, 2018. The Fund is expected to comply with these compliance dates for
forms N-PORT and N-CEN. The Manager continues to evaluate the impact these rules
and amendments will have on the financial statements and other disclosures.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 59
================================================================================
(11) NEW ACCOUNTING PRONOUNCEMENTS
In March 2017, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Update (ASU) 2017-08, Premium Amortization of Purchased Callable Debt
Securities. The amendments in the ASU shorten the premium amortization period on
a purchased callable debt security from the security's contractual life to the
earliest call date. It is anticipated that this change will enhance disclosures
by reducing losses recognized when a security is called on an earlier date. This
ASU is effective for fiscal years beginning after December 15, 2018. The Manager
continues to evaluate the impact this ASU will have on the financial statement
disclosures.
================================================================================
60 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
(12) FINANCIAL HIGHLIGHTS - FUND SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JANUARY 31, YEAR ENDED JULY 31,
--------------------------------------------------------------------------------------------
2018 2017 2016 2015 2014 2013
--------------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 10.70 $ 10.71 $ 10.58 $ 10.96 $ 10.75 $ 10.81
--------------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .18 .38 .42 .43 .46 .48
Net realized and
unrealized gain (loss) (.13) (.01) .14 (.36) .21 (.04)
--------------------------------------------------------------------------------------------
Total from investment
operations .05 .37 .56 .07 .67 .44
--------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.18) (.38) (.42) (.43) (.46) (.48)
Realized capital gains - - (.01) (.02) (.00)(a) (.02)
--------------------------------------------------------------------------------------------
Total distributions (.18) (.38) (.43) (.45) (.46) (.50)
--------------------------------------------------------------------------------------------
Net asset value at
end of period $ 10.57 $ 10.70 $ 10.71 $ 10.58 $ 10.96 $ 10.75
============================================================================================
Total return (%)* .48 3.52 5.55 .58 6.37 4.08
Net assets at end
of period (000) $1,986,421 $1,949,102 $1,812,716 $2,079,610 $1,926,334 $1,775,162
Ratios to average
net assets:**
Expenses (%)(b) .62(d) .63 .62 .68 .68(c) .65
Expenses, excluding
reimbursements (%)(b) .62(d) .63 .62 .68 .70 .71
Net investment income (%) 3.39(d) 3.57 4.08 3.96 4.21 4.38
Portfolio turnover (%) 6 13 18 13 8 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 January 31, 2018, average net assets were
$1,985,191,000.
(a) Represents less than $0.01 per share.
(b) Reflects total annual operating expenses of the Fund Shares before
reductions of any expenses paid indirectly. The Fund Shares' expenses paid
indirectly decreased the expense ratios as follows:
- - - - - (.00%)(+)
(+) Represents less than 0.01% of average net assets.
(c) Prior to December 1, 2013, the Manager had voluntarily agreed to limit the
annual expenses of the Fund Shares to 0.65% of the Fund Shares' average net
assets.
(d) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 61
================================================================================
(12) FINANCIAL HIGHLIGHTS (CONTINUED) - INSTITUTIONAL SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JANUARY 31, YEAR ENDED JULY 31,
--------------------------------------------------------------------------------------------
2018 2017 2016 2015 2014 2013
--------------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 10.70 $ 10.72 $ 10.58 $ 10.96 $ 10.75 $ 10.81
--------------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .19 .39 .43 .44 .47 .49
Net realized and
unrealized gain (loss) (.13) (.02) .15 (.36) .21 (.04)
--------------------------------------------------------------------------------------------
Total from investment
operations .06 .37 .58 .08 .68 .45
--------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.19) (.39) (.43) (.44) (.47) (.49)
Realized capital gains - - (.01) (.02) (.00)(a) (.02)
--------------------------------------------------------------------------------------------
Total distributions (.19) (.39) (.44) (.46) (.47) (.51)
--------------------------------------------------------------------------------------------
Net asset value at
end of period $ 10.57 $ 10.70 $ 10.72 $ 10.58 $ 10.96 $ 10.75
============================================================================================
Total return (%)* .51 3.51 5.72 .68 6.49 4.18
Net assets at end
of period (000) $2,015,870 $2,049,723 $1,771,357 $1,280,804 $1,284,768 $1,132,579
Ratios to average
net assets:**
Expenses (%)(b) .55(c) .56 .54 .58 .56 .55
3.46(c) 3.64 4.13 4.07 4.32 4.41
Portfolio turnover (%) 6 13 18 13 8 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 January 31, 2018, average net assets were
$1,991,215,000.
(a) Represents less than $0.01 per share.
(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%)(+)
(+) Represents less than 0.01% of average net assets.
(c) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
62 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
(12) FINANCIAL HIGHLIGHTS (CONTINUED) - ADVISER SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JANUARY 31, YEAR ENDED JULY 31,
----------------------------------------------------------------------------------------
2018 2017 2016 2015 2014 2013
----------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 10.69 $ 10.70 $ 10.58 $ 10.95 $ 10.74 $10.80
----------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .17 .35 .40 .41 .39(a) .45
Net realized and
unrealized gain (loss) (.13) (.01) .13 (.35) .25(a) (.04)
----------------------------------------------------------------------------------------
Total from investment
operations .04 .34 .53 .06 .64(a) .41
----------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.17) (.35) (.40) (.41) (.43) (.45)
Realized capital gains - - (.01) (.02) (.00)(b) (.02)
----------------------------------------------------------------------------------------
Total distributions (.17) (.35) (.41) (.43) (.43) (.47)
----------------------------------------------------------------------------------------
Net asset value at
end of period $ 10.56 $ 10.69 $ 10.70 $ 10.58 $ 10.95 $10.74
========================================================================================
Total return (%)* .34 3.28 5.19 .46 6.08 3.77
Net assets at end
of period (000) $59,717 $74,377 $98,835 $118,753 $42,799 $8,890
Ratios to average
net assets:**
Expenses (%)(c) .89(e) .87 .86 .89(d) .94 .95
Expenses, excluding
reimbursements (%)(c) .89(e) .87 .86 .89 .94 1.06
Net investment income (%) 3.13(e) 3.34 3.85 3.74 3.83 4.07
Portfolio turnover (%) 6 13 18 13 8 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 January 31, 2018, average net assets were
$65,324,000.
(a) Calculated using average shares.
(b) Represents less than $0.01 per share.
(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%)(+)
(+) Represents less than 0.01% of average net assets.
(d) Prior to December 1, 2014, the Manager had voluntarily agreed to limit the
annual expenses of the Adviser Shares to 0.95% of the Adviser Shares'
average net assets.
(e) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 63
================================================================================
(12) 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
JANUARY 31, JULY 31,
-----------------------------------------------
2018 2017***
-----------------------------------------------
Net asset value at beginning of period $10.71 $10.38
------------------------------------------
Income (loss) from investment operations:
Net investment income .20 .26
Net realized and unrealized gain (loss) (.16) .33
------------------------------------------
Total from investment operations .04 .59
------------------------------------------
Less distributions from:
Net investment income (.18) (.26)
------------------------------------------
Net asset value at end of period $10.57 $10.71
==========================================
Total return (%)* .51 5.79
Net assets at end of period (000) $5,095 $5,158
Ratios to average net assets:**
Expenses (%)(a) .39 .39
Expenses, excluding reimbursements (%)(a) .86 1.07
Net investment income (%)(a) 3.62 3.78
Portfolio turnover (%) 6 13
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended January 31, 2018, average net assets were
$5,159,564.
*** R6 Shares commenced operations on December 1, 2016.
(a) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
64 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
EXPENSE EXAMPLE
January 31, 2018 (unaudited)
--------------------------------------------------------------------------------
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: direct costs, such
as wire fees, redemption fees, and low balance fees; and indirect costs,
including management fees, transfer agency fees, distribution and service
(12b-1) fees, and other Fund operating expenses. This example is intended to
help you understand your indirect costs, also referred to as "ongoing costs" (in
dollars), of investing in the Fund and to compare these costs with the ongoing
costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire six-month period of August 1, 2017, through
January 31, 2018.
ACTUAL EXPENSES
The line labeled "actual" under each share class in the table provides
information about actual account values and actual expenses. You may use the
information in this line, together with the amount you invested at the beginning
of the period, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number for your share
class in the "actual" line under the heading "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The line labeled "hypothetical" under each share class in the table provides
information about hypothetical account values and hypothetical expenses based on
the Fund's actual expense ratios for each class and an assumed rate of return of
5% per year before expenses, which is not the Fund's actual return. The
hypothetical account values and expenses may not be used to estimate the actual
================================================================================
EXPENSE EXAMPLE | 65
================================================================================
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 AUGUST 1, 2017 -
AUGUST 1, 2017 JANUARY 31, 2018 JANUARY 31, 2018
----------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $1,004.80 $3.13
Hypothetical
(5% return before expenses) 1,000.00 1,022.08 3.16
INSTITUTIONAL SHARES
Actual 1,000.00 1,005.10 2.78
Hypothetical
(5% return before expenses) 1,000.00 1,022.43 2.80
ADVISER SHARES
Actual 1,000.00 1,003.40 4.49
Hypothetical
(5% return before expenses) 1,000.00 1,020.72 4.53
R6 SHARES
Actual 1,000.00 1,005.10 1.97
Hypothetical
(5% return before expenses) 1,000.00 1,023.24 1.99
*Expenses are equal to the annualized expense ratio of 0.62% for Fund Shares,
0.55% for Institutional Shares, 0.89% for Adviser Shares, and 0.39% for R6
Shares, which are net of any reimbursements and expenses paid indirectly,
multiplied by the average account value over the period, multiplied by 184
days/365 days (to reflect the one-half-year period). The Fund's actual ending
account values are based on its actual total returns of 0.48% for Fund Shares,
0.51% for Institutional Shares, 0.34% for Adviser Shares, and 0.51% for R6
Shares, for the six-month period of August 1, 2017, through January 31, 2018.
================================================================================
66 | USAA INTERMEDIATE-TERM BOND FUND
================================================================================
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Jefferson C. Boyce
Dawn M. Hawley
Paul L. McNamara
Richard Y. Newton III
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
--------------------------------------------------------------------------------
ADMINISTRATOR AND USAA Asset Management Company
INVESTMENT ADVISER P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
UNDERWRITER AND USAA Investment Management Company
DISTRIBUTOR P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
--------------------------------------------------------------------------------
CUSTODIAN 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)
=============================================================================
40049-0318 (C)2018, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA MONEY MARKET FUND]
============================================================
SEMIANNUAL REPORT
USAA MONEY MARKET FUND (USAXX)
JANUARY 31, 2018
============================================================
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
INVESTMENT OVERVIEW 2
FINANCIAL INFORMATION
portfolio of investments 3
Notes to Portfolio of Investments 13
Financial Statements 16
Notes to Financial Statements 19
EXPENSE EXAMPLE 28
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE
RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY
USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN
PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS
ABOUT THE FUND.
(C)2018, USAA. All rights reserved.
================================================================================
================================================================================
FUND OBJECTIVE
THE USAA MONEY MARKET FUND (THE FUND) SEEKS THE HIGHEST INCOME CONSISTENT WITH
PRESERVATION OF CAPITAL AND THE MAINTENANCE OF LIQUIDITY.
--------------------------------------------------------------------------------
TYPES OF INVESTMENTS
The Fund invests its assets in high-quality, U.S. dollar-denominated,
short-term debt securities of domestic and foreign issuers that have been
determined to present minimal credit risk and comply with strict Securities and
Exchange Commission (SEC) guidelines applicable to money market funds.
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 PORTFOLIO MIX - 1/31/18 o
[PIE CHART OF PORTFOLIO MIX]
EURODOLLAR AND YANKEE OBLIGATIONS 24.0%
CERTIFICATES OF DEPOSIT 20.6%
CORPORATE OBLIGATIONS 19.0%
COMMERCIAL PAPER 14.9%
MUNICIPAL OBLIGATIONS 13.4%
U.S. TREASURY SECURITIES 5.0%
REPURCHASE AGREEMENTS 3.0%
[END CHART]
Percentages are of the net assets of the Fund and may not equal 100%.
You will find a complete list of securities that the Fund owns on pages 3-12.
================================================================================
2 | USAA MONEY MARKET FUND
================================================================================
PORTFOLIO OF INVESTMENTS
January 31, 2018 (unaudited)
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
EURODOLLAR AND YANKEE OBLIGATIONS (24.0%)
DIVERSIFIED BANKS (17.9%)
$ 40,000 Bank of Nova Scotia 1 mo. LIBOR + 0.24% 1.80%(a) 10/26/2018 $ 40,000
25,000 Bank of Nova Scotia 1 mo. LIBOR + 0.24% 1.82(a) 1/02/2019 25,000
45,000 Bayerische Landesbank 1 mo. LIBOR + 0.40% 1.96(a) 4/23/2018 45,000
30,000 Bayerische Landesbank 1 mo. LIBOR + 0.40% 1.95(a) 5/09/2018 30,000
50,000 BNP Paribas S.A. 1 mo. LIBOR + 0.20% 1.76(a) 8/28/2018 50,000
25,000 BNP Paribas S.A. 1 mo. LIBOR + 0.21% 1.77(a) 9/20/2018 25,000
40,000 BNP Paribas S.A. 1 mo. LIBOR + 0.23% 1.81(a) 10/01/2018 40,000
30,000 BNP Paribas S.A. 1 mo. LIBOR + 0.23% 1.79(a) 10/24/2018 30,000
40,000 Canadian Imperial Bank of Commerce 1
mo. LIBOR + 0.24% 1.81(a) 10/29/2018 40,000
30,000 Canadian Imperial Bank of Commerce 1
mo. LIBOR + 0.20% 1.76(a) 11/21/2018 30,000
30,000 Canadian Imperial Bank of Commerce 1
mo. LIBOR + 0.24% 1.82(a) 1/02/2019 30,000
25,000 Mizuho Bank Ltd. 1 mo. LIBOR + 0.18% 1.74(a) 3/22/2018 25,000
30,000 Mizuho Bank Ltd. 1 mo. LIBOR + 0.20% 1.76(a) 7/18/2018 30,000
25,000 Natixis 1 mo. LIBOR + 0.25% 1.82(a) 7/31/2018 25,000
25,000 Norinchukin Bank 1 mo. LIBOR + 0.15% 1.71(a) 5/25/2018 25,000
25,000 Royal Bank of Canada 1 mo. LIBOR + 0.21% 1.77(a) 9/20/2018 25,000
40,000 Societe Generale 1 mo. LIBOR + 0.42% 1.98(a) 4/12/2018 40,000
25,000 Standard Chartered Bank 1 mo. LIBOR + 0.19% 1.75(a) 2/08/2018 25,000
35,000 Standard Chartered Bank 1 mo. LIBOR + 0.21% 1.77(a) 6/22/2018 35,000
30,000 Standard Chartered Bank 1 mo. LIBOR + 0.25% 1.82(a) 10/29/2018 30,000
30,000 Sumitomo Mitsui Banking Corp. 1 mo.
LIBOR + 0.20% 1.75(a) 5/10/2018 30,000
30,000 Sumitomo Mitsui Banking Corp. 1 mo.
LIBOR + 0.25% 1.81(a) 10/24/2018 30,000
40,000 Westpac Banking Corp. 1 mo. LIBOR + 0.23% 1.78(a) 1/10/2019 40,000
40,000 Westpac Banking Corp. 1 mo. LIBOR + 0.23% 1.79(a) 1/18/2019 40,000
----------
785,000
----------
DIVERSIFIED CAPITAL MARKETS (5.0%)
50,000 Credit Suisse AG 1 mo. LIBOR + 0.35% 1.91(a) 4/20/2018 50,000
50,000 Credit Suisse AG 1 mo. LIBOR + 0.37% 1.93(a) 5/02/2018 50,000
25,000 Credit Suisse AG 1 mo. LIBOR + 0.25% 1.80(a) 8/06/2018 25,000
================================================================================
PORTFOLIO OF INVESTMENTS | 3
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 25,000 Deutsche Bank 1 mo. LIBOR + 0.57% 2.13%(a) 6/14/2018 $ 25,000
40,000 Deutsche Bank 1 mo. LIBOR + 0.58% 2.16(a) 7/02/2018 40,000
30,000 Deutsche Bank 1 mo. LIBOR + 0.51% 2.07(a) 7/17/2018 30,000
----------
220,000
----------
OTHER DIVERSIFIED FINANCIAL SERVICES (1.1%)
50,000 Toronto-Dominion 1 mo. LIBOR + 0.20% 1.75(a) 8/06/2018 50,000
----------
Total Eurodollar and Yankee Obligations (cost: $1,055,000) 1,055,000
----------
CERTIFICATES OF DEPOSIT (20.6%)
DIVERSIFIED BANKS (17.5%)
25,000 Bank of Montreal 1.70 3/21/2018 25,000
40,000 Bank of Montreal 1.73 4/02/2018 40,000
30,000 Bank of Montreal 1.61 5/17/2018 30,000
50,000 Bank of Montreal 1.66 6/01/2018 50,000
50,000 Bank of Nova Scotia 1.71 4/09/2018 50,000
50,000 Bank of Nova Scotia 1.70 6/18/2018 50,000
30,000 Bayerische Landesbank 1.55 2/15/2018 30,000
30,000 Canadian Imperial Bank of Commerce 1.47 4/05/2018 30,000
25,000 DnB NOR Bank ASA 1.40 4/17/2018 25,000
35,000 Landesbank Baden-Wurttemberg 1.62 2/12/2018 35,000
48,000 Landesbank Baden-Wurttemberg 1.60 4/03/2018 48,000
30,000 Landesbank Baden-Wurttemberg 1.75 6/11/2018 30,000
25,000 Mizuho Bank Ltd. 1.60 3/07/2018 25,000
40,000 Natixis 1.80 6/13/2018 40,000
25,000 Nordea Bank AB 1.90 7/23/2018 25,000
55,000 Norinchukin Bank 1.45 3/27/2018 55,000
40,000 Societe Generale 1.85 5/31/2018 40,000
40,000 Standard Chartered Bank 1.75 4/02/2018 40,000
50,000 Wells Fargo Bank, N.A. 1.65 6/01/2018 50,000
25,000 Wells Fargo Bank, N.A. 1.70 6/19/2018 25,000
25,000 Wells Fargo Bank, N.A. 1.95 12/07/2018 25,000
----------
768,000
----------
DIVERSIFIED CAPITAL MARKETS (2.0%)
25,000 Credit Suisse AG 1.75 8/01/2018 25,000
25,000 Credit Suisse AG 1.76 8/08/2018 25,000
40,000 Deutsche Bank 1.89 4/19/2018 40,000
----------
90,000
----------
OTHER DIVERSIFIED FINANCIAL SERVICES (1.1%)
50,000 Toronto-Dominion 1.60 3/20/2018 50,000
----------
Total Certificates of Deposit (cost: $908,000) 908,000
----------
================================================================================
4 | USAA MONEY MARKET FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
CORPORATE OBLIGATIONS (19.0%)
BUILDING PRODUCTS (0.2%)
$ 3,850 Cornell Iron Works, Inc. (LOC - Bank of America Corp.)(b) 1.80% 4/01/2019 $ 3,850
2,685 Moondance Enterprises, LP (LOC - PNC
Financial Services Group)(b) 1.55 11/01/2020 2,685
----------
6,535
----------
COMMERCIAL PRINTING (0.0%)
1,493 Fairway, LLC (LOC - Federal Home Loan
Bank of San Francisco)(b) 1.65 12/01/2023 1,493
----------
DISTRIBUTORS (0.3%)
14,405 Bhavnani, LLC (LOC - U.S. Bancorp)(b) 1.60 5/01/2038 14,405
----------
DIVERSIFIED BANKS (5.9%)
15,691 Bank of America Corp. 6.88 4/25/2018 15,869
32,680 Citigroup, Inc. 1.70 4/27/2018 32,671
68,665 Citigroup, Inc. 3 mo. LIBOR + 0.69% 2.45(a) 4/27/2018 68,735
55,800 Citigroup, Inc. 2.15 7/30/2018 55,890
27,405 JPMorgan Chase & Co. 3 mo. LIBOR + 0.63% 2.39(a) 1/28/2019 27,529
35,000 Wells Fargo Bank, N.A. 1 mo. LIBOR + 0.21% 1.78(a) 10/31/2018 35,000
25,000 Wells Fargo Bank, N.A. 1 mo. LIBOR + 0.25% 1.81(a) 1/16/2019 25,000
----------
260,694
----------
DIVERSIFIED REAL ESTATE ACTIVITIES (1.7%)
25,000 Fiore Capital, LLC (LOC - Wells Fargo & Co.)(b) 1.50 8/01/2045 25,000
26,315 Paca-Pratt Associates, Inc. (LOC -
Manufacturers & Traders Trust Co.)(b) 2.01 1/01/2038 26,315
12,287 Pinnacle Properties Development
Group, LLC (LOC - Federal Home Loan
Bank of Cincinnati)(b) 1.56 6/15/2041 12,287
11,485 Stobro Co., LP (LOC - Federal Home Loan
Bank of Pittsburgh)(b) 1.60 1/01/2032 11,485
----------
75,087
----------
EDUCATION SERVICES (0.1%)
4,815 Harvest Time Tabernacle, Inc. (LOC -
Federal Home Loan Bank of Dallas)(b) 1.58 8/01/2037 4,815
575 Summit Country Day School (LOC - U.S. Bancorp)(b) 1.80 2/01/2019 575
----------
5,390
----------
FOOD DISTRIBUTORS (0.1%)
3,800 Business Finance Corp. (LOC - Federal
Home Loan Bank of Dallas)(b) 1.75 8/01/2021 3,800
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 5
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
FOOD RETAIL (0.5%)
$ 20,000 Altoona-Blair County Development Corp.
(LOC - PNC Financial Services Group)(b),(c) 1.55% 4/01/2035 $ 20,000
1,860 Food Supply, Inc. (LOC - SunTrust Bank)(b) 1.75 5/01/2024 1,860
----------
21,860
----------
FOREST PRODUCTS (0.1%)
3,000 Rex Lumber, LLC (LOC - Federal Home
Loan Bank of Dallas)(b) 1.56 2/01/2022 3,000
----------
HEALTH CARE EQUIPMENT (0.2%)
1,190 Labcon North America (LOC - BNP Paribas)(b) 1.55 1/01/2040 1,190
7,610 Labcon North America (LOC - BNP Paribas)(b) 1.55 6/01/2044 7,610
----------
8,800
----------
HEALTH CARE FACILITIES (0.9%)
6,510 Bronson Lifestyle Improvement & Research
Center Co. (LOC - Fifth Third Bank)(b) 1.58 9/01/2030 6,510
1,550 HP LRHS Land, LLC (LOC - U.S. Bancorp)(b) 1.78 10/01/2030 1,550
1,100 MBE Investment Co., LLC (LOC - Comerica
Bank, N.A.)(b) 1.73 2/01/2051 1,100
2,395 MCE MOB IV, LP (LOC - PNC Financial
Services Group)(b) 1.55 8/01/2022 2,395
2,670 Medical Center of Athens, Inc. (LOC - Federal
Home Loan Bank of Atlanta)(b) 1.86 9/01/2032 2,670
6,930 Medilucent MOB I, LP (LOC - PNC
Financial Services Group)(b) 1.55 8/01/2030 6,930
11,195 MMC Corp. (LOC - JP Morgan Chase & Co.)(b) 2.15 11/01/2035 11,195
4,560 Sawmill Creek Lodge Co. (LOC - Fifth Third Bank)(b) 1.69 10/01/2026 4,560
2,620 Tallahassee Orthopedic Center LC (LOC - Wells
Fargo & Co.)(b) 1.56 4/03/2034 2,620
----------
39,530
----------
HEALTH CARE SERVICES (0.3%)
5,520 Kaneville Road Joint Venture, Inc. (LOC - Federal
Home Loan Bank of Chicago)(b) 1.56 11/01/2032 5,520
5,515 Vold Vision Ventures, LLC (LOC - Federal
Home Loan Bank of Dallas)(b) 1.58 10/01/2039 5,515
----------
11,035
----------
HOTELS, RESORTS & CRUISE LINES (0.0%)
1,445 Doghouse Properties, LLC (LOC - Federal
Home Loan Bank of Atlanta)(b) 1.56 5/01/2027 1,445
----------
INVESTMENT BANKING & BROKERAGE (2.7%)
86,736 Goldman Sachs Group, Inc. 6.15 4/01/2018 87,352
================================================================================
6 | USAA MONEY MARKET FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 29,188 Goldman Sachs Group, Inc. 3 mo.
LIBOR + 1.10% 2.52%(a) 11/15/2018 $ 29,380
----------
116,732
----------
LEISURE FACILITIES (0.7%)
9,325 BallenIsles Country Club, Inc. (LOC -
Bank of America Corp.)(b) 1.66 12/01/2022 9,325
4,005 Cattail Creek Country Club, Inc. (LOC -
Manufacturers & Traders Trust Co.)(b) 2.03 3/01/2031 4,005
9,350 CEI Capital, LLC (LOC - Fifth Third Bank)(b) 1.64 3/01/2033 9,350
9,400 Turfway Park, LLC (LOC - Fifth Third Bank)(b) 1.82 7/01/2022 9,400
----------
32,080
----------
LIFE & HEALTH INSURANCE (0.4%)
2,670 2016 David S Pearl II Irrevocable Trust
(LOC - Federal Home Loan Bank of Dallas)(b) 1.56 11/01/2036 2,670
5,800 Jacob Rosenstein 2017 Irrevocable Life
Insurance Trust (LOC - Bank of Oklahoma, N.A.)(b) 1.56 8/01/2037 5,800
4,445 Lamar Avenue Trust (LOC - Federal
Home Loan Bank of Dallas)(b) 1.56 12/01/2037 4,445
5,490 Linda E Krejsek Life Insurance Trust
(LOC - Federal Home Loan Bank of Dallas)(b) 1.56 9/01/2037 5,490
----------
18,405
----------
PACKAGED FOODS & MEATS (0.2%)
2,140 Brewster Cheese Co. (LOC - Bank of Montreal)(b) 1.63 4/03/2023 2,140
7,500 Premier Mushrooms, Inc. (LOC - CoBank, ACB)(b) 1.56 12/01/2037 7,500
----------
9,640
----------
PAPER PRODUCTS (0.0%)
695 Jackson Paper Co. (LOC - Federal Home
Loan Bank of Atlanta)(b) 1.56 4/01/2027 695
----------
PUBLISHING (1.1%)
50,000 AARP, Inc. (LOC - Bank of America Corp.)(b) 1.68 5/01/2031 50,000
----------
REAL ESTATE OPERATING COMPANIES (2.0%)
5,000 ASC Admiral Way, LLC (LOC - Federal
Home Loan Bank of San Francisco)(b) 1.55 8/01/2056 5,000
1,445 Cain Capital Investments, LLC (LOC - BB&T Corp.)(b) 1.82 10/01/2046 1,445
10,815 Delos, LLC (LOC - Wells Fargo & Co.)(b) 1.59 3/01/2037 10,815
2,700 Dennis Wesley Co., Inc. (LOC - Federal
Home Loan Bank of Indianapolis)(b) 1.56 6/15/2034 2,700
7,000 Desert Vistas, LP (LOC - Federal Home
Loan Bank of San Francisco)(b) 1.54 9/01/2055 7,000
7,450 EMF, LLC (LOC - Comerica Bank, N.A.)(b) 1.60 6/01/2042 7,450
================================================================================
PORTFOLIO OF INVESTMENTS | 7
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 2,950 Foster/Schweihofer Real Estate Co., LLC
(LOC - Comerica Bank, N.A.)(b) 1.62% 9/20/2033 $ 2,950
3,785 Herman & Kittle Capital, LLC (LOC -
Federal Home Loan Bank of Cincinnati)(b) 1.56 2/01/2037 3,785
9,345 Housing Venture I (LOC - Federal Home
Loan Bank of San Francisco)(b) 1.55 12/01/2055 9,345
3,425 Partisan Property, Inc. (LOC - Wells Fargo & Co.)(b) 1.55 9/01/2044 3,425
13,790 Pineview Estates LC (LOC - Fifth Third Bank)(b) 1.64 4/01/2038 13,790
620 Science & Technology Campus Corp.
(LOC - Fifth Third Bank)(b) 1.69 11/01/2020 620
18,485 Sugar Creek Finance Co., LLC (LOC -
Northern Trust Corp.)(b) 1.54 6/01/2042 18,485
----------
86,810
----------
SPECIALTY STORES (0.7%)
27,315 Bass Pro Rossford Development
Co., LLC (LOC - Fifth Third Bank)(b) 1.69 11/01/2027 27,315
2,340 NextGen Automotive, LLC (LOC - Fifth Third Bank)(b) 1.64 4/01/2048 2,340
----------
29,655
----------
STEEL (0.9%)
2,490 Klein Steel Service, Inc. (LOC - Manufacturers & Traders
Trust Co.)(b),(c) 2.03 8/01/2025 2,490
20,000 SSAB AB (LOC - Swedbank AB)(b) 1.56 4/01/2034 20,000
15,000 SSAB AB (LOC - Credit Agricole Corp. Inv. Bank)(b) 1.56 5/01/2034 15,000
----------
37,490
----------
Total Corporate Obligations (cost: $834,581) 834,581
----------
COMMERCIAL PAPER (14.9%)
17,000 Autozone, Inc.(c) 1.75 2/06/2018 16,996
20,000 Autozone, Inc.(c) 1.76 2/15/2018 19,986
30,000 Bayerische Landesbank 1.80 5/01/2018 29,867
54,000 CVS Corp.(c) 1.63 2/01/2018 54,000
16,700 Ei Du Pont De Nemours(c) 1.63 2/01/2018 16,700
11,000 Ei Du Pont De Nemours(c) 1.75 2/02/2018 10,999
5,000 Ei Du Pont De Nemours(c) 1.80 2/06/2018 4,999
11,000 Ei Du Pont De Nemours(c) 1.76 2/09/2018 10,996
11,000 Ei Du Pont De Nemours(c) 1.77 2/13/2018 10,994
20,000 Ei Du Pont De Nemours(c) 1.72 3/01/2018 19,973
20,000 Gotham Funding Corp.(c) 1.58 2/01/2018 20,000
10,000 Hyundai Capital America(c) 1.78 2/05/2018 9,998
10,000 Hyundai Capital America(c) 1.76 2/07/2018 9,997
14,000 Hyundai Capital America(c) 1.76 2/21/2018 13,986
25,000 Hyundai Capital America(c) 1.81 3/01/2018 24,965
================================================================================
8 | USAA MONEY MARKET FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 25,600 Liberty Funding, LLC(c) 1.82% 5/11/2018 $ 25,472
14,000 LMA Americas, LLC(c) 1.48 2/01/2018 14,000
50,000 LMA Americas, LLC(c) 1.82 5/17/2018 49,735
125,000 LyondellBasell Industries N.V.(c) 1.65 2/01/2018 125,000
31,000 Manhattan Asset Funding Co., LLC(c) 1.65 3/08/2018 30,950
58,750 Pacific Gas & Electric Co.(c) 1.60 2/01/2018 58,750
24,500 Sheffield Receivable Co., LLC(c) 1.45 2/14/2018 24,487
14,000 Sheffield Receivable Co., LLC(c) 1.75 4/05/2018 13,957
38,500 Victory Receivables(c) 1.74 4/16/2018 38,362
----------
Total Commercial Paper (cost: $655,169) 655,169
----------
MUNICIPAL OBLIGATIONS (13.4%)
ALABAMA (0.2%)
7,250 Mobile Alabama IDB(b) 1.24 9/01/2031 7,250
----------
ARIZONA (0.6%)
26,625 Yavapai County IDA (LOC - Bank of Nova Scotia)(b) 1.60 9/01/2035 26,625
----------
ARKANSAS (0.6%)
28,750 Union County (LOC - SunTrust Bank)(b) 1.73 10/01/2027 28,750
----------
CALIFORNIA (0.1%)
630 Alameda County IDA (LOC - BNP Paribas)(b) 1.57 12/01/2040 630
4,030 Hesperia Public Financing Auth. (LOC - BNP Paribas)(b) 1.55 6/01/2026 4,030
----------
4,660
----------
COLORADO (0.3%)
2,800 Sheridan Redev. Agency (LOC - JP Morgan
Chase & Co.)(b) 1.60 12/01/2029 2,800
10,704 Traer Creek Metropolitan District (LOC -
BNP Paribas)(b) 1.60 10/01/2030 10,704
----------
13,504
----------
CONNECTICUT (0.1%)
2,990 Dev. Auth. (LOC - Toronto-Dominion Bank)(b) 1.62 12/01/2028 2,990
----------
FLORIDA (0.1%)
5,000 Collier County IDA (LOC - Wells Fargo & Co.)(b) 1.19 10/01/2025 5,000
----------
GEORGIA (0.1%)
1,950 Cobb County Development Auth. (LOC -
Federal Home Loan Bank of Atlanta)(b) 1.56 2/01/2030 1,950
2,510 Fulton County Development Auth. (LOC -
Federal Home Loan Bank of Atlanta)(b) 1.36 5/01/2030 2,510
----------
4,460
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 9
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
ILLINOIS (0.6%)
$ 3,565 Finance Auth. (LOC - Federal Home
Loan Bank of Chicago)(b) 1.58% 7/01/2040 $ 3,565
22,170 University of Illinois (LOC - Northern Trust Corp.)(b) 1.50 4/01/2044 22,170
----------
25,735
----------
INDIANA (0.8%)
560 City of Indianapolis (LOC - Citizens Financial Group)(b) 1.83 11/01/2042 560
11,300 City of Knox (LOC - SunTrust Bank)(b) 1.79 2/01/2046 11,300
6,830 City of Marion (LOC - Key Bank, N.A.)(b) 1.63 2/01/2035 6,830
15,750 Dev. Finance Auth.(b) 1.21 12/01/2038 15,750
2,200 Finance Auth. (LOC - Bank of America Corp.)(b) 1.28 12/01/2027 2,200
----------
36,640
----------
IOWA (0.6%)
25,000 Finance Auth.(b) 1.18 12/01/2047 25,000
----------
KENTUCKY (0.2%)
7,815 Hancock County (LOC - Wells Fargo & Co.)(b) 1.36 4/01/2028 7,815
----------
LOUISIANA (0.2%)
2,440 Caddo Parish Industrial Development
Board, Inc. (LOC - Capital One, N.A.)(b) 1.47 7/01/2024 2,440
2,605 Public Facilities Auth. (LOC - Capital One, N.A.)(b) 1.79 7/01/2028 2,605
3,875 St. Charles Parish (LOC - Federal Home
Loan Bank of Atlanta)(b) 1.57 9/01/2024 3,875
1,860 State Tammany Parish Economic &
Industrial Development District (LOC - Federal
Home Loan Bank of Dallas)(b) 1.59 7/01/2022 1,860
----------
10,780
----------
MICHIGAN (4.3%)
14,305 Charter Township of Commerce (LOC - PNC
Financial Services Group)(b) 1.54 10/01/2034 14,305
65,000 Finance Auth. (LOC - PNC Financial Services Group)(b) 1.50 9/01/2050 65,000
90,500 Finance Auth. (LOC - JP Morgan Chase & Co.)(b) 1.60 9/01/2053 90,500
20,565 Finance Auth. (LOC - Bank of Montreal)(b) 1.47 9/01/2050 20,565
----------
190,370
----------
MINNESOTA (0.3%)
11,560 St. Paul (LOC - Wells Fargo & Co.)(b) 1.48 11/01/2025 11,560
----------
MISSISSIPPI (0.1%)
2,500 Business Finance Corp. (LOC - Federal
Home Loan Bank of Dallas)(b) 1.60 7/01/2020 2,500
----------
================================================================================
10 | USAA MONEY MARKET FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
NEW YORK (2.6%)
$ 4,380 Brookhaven Industrial Development
Agency (LOC - Capital One, N.A.)(b) 1.68% 1/01/2025 $ 4,380
1,665 Columbia County IDA (LOC - HSBC Bank USA, Inc.)(b) 1.62 7/01/2027 1,665
5,800 Housing Finance Agency (LOC -
Landesbank Hessen-Thuringen)(b) 1.45 5/01/2041 5,800
40,200 Housing Finance Agency (LOC -
Landesbank Hessen-Thuringen)(b) 1.42 11/01/2044 40,200
13,350 Housing Finance Agency (LOC -
Landesbank Hessen-Thuringen)(b) 1.45 5/01/2042 13,350
22,350 Housing Finance Agency (LOC - JP
Morgan Chase & Co.)(b) 1.55 11/01/2048 22,350
4,310 Putnam County IDA (LOC - Citizens
Financial Group)(b) 1.45 7/01/2032 4,310
24,365 Saratoga County IDA (LOC - JP Morgan
Chase & Co.)(b) 1.57 11/01/2021 24,365
----------
116,420
----------
PENNSYLVANIA (0.3%)
4,736 Allegheny County IDA (LOC - PNC
Financial Services Group)(b) 1.63 11/01/2027 4,736
1,850 Berks County Municipal Auth. (LOC -
Citizens Financial Group)(b) 1.74 5/15/2022 1,850
3,090 East Hempfield Township IDA (LOC -
Fulton Bank)(b) 1.45 10/15/2026 3,090
2,500 Economic Development Financing Auth.
(LOC - PNC Financial Services Group)(b) 1.55 4/01/2035 2,500
1,610 Lancaster IDA (LOC - Fulton Bank)(b) 1.75 6/01/2027 1,610
----------
13,786
----------
SOUTH CAROLINA (0.1%)
2,500 Berkeley County(b) 1.37 9/01/2028 2,500
----------
TEXAS (1.1%)
38,930 Port of Port Arthur Navigation District(b) 1.54 12/01/2027 38,930
8,000 Port of Port Arthur Navigation District(b) 1.25 4/01/2040 8,000
----------
46,930
----------
VIRGINIA (0.0%)
135 Roanoke County EDA (LOC - BB&T Corp.)(b) 2.56 10/01/2028 135
----------
WISCONSIN (0.1%)
1,855 Franklin IDB (LOC - Federal Home Loan
Bank of Chicago)(b) 1.38 7/01/2032 1,855
================================================================================
PORTFOLIO OF INVESTMENTS | 11
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 4,890 West Bend Housing Auth. (LOC - Federal
Home Loan Bank of Chicago)(b) 1.38% 9/01/2035 $ 4,890
----------
6,745
----------
Total Municipal Obligations (cost: $590,155) 590,155
----------
U.S. TREASURY SECURITIES (5.0%)
BILLS (2.9%)(d)
38,000 1.20%, 04/05/2018 37,920
25,000 1.41%, 05/24/2018 24,891
40,000 1.41%, 05/24/2018 39,824
25,000 1.61%, 10/11/2018 24,718
----------
127,353
----------
NOTES (2.1%)(e)
10,000 1.60%(a),(f), 07/31/2018, 3 mo. USTMMR + 0.174% 10,012
20,000 1.60%(a),(f), 10/31/2018, 3 mo. USTMMR + 0.17% 20,035
65,000 1.62%(a),(f), 04/30/2018, 3 mo. USTMMR + 0.19% 65,036
----------
95,083
----------
Total U.S. Treasury Securities (cost: $222,436) 222,436
----------
REPURCHASE AGREEMENTS (3.0%)
131,000 Natixis Securities Americas, LLC, 1.32%, acquired 1/31/2018 and
due on 2/01/2018 at $131,000 (collateralized by $28,911 of
U.S. Treasury, 1.75% - 8.75%, due 8/15/2020 - 2/15/2027;
$2 of U.S. Treasury, 1.54%, due 6/21/2018; $100,990 of
Fannie Mae, 3.00% - 4.50%, due 11/01/2031 - 4/01/2047;
$3,722 of Freddie Mac, 4.00% - 5.00%, due 1/01/2039 - 1/01/2048;
combined market value $133,625)(d),(e),(g) (cost: $131,000) 131,000
----------
TOTAL INVESTMENTS (COST: $4,396,341) $4,396,341
==========
-----------------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
-----------------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
-----------------------------------------------------------------------------------------------------------------------
Money Market Instruments:
Eurodollar and Yankee Obligations $- $1,055,000 $- $1,055,000
Certificates of Deposit - 908,000 - 908,000
Corporate Obligations - 834,581 - 834,581
Commercial Paper - 655,169 - 655,169
Municipal Obligations - 590,155 - 590,155
U.S. Treasury Securities - 222,436 - 222,436
Repurchase Agreements - 131,000 - 131,000
-----------------------------------------------------------------------------------------------------------------------
Total $- $4,396,341 $- $4,396,341
-----------------------------------------------------------------------------------------------------------------------
================================================================================
12 | USAA MONEY MARKET FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
January 31, 2018 (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 January 31, 2018, 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 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.
CERTIFICATES OF DEPOSIT - Certificates of deposit are receipts issued by a
depository institution in exchange for the deposit of funds. The issuer
agrees to pay the amount deposited plus interest to the bearer of the
receipt on the date specified on the certificate. The certificate usually
can be traded in the secondary market prior to maturity.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 13
================================================================================
COMMERCIAL PAPER - Consists of short-term unsecured promissory notes with
maturities ranging from one to 270 days, issued mainly by corporations.
Commercial paper is usually purchased at a discount and matures at par
value; however, it also may be interest-bearing.
o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS
EDA Economic Development Authority
IDA Industrial Development Authority/Agency
IDB Industrial Development Board
LIBOR London Interbank Offered Rate
USTMMR Quarterly US Treasury Money Market Rate
CREDIT ENHANCEMENTS - Adds the financial strength of the provider of the
enhancement to support the issuer's ability to repay the principal and
interest payments when due. The enhancement may be provided by a
high-quality bank, insurance company or other corporation, or a collateral
trust. The enhancements do not guarantee the market values of the
securities.
The Fund's purchases consist of securities meeting the requirements to
qualify as "eligible securities" under the Securities and Exchange
Commission (SEC) regulations applicable to money market funds. In order to
qualify as an eligible security, USAA Mutual Funds Trust's Board of Trustees
(the Board), must determine that the particular investment presents minimal
credit risk in accordance with these SEC regulations.
LOC Principal and interest payments are guaranteed by a bank letter of
credit or other bank credit agreement.
o SPECIFIC NOTES
(a) Variable-rate security - interest rate is adjusted periodically. The
interest rate disclosed represents the rate at January 31, 2018.
(b) Variable-rate demand notes (VRDNs) - Provide the right to sell the
security at face value on either that day or within the rate-reset
================================================================================
14 | USAA MONEY MARKET FUND
================================================================================
period. VRDNs will normally trade as if the maturity is the earlier put
date, even though stated maturity is longer. The interest rate is
adjusted at a stipulated daily, weekly, monthly, quarterly, or other
specified time interval to reflect current market conditions. These
securities do not indicate a reference rate and spread in their
description.
(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 the Board,
unless otherwise noted as illiquid.
(d) Rate represents an annualized yield at time of purchase, not coupon
rate.
(e) Rates for U.S. Treasury notes or bonds represent the stated coupon
payment rate at time of issuance.
(f) 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.
(g) Securities issued by government-sponsored enterprises are supported
only by the right of the government-sponsored enterprise to borrow from
the U.S. Treasury, the discretionary authority of the U.S. government
to purchase the government-sponsored enterprises' obligations, or by
the credit of the issuing agency, instrumentality, or corporation, and
are neither issued nor guaranteed by the U.S. Treasury.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 15
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
January 31, 2018 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities (amortized cost approximates market value) $4,396,341
Cash 1,074
Receivables:
Capital shares sold 25,302
Interest 8,326
----------
Total assets 4,431,043
----------
LIABILITIES
Payables:
Capital shares redeemed 27,132
Dividends on capital shares 27
Accrued management fees 897
Other accrued expenses and payables 558
----------
Total liabilities 28,614
----------
Net assets applicable to capital shares outstanding $4,402,429
==========
NET ASSETS CONSIST OF:
Paid-in capital $4,402,423
Undistributed net investment income 6
----------
Net assets applicable to capital shares outstanding $4,402,429
==========
Capital shares outstanding, no par value 4,402,945
==========
Net asset value, redemption price, and offering price per share $ 1.00
==========
See accompanying notes to financial statements.
================================================================================
16 | USAA MONEY MARKET FUND
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended January 31, 2018 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Interest income $32,719
-------
EXPENSES
Management fees 5,376
Administration and servicing fees 2,240
Transfer agent's fees 5,600
Custody and accounting fees 219
Postage 277
Shareholder reporting fees 91
Trustees' fees 17
Registration fees 52
Professional fees 105
Other 41
-------
Total expenses 14,018
-------
NET INVESTMENT INCOME 18,701
-------
Increase in net assets resulting from operations $18,701
=======
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 17
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended January 31, 2018 (unaudited), and year ended July 31,
2017
--------------------------------------------------------------------------------------------------------
1/31/2018 7/31/2017
--------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 18,701 $ 14,066
Net realized gain on investments - 559
---------------------------------
Increase in net assets resulting from operations 18,701 14,625
---------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (18,678) (14,066)
Net realized gains - (569)
---------------------------------
Distributions to shareholders (18,678) (14,635)
---------------------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 2,841,344 5,951,009
Reinvested dividends 18,575 14,561
Cost of shares redeemed (2,970,783) (7,058,724)
---------------------------------
Decrease in net assets from capital share transactions (110,864) (1,093,154)
---------------------------------
Net decrease in net assets (110,841) (1,093,164)
NET ASSETS
Beginning of period 4,513,270 5,606,434
---------------------------------
End of period $ 4,402,429 $ 4,513,270
=================================
Undistributed (overdistribution of) net investment income:
End of period $ 6 $ (17)
=================================
CHANGE IN SHARES OUTSTANDING
Shares sold 2,841,344 5,951,009
Shares issued for dividends reinvested 18,575 14,561
Shares redeemed (2,970,783) (7,058,724)
---------------------------------
Decrease in shares outstanding (110,864) (1,093,154)
=================================
See accompanying notes to financial statements.
================================================================================
18 | USAA MONEY MARKET FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
January 31, 2018 (unaudited)
--------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company Act
of 1940, as amended (the 1940 Act), is an open-end management investment company
organized as a Delaware statutory trust consisting of 51 separate funds. The
USAA Money Market Fund (the Fund) qualifies as a registered investment company
under Accounting Standards Codification Topic 946. The information presented in
this semiannual report pertains only to the Fund, which is classified as
diversified under the 1940 Act and is authorized to issue an unlimited number of
shares. The Fund's investment objective is to seek the highest income consistent
with preservation of capital and the maintenance of liquidity.
The Fund operates as a retail money market fund in compliance with the
requirements of Rule 2a-7 under the 1940 Act; and as a retail money market fund,
shares of the Fund are available for sale only to accounts that are beneficially
owned by natural persons.
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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 19
================================================================================
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.
================================================================================
20 | USAA MONEY MARKET FUND
================================================================================
Level 2 - inputs to the valuation methodology are other significant
observable inputs, including quoted prices for similar securities, inputs
that are observable for the securities, either directly or indirectly, and
market-corroborated inputs such as market indexes.
Level 3 - inputs to the valuation methodology are unobservable and
significant to the fair value measurement, including the Manager's own
assumptions in determining the fair value.
The inputs or methodologies used for valuing securities are not necessarily
an indication of the risks associated with investing in those securities.
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 January 31, 2018, the Fund did not incur any
income tax, interest, or penalties, and has recorded no liability for net
unrecognized tax benefits relating to uncertain income tax positions. On an
ongoing basis, the Manager will monitor the Fund's tax basis to determine if
adjustments to this conclusion are necessary. The statute of limitations on
the Fund's tax return filings generally remain open for the three preceding
fiscal reporting year ends and remain subject to examination by the Internal
Revenue Service and state taxing authorities.
D. INVESTMENTS IN SECURITIES - Securities transactions are accounted for on
the date the securities are purchased or sold (trade date). Gains or losses
from sales of investment securities are computed on the identified cost
basis. Interest income is recorded daily on the accrual basis. Premiums and
discounts are amortized over the life of the respective securities using the
straight-line method.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 21
================================================================================
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 January 31, 2018,
the value of the related collateral exceeded the value of the repurchase
agreements, reducing the net settlement amount to zero. Details on the
collateral are included on the Portfolio of Investments.
F. SECURITIES PURCHASED ON A DELAYED-DELIVERY OR WHEN-ISSUED BASIS - Delivery
and payment for securities that have been purchased by the Fund on a
delayed-delivery or when-issued basis can take place a month or more after
the trade date. During the period prior to settlement, these securities do
not earn interest, are subject to market fluctuation, and may increase or
decrease in value prior to their delivery. The Fund maintains segregated
assets with a market value equal to or greater than the amount of its
purchase commitments.
G. EXPENSES PAID INDIRECTLY - Through arrangements with the Fund's custodian
and other banks utilized by the Fund for cash management purposes, realized
credits, if any, generated from cash balances in the Fund's bank accounts
may be used to directly reduce the Fund's expenses. For the six-month period
ended January 31, 2018, there were no custodian and other bank credits.
================================================================================
22 | USAA MONEY MARKET FUND
================================================================================
H. INDEMNIFICATIONS - Under the Trust's organizational documents, its
officers and trustees are indemnified against certain liabilities arising
out of the performance of their duties to the Trust. In addition, in the
normal course of business, the Trust enters into contracts that contain a
variety of representations and warranties that provide general
indemnifications. The Trust's maximum exposure under these arrangements is
unknown, as this would involve future claims that may be made against the
Trust that have not yet occurred. However, the Trust expects the risk of
loss to be remote.
I. USE OF ESTIMATES - The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts in the
financial statements.
(2) LINE OF CREDIT
The Fund participates, 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 23
================================================================================
For the six-month period ended January 31, 2018, the Fund paid CAPCO facility
fees of $17,000, which represents 5.5% 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 January 31, 2018.
(3) DISTRIBUTIONS
The tax basis of distributions and accumulated undistributed net investment
income will be determined as of the Fund's tax year-end of July 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 taxes.
At July 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 0.24% of the Fund's average net assets. For the
six-month period ended January 31, 2018, the Fund incurred management fees,
paid or payable to the Manager, of $5,376,000.
B. ADMINISTRATION AND SERVICING FEES - The Manager provides certain
administration and servicing functions for the Fund. For such services, the
Manager receives a fee accrued daily and paid monthly at an annualized rate
of 0.10% of the Fund's average net assets. For the six-month period ended
January 31, 2018, the Fund incurred administration and servicing fees, paid
or payable to the Manager, of $2,240,000.
================================================================================
24 | USAA MONEY MARKET FUND
================================================================================
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 January 31, 2018, the Fund reimbursed the Manager
$16,000 for these compliance and legal services. These expenses are included
in the professional fees on the Fund's Statement of Operations.
C. 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 fee is
accrued daily and paid monthly at an annualized rate of 0.25% 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 January
31, 2018, the Fund incurred transfer agent's fees, paid or payable to SAS,
of $5,600,000.
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.
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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 25
================================================================================
disclosure about derivatives in investment company financial statements, as well
as other amendments. In December 2017, the SEC issued Temporary Final Rule
Release No. 33-10442, INVESTMENT COMPANY REPORTING MODERNIZATION (Temporary
Rule), which extends to April 2019 the compliance date on which funds in larger
fund groups, such as the Fund, are required to begin filing form N-PORT. In the
interim, in lieu of filing form N-PORT, the Temporary Rule requires that funds
in larger fund groups maintain in their records the information that is required
to be included in form N-PORT. The Temporary Rule does not affect the filing
date or requirements of form N-CEN.
In October 2016, the SEC issued Final Rule Release No. 33-10233, INVESTMENT
COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS (Liquidity Rule). The Liquidity Rule
requires funds to establish a liquidity risk management program and enhances
disclosures regarding funds' liquidity.
In February 2018, the SEC issued Interim Final Rule Release No. IC-33010,
INVESTMENT COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS; COMMISSION GUIDANCE FOR
IN-KIND ETFs, which extends, among others, the compliance dates for certain
disclosure requirements under the Liquidity Rule. The compliance date for the
liquidity disclosure required in form N-PORT has been extended to June 1, 2019
for larger entities such as the Fund. The compliance date for the liquidity
disclosure required in form N-CEN for large entities such as the Fund remains
December 1, 2018. The Fund is expected to comply with these compliance dates for
forms N-PORT and N-CEN. The Manager continues to evaluate the impact these rules
and amendments will have on the financial statements and other disclosures.
(7) NEW ACCOUNTING PRONOUNCEMENTS
In March 2017, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Update (ASU) 2017-08, Premium Amortization of Purchased Callable Debt
Securities. The amendments in the ASU shorten the premium amortization period on
a purchased callable debt security from the security's contractual life to the
earliest call date. It is anticipated that this change will enhance disclosures
by reducing losses recognized when a security is called on an earlier date. This
ASU is effective for fiscal years beginning after December 15, 2018. The Manager
continues to evaluate the impact this ASU will have on the financial statement
disclosures.
================================================================================
26 | USAA MONEY MARKET FUND
================================================================================
(8) FINANCIAL HIGHLIGHTS
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JANUARY 31, YEAR ENDED JULY 31,
----------------------------------------------------------------------------------------
2018 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 from
investment operations:
Net investment income(a) .00 .00 .00 .00 .00 .00
Net realized and
unrealized gain(a) .00 .00 .00 .00 .00 .00
----------------------------------------------------------------------------------------
Total from investment
operations(a) .00 .00 .00 .00 .00 .00
----------------------------------------------------------------------------------------
Less distributions from:
Net investment income(a) (.00) (.00) (.00) (.00) (.00) (.00)
Realized capital gains - (.00)(a) (.00)(a) - (.00)(a) (.00)(a)
----------------------------------------------------------------------------------------
Total distributions(a) (.00) (.00) (.00) (.00) (.00) (.00)
----------------------------------------------------------------------------------------
Net asset value at
end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========================================================================================
Total return (%)* .42 .31(c) .01(c) .01(c) .01(c) .01(c)
Net assets at end
of period (000) $4,402,429 $4,513,270 $5,606,434 $5,289,252 $5,192,675 $5,140,226
Ratios to average
net assets:**
Expenses (%)(b) .63(d) .63(c) .41(c) .24(c) .22(c) .30(c)
Expenses, excluding
reimbursements (%)(b) .63(d) .63 .67 .65 .63 .63
Net investment
income (%) .84(d) .29 .01 .01 .01 .01
* Assumes reinvestment of all net investment income and realized capital
gain distributions, if any, during the period. Includes adjustments in
accordance with U.S. generally accepted accounting principles and could
differ from the iMoneyNet reported return. Total returns for periods of less
than one year are not annualized.
** For the six-month period ended January 31, 2018, average net assets were
$4,442,493,000.
(a) Represents less than $0.01 per share.
(b) Reflects total annual operating expenses of the Fund before reductions
of any expenses paid indirectly. The Fund's expenses paid indirectly
decreased the expense ratios as follows:
- (.00%)(+) (.00%)(+) (.00%)(+) - (.00%)(+)
(+) Represents less than 0.01% of average net assets.
(c) The Manager voluntarily agreed, on a temporary basis, to reimburse
management, administrative, or other fees to limit the Fund's expenses and
attempt to prevent a negative yield.
(d) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 27
================================================================================
EXPENSE EXAMPLE
January 31, 2018 (unaudited)
--------------------------------------------------------------------------------
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: direct costs, such
as wire fees, redemption fees, and low balance fees; and indirect costs,
including management fees, transfer agency fees, and other Fund operating
expenses. This example is intended to help you understand your indirect costs,
also referred to as "ongoing costs" (in dollars), of investing in the Fund and
to compare these costs with the ongoing costs of investing in other mutual
funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire six-month period of August 1, 2017, through
January 31, 2018.
ACTUAL EXPENSES
The line labeled "actual" in the table provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested at the beginning of the period, to estimate the
expenses that you paid over the period. Simply divide your account value by
$1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number in the "actual" line under the heading
"Expenses Paid During Period" to estimate the expenses you paid on your account
during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The line labeled "hypothetical" in the table provides information about
hypothetical account values and hypothetical expenses based on the Fund's actual
expense ratio and an assumed rate of return of 5% per year before expenses,
which is not the Fund's actual return. The hypothetical account values and
expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period. You may use this information to
================================================================================
28 | USAA MONEY MARKET FUND
================================================================================
compare the ongoing costs of investing in the Fund and other funds. To do so,
compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any direct costs, such as wire fees,
redemption fees, or low balance fees. Therefore, the line labeled "hypothetical"
is useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if these direct
costs were included, your costs would have been higher.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE AUGUST 1, 2017 -
AUGUST 1, 2017 JANUARY 31, 2018 JANUARY 31, 2018
--------------------------------------------------------------
Actual $1,000.00 $1,004.20 $3.18
Hypothetical
(5% return before expenses) 1,000.00 1,022.03 3.21
*Expenses are equal to the Fund's annualized expense ratio of 0.63%, which is
net of any expenses paid indirectly, multiplied by the average account value
over the period, multiplied by 184 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 0.42% for the six-month period of August 1, 2017, through January 31,
2018.
================================================================================
EXPENSE EXAMPLE | 29
================================================================================
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)
=============================================================================
23428-0318 (C)2018, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA SMALL CAP STOCK FUND]
=============================================================
SEMIANNUAL REPORT
USAA SMALL CAP STOCK FUND
o FUND SHARES (USCAX) o INSTITUTIONAL SHARES (UISCX)
JANUARY 31, 2018
=============================================================
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
INVESTMENT OVERVIEW 2
FINANCIAL INFORMATION
Portfolio of Investments 3
Notes to Portfolio of Investments 20
Financial Statements 22
Notes to Financial Statements 25
EXPENSE EXAMPLE 42
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE
RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY
USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN
PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS
ABOUT THE FUND.
(C)2018, USAA. All rights reserved.
================================================================================
================================================================================
FUND OBJECTIVE
THE USAA SMALL CAP STOCK FUND (THE FUND) SEEKS LONG-TERM GROWTH OF CAPITAL.
--------------------------------------------------------------------------------
TYPES OF INVESTMENTS
The Fund normally invests at least 80% of its assets in equity securities of
companies with small market capitalizations. This 80% policy may be changed upon
at least 60 days' written notice to shareholders. Although the Fund invests
primarily in U.S. securities, it may invest up to 20% of its total assets in
foreign securities including securities issued in emerging markets.
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* - 1/31/18 o
(% of Net Assets)
First Midwest Bancorp, Inc. ............................................... 1.4%
Belden, Inc. .............................................................. 1.2%
Orion Engineered Carbons S.A. ............................................. 1.1%
Albany International Corp. "A" ............................................ 1.0%
TriMas Corp. .............................................................. 1.0%
Mueller Industries, Inc. .................................................. 1.0%
WNS Holdings Ltd. ADR ..................................................... 0.9%
Kornit Digital Ltd. ....................................................... 0.9%
Forward Air Corp. ......................................................... 0.9%
Resolute Energy Corp. ..................................................... 0.9%
o SECTOR ALLOCATION* - 1/31/18 o
[PIE CHART OF SECTOR ALLOCATION]
INDUSTRIALS 25.6%
FINANCIALS 21.3%
INFORMATION TECHNOLOGY 16.2%
HEALTH CARE 11.2%
CONSUMER DISCRETIONARY 6.1%
MATERIALS 6.0%
ENERGY 3.8%
CONSUMER STAPLES 2.7%
REAL ESTATE 1.9%
UTILITIES 1.6%
TELECOMMUNICATION SERVICES 0.8%
[END CHART]
*Does not include 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%.
You will find a complete list of securities that the Fund owns on pages 3-19.
================================================================================
2 | USAA SMALL CAP STOCK FUND
================================================================================
PORTFOLIO OF INVESTMENTS
January 31, 2018 (unaudited)
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (97.2%)
COMMON STOCKS (97.2%)
CONSUMER DISCRETIONARY (6.1%)
-----------------------------
APPAREL RETAIL (0.4%)
82,400 American Eagle Outfitters, Inc. $ 1,483
252,242 Cato Corp. "A" 2,997
84,300 DSW, Inc. "A" 1,688
----------
6,168
----------
APPAREL, ACCESSORIES & LUXURY GOODS (0.1%)
59,900 Perry Ellis International, Inc.* 1,437
----------
AUTO PARTS & EQUIPMENT (0.1%)
94,661 Modine Manufacturing Co.* 2,210
----------
AUTOMOBILE MANUFACTURERS (0.1%)
16,810 Thor Industries, Inc. 2,297
----------
AUTOMOTIVE RETAIL (1.4%)
79,800 Group 1 Automotive, Inc. 6,260
20,697 Lithia Motors, Inc. "A" 2,586
89,000 Murphy USA, Inc.* 7,593
142,000 Penske Automotive Group, Inc. 7,411
----------
23,850
----------
BROADCASTING (0.7%)
303,830 Gray Television, Inc.* 4,968
76,210 Nexstar Media Group, Inc. "A" 5,723
----------
10,691
----------
CASINOS & GAMING (0.1%)
21,891 MGM Resorts International 798
----------
CONSUMER ELECTRONICS (0.2%)
190,605 ZAGG, Inc.* 3,183
----------
EDUCATION SERVICES (0.3%)
108,960 Chegg, Inc.* 1,887
9,970 Grand Canyon Education, Inc.* 927
49,600 K12, Inc.* 861
15,710 Strayer Education, Inc.(a) 1,453
----------
5,128
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 3
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
FOOTWEAR (0.1%)
25,100 Deckers Outdoor Corp.* $ 2,151
----------
GENERAL MERCHANDISE STORES (0.1%)
522,070 Fred's, Inc. "A"(a) 1,728
----------
HOMEBUILDING (0.9%)
109,800 Beazer Homes USA, Inc.* 2,036
98,300 KB Home 3,098
69,900 M/I Homes, Inc.* 2,260
503,106 TRI Pointe Group, Inc.* 8,206
----------
15,600
----------
HOMEFURNISHING RETAIL (0.1%)
37,800 Aaron's, Inc. 1,546
----------
HOTELS, RESORTS & CRUISE LINES (0.0%)
3,798 Royal Caribbean Cruises Ltd. 507
----------
HOUSEHOLD APPLIANCES (0.6%)
45,473 Helen of Troy Ltd.* 4,236
80,543 SodaStream International Ltd.* 6,333
----------
10,569
----------
MOVIES & ENTERTAINMENT (0.0%)
28,929 IMAX Corp.* 574
----------
RESTAURANTS (0.8%)
177,000 Brinker International, Inc. 6,432
36,620 Chuy's Holdings, Inc.* 970
107,350 Dave & Buster's Entertainment, Inc.* 5,046
----------
12,448
----------
SPECIALTY STORES (0.1%)
354,600 Office Depot, Inc. 1,153
----------
Total Consumer Discretionary 102,038
----------
CONSUMER STAPLES (2.7%)
-----------------------
AGRICULTURAL PRODUCTS (0.1%)
21,000 Fresh Del Monte Produce, Inc. 993
----------
DISTILLERS & VINTNERS (0.5%)
2,400,840 C&C Group plc 8,987
----------
FOOD DISTRIBUTORS (0.3%)
128,000 Andersons, Inc. 4,365
----------
FOOD RETAIL (0.5%)
805,304 Smart & Final Stores, Inc.* 7,570
----------
================================================================================
4 | USAA SMALL CAP STOCK FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS (0.5%)
71,000 Central Garden & Pet Co. "A"* $ 2,678
111,000 Energizer Holdings, Inc. 6,463
----------
9,141
----------
PACKAGED FOODS & MEATS (0.8%)
35,580 Calavo Growers, Inc. 3,095
213,194 Cranswick plc 8,893
28,560 Freshpet, Inc.* 526
14,000 Sanderson Farms, Inc. 1,777
----------
14,291
----------
Total Consumer Staples 45,347
----------
ENERGY (3.8%)
-------------
OIL & GAS DRILLING (0.0%)
76,600 Transocean Ltd.* 827
----------
OIL & GAS EQUIPMENT & SERVICES (1.4%)
70,500 Archrock, Inc. 656
173,186 Enservco Corp.* 157
264,631 Era Group, Inc.* 2,681
240,000 McDermott International, Inc.* 2,107
149,150 ProPetro Holding Corp.* 2,786
288,000 RPC, Inc.(a) 5,817
143,288 SEACOR Holdings, Inc.* 6,674
200,646 SEACOR Marine Holdings, Inc.* 3,002
----------
23,880
----------
OIL & GAS EXPLORATION & PRODUCTION (1.8%)
254,100 Abraxas Petroleum Corp.* 607
626,000 Callon Petroleum Co.* 7,105
310,300 Carrizo Oil & Gas, Inc.* 6,240
423,502 Resolute Energy Corp.*(a) 14,365
93,300 Ring Energy, Inc.* 1,288
70,500 Ultra Petroleum Corp.* 492
----------
30,097
----------
OIL & GAS REFINING & MARKETING (0.1%)
94,900 Pacific Ethanol, Inc.* 399
38,600 PBF Energy, Inc. "A" 1,248
----------
1,647
----------
OIL & GAS STORAGE & TRANSPORTATION (0.5%)
469,155 Dorian LPG Ltd.* 3,584
1,783,380 Scorpio Tankers, Inc. 4,744
----------
8,328
----------
Total Energy 64,779
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 5
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
FINANCIALS (21.3%)
------------------
ASSET MANAGEMENT & CUSTODY BANKS (0.5%)
156,200 GSV Capital Corp.* $ 1,065
143,158 Safeguard Scientifics, Inc.* 1,789
263,508 Solar Capital Ltd. 5,534
----------
8,388
----------
CONSUMER FINANCE (0.2%)
69,000 Encore Capital Group, Inc.* 2,860
----------
INVESTMENT BANKING & BROKERAGE (0.1%)
78,260 BGC Partners, Inc. "A" 1,120
----------
LIFE & HEALTH INSURANCE (0.5%)
83,500 American Equity Investment Life Holding Co. 2,755
97,500 CNO Financial Group, Inc. 2,398
99,000 Trupanion, Inc.*(a) 3,457
----------
8,610
----------
MULTI-LINE INSURANCE (0.7%)
188,263 Kemper Corp. 12,209
----------
PROPERTY & CASUALTY INSURANCE (1.0%)
73,900 Atlas Financial Holdings, Inc.* 1,482
115,000 Axis Capital Holdings Ltd. 5,811
105,960 Heritage Insurance Holdings, Inc.(a) 1,805
77,181 James River Group Holdings Ltd. 2,933
110,110 Kinsale Capital Group, Inc. 5,254
----------
17,285
----------
REGIONAL BANKS (13.0%)
146,266 1st Source Corp. 7,648
295,902 Banc of California, Inc. 5,829
122,000 Banner Corp. 6,629
63,200 Berkshire Hills Bancorp, Inc. 2,398
31,500 Carolina Financial Corp. 1,299
48,000 Cathay General Bancorp 2,099
125,000 Chemical Financial Corp. 7,301
49,100 Customers Bancorp, Inc.* 1,505
50,700 Enterprise Financial Services Corp. 2,467
109,869 FCB Financial Holdings, Inc. "A"* 6,021
27,900 Financial Institutions, Inc. 869
348,939 First Busey Corp. 10,810
70,500 First Merchants Corp. 3,043
920,054 First Midwest Bancorp, Inc. 22,873
308,315 Flushing Financial Corp. 8,682
293,730 Great Western Bancorp, Inc. 12,381
================================================================================
6 | USAA SMALL CAP STOCK FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
226,276 Hancock Holding Co. $ 12,151
278,000 Hilltop Holdings, Inc. 7,281
377,000 Hope Bancorp, Inc. 7,178
271,719 International Bancshares Corp. 11,276
168,000 Legacy Texas Financial Group, Inc. 7,399
306,892 MB Financial, Inc. 13,129
144,500 Pacific Premier Bancorp, Inc.* 5,888
33,500 Peapack-Gladstone Financial Corp. 1,190
31,700 Popular, Inc. 1,288
19,500 Preferred Bank 1,256
46,100 Synovus Financial Corp. 2,323
328,000 TCF Financial Corp. 7,036
74,882 Texas Capital Bancshares, Inc.* 7,099
463,500 Umpqua Holdings Corp. 10,035
205,260 Union Bankshares Corp. 7,749
330,500 United Community Banks, Inc. 10,470
191,800 Valley National Bancorp 2,411
18,800 Wintrust Financial Corp. 1,615
----------
218,628
----------
REITs - HOTEL & RESORT (1.0%)
546,260 DiamondRock Hospitality Co. 6,424
563,514 Summit Hotel Properties, Inc. 8,729
49,700 Sunstone Hotel Investors, Inc. 837
----------
15,990
----------
REITs - MORTGAGE (0.7%)
145,700 Anworth Mortgage Asset Corp. 708
75,200 Apollo Commercial Real Estate Finance, Inc.(a) 1,366
64,300 Cherry Hill Mortgage Investment Corp. 1,091
94,500 Chimera Investment Corp. 1,606
115,700 CYS Investments, Inc. 780
128,600 Dynex Capital, Inc. 836
69,600 Ellington Residential Mortgage 752
135,800 Invesco Mortgage Capital, Inc. 2,205
160,200 New Residential Investment Corp. 2,770
----------
12,114
----------
REITs - OFFICE (0.4%)
229,265 Corporate Office Properties Trust 6,259
24,000 Mack-Cali Realty Corp. 482
----------
6,741
----------
REITs - RESIDENTIAL (0.6%)
284,625 Education Realty Trust, Inc. 9,401
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 7
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
REITs - RETAIL (0.5%)
695,517 Ramco-Gershenson Properties Trust $ 9,195
----------
THRIFTS & MORTGAGE FINANCE (2.1%)
91,200 Dime Community Bancorp, Inc. 1,733
37,200 Farmer Mac "C" 2,985
17,600 First Defiance Financial Corp. 978
77,000 Flagstar Bancorp, Inc.* 2,868
12,760 LendingTree, Inc.* 4,694
264,800 MGIC Investment Corp.* 3,925
801,899 Northwest Bancshares, Inc. 13,512
47,400 PennyMac Financial Services, Inc. "A"* 1,052
93,200 Radian Group, Inc. 2,057
43,600 Walker & Dunlop, Inc.* 2,025
----------
35,829
----------
Total Financials 358,370
----------
HEALTH CARE (11.2%)
-------------------
BIOTECHNOLOGY (2.6%)
59,400 Ablynx N.V. ADR* 3,234
95,380 Acceleron Pharma, Inc.* 3,959
26,200 Argenx SE ADR* 2,033
291,850 Array BioPharma, Inc.* 4,325
26,400 Crispr Therapeutics AG* 1,037
28,600 Cytomx Therapeutics, Inc.* 765
21,600 Editas Medicine, Inc.* 789
33,800 Enanta Pharmaceuticals, Inc.* 2,871
155,050 Exact Sciences Corp.* 7,708
52,848 Fennec Pharmaceuticals, Inc.* 468
54,400 Immunomedics, Inc.*(a) 907
33,600 Intellia Therapeutics, Inc.*(a) 863
200,800 Ironwood Pharmaceuticals, Inc.*(a) 2,974
37,100 Jounce Therapeutics, Inc.*(a) 897
36,960 Ligand Pharmaceuticals, Inc.* 5,826
36,000 Macrogenics, Inc.* 813
73,000 Repligen Corp.* 2,582
39,400 Sangamo Biosciences, Inc.* 821
30,100 Spectrum Pharmaceuticals, Inc.* 648
168,500 Vital Therapies, Inc.*(a) 1,003
----------
44,523
----------
HEALTH CARE EQUIPMENT (2.1%)
46,555 ABIOMED, Inc.* 10,940
91,500 Cardiovascular Systems, Inc.* 2,261
================================================================================
8 | USAA SMALL CAP STOCK FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
30,610 CONMED Corp. $ 1,769
20,148 DexCom, Inc.* 1,173
200,900 Invacare Corp. 3,696
19,900 LivaNova plc* 1,702
310,115 Natus Medical, Inc.* 9,629
162,500 Oxford Immunotec Global plc*(a) 1,887
62,000 Tactile Systems Technology, Inc.*(a) 1,955
----------
35,012
----------
HEALTH CARE FACILITIES (0.3%)
208,840 Ensign Group, Inc. 4,810
----------
HEALTH CARE SERVICES (0.6%)
78,643 AMN Healthcare Services, Inc.* 4,219
100,054 CorVel Corp.* 5,168
29,900 Fulgent Genetics, Inc.*(a) 134
----------
9,521
----------
HEALTH CARE SUPPLIES (0.7%)
131,530 Haemonetics Corp.* 8,503
34,200 West Pharmaceutical Services, Inc. 3,427
----------
11,930
----------
HEALTH CARE TECHNOLOGY (2.1%)
855,125 Allscripts Healthcare Solutions, Inc.* 12,750
49,000 athenahealth, Inc.* 6,140
446,600 Evolent Health, Inc. "A"*(a) 6,297
394,000 HMS Holdings Corp.* 6,749
67,777 Teladoc, Inc.*(a) 2,535
----------
34,471
----------
LIFE SCIENCES TOOLS & SERVICES (1.1%)
3,219 Agilent Technologies, Inc. 236
25,750 Bio-Rad Laboratories, Inc. "A"* 6,657
181,000 Bruker Corp. 6,446
19,700 Charles River Laboratories International, Inc.* 2,077
105,178 Harvard Bioscience, Inc.* 494
381,186 NeoGenomics, Inc.*(a) 2,943
----------
18,853
----------
MANAGED HEALTH CARE (0.6%)
25,500 Magellan Health, Inc.* 2,540
71,000 Molina Healthcare, Inc.* 6,487
61,900 Triple-S Management Corp. "B"* 1,422
----------
10,449
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 9
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
PHARMACEUTICALS (1.1%)
66,680 Akcea Therapeutics, Inc.*(a) $ 1,444
228,440 Medicines Co.* 7,568
37,880 Nektar Therapeutics* 3,167
98,800 Pacira Pharmaceuticals, Inc.* 3,596
75,750 Supernus Pharmaceuticals, Inc.* 2,958
----------
18,733
----------
Total Health Care 188,302
----------
INDUSTRIALS (25.6%)
-------------------
AEROSPACE & DEFENSE (1.3%)
68,305 Astronics Corp.* 3,046
199,415 Axon Enterprise, Inc.*(a) 5,277
228,129 Cubic Corp. 13,243
----------
21,566
----------
AIR FREIGHT & LOGISTICS (1.8%)
18,200 Atlas Air Worldwide Holdings, Inc.* 1,025
242,455 Echo Global Logistics, Inc.* 7,080
247,986 Forward Air Corp. 15,055
146,000 Hub Group, Inc. "A"* 7,015
----------
30,175
----------
AIRLINES (0.7%)
215,412 Hawaiian Holdings, Inc. 8,045
62,200 SkyWest, Inc. 3,468
----------
11,513
----------
BUILDING PRODUCTS (0.8%)
13,970 Apogee Enterprises, Inc. 636
2,255,288 Tyman plc 11,368
40,400 Universal Forest Products, Inc. 1,508
----------
13,512
----------
COMMERCIAL PRINTING (0.2%)
38,500 Brady Corp. "A" 1,473
94,200 InnerWorkings, Inc.* 943
27,300 Quad/Graphics, Inc. 604
----------
3,020
----------
CONSTRUCTION & ENGINEERING (0.6%)
27,300 EMCOR Group, Inc. 2,219
251,812 Primoris Services Corp. 6,547
79,800 Tutor Perini Corp.* 1,975
----------
10,741
----------
================================================================================
10 | USAA SMALL CAP STOCK FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
CONSTRUCTION MACHINERY & HEAVY TRUCKS (0.5%)
62,200 Commercial Vehicle Group, Inc.* $ 769
96,977 Douglas Dynamics, Inc. 3,996
23,000 Meritor, Inc.* 3,355
----------
8,120
----------
DIVERSIFIED SUPPORT SERVICES (1.3%)
176,541 Matthews International Corp. "A" 9,886
117,925 Mobile Mini, Inc. 4,464
239,000 Ritchie Bros Auctioneers, Inc. 7,772
15,200 VSE Corp. 753
----------
22,875
----------
ELECTRICAL COMPONENTS & EQUIPMENT (1.1%)
103,100 EnerSys 7,249
466,010 Thermon Group Holdings, Inc.* 10,802
----------
18,051
----------
ELECTRONIC COMPONENTS (1.2%)
234,463 Belden, Inc. 19,875
----------
ENVIRONMENTAL & FACILITIES SERVICES (0.7%)
124,100 Advanced Disposal Services, Inc.* 3,024
77,810 Hudson Technologies, Inc.* 489
206,207 SP Plus Corp.* 7,949
----------
11,462
----------
HUMAN RESOURCE & EMPLOYMENT SERVICES (0.2%)
65,800 Kelly Services, Inc. "A" 1,863
44,900 TrueBlue, Inc.* 1,228
14,789 WageWorks, Inc.* 895
----------
3,986
----------
INDUSTRIAL MACHINERY (6.9%)
273,619 Albany International Corp. "A" 17,361
139,976 CIRCOR International, Inc. 7,422
138,060 DMC Global, Inc. 3,162
196,197 ESCO Technologies, Inc. 11,997
98,557 Gardner Denver Holdings, Inc.* 3,408
61,700 Global Brass & Copper Holdings, Inc. 1,984
122,529 Kennametal, Inc. 5,977
1,009,385 Kornit Digital Ltd.*(a) 15,090
405,757 Luxfer Holdings plc 5,867
487,098 Mueller Industries, Inc. 16,118
28,900 Proto Labs, Inc.* 3,160
48,014 RBC Bearings, Inc.* 6,050
================================================================================
PORTFOLIO OF INVESTMENTS | 11
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
41,350 Tennant Co. $ 2,787
606,570 TriMas Corp.* 16,135
----------
116,518
----------
OFFICE SERVICES & SUPPLIES (1.5%)
911,126 ACCO Brands Corp.* 10,797
234,750 Essendant, Inc. 2,125
259,000 Interface, Inc. 6,462
369,716 Steelcase, Inc. "A" 5,749
----------
25,133
----------
RAILROADS (0.5%)
101,600 Genesee & Wyoming, Inc. "A"* 8,113
----------
RESEARCH & CONSULTING SERVICES (3.1%)
128,437 CBIZ, Inc.* 2,119
250,709 Forrester Research, Inc. 10,943
300,910 FTI Consulting, Inc.* 13,081
198,684 Huron Consulting Group, Inc.* 7,977
109,789 ICF International, Inc.* 5,830
347,136 Mistras Group, Inc.* 7,397
289,610 Navigant Consulting, Inc.* 5,943
----------
53,290
----------
TRADING COMPANIES & DISTRIBUTORS (3.1%)
281,000 Aircastle Ltd. 6,637
298,000 BMC Stock Holdings, Inc.* 6,675
89,060 CAI International, Inc.* 2,517
127,198 GATX Corp. 9,049
68,313 Kaman Corp. 4,283
127,050 Rush Enterprises, Inc. "A"* 6,867
247,700 Titan Machinery, Inc.* 5,323
255,330 Triton International Ltd. 9,856
15,500 Veritiv Corp.* 445
----------
51,652
----------
TRUCKING (0.1%)
24,100 Knight-Swift Transportation Holdings, Inc. 1,200
----------
Total Industrials 430,802
----------
INFORMATION TECHNOLOGY (16.2%)
------------------------------
APPLICATION SOFTWARE (1.7%)
31,100 Cadence Design Systems, Inc.* 1,395
147,310 Callidus Software, Inc.* 5,296
410,983 Digital Turbine, Inc.*(a) 834
11,280 Ebix, Inc. 926
================================================================================
12 | USAA SMALL CAP STOCK FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
20,780 Everbridge, Inc.* $ 671
50,239 Guidewire Software, Inc.* 3,992
9,830 HubSpot, Inc.* 954
8,350 Paycom Software, Inc.*(a) 765
32,638 Paylocity Holding Corp.* 1,707
93,028 PROS Holdings, Inc.* 2,702
38,100 PTC, Inc.* 2,769
7,400 Tyler Technologies, Inc.* 1,491
15,472 Ultimate Software Group, Inc.* 3,603
16,180 Upland Software, Inc.* 374
22,900 Verint Systems, Inc.* 956
9,690 Zendesk, Inc.* 373
----------
28,808
----------
COMMUNICATIONS EQUIPMENT (1.1%)
636,090 Aerohive Networks, Inc.* 2,614
361,120 Extreme Networks, Inc.* 5,428
93,100 Finisar Corp.* 1,672
5,458 Infinera Corp.* 35
169,765 Radware Ltd.* 3,414
59,900 ViaSat, Inc.* 4,530
141,900 Viavi Solutions, Inc.* 1,217
----------
18,910
----------
DATA PROCESSING & OUTSOURCED SERVICES (2.1%)
407,000 Conduent, Inc.* 6,675
63,750 Euronet Worldwide, Inc.* 5,984
121,200 Everi Holdings, Inc.* 938
458,000 Travelport Worldwide Ltd. 6,234
353,987 WNS Holdings Ltd. ADR* 15,738
----------
35,569
----------
ELECTRONIC EQUIPMENT & INSTRUMENTS (0.5%)
41,083 OSI Systems, Inc.* 2,715
324,000 VeriFone Systems, Inc.* 5,728
----------
8,443
----------
ELECTRONIC MANUFACTURING SERVICES (0.9%)
28,500 Benchmark Electronics, Inc.* 825
65,100 Celestica, Inc.* 657
303,194 CTS Corp. 8,338
12,510 IPG Photonics Corp.* 3,152
45,300 Sanmina Corp.* 1,185
104,500 TTM Technologies, Inc.* 1,723
----------
15,880
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES (2.7%)
50,396 2U, Inc.* $ 3,743
102,434 Amber Road, Inc.* 744
180,340 Apptio, Inc. "A"* 4,608
49,300 Blucora, Inc.* 1,203
34,490 Box, Inc. "A"* 767
36,308 Carbonite, Inc.* 915
13,600 Cornerstone OnDemand, Inc.* 559
11,095 CoStar Group, Inc.* 3,840
2,520 Gogo, Inc.*(a) 24
38,500 GTT Communications, Inc.* 1,777
583,799 Limelight Networks, Inc.* 2,557
22,810 Liquidity Services, Inc.* 109
185,490 LivePerson, Inc.* 2,217
26,900 Match Group, Inc.*(a) 940
38,440 Mimecast Ltd.* 1,182
19,070 Mindbody, Inc. "A"* 670
17,750 New Relic, Inc.* 1,060
129,700 Nutanix, Inc. "A"* 4,163
48,600 Okta, Inc.* 1,431
144,800 Pandora Media, Inc.*(a) 692
4,430 Q2 Holdings, Inc.* 188
18,305 Remark Holdings, Inc.*(a) 177
58,510 SharpSpring, Inc.* 275
12,821 SPS Commerce, Inc.* 674
24,540 Stamps.com, Inc.*(a) 5,002
85,900 TechTarget, Inc.* 1,347
12,800 Trade Desk Inc "A"*(a) 621
150,680 Trivago N.V. ADR* 1,228
81,500 Twilio, Inc. "A"*(a) 2,139
19,520 Wix.com Ltd.* 1,192
----------
46,044
----------
IT CONSULTING & OTHER SERVICES (0.6%)
17,200 Acxiom Corp.* 466
11,000 EPAM Systems, Inc.* 1,292
67,100 Hackett Group, Inc. 1,074
176,800 Perficient, Inc.* 3,425
79,730 Virtusa Corp.* 3,557
----------
9,814
----------
SEMICONDUCTOR EQUIPMENT (1.5%)
21,600 Advanced Energy Industries, Inc.* 1,536
237,416 Brooks Automation, Inc. 6,624
15,900 Cabot Microelectronics Corp. 1,620
================================================================================
14 | USAA SMALL CAP STOCK FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
62,400 Kulicke & Soffa Industries, Inc.* $ 1,436
9,900 MKS Instruments, Inc. 1,013
96,500 Rudolph Technologies, Inc.* 2,528
62,100 Teradyne, Inc. 2,847
68,500 Ultra Clean Holdings, Inc.* 1,486
256,000 Xperi Corp. 5,747
----------
24,837
----------
SEMICONDUCTORS (1.6%)
43,900 Ceva, Inc.* 1,932
9,950 Impinj, Inc.*(a) 223
33,800 Inphi Corp.* 1,010
87,500 Mellanox Technologies Ltd.* 5,683
72,300 Microsemi Corp.* 4,467
15,300 Monolithic Power Systems, Inc. 1,822
46,300 Power Integrations, Inc. 3,459
445,000 Rambus, Inc.* 5,620
20,250 Silicon Laboratories, Inc.* 1,948
----------
26,164
----------
SYSTEMS SOFTWARE (1.4%)
107,000 CommVault Systems, Inc.* 5,708
58,300 CyberArk Software Ltd.* 2,523
42,500 Imperva, Inc.* 1,859
24,790 Proofpoint, Inc.* 2,529
67,000 Qualys, Inc.* 4,188
177,900 Rapid7, Inc.* 4,266
25,563 Red Hat, Inc.* 3,359
----------
24,432
----------
TECHNOLOGY DISTRIBUTORS (0.6%)
64,800 Insight Enterprises, Inc.* 2,405
44,300 PC Connection, Inc. 1,161
123,732 ScanSource, Inc.* 4,232
13,600 SYNNEX Corp. 1,669
----------
9,467
----------
TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (1.5%)
615,459 Diebold Nixdorf Inc(a) 11,355
204,890 Pure Storage, Inc. "A"* 4,127
425,100 Super Micro Computer, Inc.* 9,703
----------
25,185
----------
Total Information Technology 273,553
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 15
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
MATERIALS (6.0%)
----------------
COMMODITY CHEMICALS (1.6%)
656,957 Orion Engineered Carbons S.A. $ 19,347
20,500 Trinseo S.A. 1,690
281,000 Valvoline, Inc. 6,927
----------
27,964
----------
DIVERSIFIED CHEMICALS (0.2%)
83,700 Huntsman Corp. 2,893
----------
FOREST PRODUCTS (0.9%)
138,460 Deltic Timber Corp. 13,087
73,400 Louisiana-Pacific Corp.* 2,174
----------
15,261
----------
GOLD (0.1%)
181,400 IAMGOLD Corp.* 1,067
----------
METAL & GLASS CONTAINERS (0.9%)
219,600 Greif, Inc. "A" 12,983
87,400 Owens-Illinois, Inc.* 2,029
----------
15,012
----------
PAPER PRODUCTS (0.9%)
86,751 Neenah Paper, Inc. 7,851
182,900 Schweitzer-Mauduit International, Inc. 8,282
----------
16,133
----------
SPECIALTY CHEMICALS (1.1%)
13,100 Innospec, Inc. 940
89,932 Omnova Solutions, Inc.* 989
23,909 Quaker Chemical Corp. 3,680
171,662 Sensient Technologies Corp. 12,334
----------
17,943
----------
STEEL (0.3%)
137,918 Cleveland-Cliffs, Inc.* 945
95,900 Commercial Metals Co. 2,305
31,100 Olympic Steel, Inc. 725
44,400 Ryerson Holding Corp.* 444
----------
4,419
----------
Total Materials 100,692
----------
================================================================================
16 | USAA SMALL CAP STOCK FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
REAL ESTATE (1.9%)
------------------
REAL ESTATE SERVICES (0.4%)
188,000 Marcus & Millichap, Inc.* $ 6,138
25,540 Newmark Group, Inc. "A"* 424
----------
6,562
----------
REITs - DIVERSIFIED (0.1%)
61,500 Select Income REIT 1,375
----------
REITs - HOTEL & RESORT (0.2%)
69,422 Ashford Hospitality Prime, Inc. 626
21,600 Chesapeake Lodging Trust 591
17,300 RLJ Lodging Trust 400
113,100 Xenia Hotels & Resorts, Inc. 2,511
----------
4,128
----------
REITs - INDUSTRIAL (0.5%)
340,000 Americold Realty Trust* 6,215
84,100 STAG Industrial, Inc. 2,130
----------
8,345
----------
REITs - OFFICE (0.0%)
80,200 Cousins Properties, Inc. 722
----------
REITs - RESIDENTIAL (0.0%)
16,000 Nexpoint Residential Trust, Inc. 424
----------
REITs - RETAIL (0.5%)
342,000 Kite Realty Group Trust 5,766
264,300 Washington Prime Group, Inc. 1,739
----------
7,505
----------
REITs - SPECIALIZED (0.2%)
48,700 InfraREIT, Inc.* 924
54,249 QTS Realty Trust, Inc. "A" 2,702
----------
3,626
----------
Total Real Estate 32,687
----------
TELECOMMUNICATION SERVICES (0.8%)
---------------------------------
ALTERNATIVE CARRIERS (0.3%)
30,320 Cogent Communications Holdings, Inc. 1,368
318,160 Vonage Holdings Corp.* 3,560
----------
4,928
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES (0.5%)
42,900 Boingo Wireless, Inc.* $ 1,040
262,000 Telephone & Data Systems, Inc. 7,187
----------
8,227
----------
Total Telecommunication Services 13,155
----------
UTILITIES (1.6%)
----------------
ELECTRIC UTILITIES (0.9%)
16,700 ALLETE, Inc. 1,210
72,000 Idacorp, Inc. 6,212
170,000 PNM Resources, Inc. 6,477
22,000 Portland General Electric Co. 931
----------
14,830
----------
GAS UTILITIES (0.7%)
101,978 New Jersey Resources Corp. 3,957
13,200 ONE Gas, Inc. 935
100,153 Spire, Inc. 6,660
----------
11,552
----------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS (0.0%)
46,961 Vistra Energy Corp.* 916
----------
Total Utilities 27,298
----------
Total Common Stocks (cost: $1,263,744) 1,637,023
----------
RIGHTS (0.0%)
HEALTH CARE (0.0%)
------------------
PHARMACEUTICALS (0.0%)
133,709 NuPathe, Inc. *(b),(c),(d) (cost: $80) -
----------
Total Equity Securities (cost: $1,263,824) 1,637,023
----------
MONEY MARKET INSTRUMENTS (2.5%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (2.5%)
42,393,709 State Street Institutional Treasury Money Market Fund Premier Class, 1.23%(e)
(cost: $42,394) 42,394
----------
SHORT-TERM INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED (4.1%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (4.1%)
1,497,047 Federated Government Obligations Fund Institutional Class, 1.19%(e) 1,497
9,783,507 Goldman Sachs Financial Square Government Fund Institutional Class, 1.21%(e) 9,783
50,000,000 HSBC US Government Money Market Fund Institutional Class, 1.28%(e) 50,000
================================================================================
18 | USAA SMALL CAP STOCK FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
6,103,718 Morgan Stanley Institutional Liquidity Funds Government Portfolio
Institutional Class, 1.21%(e) $ 6,104
1,878,598 Western Asset Institutional Government Reserves Institutional Class, 1.22%(e) 1,879
----------
Total Short-Term Investments Purchased with Cash Collateral from
Securities Loaned (cost: $69,263) 69,263
----------
TOTAL INVESTMENTS (COST: $1,375,481) $1,748,680
==========
--------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
--------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
--------------------------------------------------------------------------------------------------------
Equity Securities:
Common Stocks $1,637,023 $- $- $1,637,023
Rights - - - -
Money Market Instruments:
Government & U.S. Treasury
Money Market Funds 42,394 - - 42,394
Short-Term Investments Purchased with Cash
Collateral from Securities Loaned:
Government & U.S. Treasury Money
Market Funds 69,263 - - 69,263
--------------------------------------------------------------------------------------------------------
Total $1,748,680 $- $- $1,748,680
--------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
For the period of August 1, 2017, through January 31, 2018, 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 | 19
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
January 31, 2018 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
Market values of securities are determined by procedures and practices
discussed in Note 1A to the financial statements.
The Portfolio of Investments category percentages shown represent the
percentages of the investments to net assets, and, in total, may not equal
100%. A category percentage of 0.0% represents less than 0.1% of net assets.
Investments in foreign securities were 8.5% of net assets at January 31,
2018.
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.
REITs Real estate investment trusts - 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.
================================================================================
20 | USAA SMALL CAP STOCK FUND
================================================================================
o SPECIFIC NOTES
(a) The security, or a portion thereof, was out on loan as of January 31,
2018.
(b) Security was fair valued at January 31, 2018, by USAA Asset Management
Company (the Manager) in accordance with valuation procedures approved by
USAA Mutual Funds Trust's Board of Trustees (the Board).
(c) Security deemed illiquid by the Manager, under liquidity guidelines
approved by the Board.
(d) Security was fair valued at Level 3.
(e) Rate represents the money market fund annualized seven-day yield at
January 31, 2018.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 21
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
January 31, 2018 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (including
securities on loan of $67,643) (cost of $1,375,481) $1,748,680
Cash 19
Cash denominated in foreign currencies (identified cost of $48) 48
Receivables:
Capital shares sold 2,757
Dividends and interest 520
Securities sold 9,382
Other 65
----------
Total assets 1,761,471
----------
LIABILITIES
Payables:
Upon return of securities loaned 69,263
Securities purchased 5,217
Capital shares redeemed 907
Accrued management fees 1,026
Accrued transfer agent's fees 31
Other accrued expenses and payables 237
----------
Total liabilities 76,681
----------
Net assets applicable to capital shares outstanding $1,684,790
==========
NET ASSETS CONSIST OF:
Paid-in capital $1,273,259
Overdistribution of net investment income (2,416)
Accumulated net realized gain on investments 40,748
Net unrealized appreciation of investments 373,199
----------
Net assets applicable to capital shares outstanding $1,684,790
==========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $711,237/39,528 capital shares
outstanding, no par value) $ 17.99
==========
Institutional Shares (net assets of $973,553/53,666 capital shares
outstanding, no par value) $ 18.14
==========
See accompanying notes to financial statements.
================================================================================
22 | USAA SMALL CAP STOCK FUND
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended January 31, 2018 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $55) $ 10,406
Interest 239
Securities lending (net) 513
--------
Total income 11,158
--------
EXPENSES
Management fees 5,777
Administration and servicing fees:
Fund Shares 514
Institutional Shares 467
Transfer agent's fees:
Fund Shares 556
Institutional Shares 467
Custody and accounting fees:
Fund Shares 51
Institutional Shares 74
Postage:
Fund Shares 30
Institutional Shares 20
Shareholder reporting fees:
Fund Shares 18
Institutional Shares 5
Trustees' fees 17
Registration fees:
Fund Shares 17
Institutional Shares 18
Professional fees 67
Other 16
--------
Total expenses 8,114
--------
Expenses paid indirectly:
Fund Shares (10)
Institutional Shares (13)
--------
Net expenses 8,091
--------
NET INVESTMENT INCOME 3,067
--------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY
Net realized gain on:
Investments 74,805
Foreign currency transactions 4
Change in net unrealized appreciation/(depreciation) of:
Investments 91,305
Foreign currency translations (1)
--------
Net realized and unrealized gain 166,113
--------
Increase in net assets resulting from operations $169,180
========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 23
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended January 31, 2018 (unaudited), and year ended July 31,
2017
--------------------------------------------------------------------------------------------------------
1/31/2018 7/31/2017
--------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 3,067 $ 7,275
Net realized gain on investments 74,805 153,428
Net realized gain (loss) on foreign currency transactions 4 (1)
Change in net unrealized appreciation/(depreciation) of:
Investments 91,305 25,803
Foreign currency translations (1) 2
---------------------------
Increase in net assets resulting from operations 169,180 186,507
---------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares (2,957) (1,247)
Institutional Shares (5,058) (3,126)
---------------------------
Total distributions of net investment income (8,015) (4,373)
---------------------------
Net realized gains:
Fund Shares (67,044) (6,660)
Institutional Shares (89,472) (9,660)
---------------------------
Total distributions of net realized gains (156,516) (16,320)
---------------------------
Distributions to shareholders (164,531) (20,693)
---------------------------
NET INCREASE (DECREASE) IN NET ASSETS FROM
CAPITAL SHARE TRANSACTIONS (NOTE 6)
Fund Shares 52,261 5,234
Institutional Shares 77,151 (90,944)
---------------------------
Total net increase (decrease) in net assets from
capital share transactions 129,412 (85,710)
---------------------------
Net increase in net assets 134,061 80,104
NET ASSETS
Beginning of period 1,550,729 1,470,625
---------------------------
End of period $1,684,790 $1,550,729
===========================
Accumulated undistributed (overdistribution of) net
investment income:
End of period $ (2,416) $ 2,532
===========================
See accompanying notes to financial statements.
================================================================================
24 | USAA SMALL CAP STOCK FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
January 31, 2018 (unaudited)
--------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company Act
of 1940, as amended (the 1940 Act), is an open-end management investment company
organized as a Delaware statutory trust consisting of 51 separate funds. The
USAA Small Cap Stock 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 long-term growth of capital.
The Fund consists of two classes of shares: Small Cap Stock Fund Shares (Fund
Shares) and Small Cap Stock Fund Institutional Shares (Institutional Shares).
Each class of shares has equal rights to assets and earnings, except that each
class bears certain class-related expenses specific to the particular class.
These expenses include administration and servicing fees, transfer agent fees,
postage, shareholder reporting fees, and certain registration and custodian
fees. Expenses not attributable to a specific class, income, and realized gains
or losses on investments are allocated to each class of shares based on each
class' relative net assets. Each class has exclusive voting rights on matters
related solely to that class and separate voting rights on matters that relate
to all classes. The Institutional Shares are available for investment through a
USAA discretionary managed account program, and certain advisory programs
sponsored by financial intermediaries, such as brokerage firms, investment
advisors, financial planners, third-party administrators, and insurance
companies. Institutional Shares also are available to institutional investors,
which include retirement plans, endowments, foundations, and bank trusts, as
well as other persons or legal entities that the Fund may approve from time to
time, or for purchase by a USAA fund participating in a fund-of-funds investment
strategy (USAA fund-of-funds).
================================================================================
NOTES TO FINANCIAL STATEMENTS | 25
================================================================================
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
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
================================================================================
26 | USAA SMALL CAP STOCK FUND
================================================================================
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 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 27
================================================================================
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
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
================================================================================
28 | USAA SMALL CAP STOCK FUND
================================================================================
that are observable for the securities, either directly or indirectly, and
market-corroborated inputs such as market indexes.
Level 3 - inputs to the valuation methodology are unobservable and
significant to the fair value measurement, including the Manager's own
assumptions in determining the fair value.
The inputs or methodologies used for valuing securities are not necessarily
an indication of the risks associated with investing in those securities.
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 January 31, 2018, the Fund did not incur any
income tax, interest, or penalties, and has recorded no liability for net
unrecognized tax benefits relating to uncertain income tax positions. On an
ongoing basis, the Manager will monitor the Fund's tax basis to determine if
adjustments to this conclusion are necessary. The statute of limitations on
the Fund's tax return filings generally remain open for the three preceding
fiscal reporting year ends and remain subject to examination by the Internal
Revenue Service and state taxing authorities.
D. 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 29
================================================================================
ex-dividend date. If the ex-dividend date has passed, certain dividends from
foreign securities are recorded upon notification. Interest income is
recorded daily on the accrual basis. Premiums and discounts are amortized
over the life of the respective securities, using the effective yield method
for long-term securities and the straight-line method for short-term
securities.
F. FOREIGN CURRENCY TRANSLATIONS - The Fund's assets may be invested in the
securities of foreign issuers and may be traded in foreign currency. Since
the Fund's accounting records are maintained in U.S. dollars, foreign
currency amounts are translated into U.S. dollars on the following bases:
1. Purchases and sales of securities, income, and expenses at the exchange
rate obtained from an independent pricing service on the respective dates
of such transactions.
2. Market value of securities, other assets, and liabilities at the exchange
rate obtained from an independent pricing service on a daily basis.
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss
from investments.
Separately, net realized foreign currency gains/losses may arise from sales
of foreign currency, currency gains/losses realized between the trade and
settlement dates on security transactions, and from the difference between
amounts of dividends, interest, and foreign withholding taxes recorded on
the Fund's books and the U.S. dollar equivalent of the amounts received. At
the end of the Fund's fiscal year, net realized foreign currency
gains/losses are reclassified from accumulated net realized gains/losses to
accumulated undistributed net investment income on the Statement of Assets
and Liabilities, as such amounts are treated as ordinary income/loss for
federal income tax purposes. Net unrealized foreign currency exchange
gains/losses arise from changes in the value of assets and liabilities,
other than investments in securities, resulting from changes in the exchange
rate.
G. EXPENSES PAID INDIRECTLY - A portion of the brokerage commissions that the
Fund pays may be recaptured as a credit that is tracked and used by
================================================================================
30 | USAA SMALL CAP STOCK FUND
================================================================================
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 January 31, 2018,
brokerage commission recapture credits reduced the expense of the Fund
Shares and Institutional Shares by $10,000 and $13,000, respectively. For
the six-month period ended January 31, 2018, 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 31
================================================================================
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 January 31, 2018, the Fund paid CAPCO facility
fees of $6,000, which represents 2.0% 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 January 31, 2018.
(3) DISTRIBUTIONS
The tax basis of distributions and accumulated undistributed net investment
income will be determined as of the Fund's tax year-end of July 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 taxes.
At July 31, 2017, the Fund had no capital loss carryforwards, for federal income
tax purposes.
As of January 31, 2018, the cost of securities, including short-term securities,
for federal income tax purposes, was approximately the same as the cost reported
in the financial statements.
Gross unrealized appreciation and depreciation of investments as of January 31,
2018, were $429,204,000 and $56,005,000, respectively, resulting in net
unrealized appreciation of $373,199,000.
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities, excluding
short-term securities, for the six-month period ended January 31, 2018, were
$472,289,000 and $483,760,000, respectively.
================================================================================
32 | USAA SMALL CAP STOCK FUND
================================================================================
(5) SECURITIES LENDING
The Fund, through a 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 January 31, 2018, 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
--------------------------------------------------------------------------------
$67,643,000(1) $- $69,263,000
--------------------------------------------------------------------------------
(1)Includes $25,000 of securities on loan that were sold prior to January 31,
2018.
(6) CAPITAL SHARE TRANSACTIONS
At January 31, 2018, there were an unlimited number of shares of capital stock
at no par value authorized for the Fund.
Capital share transactions for the Institutional Shares resulted from purchases
and sales by the affiliated USAA fund-of-funds as well as other
================================================================================
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
JANUARY 31, 2018 JULY 31, 2017
------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------
FUND SHARES:
Shares sold 2,488 $ 45,426 6,058 $ 106,001
Shares issued from
reinvested dividends 3,951 69,134 435 7,810
Shares redeemed (3,428) (62,299) (6,243) (108,577)
----------------------------------------------
Net increase from capital
share transactions 3,011 $ 52,261 250 $5,234
==============================================
INSTITUTIONAL SHARES:
Shares sold 3,717 $ 67,846 9,526 $ 167,844
Shares issued from
reinvested dividends 5,352 94,513 708 12,787
Shares redeemed (4,555) (85,208) (15,335) (271,575)
----------------------------------------------
Net increase (decrease) from
capital share transactions 4,514 $ 77,151 (5,101) $ (90,944)
==============================================
(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 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
================================================================================
34 | USAA SMALL CAP STOCK FUND
================================================================================
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 Small-Cap Core Funds Index. The Lipper
Small-Cap Core Funds Index tracks the total return performance of funds
within the Lipper Small-Cap Core 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). 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 Small-Cap Core Funds Index over that period, even if
the class had overall negative returns during the performance period.
For the six-month period ended January 31, 2018, the Fund incurred total
management fees, paid or payable to the Manager, of $5,777,000, which
included a performance adjustment for the Fund Shares and
================================================================================
NOTES TO FINANCIAL STATEMENTS | 35
================================================================================
Institutional Shares of $(138,000) and $(156,000), respectively. For the
Fund Shares and Institutional Shares, the performance adjustments were
(0.04%) and (0.03%), respectively.
B. SUBADVISORY ARRANGEMENT(s) - The Manager has entered into an Investment
Subadvisory Agreement with Cambiar Investors, LLC (Cambiar), ClariVest Asset
Management LLC (ClariVest), Granahan Investment Management, Inc. (GIMI), and
Wellington Management Company LLP (Wellington Management), under which
Cambiar, ClariVest, GIMI, 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 Cambiar a subadvisory fee in the annual
amount of 0.50% of the Fund's average net assets in assets that Cambiar
manages. Prior to December 1, 2017, The Manager (not the Fund) paid Cambiar
a subadvisory fee in the annual amount of 0.67% of the Fund's average net
assets for the first $300 million in assets that Cambiar manages, plus 0.65%
of the Fund's average net assets over $300 million that Cambiar manages. For
the six-month period ended January 31, 2018, the Manager incurred
subadvisory fees with respect to the Fund, paid or payable to Cambiar of
$1,062,000.
On March 1, 2018, the Board approved termination of the Manager's investment
subadvisory agreement with Cambiar. This termination will be effective March
29, 2018.
The Manager (not the Fund) pays ClariVest a subadvisory fee in the annual
amount of 0.48% of the Fund's average net assets for the first $125 million
in assets that ClariVest manages; 0.46% of the Fund's average net assets on
the next $125 million in assets that ClariVest manages; and 0.44% of the
Fund's average net assets over $250 million that ClariVest manages. For the
six-month period ended January 31, 2018, the Manager incurred subadvisory
fees with respect to the Fund, paid or payable to ClariVest of $424,000.
The Manager (not the Fund) pays GIMI a subadvisory fee in the annual amount
of 0.55% of the Fund's average net assets for the first $300 million
================================================================================
36 | USAA SMALL CAP STOCK FUND
================================================================================
in assets that GIMI manages, plus 0.52% of the Fund's average net
assets over $300 million that GIMI manages. For the six-month period ended
January 31, 2018, the Manager incurred subadvisory fees with respect to the
Fund, paid or payable to GIMI of $1,262,000.
The Manager (not the Fund) pays Wellington Management a subadvisory fee in
the annual amount of 0.70% of the Fund's average net assets for the first
$300 million in assets that Wellington Management manages, plus 0.65% of the
Fund's average net assets over $300 million that Wellington Management
manages. For the six-month period ended January 31, 2018, the Manager
incurred subadvisory fees with respect to the Fund, paid or payable to
Wellington Management of $2,111,000.
C. ADMINISTRATION AND SERVICING FEES - The Manager provides certain
administration and servicing functions for the Fund. For such services, the
Manager receives a fee accrued daily and paid monthly at an annualized rate
of 0.15% and 0.10% of average net assets of the Funds Shares and
Institutional Shares, respectively. For the six-month period ended January
31, 2018, the Fund Shares and Institutional Shares incurred administration
and servicing fees, paid or payable to the Manager, of $514,000 and
$467,000, 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 January 31, 2018, the 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 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 held
with such intermediaries. Transfer agent's fees for Institutional Shares are
paid monthly based on a fee accrued daily at
================================================================================
NOTES TO FINANCIAL STATEMENTS | 37
================================================================================
an annualized rate of 0.10% of the Institutional Shares' average net assets,
plus out-of-pocket expenses. For the six-month period ended January 31,
2018, the Fund Shares and Institutional Shares incurred transfer agent's
fees, paid or payable to SAS, of $556,000 and $467,000, respectively.
E. UNDERWRITING SERVICES - USAA Investment Management Company provides
exclusive underwriting and distribution of the Fund's shares on a continuing
best-efforts basis and receives no fee or other compensation for these
services.
(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 January 31, 2018, the USAA
fund-of-funds owned the following percentages of the total outstanding shares of
the Fund:
AFFILIATED USAA FUND OWNERSHIP %
-------------------------------------------------------------------------------
Cornerstone Conservative 0.2
Cornerstone Equity 0.2
Target Retirement Income 0.2
Target Retirement 2020 0.7
Target Retirement 2030 2.0
Target Retirement 2040 2.8
Target Retirement 2050 1.6
Target Retirement 2060 0.2
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.
================================================================================
38 | USAA SMALL CAP STOCK 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 December 2017, the
SEC issued Temporary Final Rule Release No. 33-10442, INVESTMENT COMPANY
REPORTING MODERNIZATION (Temporary Rule), which extends to April 2019 the
compliance date on which funds in larger fund groups, such as the Fund, are
required to begin filing form N-PORT. In the interim, in lieu of filing form
N-PORT, the Temporary Rule requires that funds in larger fund groups maintain in
their records the information that is required to be included in form N-PORT.
The Temporary Rule does not affect the filing date or requirements of form
N-CEN.
In October 2016, the SEC issued Final Rule Release No. 33-10233, INVESTMENT
COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS (Liquidity Rule). The Liquidity Rule
requires funds to establish a liquidity risk management program and enhances
disclosures regarding funds' liquidity.
In February 2018, the SEC issued Interim Final Rule Release No. IC-33010,
INVESTMENT COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS; COMMISSION GUIDANCE FOR
IN-KIND ETFs, which extends, among others, the compliance dates for certain
disclosure requirements under the Liquidity Rule. The compliance date for the
liquidity disclosure required in form N-PORT has been extended to June 1, 2019
for larger entities such as the Fund. The compliance date for the liquidity
disclosure required in form N-CEN for large entities such as the Fund remains
December 1, 2018. The Fund is expected to comply with these compliance dates for
forms N-PORT and N-CEN. The Manager continues to evaluate the impact these rules
and amendments will have on the financial statements and other disclosures.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 39
================================================================================
(10) FINANCIAL HIGHLIGHTS - FUND SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JANUARY 31, YEAR ENDED JULY 31,
--------------------------------------------------------------------------
2018 2017 2016 2015 2014 2013
--------------------------------------------------------------------------
Net asset value at
beginning of period $ 18.02 $ 16.17 $ 17.77 $ 18.14 $ 18.27 $ 14.15
--------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment
income (loss) .02 .08 .02 .02 (.01) .05
Net realized and
unrealized gain (loss) 1.88 1.99 (.22) 1.63 1.62 4.39
--------------------------------------------------------------------------
Total from investment
operations 1.90 2.07 (.20) 1.65 1.61 4.44
--------------------------------------------------------------------------
Less distributions from:
Net investment income (.07) (.03) (.05) (.02) - (.04)
Realized capital gains (1.86) (.19) (1.35) (2.00) (1.74) (.28)
--------------------------------------------------------------------------
Total distributions (1.93) (.22) (1.40) (2.02) (1.74) (.32)
--------------------------------------------------------------------------
Net asset value at
end of period $ 17.99 $ 18.02 $ 16.17 $ 17.77 $ 18.14 $ 18.27
==========================================================================
Total return (%)* 10.94 12.81 (.75) 9.67 8.68 31.94
Net assets at
end of period (000) $711,237 $658,038 $586,438 $835,256 $709,753 $645,220
Ratios to average
net assets:**
Expenses (%)(a) 1.07(b) 1.09 1.15 1.15 1.14 1.25
Net investment
income (loss) (%) .31(b) .42 .18 .06 (.03) .03
Portfolio turnover (%) 30 53 52 45 45 55
* 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 January 31, 2018, average net assets were
$679,190,000.
(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%)(+) (.00%)(+) (.01%) (.00%)(+)
(+)Represents less than 0.01% of average net assets.
(b) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
40 | USAA SMALL CAP STOCK 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
JANUARY 31, YEAR ENDED JULY 31,
--------------------------------------------------------------------------
2018 2017 2016 2015 2014 2013
--------------------------------------------------------------------------
Net asset value at
beginning of period $ 18.16 $ 16.30 $ 17.89 $ 18.24 $ 18.34 $ 14.24
--------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .04 .09 .07 .05 .03 .04(a)
Net realized and
unrealized gain (loss) 1.90 2.02 (.24) 1.65 1.61 4.46(a)
--------------------------------------------------------------------------
Total from investment
operations 1.94 2.11 (.17) 1.70 1.64 4.50(a)
--------------------------------------------------------------------------
Less distributions from:
Net investment income (.10) (.06) (.07) (.05) - (.12)
Realized capital gains (1.86) (.19) (1.35) (2.00) (1.74) (.28)
--------------------------------------------------------------------------
Total distributions (1.96) (.25) (1.42) (2.05) (1.74) (.40)
--------------------------------------------------------------------------
Net asset value at
end of period $ 18.14 $ 18.16 $ 16.30 $ 17.89 $ 18.24 $ 18.34
==========================================================================
Total return (%)* 11.03 12.92 (.55) 9.85 8.81 32.31
Net assets at
end of period (000) $973,553 $892,691 $884,187 $676,490 $661,910 $601,624
Ratios to average
net assets:**
Expenses (%)(c) .95(b) .97 .99 .99 .99 1.00
Net investment income (%) .43(b) .52 .35 .22 .12 .23
Portfolio turnover (%) 30 53 52 45 45 55
* 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 January 31, 2018, average net assets were
$926,798,000.
(a) Calculated using average shares.
(b) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(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 by less than 0.01%.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 41
================================================================================
EXPENSE EXAMPLE
January 31, 2018 (unaudited)
--------------------------------------------------------------------------------
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: direct costs, such
as wire fees, redemption fees, and low balance fees; and indirect costs,
including management fees, transfer agency fees, and other Fund operating
expenses. This example is intended to help you understand your indirect costs,
also referred to as "ongoing costs" (in dollars), of investing in the Fund and
to compare these costs with the ongoing costs of investing in other mutual
funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire six-month period of August 1, 2017, through
January 31, 2018.
ACTUAL EXPENSES
The line labeled "actual" under each share class in the table provides
information about actual account values and actual expenses. You may use the
information in this line, together with the amount you invested at the beginning
of the period, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number for your share
class in the "actual" line under the heading "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The line labeled "hypothetical" under each share class in the table provides
information about hypothetical account values and hypothetical expenses based on
the Fund's actual expense ratios for each class and an assumed rate of return of
5% per year before expenses, which is not the Fund's actual
================================================================================
42 | USAA SMALL CAP STOCK FUND
================================================================================
return. The hypothetical account values and expenses may not be used to estimate
the actual ending account balance or expenses you paid for the period. You may
use this information to compare the ongoing costs of investing in the Fund and
other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any direct costs, such as wire fees,
redemption fees, or low balance fees. Therefore, the line labeled "hypothetical"
is useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if these direct
costs were included, your costs would have been higher.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE AUGUST 1, 2017 -
AUGUST 1, 2017 JANUARY 31, 2018 JANUARY 31, 2018
---------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $1,109.40 $5.69
Hypothetical
(5% return before expenses) 1,000.00 1,019.81 5.45
INSTITUTIONAL SHARES
Actual 1,000.00 1,110.30 5.05
Hypothetical
(5% return before expenses) 1,000.00 1,020.42 4.84
*Expenses are equal to the annualized expense ratio of 1.07% for Fund Shares and
0.95% for Institutional Shares, which are net of any reimbursements and
expenses paid indirectly, multiplied by the average account value over the
period, multiplied by 184 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 10.94% for Fund Shares and 11.03% for Institutional Shares for the six-month
period of August 1, 2017, through January 31, 2018.
================================================================================
EXPENSE EXAMPLE | 43
================================================================================
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)
=============================================================================
40053-0318 (C)2018, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA SHORT-TERM BOND FUND]
==============================================================
SEMIANNUAL REPORT
USAA SHORT-TERM BOND FUND
FUND SHARES (USSBX) o INSTITUTIONAL SHARES (UISBX)
o ADVISER SHARES (UASBX) o R6 SHARES (URSBX)
JANUARY 31, 2018
==============================================================
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
INVESTMENT OVERVIEW 2
FINANCIAL INFORMATION
Portfolio of Investments 4
Notes to Portfolio of Investments 29
Financial Statements 35
Notes to Financial Statements 39
EXPENSE EXAMPLE 59
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE
RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY
USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN
PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS
ABOUT THE FUND.
(C)2018, USAA. All rights reserved.
================================================================================
================================================================================
FUND OBJECTIVE
THE USAA SHORT-TERM BOND FUND (THE FUND) SEEKS HIGH CURRENT INCOME CONSISTENT
WITH PRESERVATION OF PRINCIPAL.
--------------------------------------------------------------------------------
TYPES OF INVESTMENTS
The Fund normally invests at least 80% of its assets in a broad range of
investment-grade debt securities that have a dollar-weighted average portfolio
maturity of three years or less. The debt securities in which the Fund may
invest include, among others, obligations of U.S., state, and local governments,
their agencies and instrumentalities; mortgage- and asset-backed securities;
corporate debt securities; repurchase agreements; and other securities believed
to have debt-like characteristics. Although the Fund will invest primarily in
investment-grade securities, the Fund also may invest up to 10% of its net
assets in below investment-grade securities, which are sometimes referred to as
high-yield or "junk" bonds. The Fund's 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 PORTFOLIO RATINGS MIX - 1/31/18 o
[CHART OF PORTFOLIO RATINGS MIX]
AAA 18.4%
AA 8.2%
A 24.0%
BBB 43.1%
BELOW INVESTMENT-GRADE 5.3%
UNRATED 1.0%
[END CHART]
This chart reflects the highest long-term rating from a Nationally Recognized
Statistical Rating Organization (NRSRO), with the four highest long-term credit
ratings labeled, in descending order of credit quality, AAA, AA, A, and BBB.
These categories represent investment-grade quality. NRSRO ratings are shown
because they provide independent analysis of the credit quality of the Fund's
investments. USAA Asset Management Company (the Manager) also performs its own
fundamental credit analysis of each security. As part of its fundamental credit
analysis, the Manager considers various criteria, including industry specific
actions, peer comparisons, payment ranking, and structure specific
characteristics. Any of the Fund's securities that are not rated by an NRSRO
appear in the chart above as "Unrated," but these securities are analyzed and
monitored by the Manager on an ongoing basis. Government securities that are
issued or guaranteed as to principal and interest by the U.S. government and
pre-refunded and escrowed-to-maturity municipal bonds that are not rated are
treated as AAA for credit quality purposes.
Percentages are of the total market value of the Fund's investments.
You will find a complete list of securities that the Fund owns on pages 4-28.
================================================================================
2 | USAA SHORT-TERM BOND FUND
================================================================================
o ASSET ALLOCATION* - 1/31/18 o
[CHART OF ASSET ALLOCATION]
CORPORATE OBLIGATIONS 50.7%
EURODOLLAR AND YANKEE OBLIGATIONS 13.2%
ASSET-BACKED SECURITIES 10.7%
U.S. TREASURY SECURITIES 7.8%
MUNICIPAL OBLIGATIONS 7.3%
MONEY MARKET INSTRUMENTS 5.4%
COMMERCIAL MORTGAGE SECURITIES 2.4%
COLLATERALIZED LOAN OBLIGATIONS 1.3%
U.S. GOVERNMENT AGENCY ISSUES 1.1%
FOREIGN GOVERNMENT OBLIGATIONS 0.7%
PREFERRED STOCKS 0.2%
COLLATERALIZED MORTGAGE OBLIGATIONS 0.1%
[END CHART]
Percentages are of the net assets of the Fund and may not equal 100%.
*Does not include short-term investments purchased with cash collateral from
securities loaned.
================================================================================
INVESTMENT OVERVIEW | 3
================================================================================
PORTFOLIO OF INVESTMENTS
January 31, 2018 (unaudited)
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
BONDS (95.3%)
ASSET-BACKED SECURITIES (10.7%)
FINANCIALS (10.7%)
------------------
ASSET-BACKED FINANCING (10.7%)
$ 10,000 AmeriCredit Automobile Receivables
Trust 2016-3 2.24% 4/08/2022 $ 9,896
3,715 ARL First, LLC 1 mo. LIBOR + 1.75%(a) 3.31(b) 12/15/2042 3,729
11,500 Avis Budget Rental Car Funding AESOP,
LLC(a) 2.62 9/20/2019 11,507
7,250 Avis Budget Rental Car Funding
AESOP, LLC(a) 2.96 7/20/2020 7,258
4,188 Avis Budget Rental Car Funding AESOP,
LLC(a) 3.75 7/20/2020 4,195
3,252 Bank of The West Auto Trust(a) 1.65 3/16/2020 3,250
10,000 Bank of The West Auto Trust(a) 1.66 9/15/2020 9,972
5,455 Bank of The West Auto Trust(a) 2.33 9/15/2023 5,367
4,200 California Republic Auto Receivables Trust 2.30 12/16/2019 4,202
9,425 California Republic Auto Receivables Trust 2.57 11/16/2020 9,400
4,576 California Republic Auto Receivables Trust 2.53 6/15/2021 4,560
2,938 Centre Point Funding, LLC(a) 2.61 8/20/2021 2,920
5,954 CIT Education Loan Trust 3 mo. LIBOR +
0.30%(a) 1.97(b) 6/25/2042 5,368
730 CIT Equipment Collateral(a) 1.50 10/21/2019 729
5,500 CNH Equipment Trust 2.14 8/15/2022 5,479
1,872 College Loan Corp. Trust 3 mo. LIBOR +
0.49% 2.21(b) 1/15/2037 1,723
4,054 Collegiate Funding Services Education
Loan Trust 3 mo. LIBOR + 0.32% 2.01(b) 3/28/2035 3,729
1,000 Dell Equipment Finance Trust(a) 2.75 9/22/2020 1,002
1,500 Dell Equipment Finance Trust(a) 2.14 4/22/2022 1,495
1,000 Dell Equipment Finance Trust(a) 2.95 4/22/2022 1,000
1,750 Dell Equipment Finance Trust(a) 2.73 10/24/2022 1,736
4,500 Drive Auto Receivables Trust(a) 2.20 5/15/2020 4,507
2,935 Drive Auto Receivables Trust 2.36 3/15/2021 2,934
2,824 Element Rail Leasing I, LLC(a) 2.30 4/19/2044 2,813
================================================================================
4 | USAA SHORT-TERM BOND FUND
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
$ 7,000 Element Rail Leasing I, LLC(a) 3.67% 4/19/2044 $ 7,047
1,955 Enterprise Fleet Financing, LLC(a) 1.59 2/22/2021 1,954
6,123 Enterprise Fleet Financing, LLC(a) 2.13 7/20/2022 6,114
10,000 Enterprise Fleet Financing, LLC(a) 2.60 7/20/2022 10,001
1,615 Enterprise Fleet Financing, LLC(a) 1.97 1/20/2023 1,609
2,344 Enterprise Fleet Financing, LLC(a) 2.36 5/20/2023 2,316
833 Exeter Automobile Receivables Trust(a) 3.57 7/15/2019 834
4,049 Exeter Automobile Receivables Trust(a) 2.05 12/15/2021 4,035
5,000 Exeter Automobile Receivables Trust(a) 2.75 4/15/2022 5,005
117 First Investors Auto Owner Trust(a) 1.49 6/15/2020 117
5,300 GM Financial Consumer Automobile
Receivables Trust 2.08 1/19/2021 5,295
10,500 Hertz Vehicle Financing, LLC(a) 2.96 9/25/2019 10,515
3,000 Huntington Auto Trust "C" 2.15 6/15/2021 2,999
2,679 Iowa Student Loan Liquidity Corp. 3 mo.
LIBOR + 0.35% 2.02(b) 9/25/2037 2,433
5,000 Master Credit Card Trust "A"(a) 2.26 7/21/2021 4,979
9,500 MMAF Equipment Finance, LLC(a) 1.93 7/16/2021 9,474
2,900 MMAF Equipment Finance, LLC(a) 2.41 8/16/2024 2,852
1,239 Nelnet Student Loan Trust 3 mo.
LIBOR + 0.28% 1.94(b) 9/22/2037 1,155
2,947 NP SPE II, LLC 3.37 10/21/2047 2,889
8,000 OneMain Direct Auto Receivables Trust(a) 2.55 11/14/2023 7,949
5,000 Prestige Auto Receivables Trust(a) 2.40 4/15/2021 5,007
3,000 Prestige Auto Receivables Trust(a) 3.05 4/15/2021 2,995
2,500 Prestige Auto Receivables Trust(a) 2.39 5/16/2022 2,481
4,028 Santander Drive Auto Receivables Trust 2.73 10/15/2019 4,036
12,440 Santander Drive Auto Receivables Trust(a) 4.71 1/15/2021 12,480
4,000 Santander Drive Auto Receivables Trust 2.66 11/15/2021 4,005
4,750 Santander Drive Auto Receivables Trust 2.74 12/15/2021 4,765
5,000 SBA Tower Trust(a) 2.90 10/15/2044 5,015
3,069 SCF Equipment Trust, LLC(a) 3.41 12/20/2023 3,042
5,000 Securitized Term Auto Receivables Trust(a) 2.21 6/25/2021 4,948
3,906 Securitized Term Auto Receivables Trust(a) 2.29 3/25/2022 3,852
5,577 SLC Student Loan Trust 3 mo. LIBOR + 0.30% 2.02(b) 7/15/2036 5,560
8,000 SLC Student Loan Trust 3 mo. LIBOR + 0.45% 2.17(b) 7/15/2036 7,646
867 SLM Student Loan Trust 3 mo. LIBOR +0.55% 2.29(b) 10/25/2065 829
5,000 Suntrust Auto Receivables Trust "B"(a) 2.20 2/15/2021 4,953
8,000 Suntrust Auto Receivables Trust "C"(a) 2.50 4/15/2021 7,940
4,565 Synchrony Credit Card Master Note Trust 2.95 5/15/2024 4,521
6,000 Synchrony Credit Card Master Note Trust "B" 1.94 9/15/2021 5,986
15,000 Synchrony Credit Card Master Note Trust "C" 2.56 6/15/2023 14,806
5,000 TCF Auto Receivables Owner Trust(a) 2.55 4/15/2021 4,999
7,500 TCF Auto Receivables Owner Trust "B"(a) 2.49 4/15/2021 7,486
================================================================================
PORTFOLIO OF INVESTMENTS | 5
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
$ 5,000 TCF Auto Receivables Owner Trust "B"(a) 2.92% 10/17/2022 $ 4,921
3,556 Trinity Rail Leasing, LP(a) 2.27 1/15/2043 3,486
1,605 Westlake Automobile Receivables Trust(a) 2.45 1/15/2021 1,605
5,706 Westlake Automobile Receivables Trust(a) 2.67 5/17/2021 5,703
10,500 Westlake Automobile Receivables Trust(a) 2.96 1/17/2022 10,503
3,000 Westlake Automobile Receivables Trust(a) 2.30 10/17/2022 2,996
5,000 Wheels SPV, LLC(a) 1.87 5/20/2025 4,956
----------
Total Financials 349,865
----------
Total Asset-Backed Securities (cost: $351,214) 349,865
----------
COLLATERALIZED LOAN OBLIGATIONS (1.3%)
FINANCIALS (1.3%)
-----------------
1,500 American Money Management Corp. 3 mo.
LIBOR + 1.50%(a) 3.22(b) 10/15/2028 1,509
3,000 Annisa Ltd. 3 mo. LIBOR + 1.55%(a) 3.29(b) 7/20/2028 3,014
1,650 Cent, LP 3 mo. LIBOR + 1.30%(a) 2.68(b) 1/30/2025 1,653
10,500 Oaktree EIF Ltd. 3 mo. LIBOR + 2.00%(a) 3.74(b) 10/20/2027 10,549
2,796 Palmer Square Ltd. 3 mo. LIBOR + 0.97%(a) 2.39(b) 5/15/2025 2,800
10,000 Race Point Ltd. 3 mo. LIBOR + 1.60%(a) 3.35(b) 7/25/2028 10,037
4,000 Teachers Insurance and Annuity Association of
America 3 mo. LIBOR + 1.70%(a) 3.44(b) 7/20/2028 4,020
2,500 Teachers Insurance and Annuity Association of
America 3 mo. LIBOR + 1.28%(a) 3.02(b) 4/20/2029 2,516
3,250 Trinitas Ltd. 3 mo. LIBOR + 1.70% 3.45(b) 10/25/2028 3,272
5,000 Trinitas Ltd. 3 mo. LIBOR + 1.32%(a) 3.07(b) 7/25/2029 5,020
----------
Total Financials 44,390
----------
Total Collateralized Loan Obligations (cost: $44,189) 44,390
----------
COLLATERALIZED MORTGAGE OBLIGATION (0.1%)
FINANCIALS (0.1%)
-----------------
3,055 Sequoia Mortgage Trust(a) (cost: $3,097) 3.00(c) 5/25/2043 2,989
----------
COMMERCIAL MORTGAGE SECURITIES (2.4%)
FINANCIALS (2.4%)
-----------------
COMMERCIAL MORTGAGE-BACKED SECURITIES (1.4%)
2,866 Banc of America Commercial Mortgage, Inc. 6.12(c) 2/10/2051 2,863
2,495 Citigroup Commercial Mortgage Trust 2.63(c) 9/10/2045 2,499
4,300 Commercial Mortgage Trust1 mo.
LIBOR + 1.60%(a) 3.15(b) 2/13/2032 4,319
2,898 Commercial Mortgage Trust 5.79(c) 7/10/2038 2,902
734 Freddie Mac(+) 1.56(c) 10/25/2018 733
3,637 Freddie Mac(+) 1.78(c) 10/25/2020 3,611
8,000 Freddie Mac(+) 2.71(c) 6/25/2022 8,011
================================================================================
6 | USAA SHORT-TERM BOND FUND
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
$ 4,730 GS Mortgage Securities Trust 3.42%(c) 10/10/2032 $ 4,727
5,000 GS Mortgage Securities Trust(a) 2.85(c) 5/10/2034 4,943
1,554 J.P. Morgan Chase Commercial Mortgage
Securities Corp.(a) 4.11(c) 7/15/2046 1,557
1,973 LSTAR Commercial Mortgage Trust(a) 2.42(c) 3/10/2050 1,955
1,315 Morgan Stanley Capital I, Inc. 5.27(c) 10/12/2052 1,314
7,160 UBS-Barclays Commercial Mortgage Trust 2.73(c) 8/10/2049 7,208
----------
46,642
----------
INTEREST-ONLY COMMERCIAL MORTGAGE BACKED SECURITIES (1.0%)
62,947 Commercial Mortgage Trust, acquired
8/09/2012-8/27/2012; cost $8,086(d) 1.66(c) 8/15/2045 3,864
62,646 Commercial Mortgage Trust, acquired
11/06/2012; cost $8,398(d) 1.80(c) 10/15/2045 3,904
69,047 Fannie Mae(+) 0.73(c) 5/25/2022 1,631
70,502 Fannie Mae(+) 0.63(c) 8/25/2022 1,566
35,741 Freddie Mac(+) 1.73(c) 5/25/2019 585
97,810 Freddie Mac(+) 1.68(c) 7/25/2019 1,648
69,507 Freddie Mac(+) 1.27(c) 8/25/2022 3,309
27,706 GS Mortgage Securities Trust, acquired
5/18/2012; cost $4,233(d) 2.22(c) 5/10/2045 1,655
24,082 GS Mortgage Securities Trust, acquired
11/16/2012; cost $3,715(d) 1.97(c) 11/10/2045 1,856
24,772 JPMorgan Chase & Co., acquired
9/28/2012; cost $3,382(d) 1.80(c) 10/15/2045 1,632
23,997 Morgan Stanley-BAML Trust, acquired
10/05/2012; cost $3,118(a),(d) 1.63(c) 11/15/2045 1,445
92,689 UBS Commercial Mortgage Trust, acquired
5/01/2012-11/01/2016; cost $11,670(a),(d) 2.08(c) 5/10/2045 6,540
26,864 UBS-Barclays Commercial Mortgage Trust,
acquired 9/14/2012; cost $3,828(a),(d) 1.89(c) 8/10/2049 1,912
27,411 WF Commercial Mortgage Trust, acquired
9/21/2012; cost $3,802(a),(d) 1.80(c) 10/15/2045 1,846
----------
33,393
----------
Total Financials 80,035
----------
Total Commercial Mortgage Securities (cost: $70,659) 80,035
----------
CORPORATE OBLIGATIONS (50.7%)
CONSUMER DISCRETIONARY (3.8%)
-----------------------------
APPAREL, ACCESSORIES & LUXURY GOODS (0.0%)
1,101 Phillips-Van Heusen Corporation 1 mo.
LIBOR + 1.50%(e) 3.06 2/13/2019 1,101
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 7
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
AUTOMOBILE MANUFACTURERS (0.1%)
$ 5,000 Hyundai Capital America(a) 2.75% 9/18/2020 $ 4,954
----------
BROADCASTING (0.1%)
2,500 Discovery Communications, LLC 2.20 9/20/2019 2,479
----------
CABLE & SATELLITE (1.0%)
18,000 Charter Communications Operating, LLC /
Charter Communications Operating
Capital Corp. 3.58 7/23/2020 18,240
15,000 NBCUniversal Enterprise 3 mo. LIBOR +0.685%(a) 2.40(b) 4/15/2018 15,020
----------
33,260
----------
CASINOS & GAMING (0.3%)
9,651 Las Vegas Sands, LLC 1 mo. LIBOR + 2.00%(e) 3.57 3/29/2024 9,741
----------
DEPARTMENT STORES (0.7%)
24,020 JC Penney Corp., Inc.(f) 5.75 2/15/2018 24,080
----------
HOMEBUILDING (0.5%)
10,000 Lennar Corp.(a) 2.95 11/29/2020 9,925
5,000 Toll Brothers Finance Corp. 4.00 12/31/2018 5,070
----------
14,995
----------
INTERNET & DIRECT MARKETING RETAIL (0.1%)
3,000 QVC, Inc. 3.13 4/01/2019 3,006
----------
LEISURE PRODUCTS (0.3%)
9,465 Mattel, Inc. 1.70 3/15/2018 9,493
----------
MOVIES & ENTERTAINMENT (0.1%)
4,728 Regal Cinemas Corp. 1 mo. LIBOR + 2.00%(e) 3.57 4/01/2022 4,738
----------
RESTAURANTS (0.2%)
5,643 Aramark Services, Inc. 1 mo. LIBOR + 2.00%(e) 3.58 3/28/2024 5,694
1,166 Aramark Services, Inc. 1 mo. LIBOR +2.00%(e) 3.57 3/11/2025 1,178
----------
6,872
----------
SPECIALTY STORES (0.2%)
6,894 Petsmart, Inc. 3 mo. LIBOR + 3.00%(e) 4.57 3/11/2022 5,612
----------
TIRES & RUBBER (0.2%)
5,000 Goodyear Tire & Rubber Co. 3 mo.
LIBOR + 2.00%(e) 3.56 4/30/2019 5,025
----------
Total Consumer Discretionary 125,356
----------
CONSUMER STAPLES (4.0%)
-----------------------
BREWERS (0.1%)
5,000 Molson Coors Brewing Co. 2.10 7/15/2021 4,858
----------
DISTILLERS & VINTNERS (0.4%)
2,600 Constellation Brands, Inc. 2.70 5/09/2022 2,557
================================================================================
8 | USAA SHORT-TERM BOND FUND
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
$ 7,896 Constellation Brands, Inc. 2.65% 11/07/2022 $ 7,700
3,000 Constellation Brands, Inc.(g) 3.20 2/15/2023 3,000
----------
13,257
----------
DRUG RETAIL (0.4%)
5,000 CVS Health Corp. 2.13 6/01/2021 4,857
8,000 Walgreens Boots Alliance, Inc. 2.70 11/18/2019 8,018
----------
12,875
----------
HOUSEHOLD PRODUCTS (0.3%)
10,000 Church & Dwight Co., Inc. 2.45 12/15/2019 9,988
----------
PACKAGED FOODS & MEATS (2.2%)
7,940 JBS USA, LLC 3 mo. LIBOR + 2.50%(e) 4.10 10/30/2022 7,896
5,000 JM Smucker Co. 2.50 3/15/2020 4,995
10,000 Keurig Green Mountain, Inc.(e),(g),(h) 0.00 3/03/2021 9,981
15,000 Kraft Heinz Foods Co. 2.00 7/02/2018 14,984
15,000 Kraft Heinz Foods Co.(a) 4.88 2/15/2025 15,781
10,000 McCormick & Co., Inc. 2.70 8/15/2022 9,859
5,000 Mead Johnson Nutrition Co. 3.00 11/15/2020 5,042
2,605 Tyson Foods, Inc. 4.50 6/15/2022 2,755
----------
71,293
----------
TOBACCO (0.6%)
10,000 Philip Morris International, Inc. 2.62 2/18/2022 9,897
10,000 Reynolds American, Inc. 2.30 6/12/2018 10,010
----------
19,907
----------
Total Consumer Staples 132,178
----------
ENERGY (5.1%)
-------------
OIL & GAS DRILLING (0.1%)
5,000 Noble Holding International Ltd. 5.75 3/16/2018 5,019
----------
OIL & GAS EQUIPMENT & SERVICES (0.1%)
3,215 Weatherford International, Ltd. 5.12 9/15/2020 3,311
----------
OIL & GAS EXPLORATION & PRODUCTION (0.2%)
5,000 Devon Energy Corp. 4.00 7/15/2021 5,159
----------
OIL & GAS REFINING & MARKETING (0.4%)
3,180 EnLink Midstream Partners, LP 2.70 4/01/2019 3,171
5,105 Tesoro Corp. 5.37 10/01/2022 5,267
5,000 Tesoro Corp. 5.13 4/01/2024 5,239
----------
13,677
----------
OIL & GAS STORAGE & TRANSPORTATION (4.3%)
271 Alliance Pipeline, LP(a) 7.00 12/31/2019 278
================================================================================
PORTFOLIO OF INVESTMENTS | 9
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
$ 5,000 Andeavor Logistics, LP / Tesoro Logistics
Finance Corp. 5.50% 10/15/2019 $ 5,205
5,691 Andeavor Logistics, LP / Tesoro Logistics
Finance Corp. 3.50 12/01/2022 5,695
5,040 Boardwalk Pipelines, LLC 5.75 9/15/2019 5,264
4,000 Cheniere Energy Partners, LP 1 mo.
LIBOR + 2.25%(e) 3.82 2/25/2020 4,003
5,000 Columbia Pipeline Group, Inc. 2.45 6/01/2018 5,006
10,000 Columbia Pipeline Group, Inc. 3.30 6/01/2020 10,102
5,000 DCP Midstream Operating LP(a) 5.35 3/15/2020 5,225
5,000 DCP Midstream Operating LP(a) 4.75 9/30/2021 5,227
9,306 Enable Oklahoma Intrastate Transmission,
LLC(a) 6.25 3/15/2020 9,853
2,000 Enbridge Energy Partners, LP 9.87 3/01/2019 2,150
5,000 Energy Transfer Partners, LP 2.50 6/15/2018 5,007
1,000 Energy Transfer Partners, LP 9.70 3/15/2019 1,077
5,000 Energy Transfer Partners, LP 4.15 10/01/2020 5,147
7,000 Enterprise Products Operating, LLC 2.55 10/15/2019 7,007
12,000 Enterprise Products Operating, LLC 3 mo.
LIBOR + 2.68% 7.03(b) 1/15/2068 12,135
16,968 NuStar Logistics, LP 8.40 4/15/2018 17,180
5,000 ONEOK Partners, LP 3.80 3/15/2020 5,084
10,000 Plains All American Pipeline, LP / PAA
Finance Corp. 2.60 12/15/2019 9,923
4,895 Rockies Express Pipeline, LLC(a) 5.63 4/15/2020 5,164
4,700 Sabine Pass Liquefaction, LLC 5.63 2/01/2021 5,009
10,596 Western Gas Partners, LP 2.60 8/15/2018 10,604
----------
141,345
----------
Total Energy 168,511
----------
FINANCIALS (14.4%)
------------------
ASSET MANAGEMENT & CUSTODY BANKS (0.5%)
10,000 FS Investment Corp. 4.00 7/15/2019 10,072
5,000 State Street Corp. 1.35 5/15/2018 4,993
----------
15,065
----------
CONSUMER FINANCE (1.1%)
5,000 Ally Financial, Inc. 3.60 5/21/2018 5,021
5,643 Capital One Bank, N.A. 8.80 7/15/2019 6,118
5,000 Capital One Financial Corp. 2.50 5/12/2020 4,968
5,000 Capital One Financial Corp. 3.05 3/09/2022 4,978
5,000 Discover Bank 3.10 6/04/2020 5,031
10,000 Synchrony Financial 2.60 1/15/2019 10,024
----------
36,140
----------
================================================================================
10 | USAA SHORT-TERM BOND FUND
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
DIVERSIFIED BANKS (2.7%)
$ 3,000 Bank of America Corp. 2.15% 11/09/2020 $ 2,961
10,000 Bank of America Corp. 5.00 5/13/2021 10,694
5,000 Bank of America Corp. 3 mo. LIBOR + 0.66% 2.37(b) 7/21/2021 4,966
5,000 Bank of America Corp.(i) 2.33 10/01/2021 4,945
5,000 Bank of America Corp. 3 mo. LIBOR + 1.16% 3.12(b) 1/20/2023 5,013
5,000 Citigroup, Inc.(i),(j) 3.14 1/24/2023 5,006
15,000 Citizens Bank, N.A. 2.55 5/13/2021 14,858
10,000 Comerica Bank 2.50 6/02/2020 9,954
5,000 JPMorgan Chase & Co. 3 mo. LIBOR + 0.935% 2.78(b) 4/25/2023 4,936
10,000 U.S. Bank, N.A.(j) 2.85 1/23/2023 9,949
10,000 Wells Fargo & Co. 3.07 1/24/2023 10,012
5,000 Wells Fargo Bank, N.A.(j) 2.60 1/15/2021 4,985
----------
88,279
----------
FINANCIAL EXCHANGES & DATA (0.3%)
5,000 Moody's Corp. 2.75 12/15/2021 4,970
5,000 S&P Global, Inc. 2.50 8/15/2018 5,012
----------
9,982
----------
LIFE & HEALTH INSURANCE (1.6%)
5,000 MetLife Global Funding I(a) 3.65 6/14/2018 5,032
20,000 New York Life Global Funding(a) 1.30 4/27/2018 19,960
16,400 Nuveen Finance, LLC(a) 2.95 11/01/2019 16,509
5,000 Reliance Standard Life Global Funding(a) 2.15 10/15/2018 5,001
5,366 StanCorp Financial Group, Inc. 5.00 8/15/2022 5,686
----------
52,188
----------
MULTI-LINE INSURANCE (0.3%)
9,000 MassMutual Global Funding(a) 2.10 8/02/2018 9,010
----------
MULTI-SECTOR HOLDINGS (0.2%)
5,000 Berkshire Hathaway, Inc. 2.20 3/15/2021 4,945
----------
PROPERTY & CASUALTY INSURANCE (1.0%)
12,000 Allstate Corp. 3 mo. LIBOR + 1.935% 3.35(b) 5/15/2067 11,880
22,016 Chubb Corp. 3 mo. LIBOR + 2.25% 3.97(b) 3/29/2067 21,988
----------
33,868
----------
REGIONAL BANKS (6.3%)
8,000 Allfirst Preferred Capital Trust 3 mo.
LIBOR + 1.50% 3.22(b) 7/15/2029 7,761
13,000 Associated Banc-Corp. 2.75 11/15/2019 12,992
8,000 BB&T Corp. 3 mo. LIBOR + 0.86% 2.45(b) 6/15/2018 8,017
10,200 Cadence BanCorp(a) 4.87 6/28/2019 10,407
5,000 Citizens Financial Group, Inc. 3 mo.
LIBOR + 3.558% 5.16(b) 6/29/2023 5,063
================================================================================
PORTFOLIO OF INVESTMENTS | 11
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
$ 2,000 City National Bank of Los Angeles 5.37% 7/15/2022 $ 2,161
5,000 Compass Bank 2.75 9/29/2019 5,003
2,874 Compass Bank 5.50 4/01/2020 3,007
3,750 Compass Bank 2.87 6/29/2022 3,679
3,806 Fifth Third Bancorp 4.50 6/01/2018 3,837
5,000 First Niagara Financial Group, Inc. 6.75 3/19/2020 5,420
15,000 First Republic Bank 2.38 6/17/2019 14,940
9,750 Fulton Financial Corp. 3.60 3/16/2022 9,665
5,000 Huntington National Bank 2.38 3/10/2020 4,975
5,000 KeyBank, N.A. 2.30 9/14/2022 4,841
5,000 Manufacturers & Traders Trust Co. 2.05 8/17/2020 4,934
10,000 MUFG Americas Holdings Corp. 2.25 2/10/2020 9,911
5,000 MUFG Union Bank, NA 2.63 9/26/2018 5,015
9,500 People's United Financial, Inc. 3.65 12/06/2022 9,662
15,000 PNC Bank, N.A. 2.62 2/17/2022 14,866
3,145 Regions Bank 7.50 5/15/2018 3,194
10,000 Regions Bank 2.25 9/14/2018 10,007
5,000 Regions Bank(j) 2.75 4/01/2021 4,997
10,000 Regions Financial Corp. 3.20 2/08/2021 10,088
2,845 Santander Holdings USA, Inc. 3.45 8/27/2018 2,862
15,000 Santander Holdings USA, Inc.(a) 3.70 3/28/2022 15,165
10,000 SunTrust Bank(g) 3.00 2/02/2023 9,964
5,000 SunTrust Banks, Inc. 2.90 3/03/2021 5,011
----------
207,444
----------
REITs - HEALTH CARE (0.1%)
1,890 Senior Housing Properties Trust 6.75 12/15/2021 2,070
----------
REITs - MORTGAGE (0.0%)
1,250 Starwood Property Trust, Inc.(a),(j) 3.63 2/01/2021 1,255
----------
THRIFTS & MORTGAGE FINANCE (0.3%)
10,000 Astoria Financial Corp. 3.50 6/08/2020 10,039
----------
Total Financials 470,285
----------
HEALTH CARE (4.7%)
------------------
BIOTECHNOLOGY (1.3%)
10,000 AbbVie, Inc. 1.80 5/14/2018 9,999
10,000 AbbVie, Inc. 2.30 5/14/2021 9,835
5,000 Amgen, Inc. 2.25 8/19/2023 4,780
8,000 Baxalta, Inc. 2.00 6/22/2018 7,993
10,000 Celgene Corp. 2.75 2/15/2023 9,774
----------
42,381
----------
HEALTH CARE EQUIPMENT (0.5%)
8,300 Becton Dickinson & Co. 2.40 6/05/2020 8,220
================================================================================
12 | USAA SHORT-TERM BOND FUND
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
$ 4,500 Medtronic, Inc. 2.50% 3/15/2020 $ 4,503
3,794 Zimmer Holdings, Inc. 1 mo. LIBOR + 1.375%(e) 2.95 5/29/2019 3,789
----------
16,512
----------
HEALTH CARE FACILITIES (0.4%)
10,000 HCA, Inc. 6.50 2/15/2020 10,687
1,000 Orlando Health(g) 2.28 10/01/2018 1,000
750 Orlando Health(g) 2.72 10/01/2019 750
----------
12,437
----------
HEALTH CARE SERVICES (1.0%)
5,000 Express Scripts Holding Co. 3.00 7/15/2023 4,904
15,903 Express Scripts, Inc. 3 mo.
LIBOR + 1.125%(e),(g) 2.69 4/28/2020 15,933
10,200 Laboratory Corp. of America Holdings 3.20 2/01/2022 10,263
----------
31,100
----------
PHARMACEUTICALS (1.5%)
5,000 Allergan Funding SCS 2.35 3/12/2018 5,003
5,000 Allergan Funding SCS 3.00 3/12/2020 5,022
10,000 Mallinckrodt International Finance S.A. 3.50 4/15/2018 10,013
7,000 Mylan NV 3.00 12/15/2018 7,033
5,000 Mylan NV 2.50 6/07/2019 4,982
5,000 Shire Acquisitions Investments Ireland
Designated Activity Co. 1.90 9/23/2019 4,937
5,000 Teva Pharmaceuticals USA Inc.(e),(g),(h) 0.00 11/16/2018 4,988
8,135 Zoetis, Inc. 3.25 2/01/2023 8,176
----------
50,154
----------
Total Health Care 152,584
----------
INDUSTRIALS (4.7%)
------------------
AEROSPACE & DEFENSE (0.7%)
4,984 Arconic, Inc. 6.15 8/15/2020 5,352
4,000 Arconic, Inc. 5.40 4/15/2021 4,246
5,000 Harris Corp. 2.70 4/27/2020 4,989
3,630 Rockwell Collins, Inc.(e),(g),(h) 0.00 12/16/2019 3,636
2,245 TransDigm, Inc. 1 mo. LIBOR + 2.75%(e) 4.33 6/09/2023 2,268
1,171 TransDigm, Inc. 3 mo. LIBOR + 2.75%(e) 4.44 6/09/2023 1,183
----------
21,674
----------
AIR FREIGHT & LOGISTICS (0.2%)
5,000 FedEx Corp. 2.30 2/01/2020 4,979
645 FedEx Corp. Pass-Through Trust 6.85 7/15/2020 671
----------
5,650
----------
AIRLINES (1.5%)
5,165 American Airlines 2014-1 Class B
Pass-Through Trust 4.38 4/01/2024 5,252
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
$ 4,186 American Airlines 2015-2 Class B
Pass-Through Trust 4.40% 3/22/2025 $ 4,267
4,802 American Airlines, Inc. 1 mo.
LIBOR + 2.00%(e) 3.56 12/14/2023 4,824
2,300 Continental Airlines, Inc. Pass-Through Trust 6.12 4/29/2018 2,320
8,927 Continental Airlines, Inc. Pass-Through Trust 5.50 4/29/2022 9,328
10,000 Delta Air Lines, Inc. 2.88 3/13/2020 10,008
3,626 United Airlines, Inc. Pass-Through Trust 5.37 2/15/2023 3,783
1,274 United Airlines, Inc. Pass-Through Trust 4.63 3/03/2024 1,314
549 US Airways Group, Inc. Pass-Through Trust
(INS - MBIA Insurance Corp.) 7.08 9/20/2022 588
5,709 US Airways Group, Inc. Pass-Through Trust 5.37 5/15/2023 5,979
----------
47,663
----------
CONSTRUCTION MACHINERY & HEAVY TRUCKS (0.3%)
9,677 Terex Corp. 3 mo. LIBOR + 2.25%(e) 3.94 1/31/2024 9,759
----------
INDUSTRIAL MACHINERY (0.4%)
3,000 CNH Industrial Capital, LLC 3.62 4/15/2018 3,011
4,583 CNH Industrial Capital, LLC 3.38 7/15/2019 4,632
5,000 Fortive Corp. 1.80 6/15/2019 4,953
----------
12,596
----------
TRADING COMPANIES & DISTRIBUTORS (0.6%)
5,000 Air Lease Corp. 2.13 1/15/2020 4,953
2,554 International Lease Finance Corp. 3.87 4/15/2018 2,564
13,000 International Lease Finance Corp.(a) 7.12 9/01/2018 13,358
----------
20,875
----------
TRUCKING (1.0%)
4,970 Penske Truck Leasing Co., LP / PTL
Finance Corp.(a) 3.37 3/15/2018 4,980
14,000 Penske Truck Leasing Co., LP / PTL
Finance Corp.(a) 2.88 7/17/2018 14,045
1,266 Ryder System, Inc. 2.50 5/11/2020 1,261
4,500 Ryder System, Inc. 2.25 9/01/2021 4,401
5,000 Ryder System, Inc. 2.80 3/01/2022 4,945
5,000 Ryder System, Inc. 2.50 9/01/2022 4,880
----------
34,512
----------
Total Industrials 152,729
----------
INFORMATION TECHNOLOGY (3.2%)
-----------------------------
COMMUNICATIONS EQUIPMENT (0.3%)
10,000 Hughes Satellite Systems Corp. 6.50 6/15/2019 10,500
----------
DATA PROCESSING & OUTSOURCED SERVICES (0.3%)
10,000 Total System Services, Inc. 2.38 6/01/2018 10,010
----------
================================================================================
14 | USAA SHORT-TERM BOND FUND
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
ELECTRONIC COMPONENTS (0.2%)
$ 5,000 Amphenol Corp. 2.55% 1/30/2019 $ 5,015
----------
ELECTRONIC EQUIPMENT & INSTRUMENTS (0.1%)
5,000 FLIR Systems, Inc. 3.12 6/15/2021 4,997
----------
ELECTRONIC MANUFACTURING SERVICES (0.5%)
16,892 Molex Electronics Technologies, LLC(a) 2.88 4/15/2020 16,854
----------
SEMICONDUCTORS (0.5%)
6,120 Analog Devices, Inc. 3 mo. LIBOR + 1.125%(e) 2.69 9/23/2019 6,128
10,000 Broadcom Corp. & Broadcom Cayman
Finance Ltd.(a) 2.37 1/15/2020 9,901
----------
16,029
----------
SYSTEMS SOFTWARE (0.7%)
5,000 Oracle Corp. 2.40 9/15/2023 4,847
12,398 Symantec Corp. 3 mo. LIBOR +1.50%(e) 2.94 7/28/2019 12,411
5,000 VMware, Inc. 2.95 8/21/2022 4,835
----------
22,093
----------
TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (0.6%)
5,000 Dell International LLC / EMC Corp.(a) 3.48 6/01/2019 5,046
13,207 Dell, Inc. 3 mo. LIBOR + 1.50%(e) 3.08 12/31/2018 13,211
----------
18,257
----------
Total Information Technology 103,755
----------
MATERIALS (1.4%)
----------------
COMMODITY CHEMICALS (0.5%)
15,903 Westlake Chemical Corp. 4.62 2/15/2021 16,380
----------
COPPER (0.1%)
2,000 Freeport-McMoRan, Inc. 3.10 3/15/2020 2,008
----------
DIVERSIFIED CHEMICALS (0.3%)
5,000 CF Industries, Inc.(a) 3.40 12/01/2021 5,050
5,555 Ei Du Pont De Nemours 2.20 5/01/2020 5,524
----------
10,574
----------
FERTILIZERS & AGRICULTURAL CHEMICALS (0.1%)
5,000 Mosaic Co. 3.25 11/15/2022 4,978
----------
PAPER PACKAGING (0.2%)
5,000 Packaging Corp. of America 2.45 12/15/2020 4,978
----------
SPECIALTY CHEMICALS (0.1%)
5,000 Sherwin-Williams Co. 2.75 6/01/2022 4,920
----------
STEEL (0.1%)
2,000 Carpenter Technology Corp. 5.20 7/15/2021 2,067
----------
Total Materials 45,905
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 15
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
MUNICIPAL (0.0%)
----------------
COMMUNITY SERVICE (0.0%)
$ 1,650 Art Institute of Chicago 2.48% 3/01/2019 $ 1,640
----------
REAL ESTATE (2.4%)
------------------
REITs - DIVERSIFIED (0.3%)
5,750 Select Income REIT 3.60 2/01/2020 5,762
2,122 VEREIT Operating Partnership, LP 3.00 2/06/2019 2,134
----------
7,896
----------
REITs - HEALTH CARE (0.8%)
2,950 Nationwide Health Properties, Inc. 6.90 10/01/2037 3,812
12,686 Sabra Health Care Ltd. 1 wk.
LIBOR + 1.45%(e),(g) 3.02 8/17/2020 12,607
5,000 Senior Housing Properties Trust 3.25 5/01/2019 5,015
3,000 Ventas Realty, LP / Ventas Capital Corp. 4.00 4/30/2019 3,046
2,505 Welltower, Inc. 4.12 4/01/2019 2,543
----------
27,023
----------
REITs - OFFICE (0.2%)
2,222 SL Green Operating Partnership, LP 3.25 10/15/2022 2,198
5,000 SL Green Realty Corp. 4.50 12/01/2022 5,198
----------
7,396
----------
REITs - RETAIL (0.3%)
10,000 Realty Income Corp. 3.25 10/15/2022 10,047
----------
REITs - SPECIALIZED (0.8%)
10,000 American Tower Corp. 3.40 2/15/2019 10,088
5,000 Healthcare Trust of America Holdings, LP 2.95 7/01/2022 4,935
8,000 Sabra Health Care LP / Sabra Capital Corp. 5.38 6/01/2023 8,220
3,901 Uniti Group, LP 1 mo. LIBOR + 3.00%(e) 4.57 10/24/2022 3,767
----------
27,010
----------
Total Real Estate 79,372
----------
TELECOMMUNICATION SERVICES (2.8%)
---------------------------------
ALTERNATIVE CARRIERS (0.1%)
3,600 CenturyLink, Inc. 6.45 6/15/2021 3,676
----------
INTEGRATED TELECOMMUNICATION SERVICES (1.7%)
25,000 AT&T, Inc. 2.45 6/30/2020 24,860
10,000 AT&T, Inc. 3.20 3/01/2022 10,034
5,000 Centel Capital Corp. 9.00 10/15/2019 5,405
5,000 Frontier Communications Corp.(f) 8.12 10/01/2018 5,113
================================================================================
16 | USAA SHORT-TERM BOND FUND
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
$ 10,000 Verizon Communications, Inc. 3.13% 3/16/2022 $ 10,035
----------
55,447
----------
WIRELESS TELECOMMUNICATION SERVICES (1.0%)
11,645 Grain Spectrum Funding, LLC(a) 4.00 10/10/2033 11,686
14,625 Sprint Spectrum Co., LLC/Sprint Spectrum
Co. II, LLC / Sprint Spectrum Co.(a) 3.36 3/20/2023 14,717
5,000 T-Mobile USA, Inc. 6.50 1/15/2024 5,325
----------
31,728
----------
Total Telecommunication Services 90,851
----------
UTILITIES (4.2%)
----------------
ELECTRIC UTILITIES (2.5%)
9,167 AEP Texas, Inc.(j) 2.40 10/01/2022 8,913
8,000 Duke Energy Corp. 2.10 6/15/2018 8,004
5,000 Duke Energy Corp. 2.40 8/15/2022 4,863
2,600 Eversource Energy 2.75 3/15/2022 2,575
10,000 Exelon Generation Co., LLC 2.95 1/15/2020 10,056
5,000 Georgia Power Co. 2.00 9/08/2020 4,940
8,496 IPALCO Enterprises, Inc. 3.45 7/15/2020 8,581
7,143 ITC Holdings Corp.(a) 2.70 11/15/2022 7,056
4,299 Sierra Pacific Power Co.(j) 3.37 8/15/2023 4,367
5,000 Southern Co. 1.85 7/01/2019 4,961
10,000 Southern Co. Gas Capital Corp. 2.45 10/01/2023 9,638
3,630 System Energy Resources, Inc. 4.10 4/01/2023 3,735
5,000 Virginia Electric & Power Co. 2.75 3/15/2023 4,929
----------
82,618
----------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS (0.6%)
7,975 Exelon Generation Co., LLC 4.00 10/01/2020 8,206
10,000 Southern Power Co. 2.38 6/01/2020 9,944
----------
18,150
----------
MULTI-UTILITIES (1.1%)
10,000 Black Hills Corp. 2.50 1/11/2019 10,021
3,000 CenterPoint Energy Inc. 2.50 9/01/2022 2,928
6,000 Dominion Energy, Inc. 2.96 7/01/2019 6,031
5,000 Dominion Energy, Inc. 2.58 7/01/2020 4,966
10,000 Sempra Energy 2.40 3/15/2020 9,964
3,600 Sempra Energy(j) 2.90 2/01/2023 3,571
----------
37,481
----------
Total Utilities 138,249
----------
Total Corporate Obligations (cost: $1,660,886) 1,661,415
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
EURODOLLAR AND YANKEE OBLIGATIONS (13.2%)
CONSUMER STAPLES (3.7%)
-----------------------
BREWERS (0.6%)
$ 9,530 Anheuser-Busch InBev Worldwide, Inc. 2.20% 8/01/2018 $ 9,543
10,000 Anheuser-Busch InBev Worldwide, Inc. 3.75 1/15/2022 10,324
----------
19,867
----------
FOOD RETAIL (0.2%)
5,000 Alimentation Couche-Tard, Inc.(a) 2.70 7/26/2022 4,897
----------
HOUSEHOLD PRODUCTS (0.5%)
15,000 Reckitt Benckiser Treasury Services plc(a) 2.38 6/24/2022 14,504
----------
PACKAGED FOODS & MEATS (1.3%)
18,588 Grupo Bimbo SAB de CV(a) 4.50 1/25/2022 19,419
3,000 Mondelez International Holdings
Netherlands B.V.(a) 1.62 10/28/2019 2,956
11,792 Mondelez International Holdings
Netherlands B.V.(a) 2.00 10/28/2021 11,400
10,000 Smithfield Foods, Inc.(a) 2.70 1/31/2020 9,933
----------
43,708
----------
TOBACCO (1.1%)
5,000 BAT International Finance plc 1.63 9/09/2019 4,915
5,000 BAT Capital Corp.(a) 2.30 8/14/2020 4,943
10,000 BAT Capital Corp.(a) 2.76 8/15/2022 9,833
7,000 Imperial Brands Finance plc(a) 2.05 7/20/2018 6,997
10,000 Imperial Brands Finance plc(a) 2.95 7/21/2020 10,037
----------
36,725
----------
Total Consumer Staples 119,701
----------
ENERGY (0.7%)
-------------
INTEGRATED OIL & GAS (0.6%)
12,820 Origin Energy Finance Ltd.(a) 3.50 10/09/2018 12,878
6,000 Petroleos Mexicanos Co.(a) 5.37 3/13/2022 6,369
----------
19,247
----------
OIL & GAS STORAGE & TRANSPORTATION (0.1%)
5,000 Enbridge, Inc. 2.90 7/15/2022 4,925
----------
Total Energy 24,172
----------
FINANCIALS (3.3%)
-----------------
DIVERSIFIED BANKS (2.6%)
10,000 Banco Santander Chile(a) 2.50 12/15/2020 9,929
10,000 Bank of Montreal 1.40 4/10/2018 9,993
5,000 BBVA Bancomer S.A.(a),(j) 6.50 3/10/2021 5,400
================================================================================
18 | USAA SHORT-TERM BOND FUND
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
$ 10,000 Lloyds Banking Group plc(i) 2.91% 11/07/2023 $ 9,767
7,174 Royal Bank of Scotland Group plc 4.70 7/03/2018 7,247
13,000 Royal Bank of Scotland Group plc 6.13 12/15/2022 14,126
5,000 Santander UK Group Holdings plc 3.57 1/10/2023 5,020
5,000 Santander UK Group Holdings plc(i) 3.37 1/05/2024 4,967
5,000 Santander UK plc 2.35 9/10/2019 4,985
5,000 Standard Chartered plc(a) 2.25 4/17/2020 4,942
8,000 Toronto-Dominion Bank 1.40 4/30/2018 7,992
----------
84,368
----------
DIVERSIFIED CAPITAL MARKETS (0.3%)
10,000 UBS Group Funding Ltd.(a) 2.95 9/24/2020 10,038
----------
OTHER DIVERSIFIED FINANCIAL SERVICES (0.3%)
10,000 Orix Corp. 2.90 7/18/2022 9,869
----------
REITs - RETAIL (0.1%)
5,000 WEA Finance, LLC(a) 3.15 4/05/2022 4,992
----------
Total Financials 109,267
----------
HEALTH CARE (0.4%)
------------------
PHARMACEUTICALS (0.4%)
15,105 Teva Pharmaceutical Finance
Netherlands III B.V. 2.20 7/21/2021 14,087
----------
INDUSTRIALS (2.6%)
------------------
AEROSPACE & DEFENSE (0.3%)
3,580 BAE Systems Holdings, Inc.(a) 2.85 12/15/2020 3,576
5,000 Dae Funding, LLC(a) 4.00 8/01/2020 5,012
----------
8,588
----------
AIRLINES (1.0%)
10,000 Air Canada Pass-Through Trust(a) 5.00 3/15/2020 10,217
3,463 Air Canada Pass-Through Trust(a) 5.38 11/15/2022 3,637
6,571 British Airways Pass-Through Trust plc(a) 5.62 12/20/2021 6,781
8,446 Virgin Australia Trust(a) 5.00 4/23/2025 8,799
5,000 WestJet Airlines Ltd.(a) 3.50 6/16/2021 5,036
----------
34,470
----------
INDUSTRIAL CONGLOMERATES (0.7%)
5,000 CK Hutchison International II Ltd.(a) 2.25 9/29/2020 4,903
10,000 CK Hutchison International Ltd.(a) 1.88 10/03/2021 9,606
5,000 CK Hutchison International Ltd.(a) 2.87 4/05/2022 4,926
2,706 Smiths Group plc(a) 3.62 10/12/2022 2,687
----------
22,122
----------
MARINE (0.3%)
10,000 A.P. Moller-Maersk A/S(a) 2.55 9/22/2019 9,983
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
RAILROADS (0.3%)
$ 10,000 Asciano Finance Ltd.(a) 5.00% 4/07/2018 $ 10,046
----------
Total Industrials 85,209
----------
MATERIALS (0.9%)
----------------
COMMODITY CHEMICALS (0.3%)
5,000 Braskem Finance Ltd.(a) 5.75 4/15/2021 5,363
5,000 Braskem Netherlands Finance B.V.(a) 3.50 1/10/2023 4,956
----------
10,319
----------
CONSTRUCTION MATERIALS (0.4%)
2,000 Boral Finance Proprietary Ltd.(a) 3.00 11/01/2022 1,969
5,000 Cemex SAB de CV 3 mo.
LIBOR +4.75%(a) 6.47(b) 10/15/2018 5,137
5,000 Holcim U.S. Finance Sarl & Cie SCS(a) 6.00 12/30/2019 5,275
----------
12,381
----------
DIVERSIFIED METALS & MINING (0.2%)
3,000 Anglo American Capital plc(a) 3.63 5/14/2020 3,042
1,950 Glencore Finance Europe Ltd. 3 mo.
LIBOR + 1.20% 2.59(b) 5/06/2018 1,959
----------
5,001
----------
Total Materials 27,701
----------
REAL ESTATE (0.2%)
------------------
REITs - RETAIL (0.2%)
5,000 Scentre Group Trust(a) 2.38 4/28/2021 4,908
----------
TELECOMMUNICATION SERVICES (0.3%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (0.3%)
5,000 Deutsche Telekom International Finance BV(a) 2.23 1/17/2020 4,961
5,000 Deutsche Telekom International Finance BV(a) 2.82 1/19/2022 4,954
----------
Total Telecommunication Services 9,915
----------
UTILITIES (1.1%)
----------------
ELECTRIC UTILITIES (0.6%)
10,000 Comision Federal de Electricidad 4.87 5/26/2021 10,508
5,000 Emera US Finance, LP 2.15 6/15/2019 4,971
5,000 Emera US Finance, LP 2.70 6/15/2021 4,950
----------
20,429
----------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS (0.5%)
15,734 TransAlta Corp. 6.90 5/15/2018 15,938
----------
Total Utilities 36,367
----------
Total Eurodollar and Yankee Obligations (cost: $432,744) 431,327
----------
================================================================================
20 | USAA SHORT-TERM BOND FUND
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
FOREIGN GOVERNMENT OBLIGATIONS (0.7%)
$ 10,000 Province of Alberta(a) 1.75% 8/26/2020 $ 9,792
10,000 Province of Ontario(f) 2.45 6/29/2022 9,852
5,000 Province of Quebec Canada 2.63 2/13/2023 4,940
----------
Total Foreign Government Obligations (cost: $24,985) 24,584
----------
MUNICIPAL OBLIGATIONS (7.3%)
CALIFORNIA (0.2%)
3,000 San Bernardino CCD 2.14 8/01/2018 3,002
4,750 San Jose Redev. Agency Successor Agency 2.63 8/01/2022 4,717
----------
7,719
----------
CONNECTICUT (0.1%)
3,000 City of West Haven 2.70 3/15/2018 3,000
----------
FLORIDA (0.2%)
4,000 City of Jacksonville 1.70 10/01/2018 3,989
1,375 Municipal Power Agency 2.20 10/01/2020 1,348
2,500 Municipal Power Agency 2.38 10/01/2021 2,435
----------
7,772
----------
GEORGIA (0.5%)
16,530 Appling County Dev. Auth. 2.40 1/01/2038(o) 16,402
----------
ILLINOIS (0.9%)
535 Chicago Wastewater Transmission 3.38 1/01/2019 538
2,520 Chicago Wastewater Transmission 4.31 1/01/2021 2,587
10,000 Finance Auth. (LOC - UniCredit Bank A.G.)(k) 3.50 2/01/2037 10,000
8,275 Housing Development Auth. (LOC - Federal Home
Loan Bank of Chicago)(k) 1.57 8/01/2034 8,275
5,035 State 5.66 3/01/2018 5,049
1,490 Village of Channahon 4.00 1/01/2020 1,473
----------
27,922
----------
KENTUCKY (0.1%)
389 Asset Liability Commission 3.17 4/01/2018 390
545 State Property & Building Commission 2.26 5/01/2020 538
1,060 State Property & Building Commission 2.56 5/01/2021 1,044
250 State Property & Building Commission 2.77 5/01/2022 245
----------
2,217
----------
MARYLAND (0.3%)
3,625 Economic Development Corp. 2.80 6/01/2020 3,612
3,670 Economic Development Corp. 3.05 6/01/2021 3,654
3,795 Economic Development Corp. 3.30 6/01/2022 3,771
----------
11,037
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 21
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
MICHIGAN (0.5%)
$ 5,395 Clintondale Community Schools 2.61% 5/01/2021 $ 5,357
4,000 Clintondale Community Schools 2.84 5/01/2022 3,975
2,000 Mount Clemens Community School District 2.12 5/01/2019 1,995
3,635 Mount Clemens Community School District 2.47 5/01/2020 3,630
----------
14,957
----------
MISSOURI (0.3%)
10,000 Environmental Improvement & Energy
Resources Auth. 2.87 5/01/2038(o) 10,048
----------
NEW JERSEY (1.3%)
10,000 EDA 2.42 6/15/2018 10,000
850 EDA 3.30 6/15/2019 851
500 EDA 3.29 7/01/2019 500
850 EDA 3.50 6/15/2020 849
12,500 EDA 4.45 6/15/2020 12,893
625 EDA 3.52 7/01/2020 625
550 EDA 3.70 6/15/2021 550
495 EDA 3.65 7/01/2021 496
2,615 Educational Facilities Auth. 2.25 9/01/2020 2,587
7,450 Educational Facilities Auth. 2.47 9/01/2021 7,336
5,000 Transportation Trust Fund Auth. 1.76 12/15/2018 4,964
----------
41,651
----------
NEW MEXICO (0.0%)
1,000 Sandoval County 1.95 6/01/2018 998
----------
NEW YORK (1.4%)
2,392 City of Glen Cove 2.50 4/05/2018 2,390
2,110 Dormitory Auth. 2.04 7/01/2018 2,106
1,000 Dormitory Auth. 1.98 7/01/2019 991
3,870 Dormitory Auth. 2.30 7/01/2019 3,848
1,270 Dormitory Auth. 2.24 7/01/2020 1,257
5,125 Dormitory Auth. 2.57 7/01/2020 5,084
1,550 Dormitory Auth. 2.44 7/01/2021 1,508
5,000 Energy Research & Dev. Auth. 2.37 7/01/2026(o) 5,064
2,500 Horace Mann School 2.47 7/01/2022 2,424
6,265 Long Island Power Auth. 2.35 9/01/2018 6,245
10,000 MTA (ETM) 1.47 7/01/2018 9,980
1,500 Town of Oyster Bay 3.25 2/01/2018 1,500
2,260 Town of Oyster Bay 3.50 2/02/2018 2,260
600 Town of Oyster Bay 3.55 2/01/2019 600
1,830 Town of Oyster Bay 3.80 2/01/2020 1,833
----------
47,090
----------
================================================================================
22 | USAA SHORT-TERM BOND FUND
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
PENNSYLVANIA (0.6%)
$ 3,000 ACTS Retirement-Life Communities, Inc. 2.17% 11/16/2018 $ 2,989
750 ACTS Retirement-Life Communities, Inc. 2.47 11/16/2019 743
5,000 Beaver County IDA 4.75 8/01/2033(o) 5,039
4,650 IDA(a) 2.97 7/01/2021 4,599
530 Luzerne County IDA (INS - Assured
Guaranty Municipal Corp.) 3.85 12/15/2019 527
2,640 Public School Building Auth. (INS - BAM) 2.41 12/01/2018 2,638
2,000 Scranton School District 4.12 6/15/2034(o) 1,980
----------
18,515
----------
SOUTH CAROLINA (0.3%)
10,000 Public Service Auth. 2.39 12/01/2023 9,375
----------
TENNESSEE (0.1%)
2,235 Metropolitan Nashville Airport Auth.
(LOC - Regions Bank)(k) 2.19 4/01/2030 2,235
----------
TEXAS (0.1%)
1,690 City of Houston 2.62 3/01/2021 1,676
1,240 City of Houston 2.77 3/01/2022 1,227
1,900 City of Houston 2.97 3/01/2023 1,885
----------
4,788
----------
WISCONSIN (0.4%)
8,500 Public Finance Auth. 2.62 11/01/2019 8,381
4,000 Public Finance Auth. (LOC - Citizens
Financial Group) 2.75 6/01/2020 3,936
----------
12,317
----------
Total Municipal Obligations (cost: $239,196) 238,043
----------
U.S. GOVERNMENT AGENCY ISSUES(l) (1.1%)
COLLATERALIZED-MORTGAGE OBLIGATIONS (0.1%)
4,076 Fannie Mae(+) 1.25(c) 9/25/2027 3,846
----------
MORTGAGE-BACKED PASS-THROUGH SECURITIES (1.0%)
3,739 Fannie Mae(+) 2.50(c) 4/01/2027 3,709
11,085 Fannie Mae(+) 2.50(c) 5/01/2027 10,994
6,339 Fannie Mae(+) 2.50(c) 8/01/2027 6,287
5,350 Fannie Mae(+) 2.50(c) 8/01/2027 5,306
154 Fannie Mae(+) 4.50(c) 5/01/2023 161
90 Fannie Mae(+) 4.50(c) 2/01/2024 94
63 Fannie Mae(+) 5.00(c) 12/01/2021 63
190 Fannie Mae(+) 5.00(c) 6/01/2023 200
59 Fannie Mae(+) 5.00(c) 9/01/2023 60
================================================================================
PORTFOLIO OF INVESTMENTS | 23
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
$ 254 Fannie Mae(+) 5.00%(c) 2/01/2024 $ 261
160 Fannie Mae(+) 5.50(c) 12/01/2020 163
203 Fannie Mae(+) 5.50(c) 2/01/2023 212
553 Fannie Mae(+) 5.50(c) 6/01/2023 578
158 Fannie Mae(+) 5.50(c) 9/01/2023 167
526 Fannie Mae(+) 5.50(c) 6/01/2024 549
221 Fannie Mae(+) 6.00(c) 10/01/2022 232
315 Fannie Mae(+) 6.00(c) 1/01/2023 330
559 Fannie Mae(+) 6.00(c) 1/01/2023 589
243 Fannie Mae(+) 6.00(c) 7/01/2023 251
722 Freddie Mac(+) 12 mo. LIBOR + 1.625% 3.36(b) 4/01/2035 755
109 Freddie Mac(+) 5.00(c) 5/01/2020 111
140 Freddie Mac(+) 5.00(c) 9/01/2020 142
222 Freddie Mac(+) 5.50(c) 4/01/2021 229
----------
31,443
----------
Total U.S. Government Agency Issues (cost: $35,720) 35,289
----------
U.S. TREASURY SECURITIES(m) (7.8%)
NOTES (7.8%)
5,000 1.00%, 3/15/2018 4,998
10,000 1.13%, 5/31/2019 9,883
5,000 1.13%, 2/28/2021 4,822
25,000 1.25%, 10/31/2018 24,894
10,000 1.25%, 1/31/2019 9,932
10,000 1.25%, 1/31/2020 9,826
15,000 1.37%, 2/29/2020 14,759
5,000 1.37%, 1/31/2021 4,865
55,000 1.38%, 3/31/2020 54,066
45,000 1.38%, 9/30/2020 43,978
20,000 1.38%, 6/30/2023 18,800
25,000 1.62%, 11/30/2020 24,551
10,000 1.75%, 9/30/2022 9,668
15,000 1.87%, 11/30/2021 14,710
5,000 1.87%, 8/31/2022 4,866
----------
Total U.S. Treasury Securities (cost: $259,148) 254,618
----------
Total Bonds (cost: $3,121,838) 3,122,555
----------
================================================================================
24 | USAA SHORT-TERM BOND FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (0.2%)
PREFERRED STOCKS (0.2%)
FINANCIALS (0.2%)
-----------------
DIVERSIFIED BANKS (0.2%)
200,000 Citigroup Capital XIII, 7.68%, 3 mo.
LIBOR + 6.37%(b) $ 5,454
----------
Total Equity Securities (cost: $5,470) 5,454
----------
--------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON
(000) RATE MATURITY
--------------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS (5.4%)
COMMERCIAL PAPER (5.0%)
$ 7,522 Albemarle Corp.(a) 2.05% 2/07/2018 7,520
5,555 Albemarle Corp.(a) 1.90 2/20/2018 5,549
3,531 Baptist Health Care 2.50 7/09/2018 3,531
30,000 Catholic Health Initiatives 2.10 2/12/2018 29,981
7,471 Constellation Brands, Inc.(a) 1.86 2/07/2018 7,469
7,861 Constellation Brands, Inc.(a) 1.88 2/08/2018 7,858
15,000 Enbridge Energy Partners, LP(a) 2.33 2/28/2018 14,974
10,362 Energy Transfer Partners, LP(a) 2.25 2/05/2018 10,359
5,000 Energy Transfer Partners, LP(a) 2.15 2/14/2018 4,996
8,569 FMC Corp.(a) 2.00 2/13/2018 8,563
8,000 Hyundai Capital America(a) 1.78 2/05/2018 7,998
15,000 Molson Coors Brewing Co.(a) 1.88 2/13/2018 14,991
10,000 Nabors Industries, Inc.(a) 2.55 2/28/2018 9,981
2,500 Pacific Gas & Electric Co.(a) 1.60 2/02/2018 2,500
6,786 Public Service Co. of North Carolina 1.95 2/16/2018 6,781
1,871 Public Services Co. 1.90 2/09/2018 1,870
10,987 Spire Inc.(a) 1.70 2/01/2018 10,987
9,920 VIACOM, Inc.(a) 2.20 3/02/2018 9,902
----------
Total Commercial Paper (cost: $165,810) 165,810
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 25
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (0.4%)
12,249,853 State Street Institutional Treasury Money Market Fund
Premier Class, 1.23%(n) (cost: $12,250) $ 12,250
----------
Total Money Market Instruments (cost: $178,060) 178,060
----------
SHORT-TERM INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED (0.3%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (0.3%)
44,233 Federated Government Obligations Fund Institutional Class, 1.19%(n) 44
8,630 Fidelity Government Fund Portfolio Class I, 1.22%(n) 9
4,503,961 Goldman Sachs Financial Square Government Fund Institutional
Class, 1.21%(n) 4,504
3,425,429 Invesco Government & Agency Portfolio Institutional Class, 1.24%(n) 3,425
283,821 Morgan Stanley Institutional Liquidity Funds Government Portfolio
Institutional Class, 1.21%(n) 284
919,182 Western Asset Institutional Government Reserves Institutional
Class, 1.22%(n) 919
----------
Total Short-Term Investments Purchased with Cash Collateral from
Securities Loaned (cost: $9,185) 9,185
----------
TOTAL INVESTMENTS (COST: $3,314,553) $3,315,254
==========
================================================================================
26 | USAA SHORT-TERM BOND FUND
================================================================================
--------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
--------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
--------------------------------------------------------------------------------------------------------
Bonds:
Asset-Backed Securities $ - $ 349,865 $- $ 349,865
Collateralized Loan Obligations - 44,390 - 44,390
Collateralized Mortgage Obligation - 2,989 - 2,989
Commercial Mortgage Securities - 80,035 - 80,035
Corporate Obligations - 1,661,415 - 1,661,415
Eurodollar and Yankee Obligations - 431,327 - 431,327
Foreign Government Obligations - 24,584 - 24,584
Municipal Obligations - 238,043 - 238,043
U.S. Government Agency Issues - 35,289 - 35,289
U.S. Treasury Securities 254,618 - - 254,618
Equity Securities:
Preferred Stocks - 5,454 - 5,454
Money Market Instruments:
Commercial Paper - 165,810 - 165,810
Government & U.S. Treasury
Money Market Funds 12,250 - - 12,250
Short-Term Investments Purchased
with Cash Collateral from
Securities Loaned:
Government & U.S. Treasury
Money Market Funds 9,185 - - 9,185
--------------------------------------------------------------------------------------------------------
Total $276,053 $3,039,201 $- $3,315,254
--------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
================================================================================
PORTFOLIO OF INVESTMENTS | 27
================================================================================
--------------------------------------------------------------------------------
RECONCILIATION OF LEVEL 3 INVESTMENTS
--------------------------------------------------------------------------------
($ IN 000s) CORPORATE OBLIGATIONS
--------------------------------------------------------------------------------
Balance as of July 31, 2017 $ 3,690
Purchases -
Sales (3,688)
Transfers into Level 3 -
Transfers out of Level 3 -
Net realized gain (loss) on investments 7
Change in net unrealized appreciation/(depreciation) of investments (9)
--------------------------------------------------------------------------------
Balance as of January 31, 2018 $ -
--------------------------------------------------------------------------------
For the period of August 1, 2017, through January 31, 2018, 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 SHORT-TERM BOND FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
January 31, 2018 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
Market values of securities are determined by procedures and practices
discussed in Note 1A to the financial statements.
The Portfolio of Investments category percentages shown represent the
percentages of the investments to net assets, and, in total, may not equal
100%. A category percentage of 0.0% represents less than 0.1% of net
assets. Investments in foreign securities were 15.7% of net assets at
January 31, 2018.
o CATEGORIESAND 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 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
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 29
================================================================================
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 paydown.
COLLATERALIZED LOAN OBLIGATIONS (CLOs) - Collateralized loan obligations
are securities issued by entities that are collateralized by a pool of
loans. CLOs are issued in multiple classes (tranches), and can be equity
or debt with specific adjustable or fixed interest rates, and varying
maturities. The cash flow from the underlying loans is used to pay off
each tranche separately within the debt, or senior tranches. Equity, or
subordinated tranches, typically are not paid a cash flow but do offer
ownership in the CLO itself in the event of a sale.
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 Notes to
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
================================================================================
30 | USAA SHORT-TERM BOND FUND
================================================================================
serves to moderate their prepayment risk. CMBS IOs are subject to
default-related prepayments that may have a negative impact on yield.
o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS
BAM Build American Mutual
CCD Community College District
EDA Economic Development Authority
ETM Escrowed to final maturity
IDA Industrial Development Authority/Agency
LIBOR London Interbank Offered Rate
MTA Metropolitan Transportation Authority
REITs Real estate investment trusts - 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 the name listed.
Although bond insurance reduces the risk of loss due to default by
an issuer, such bonds remain subject to the risk that value may
fluctuate for other reasons, and there is no assurance that the
insurance company will meet its obligations.
LOC Principal and interest payments are guaranteed by a bank letter of
credit or other bank credit agreement.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 31
================================================================================
o SPECIFIC NOTES
(a) Restricted security that is not registered under the Securities Act
of 1933. A resale of this security in the United States may occur in an
exempt transaction to a qualified institutional buyer as defined by
Rule 144A, and as such has been deemed liquid by USAA Asset Management
Company (the Manager) under liquidity guidelines approved by USAA
Mutual Funds Trust's Board of Trustees (the Board), unless otherwise
noted as illiquid.
(b) Variable-rate security - interest rate is adjusted periodically.
The interest rate disclosed represents the rate at January 31, 2018.
(c) Stated interest rates may change slightly over time as underlying
mortgages paydown.
(d) Security deemed illiquid by the Manager, under liquidity guidelines
approved by the Board. The aggregate market value of these securities
at January 31, 2018, was $24,654,000, which represented 0.8% of the
Fund's net assets.
(e) 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 all in interest rate
of all contracts within the loan facility. The interest rate is adjusted
periodically, and the rate disclosed represents the current rate at
January 31, 2018. 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.
(f) The security, or a portion thereof, was out on loan as of January
31, 2018.
(g) Security or a portion of the security purchased on a delayed-delivery or
when-issued basis.
(h) The senior loan will settle after January 31, 2018, at which time the
interest rate will be determined.
================================================================================
32 | USAA SHORT-TERM BOND FUND
================================================================================
(i) Fixed to Floating security that initially pays a fixed rate and converts
to a floating rate coupon at a specified date in the future. The rate
presented is a fixed rate.
(j) At January 31, 2018, the security, or a portion thereof, was segregated
to cover delayed-delivery and/or when-issued purchases.
(k) Variable-rate demand notes (VRDNs) - Provide the right to sell the
security at face value on either that day or within the rate-reset
period. VRDNs will normally trade as if the maturity is the earlier put
date, even though stated maturity is longer. The interest rate is
adjusted at a stipulated daily, weekly, monthly, quarterly, or other
specified time interval to reflect current market conditions. These
securities do not indicate a reference rate and spread in their
description.
(l) U.S. government agency issues - Mortgage-backed securities issued by
certain U.S. Government Sponsored Enterprises (GSEs) such as the
Government National Mortgage Association (GNMA or Ginnie Mae) and
certain other U.S. government guaranteed securities are supported by the
full faith and credit of the U.S. government. Securities issued by
other GSEs, such as Freddie Mac (Federal Home Loan Mortgage Corporation
or FHLMC) and Fannie Mae (Federal National Mortgage Association or
FNMA), indicated with a "+", are supported only by the right of the GSE
to borrow from the U.S. Treasury, the discretionary authority of the
U.S. government to purchase the GSEs' obligations, or only by the
credit of the issuing agency, instrumentality, or corporation, and are
neither issued nor guaranteed by the U.S. Treasury. In September of
2008, the U.S. Treasury placed Fannie Mae and Freddie Mac under
conservatorship and appointed the Federal Housing Finance Agency (FHFA)
to act as conservator and oversee their daily operations. In addition,
the U.S. Treasury entered into purchase agreements with Fannie Mae and
Freddie Mac to provide them with capital in exchange for senior
preferred stock. While these arrangements are intended to ensure that
Fannie Mae and Freddie Mac can continue to meet their obligations, it is
possible that actions by the U.S.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 33
================================================================================
Treasury, FHFA, or others could adversely impact the value of the Fund's
investments in securities issued by Fannie Mae and Freddie Mac.
(m) Rates for U.S. Treasury notes or bonds represent the stated coupon
payment rate at time of issuance.
(n) Rate represents the money market fund annualized seven-day yield at
January 31, 2018.
(o) Put bond - provides the right to sell the bond at face value at specific
tender dates prior to final maturity. The put feature shortens the
effective maturity of the security.
See accompanying notes to financial statements.
================================================================================
34 | USAA SHORT-TERM BOND FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
January 31, 2018 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (including
securities on loan of $8,855) (cost of $3,314,553) $3,315,254
Cash 3,128
Receivables:
Capital shares sold 3,221
USAA Asset Management Company (Note 7C) 2
Interest 20,410
Securities sold 9
Other 3
----------
Total assets 3,342,027
----------
LIABILITIES
Payables:
Upon return of securities loaned 9,185
Securities purchased 52,992
Capital shares redeemed 2,639
Dividends on capital shares 182
Accrued management fees 676
Accrued transfer agent's fees 66
Other accrued expenses and payables 436
----------
Total liabilities 66,176
----------
Net assets applicable to capital shares outstanding $3,275,851
==========
NET ASSETS CONSIST OF:
Paid-in capital $3,274,631
Undistributed net investment income 12
Accumulated net realized gain on investments 507
Net unrealized appreciation of investments 701
----------
Net assets applicable to capital shares outstanding $3,275,851
==========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $1,276,462/139,839 capital shares
outstanding, no par value) $ 9.13
==========
Institutional Shares (net assets of $1,970,246/215,957 capital shares
outstanding, no par value) $ 9.12
==========
Adviser Shares (net assets of $24,059/2,635 capital shares
outstanding, no par value) $ 9.13
==========
R6 Shares (net assets of $5,084/557 capital shares
outstanding, no par value) $ 9.13
==========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 35
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended January 31, 2018 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends $ 196
Interest income 42,966
Securities lending (net) 11
----------
Total income 43,173
----------
EXPENSES
Management fees 4,233
Administration and servicing fees:
Fund Shares 987
Institutional Shares 977
Adviser Shares 18
R6 Shares 1
Transfer agent's fees:
Fund Shares 995
Institutional Shares 977
Adviser Shares 3
Distribution and service fees (Note 7E):
Adviser Shares 30
Custody and accounting fees:
Fund Shares 85
Institutional Shares 135
Adviser Shares 1
Postage:
Fund Shares 58
Institutional Shares 59
Shareholder reporting fees:
Fund Shares 26
Institutional Shares 10
Trustees' fees 17
Registration fees:
Fund Shares 26
Institutional Shares 28
Adviser Shares 10
R6 Shares 12
Professional fees 101
Other 30
----------
Total expenses 8,819
Expenses reimbursed:
R6 Shares (10)
----------
Net expenses 8,809
----------
================================================================================
36 | USAA SHORT-TERM BOND FUND
================================================================================
NET INVESTMENT INCOME $ 34,364
--------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on:
Unaffiliated transactions 3,622
Affiliated transactions (Note 9) 20
Change in net unrealized appreciation/(depreciation) (33,263)
--------
Net realized and unrealized loss (29,621)
--------
Increase in net assets resulting from operations $ 4,743
========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 37
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended January 31, 2018 (unaudited), and year ended
July 31, 2017
----------------------------------------------------------------------------------------------
1/31/2018 7/31/2017
----------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 34,364 $ 63,109
Net realized gain on investments 3,642 54
Net realized gain on futures transactions - 2
Change in net unrealized appreciation/(depreciation) of
investments (33,263) 3,479
-----------------------------
Increase in net assets resulting from operations 4,743 66,644
-----------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares (13,257) (25,582)
Institutional Shares (20,801) (37,170)
Adviser Shares (225) (286)
R6 Shares* (57) (71)
-----------------------------
Total distributions of net investment income (34,340) (63,109)
-----------------------------
Net realized gains:
Fund Shares (3) -
Institutional Shares (5) -
-----------------------------
Total distributions of net realized gains (8) -
-----------------------------
Distributions to shareholders (34,348) (63,109)
-----------------------------
NET INCREASE (DECREASE) IN NET ASSETS FROM
CAPITAL SHARE TRANSACTIONS (NOTE 6)
Fund Shares (13,189) (99,240)
Institutional Shares 33,500 9,130
Adviser Shares 2,747 8,709
R6 Shares* 2 5,076
-----------------------------
Total net increase (decrease) in net assets from
capital share transactions 23,060 (76,325)
-----------------------------
Net decrease in net assets (6,545) (72,790)
NET ASSETS
Beginning of period 3,282,396 3,355,186
-----------------------------
End of period $3,275,851 $3,282,396
=============================
Undistributed (overdistribution of ) net
investment income:
End of period $ 12 $ (12)
=============================
* R6 Shares commenced operating on December 1, 2016.
See accompanying notes to financial statements.
================================================================================
38 | USAA SHORT-TERM BOND FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
January 31, 2018 (unaudited)
--------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company Act
of 1940, as amended (the 1940 Act), is an open-end management investment
company organized as a Delaware statutory trust consisting of 51 separate funds.
The USAA Short-Term Bond Fund (the Fund) qualifies as a registered investment
company under Accounting Standards Codification Topic 946. The information
presented in this semiannual report pertains only to the Fund, which is
classified as diversified under the 1940 Act. The Fund's investment objective is
to seek high current income consistent with preservation of principal.
The Fund consists of four classes of shares: Short-Term Bond Fund Shares (Fund
Shares), Short-Term Bond Fund Institutional Shares (Institutional Shares),
Short-Term Bond Fund Adviser Shares (Adviser Shares), and Short-Term Bond 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, 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 39
================================================================================
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, 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
================================================================================
40 | USAA SHORT-TERM BOND FUND
================================================================================
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. 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.
3. 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 41
================================================================================
the Fund's foreign securities. However, the Manager will monitor for
events that would materially affect the value of the Fund's foreign
securities and the Committee will consider such available information
that it deems relevant and will determine a fair value for the affected
foreign securities in accordance with valuation procedures. In addition,
information from an external vendor or other sources may be used to
adjust the foreign market closing prices of foreign equity securities to
reflect what the Committee believes to be the fair value of the
securities as of the close of the NYSE. Fair valuation of affected
foreign equity securities may occur frequently based on an assessment
that events which occur on a fairly regular basis (such as U.S. market
movements) are significant. Such securities are categorized in Level 2
of the fair value hierarchy.
4. 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.
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. 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. 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
================================================================================
42 | USAA SHORT-TERM BOND FUND
================================================================================
materially from the fair value price. Valuing these securities at fair
value is intended to cause the Fund's NAV to be more reliable than it
otherwise would be.
Fair value methods used by the Manager include, but are not limited to,
obtaining market quotations from secondary pricing services, broker-
dealers, other pricing services, or widely used quotation systems. General
factors considered in determining the fair value of securities include
fundamental analytical data, the nature and duration of any restrictions on
disposition of the securities, evaluation of credit quality, and an
evaluation of the forces that influenced the market in which the securities
are purchased and sold.
B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would
be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The
three-level valuation hierarchy disclosed in the Portfolio of Investments is
based upon the transparency of inputs to the valuation of an asset or
liability as of the measurement date. The three levels are defined as
follows:
Level 1 - inputs to the valuation methodology are quoted prices (unadjusted)
in active markets for identical securities.
Level 2 - inputs to the valuation methodology are other significant
observable inputs, including quoted prices for similar securities, inputs
that are observable for the securities, either directly or indirectly, and
market-corroborated inputs such as market indexes.
Level 3 - inputs to the valuation methodology are unobservable and
significant to the fair value measurement, including the Manager's own
assumptions in determining the fair value.
The inputs or methodologies used for valuing securities are not necessarily
an indication of the risks associated with investing in those securities.
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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 43
================================================================================
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 January 31, 2018, the Fund did not incur any
income tax, interest, or penalties, and has recorded no liability for net
unrecognized tax benefits relating to uncertain income tax positions. On an
ongoing basis, the Manager will monitor the Fund's tax basis to determine if
adjustments to this conclusion are necessary. The statute of limitations on
the Fund's tax return filings generally remain open for the three preceding
fiscal reporting year ends and remain subject to examination by the Internal
Revenue Service and state taxing authorities.
D. INVESTMENTS IN SECURITIES - Securities transactions are accounted for on
the date the securities are purchased or sold (trade date). Gains or losses
from sales of investment securities are computed on the identified cost
basis. Interest income is recorded daily on the accrual basis. Premiums and
discounts are amortized over the life of the respective securities, using
the effective yield method for long-term securities and the straight-line
method for short-term securities.
E. SECURITIES PURCHASED ON A DELAYED-DELIVERY OR WHEN-ISSUED BASIS - Delivery
and payment for securities that have been purchased by the Fund on a
delayed-delivery or when-issued basis 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.
As of January 31, 2018, the Fund's outstanding delayed-delivery commitments,
including interest purchased, were $47,465,000; which included when-issued
securities of $14,714,000.
================================================================================
44 | USAA SHORT-TERM BOND FUND
================================================================================
F. EXPENSES PAID INDIRECTLY - Through arrangements with the Fund's custodian
and other banks utilized by the Fund for cash management purposes, realized
credits, if any, generated from cash balances in the Fund's bank accounts
may be used to directly reduce the Fund's expenses. For the six-month period
ended January 31, 2018, there were no custodian and other bank credits.
G. INDEMNIFICATIONS - Under the Trust's organizational documents, its
officers and trustees are indemnified against certain liabilities arising
out of the performance of their duties to the Trust. In addition, in the
normal course of business, the Trust enters into contracts that contain a
variety of representations and warranties that provide general
indemnifications. The Trust's maximum exposure under these arrangements is
unknown, as this would involve future claims that may be made against the
Trust that have not yet occurred. However, the Trust expects the risk of
loss to be remote.
H. USE OF ESTIMATES - The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts in the
financial statements.
(2) LINE OF CREDIT
The Fund participates, along with other funds of the Trust and USAA ETF Trust
(together, the Trusts), in a joint, short-term, revolving, committed loan
agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate of
the Manager. The purpose of the agreement is to provide temporary or emergency
cash needs, including redemption requests that might otherwise require the
untimely disposition of securities. Subject to availability (including usage of
the facility by other funds of the Trusts), the Fund may borrow from CAPCO an
amount up to 5% of the Fund's total assets at an interest rate based on the
London Interbank Offered Rate (LIBOR), plus 100.0 basis points.
The Trusts are also assessed facility fees by CAPCO in the amount of 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 45
================================================================================
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 January 31, 2018, the Fund paid CAPCO facility
fees of $13,000, which represents 4.1% 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 January 31, 2018.
(3) DISTRIBUTIONS
The tax basis of distributions and accumulated undistributed net investment
income will be determined as of the Fund's tax year-end of July 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 taxes.
At July 31, 2017, the Fund had net capital loss carryforwards of $3,181,000, for
federal income tax purposes. It is unlikely that the Board will authorize a
distribution of capital gains realized in the future until the capital loss
carryforwards have been used.
As of January 31, 2018, the cost of securities, including short-term securities,
for federal income tax purposes, was approximately the same as the cost reported
in the financial statements.
Gross unrealized appreciation and depreciation of investments as of January 31,
2018, were $21,691,000 and $20,990,000, respectively, resulting in net
unrealized appreciation of $701,000.
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities, excluding
short-term securities, for the six-month period ended January 31, 2018, were
$622,815,000 and $619,920,000, respectively.
================================================================================
46 | USAA SHORT-TERM BOND FUND
================================================================================
(5) SECURITIES LENDING
The Fund, through a 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 January 31, 2018, 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
--------------------------------------------------------------------------------
$8,855,000 $- $9,185,000
--------------------------------------------------------------------------------
(6) CAPITAL SHARE TRANSACTIONS
At January 31, 2018, there were an unlimited number of shares of capital stock
at no par value authorized for the Fund.
Capital share transactions for the Institutional Shares resulted from purchases
and sales by the affiliated USAA fund-of-funds as well as other
================================================================================
NOTES TO FINANCIAL STATEMENTS | 47
================================================================================
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
JANUARY 31, 2018 JULY 31, 2017
---------------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------
FUND SHARES:
Shares sold 17,073 $ 156,824 30,743 $ 281,959
Shares issued from reinvested dividends 1,402 12,868 2,703 24,795
Shares redeemed (19,923) (182,881) (44,303) (405,994)
--------------------------------------------------
Net decrease from capital share transactions (1,448) $ (13,189) (10,857) $ (99,240)
==================================================
INSTITUTIONAL SHARES:
Shares sold 22,966 $ 210,809 49,690 $ 455,261
Shares issued from reinvested dividends 2,232 20,470 3,981 36,510
Shares redeemed (21,517) (197,779) (52,574) (482,641)
--------------------------------------------------
Net increase from capital share transactions 3,681 $ 33,500 1,097 $ 9,130
==================================================
ADVISER SHARES:
Shares sold 1,378 $ 12,664 1,486 $ 13,616
Shares issued from reinvested dividends 8 77 18 162
Shares redeemed (1,088) (9,994) (552) (5,069)
--------------------------------------------------
Net increase from capital share transactions 298 $ 2,747 952 $ 8,709
==================================================
R6 SHARES (COMMENCED ON DECEMBER 1, 2016):
Shares sold -* $ 1 557 $ 5,077
Shares issued from reinvested dividends -* 1 -* -*
Shares redeemed (-)* (-)* (-)* (1)
--------------------------------------------------
Net increase from capital share transactions -* $ 2 557 $ 5,076
==================================================
*Represents less than 500 shares or $500.
================================================================================
48 | USAA SHORT-TERM BOND 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, 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 January 31, 2018, 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 0.20% of the Fund's average net assets.
Prior to October 1, 2017, the base investment management fee was 0.24% 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 Short Investment Grade Bond Funds Index. The
Lipper Short Investment Grade Bond Funds Index tracks the total return
performance of funds within the Lipper Short Investment Grade Debt Funds
category.
The performance period for each class consists of the current month plus the
previous 35 months. 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 of the share class are calculated
over a rolling 36-month period.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 49
================================================================================
Each class' annual performance adjustment rate is multiplied by the average
net assets of each respective class over the entire performance period,
which is then multiplied by a fraction, the numerator of which is the number
of days in the month and the denominator of which is 365 (366 in leap
years). The resulting amount is then added to (in the case of
overperformance), or subtracted from (in the case of underperformance) the
base fee.
Under the performance fee arrangement, each class will pay a positive
performance fee adjustment for a performance period whenever the class
outperforms the Lipper Short Investment Grade Funds Index over that period,
even if the class had overall negative returns during the performance
period.
For the six-month period ended January 31, 2018, the Fund incurred total
management fees, paid or payable to the Manager, of $4,233,000, which
included a performance adjustment for the Fund Shares, Institutional Shares,
and R6 Shares of $307,000, $409,000, and less than $500, respectively. For
the Fund Shares, Institutional Shares, and R6 Shares, the performance
adjustments were 0.05%, 0.04%, and 0.01%, respectively. For the six-month
period ended January 31, 2018, the Adviser Shares did not incur any
performance adjustment.
B. ADMINISTRATION AND SERVICING FEES - The Manager provides certain
administration and servicing functions for the Fund. For such services, the
Manager receives a fee accrued daily and paid monthly at an annualized rate
of 0.15% of average net assets 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 January 31, 2018,
the Fund Shares, Institutional Shares, Adviser Shares, and R6 Shares
incurred administration and servicing fees, paid or payable to the Manager,
of $987,000, $977,000, $18,000, 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
================================================================================
50 | USAA SHORT-TERM BOND FUND
================================================================================
the Manager. For the six-month period ended January 31, 2018, 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.
C. EXPENSE LIMITATION - The Manager agreed, through November 30, 2018, to limit
the total annual operating expenses of the R6 Shares to 0.39% of its average
annual net assets, excluding extraordinary expenses and before reductions of
any expenses paid indirectly, and to reimburse the R6 Shares for all
expenses in excess of that amount. This expense limitation arrangement may
not be changed or terminated through November 30, 2018, without approval of
the Trust's Board of Trustees, and may be changed or terminated by the
Manager at any time after that date. For the six-month period ended January
31, 2018, the R6 Shares incurred reimbursable expenses of $10,000, of which
$2,000 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 January 31, 2018, the Fund Shares,
Institutional Shares, Adviser Shares, and R6 Shares incurred transfer
agent's fees, paid or payable to SAS, of $995,000, $977,000, $3,000, 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 | 51
================================================================================
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 January
31, 2018, the Adviser Shares incurred distribution and service (12b-1) fees
of $30,000.
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 January 31, 2018, the USAA
fund-of-funds owned the following percentages of the total outstanding shares of
the Fund:
AFFILIATED USAA FUND OWNERSHIP %
------------------------------------------------------------------------------
Cornerstone Conservative 0.4
Target Retirement Income 1.5
Target Retirement 2020 1.6
Target Retirement 2030 0.9
Target Retirement 2040 0.0*
Target Retirement 2060 0.0*
* Represents less than 0.1%
The Manager is indirectly wholly owned by United Services Automobile Association
(USAA), a large, diversified financial services institution. At January 31,
2018, USAA and its affiliates owned 542,000 Adviser Shares and 548,000 R6
Shares, which represents 20.6% of the Adviser Shares outstanding, 98.5% of the
R6 Shares outstanding, and 0.3% of the Fund's total outstanding shares.
================================================================================
52 | USAA SHORT-TERM BOND 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) SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
During the six-month period ended January 31, 2018, 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
--------------------------------------------------------------------------
Short-Term Bond Core Short-Term Bond ETF $4,300,000 $ 20,000
High Income Short-Term Bond 5,309,000 138,000
(10) 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 December 2017, the
SEC issued Temporary Final Rule Release No. 33-10442, INVESTMENT COMPANY
REPORTING MODERNIZATION (Temporary Rule), which extends to April 2019 the
compliance date on which funds in larger fund groups, such as the Fund, are
required to begin filing form N-PORT. In the interim, in lieu of filing form
N-PORT, the Temporary Rule requires that funds in larger fund groups maintain in
their records the information that is required to be included in form N-PORT.
The Temporary Rule does not affect the filing date or requirements of form
N-CEN.
In October 2016, the SEC issued Final Rule Release No. 33-10233, INVESTMENT
COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS (Liquidity Rule). The Liquidity Rule
requires funds to establish a liquidity risk management program and enhances
disclosures regarding funds' liquidity.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 53
================================================================================
In February 2018, the SEC issued Interim Final Rule Release No. IC-33010,
INVESTMENT COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS; COMMISSION GUIDANCE FOR
IN-KIND ETFs, which extends, among others, the compliance dates for certain
disclosure requirements under the Liquidity Rule. The compliance date for the
liquidity disclosure required in form N-PORT has been extended to June 1, 2019
for larger entities such as the Fund. The compliance date for the liquidity
disclosure required in form N-CEN for large entities such as the Fund remains
December 1, 2018. The Fund is expected to comply with these compliance dates for
forms N-PORT and N-CEN. The Manager continues to evaluate the impact these rules
and amendments will have on the financial statements and other disclosures.
(11) NEW ACCOUNTING PRONOUNCEMENTS
In March 2017, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Update (ASU) 2017-08, Premium Amortization of Purchased Callable Debt
Securities. The amendments in the ASU shorten the premium amortization period on
a purchased callable debt security from the security's contractual life to the
earliest call date. It is anticipated that this change will enhance disclosures
by reducing losses recognized when a security is called on an earlier date. This
ASU is effective for fiscal years beginning after December 15, 2018. The Manager
continues to evaluate the impact this ASU will have on the financial statement
disclosures.
================================================================================
54 | USAA SHORT-TERM BOND FUND
================================================================================
(12) FINANCIAL HIGHLIGHTS - FUND SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JANUARY 31, YEAR ENDED JULY 31,
------------------------------------------------------------------------------------
2018 2017 2016 2015 2014 2013
------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 9.21 $ 9.20 $ 9.15 $ 9.23 $ 9.19 $ 9.24
------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .09 .17 .16 .15 .17 .20
Net realized and
unrealized gain (loss) (.08) .01 .05 (.08) .04 (.05)
------------------------------------------------------------------------------------
Total from investment
operations .01 .18 .21 .07 .21 .15
------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.09) (.17) (.16) (.15) (.17) (.20)
Realized capital gains (.00)(a) - - (.00)(a) - (.00)(a)
------------------------------------------------------------------------------------
Total distributions (.09) (.17) (.16) (.15) (.17) (.20)
------------------------------------------------------------------------------------
Net asset value at
end of period $ 9.13 $ 9.21 $ 9.20 $ 9.15 $ 9.23 $ 9.19
====================================================================================
Total return (%)* .14 2.02 2.34 .83 2.28 1.61
Net assets at end
of period (000) $1,276,462 $1,301,428 $1,400,054 $1,823,922 $1,683,052 $1,657,261
Ratios to average
net assets:**
Expenses (%)(b) .60(c) .63 .61 .62 .63 .64
Net investment income (%) 2.02(c) 1.90 1.76 1.65 1.83 2.14
Portfolio turnover (%) 21 31 22 31 28 25
* 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 January 31, 2018, average net assets were
$1,304,881,000.
(a) Represents less than $0.01 per share.
(b) Reflects total annual operating expenses of the Fund Shares before
reductions of any expenses paid indirectly. The Fund Shares' expenses paid
indirectly decreased the expense ratios 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 55
================================================================================
(12) FINANCIAL HIGHLIGHTS (CONTINUED) - INSTITUTIONAL SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JANUARY 31, YEAR ENDED JULY 31,
------------------------------------------------------------------------------------
2018 2017 2016 2015 2014 2013
------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 9.21 $ 9.20 $ 9.15 $ 9.23 $ 9.18 $ 9.24
------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .10 .18 .17 .16 .18 .21
Net realized and
unrealized gain (loss) (.09) .01 .05 (.08) .05 (.06)
------------------------------------------------------------------------------------
Total from investment
operations .01 .19 .22 .08 .23 .15
------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.10) (.18) (.17) (.16) (.18) (.21)
Realized capital gains (.00)(a) - - (.00)(a) - (.00)(a)
------------------------------------------------------------------------------------
Total distributions (.10) (.18) (.17) (.16) (.18) (.21)
------------------------------------------------------------------------------------
Net asset value at
end of period $ 9.12 $ 9.21 $ 9.20 $ 9.15 $ 9.23 $ 9.18
====================================================================================
Total return (%)* .09 2.13 2.44 .95 2.54 1.66
Net assets at end
of period (000) $1,970,246 $1,954,307 $1,942,385 $2,237,771 $1,977,300 $1,697,847
Ratios to average
net assets:**
Expenses (%)(b) .49(c) .53 .51 .50 .49 .48
Net investment income (%) 2.13(c) 2.00 1.87 1.76 1.96 2.24
Portfolio turnover (%) 21 31 22 31 28 25
* 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 January 31, 2018, average net assets were
$1,937,842,000.
(a) Represents less than $0.01 per share.
(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%)(+)
(+) Represents less than 0.01% of average net assets.
(c) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
56 | USAA SHORT-TERM BOND FUND
================================================================================
(12) FINANCIAL HIGHLIGHTS (CONTINUED) - ADVISER SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JANUARY 31, YEAR ENDED JULY 31,
----------------------------------------------------------------------------------
2018 2017 2016 2015 2014 2013
----------------------------------------------------------------------------------
Net asset value at
beginning of period $ 9.21 $ 9.20 $ 9.15 $ 9.23 $ 9.19 $ 9.24
----------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .09 .16 .14 .13 .15 .17
Net realized and
unrealized gain (loss) (.08) .01 .05 (.08) .04 (.05)
----------------------------------------------------------------------------------
Total from investment
operations .01 .17 .19 .05 .19 .12
----------------------------------------------------------------------------------
Less distributions from:
Net investment income (.09) (.16) (.14) (.13) (.15) (.17)
Realized capital gains (.00)(a) - - .00(a) - .00(a)
----------------------------------------------------------------------------------
Total distributions (.09) (.16) (.14) (.13) (.15) (.17)
----------------------------------------------------------------------------------
Net asset value at
end of period $ 9.13 $ 9.21 $ 9.20 $ 9.15 $ 9.23 $ 9.19
==================================================================================
Total return (%)* .07 1.82 2.08 .59 2.07 1.35
Net assets at end
of period (000) $ 24,059 $21,532 $12,747 $13,304 $13,056 $9,872
Ratios to average
net assets:**
Expenses (%)(c) .74(d) .82 .86 .85(b) .84 .90
Expenses, excluding
reimbursements (%)(c) .74(d) .82 .86 .85 .84 1.01
Net investment income (%) 1.87(d) 1.70 1.52 1.41 1.62 1.85
Portfolio turnover (%) 21 31 22 31 28 25
* 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 January 31, 2018, average net assets were
$23,921,000.
(a) Represents less than $0.01 per share.
(b) Prior to December 1, 2014, the Manager had voluntarily agreed to limit the
annual expenses of the Adviser Shares to 0.90% of the Adviser Shares'
average net assets.
(c) Reflects total annual operating expenses of the Adviser Shares before
reductions of any expenses paid indirectly. The Adviser Shares' expenses
paid indirectly decreased the expense ratios 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 | 57
================================================================================
(12) 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
JANUARY 31, JULY 31,
---------------------------------
2018 2017***
---------------------------------
Net asset value at beginning of period $ 9.21 $ 9.12
----------------------------
Income (loss) from investment operations:
Net investment income .10 .13
Net realized and unrealized gain (loss) (.08) .09
----------------------------
Total from investment operations .02 .22
----------------------------
Less distributions from:
Net investment income (.10) (.13)
Realized capital gains (.00)(a) -
----------------------------
Total distributions (.10) (.13)
----------------------------
Net asset value at end of period $ 9.13 $ 9.21
============================
Total return (%)* .25 2.43
Net assets at end of period (000) $5,084 $5,129
Ratios to average net assets:**
Expenses (%)(a) .39 .39
Expenses, excluding reimbursements (%)(a) .77 1.02
Net investment income (%)(a) 2.23 2.14
Portfolio turnover (%) 21 31
* 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 January 31, 2018, average net assets were
$5,115,000.
*** R6 Shares commenced operations on December 1, 2016.
(a) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
58 | USAA SHORT-TERM BOND FUND
================================================================================
EXPENSE EXAMPLE
January 31, 2018 (unaudited)
--------------------------------------------------------------------------------
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: direct costs, such
as wire fees, redemption fees, and low balance fees; and indirect costs,
including management fees, transfer agency fees, distribution and service
(12b-1) fees, and other Fund operating expenses. This example is intended to
help you understand your indirect costs, also referred to as "ongoing costs" (in
dollars), of investing in the Fund and to compare these costs with the ongoing
costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire six-month period of August 1, 2017, through
January 31, 2018.
ACTUAL EXPENSES
The line labeled "actual" under each share class in the table provides
information about actual account values and actual expenses. You may use the
information in this line, together with the amount you invested at the beginning
of the period, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number for your share
class in the "actual" line under the heading "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The line labeled "hypothetical" under each share class in the table provides
information about hypothetical account values and hypothetical expenses based on
the Fund's actual expense ratios for each class and an assumed rate of return of
5% per year before expenses, which is not the Fund's actual return. The
hypothetical account values and expenses may not be used to estimate the actual
ending account balance or expenses you paid for the
================================================================================
EXPENSE EXAMPLE | 59
================================================================================
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 AUGUST 1, 2017 -
AUGUST 1, 2017 JANUARY 31, 2018** JANUARY 31, 2018**
-----------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $1,001.40 $3.03
Hypothetical
(5% return before expenses) 1,000.00 1,022.18 3.06
INSTITUTIONAL SHARES
Actual 1,000.00 1,000.90 2.47
Hypothetical
(5% return before expenses) 1,000.00 1,022.74 2.50
ADVISER SHARES
Actual 1,000.00 1,000.70 3.73
Hypothetical
(5% return before expenses) 1,000.00 1,021.48 3.77
R6 SHARES
Actual 1,000.00 1,002.50 1.97
Hypothetical
(5% return before expenses) 1,000.00 1,023.24 1.99
*Expenses are equal to the annualized expense ratio of 0.60% for Fund Shares,
0.49% for Institutional Shares, 0.74% for Adviser Shares, and 0.39% for R6
Shares, which are net of any reimbursements and expenses paid indirectly,
multiplied by the average account value over the period, multiplied by 184
days/365 days (to reflect the one-half-year period). The Fund's actual ending
account values are based on its actual total returns of 0.14% for Fund Shares,
0.09% for Institutional Shares, 0.07% for Adviser Shares, and 0.25% for R6
Shares, for the six-month period of August 1, 2017, through January 31, 2018.
================================================================================
60 | USAA SHORT-TERM BOND FUND
================================================================================
**The Fund's annualized expense ratio of 0.60% for Fund Shares, 0.49% for
Institutional Shares, 0.74% for Adviser Shares, and 0.39% for R6 Shares above
reflects a decrease in management fees from 0.24% to 0.20% effective October
1, 2017. Had the decrease been in effect for the entire six-month period of
August 1, 2017, through January 31, 2018, the Fund's expense ratio would have
been 0.59% for Fund Shares, 0.48% for Institutional Shares, 0.73% for Adviser
Shares, and 0.39% for R6 Shares, which is net of expenses paid indirectly, and
the values in the table above would be as shown below.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD
ACCOUNT VALUE ACCOUNT VALUE AUGUST 1, 2017 -
AUGUST 1, 2017 JANUARY 31, 2018 JANUARY 31, 2018
--------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $1,001.40 $2.98
Hypothetical
(5% return before expenses) 1,000.00 1,022.23 3.01
INSTITUTIONAL SHARES
Actual 1,000.00 1,000.90 2.42
Hypothetical
(5% return before expenses) 1,000.00 1,022.79 2.45
ADVISER SHARES
Actual 1,000.00 1,000.70 3.68
Hypothetical
(5% return before expenses) 1,000.00 1,021.53 3.72
R6 SHARES
Actual 1,000.00 1,002.50 1.97
Hypothetical
(5% return before expenses) 1,000.00 1,023.24 1.99
================================================================================
EXPENSE EXAMPLE | 61
================================================================================
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)
=============================================================================
23426-0318 (C)2018, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA SCIENCE & TECHNOLOGY FUND]
==============================================================
SEMIANNUAL REPORT
USAA SCIENCE & TECHNOLOGY FUND
FUND SHARES (USSCX) o ADVISER SHARES (USTCX)
JANUARY 31, 2018
==============================================================
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
INVESTMENT OVERVIEW 2
FINANCIAL INFORMATION
Portfolio of Investments 3
Notes to Portfolio of Investments 12
Financial Statements 14
Notes to Financial Statements 18
EXPENSE EXAMPLE 35
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE
RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY
USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN
PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS
ABOUT THE FUND.
(C)2018, USAA. All rights reserved.
================================================================================
================================================================================
FUND OBJECTIVE
THE USAA SCIENCE & TECHNOLOGY FUND (THE FUND) SEEKS LONG-TERM CAPITAL
APPRECIATION.
--------------------------------------------------------------------------------
TYPES OF INVESTMENTS
The Fund normally invests at least 80% of its assets in equity securities of
companies expected to benefit from the development and use of scientific and
technological advances and improvements. This 80% policy may be changed upon at
least 60 days' written notice to shareholders. The Fund may invest up to 50% of
its assets in foreign securities purchased in either foreign or U.S. markets.
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* - 1/31/18 o
(% of Net Assets)
Alphabet, Inc. "A" ADR ................................................. 5.2%
Facebook, Inc. "A" ..................................................... 4.5%
Visa, Inc. "A" ......................................................... 4.0%
Global Payments, Inc. .................................................. 2.7%
Amazon.com, Inc. ....................................................... 2.3%
PayPal Holdings, Inc. .................................................. 2.2%
FleetCor Technologies, Inc. ............................................ 2.1%
Workday, Inc. "A" ...................................................... 1.9%
NVIDIA Corp. ........................................................... 1.8%
Sunny Optical Technology Group Co. Ltd. ................................ 1.8%
o SECTOR ALLOCATION* - 1/31/18 o
[PIE CHART OF SECTOR ALLOCATION]
INFORMATION TECHNOLOGY 68.2%
HEALTH CARE 23.3%
CONSUMER DISCRETIONARY 4.8%
INDUSTRIALS 2.2%
CONSUMER STAPLES 0.3%
[END CHART]
*Does not include 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%.
You will find a complete list of securities that the Fund owns on pages 3-11.
================================================================================
2 | USAA SCIENCE & TECHNOLOGY FUND
================================================================================
PORTFOLIO OF INVESTMENTS
January 31, 2018 (unaudited)
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (98.9%)
COMMON STOCKS (98.8%)
CONSUMER DISCRETIONARY (4.8%)
-----------------------------
AUTO PARTS & EQUIPMENT (0.3%)
864,903 Hota Industrial Manufacturing Co. Ltd. $ 3,650
----------
HOUSEHOLD APPLIANCES (0.5%)
76,242 iRobot Corp.*,(a) 6,767
----------
INTERNET & DIRECT MARKETING RETAIL (4.0%)
22,669 Amazon.com, Inc.* 32,890
93,869 Expedia, Inc. 12,016
27,377 Netflix, Inc.* 7,400
391,951 Vipshop Holdings Ltd.* ADR 6,479
----------
58,785
----------
Total Consumer Discretionary 69,202
----------
CONSUMER STAPLES (0.3%)
-----------------------
DRUG RETAIL (0.3%)
54,209 Walgreens Boots Alliance, Inc. 4,080
6,311 Zur Rose Group AG* 881
----------
Total Consumer Staples 4,961
----------
HEALTH CARE (23.3%)
-------------------
BIOTECHNOLOGY (5.7%)
178,995 Aduro Biotech, Inc.* 1,128
81,009 Alder Biopharmaceuticals, Inc.* 1,146
127,261 Alkermes plc* 7,275
31,703 Alnylam Pharmaceuticals, Inc.* 4,121
47,430 Arena Pharmaceuticals, Inc.* 1,775
56,723 Audentes Therapeutics, Inc.* 1,991
11,049 Biogen, Inc.* 3,843
38,800 Biotoscana Investments S.A.* 229
27,236 bluebird bio, Inc.* 5,581
50,362 Calithera Biosciences, Inc.* 403
41,204 Celgene Corp.* 4,168
75,900 Clementia Pharmaceuticals, Inc.* 1,215
232,734 Coherus Biosciences, Inc.*,(a) 2,351
================================================================================
PORTFOLIO OF INVESTMENTS | 3
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
123,577 Cytokinetics, Inc.* $ 1,137
20,394 Galapagos N.V.* 2,435
18,204 Genmab A/S* 3,334
74,311 GlycoMimetics, Inc.* 1,671
33,380 Incyte Corp.* 3,014
21,563 Innate Pharma S.A.*,(a) 156
85,890 Ironwood Pharmaceuticals, Inc.* 1,272
81,670 Karyopharm Therapeutics, Inc.* 965
66,818 Loxo Oncology, Inc.* 6,780
66,039 Momenta Pharmaceuticals, Inc.* 1,123
68,558 Nightstar Therapeutics plc*,(a) ADR 976
111,709 Portola Pharmaceuticals, Inc.* 5,732
9,412 Regeneron Pharmaceuticals, Inc.* 3,451
356,472 Rigel Pharmaceuticals, Inc.* 1,426
39,654 Seattle Genetics, Inc.* 2,074
125,887 Syndax Pharmaceuticals, Inc.* 1,372
21,489 TESARO, Inc.* 1,450
169,829 Trevena, Inc.* 277
26,767 Ultragenyx Pharmaceutical, Inc.* 1,428
31,416 UroGen Pharma Ltd.* 1,543
34,850 Vertex Pharmaceuticals, Inc.* 5,815
24,500 Zealand Pharma A/S* ADR 413
----------
83,070
----------
HEALTH CARE DISTRIBUTORS (0.8%)
61,793 Cardinal Health, Inc. 4,436
42,676 McKesson Corp. 7,207
----------
11,643
----------
HEALTH CARE EQUIPMENT (5.6%)
129,186 Abbott Laboratories 8,030
72,372 AtriCure, Inc.* 1,180
28,425 Baxter International, Inc. 2,047
28,989 Becton, Dickinson & Co. 7,042
374,672 Boston Scientific Corp.* 10,476
19,974 Danaher Corp. 2,023
31,785 Edwards Lifesciences Corp.* 4,023
143,717 Globus Medical, Inc.* 6,617
43,673 Hologic, Inc.* 1,865
156,841 K2M Group Holdings, Inc.* 3,305
44,037 Koninklijke Philips N.V. 1,797
193,845 Medtronic plc 16,649
8,200 Penumbra, Inc.*,(a) 817
60,647 Stryker Corp. 9,969
================================================================================
4 | USAA SCIENCE & TECHNOLOGY FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
15,290 Teleflex, Inc. $ 4,247
7,140 Zimmer Biomet Holdings, Inc. 908
----------
80,995
----------
HEALTH CARE FACILITIES (0.7%)
51,476 Acadia Healthcare Co., Inc.* 1,754
914,500 China Resources Phoenix Healthcare Holdings Co. Ltd.(a) 1,321
150,429 Georgia Healthcare Group plc*,(b) 705
44,247 HCA Healthcare, Inc.* 4,476
25,124 LifePoint Health, Inc.* 1,242
11,250 Universal Health Services, Inc. 1,367
----------
10,865
----------
HEALTH CARE SERVICES (0.1%)
49,436 Envision Healthcare Corp.* 1,779
----------
HEALTH CARE SUPPLIES (0.2%)
25,922 Dentsply Sirona, Inc. 1,577
111,631 Endologix, Inc.*,(a) 462
21,095 OraSure Technologies, Inc.* 459
----------
2,498
----------
HEALTH CARE TECHNOLOGY (0.6%)
25,460 athenahealth, Inc.* 3,190
26,226 Cerner Corp.* 1,813
98,743 HMS Holdings Corp.* 1,691
47,660 Teladoc, Inc.*,(a) 1,783
----------
8,477
----------
LIFE SCIENCES TOOLS & SERVICES (0.8%)
14,453 ICON plc* 1,583
31,176 NanoString Technologies, Inc.* 234
45,517 Thermo Fisher Scientific, Inc. 10,201
16,500 Wuxi Biologics Cayman, Inc.*,(b) 114
----------
12,132
----------
MANAGED HEALTH CARE (3.1%)
9,029 Aetna, Inc. 1,687
29,102 Anthem, Inc. 7,213
30,133 Cigna Corp. 6,278
6,963 Humana, Inc. 1,962
12,688 Molina Healthcare, Inc.* 1,159
121,900 Qualicorp S.A. 1,171
94,536 UnitedHealth Group, Inc. 22,384
15,403 WellCare Health Plans, Inc.* 3,241
----------
45,095
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 5
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS (5.7%)
67,322 Allergan plc $ 12,135
242,529 AstraZeneca plc ADR 8,503
230,206 Bristol-Myers Squibb Co. 14,411
30,370 Chugai Pharmaceutical Co. Ltd. 1,605
22,268 Dermira, Inc.* 635
60,020 Eisai Co. Ltd. 3,426
109,610 Eli Lilly & Co. 8,928
16,397 Hikma Pharmaceuticals plc 225
46,571 Impax Laboratories, Inc.* 906
44,618 Intersect ENT, Inc.* 1,666
14,262 Johnson & Johnson 1,971
18,928 Kala Pharmaceuticals, Inc.* 288
68,595 Medicines Co.*,(a) 2,273
209,442 MediWound Ltd.* 922
125,514 Mylan N.V.* 5,378
87,852 MyoKardia, Inc.* 4,533
111,763 Nabriva Therapeutics plc* 723
94,070 Ono Pharmaceutical Co. Ltd. 2,322
78,560 Revance Therapeutics, Inc.* 2,537
40,430 Shionogi & Co. Ltd. 2,236
648,340 Sino Biopharmaceutical Ltd. 1,195
18,350 Takeda Pharmaceutical Co. Ltd. 1,078
57,211 Teva Pharmaceutical Industries Ltd. ADR 1,168
37,203 UCB S.A. 3,243
----------
82,307
----------
Total Health Care 338,861
----------
INDUSTRIALS (2.2%)
------------------
ELECTRICAL COMPONENTS & EQUIPMENT (0.9%)
569,336 Bizlink Holding, Inc. 5,421
49,480 Nidec Corp. 7,909
----------
13,330
----------
HUMAN RESOURCE & EMPLOYMENT SERVICES (0.5%)
124,157 WageWorks, Inc.* 7,518
----------
RESEARCH & CONSULTING SERVICES (0.8%)
181,120 TransUnion* 10,751
----------
Total Industrials 31,599
----------
================================================================================
6 | USAA SCIENCE & TECHNOLOGY FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
INFORMATION TECHNOLOGY (68.2%)
------------------------------
APPLICATION SOFTWARE (3.9%)
41,561 Guidewire Software, Inc.* $ 3,302
227,052 salesforce.com, Inc.* 25,864
228,287 Workday, Inc."A"* 27,369
----------
56,535
----------
COMMUNICATIONS EQUIPMENT (0.6%)
32,953 Arista Networks, Inc.* 9,089
----------
DATA PROCESSING & OUTSOURCED SERVICES (16.6%)
82,512 Alliance Data Systems Corp. 21,178
140,718 FleetCor Technologies, Inc.* 29,903
507,805 Genpact Ltd. 17,235
356,516 Global Payments, Inc. 39,851
77,200 Pagseguro Digital Ltd.*,(a) 2,157
378,545 PayPal Holdings, Inc.* 32,297
173,278 Total System Services, Inc. 15,398
465,968 Visa, Inc."A"(a) 57,887
167,382 WEX, Inc.* 25,912
----------
241,818
----------
ELECTRONIC COMPONENTS (2.7%)
78,336 Largan Precision Co. Ltd. 10,764
1,874,860 Sunny Optical Technology Group Co. Ltd. 25,956
11,900,000 Tongda Group Holdings Ltd.(a) 2,693
----------
39,413
----------
ELECTRONIC EQUIPMENT & INSTRUMENTS (1.4%)
122,177 Itron, Inc.* 8,943
40,227 VeriFone Systems, Inc.* 711
89,359 Zebra Technologies Corp.* 11,006
----------
20,660
----------
ELECTRONIC MANUFACTURING SERVICES (1.8%)
237,500 AAC Technologies Holdings, Inc. 3,971
1,067,436 Flex Ltd.* 19,225
11,500 IPG Photonics Corp.* 2,897
----------
26,093
----------
HOME ENTERTAINMENT SOFTWARE (0.6%)
257,100 Nexon Co. Ltd.* 8,537
----------
INTERNET SOFTWARE & SERVICES (14.4%)
123,834 Alibaba Group Holding Ltd.* 25,298
64,262 Alphabet, Inc."A"* ADR 75,972
================================================================================
PORTFOLIO OF INVESTMENTS | 7
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
37,837 Cloudera, Inc.* $ 708
17,367 CoStar Group, Inc.* 6,011
148,717 Delivery Hero AG*,(b) 6,381
74,475 Dropbox, Inc.*,(c),(d),(e) 1,108
348,311 Facebook, Inc."A"* 65,096
37,215 SINA Corp.* 4,364
422,112 Tencent Holdings Ltd. 25,016
----------
209,954
----------
IT CONSULTING & OTHER SERVICES (1.4%)
71,843 Accenture plc 11,545
117,275 Cognizant Technology Solutions Corp. 9,145
----------
20,690
----------
SEMICONDUCTOR EQUIPMENT (4.5%)
187,168 Applied Materials, Inc. 10,038
60,059 ASML Holdings N.V. 12,189
196,753 Axcelis Technologies, Inc.* 5,096
95,734 KLA-Tencor Corp. 10,512
1,952,000 Sino-American Silicon Products, Inc. 6,798
248,336 Teradyne, Inc. 11,384
48,200 Tokyo Electron Ltd. 9,033
----------
65,050
----------
SEMICONDUCTORS (14.8%)
1,603,393 Advanced Micro Devices, Inc.*,(a) 22,031
64,988 Ams AG 5,996
61,861 Broadcom Ltd. 15,343
91,397 Cavium, Inc.* 8,114
366,591 Integrated Device Technology, Inc.* 10,961
245,839 Land Mark Optoelectronics Corp. 3,121
773,495 Marvell Technology Group Ltd. 18,046
109,051 Microchip Technology, Inc. 10,384
509,974 Micron Technology, Inc.* 22,296
89,520 Microsemi Corp.* 5,532
105,664 NVIDIA Corp. 25,972
353,998 QUALCOMM, Inc. 24,160
293,000 Silergy Corp. 6,253
1,683,655 Taiwan Semiconductor Manufacturing Co. Ltd. 14,731
86,105 Texas Instruments, Inc. 9,443
360,206 Tower Semiconductor Ltd.* 12,514
----------
214,897
----------
SYSTEMS SOFTWARE (1.6%)
151,282 ServiceNow, Inc.* 22,521
----------
================================================================================
8 | USAA SCIENCE & TECHNOLOGY FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (3.9%)
85,600 Apple, Inc. $ 14,332
737,000 Catcher Technology Co. Ltd. 8,446
251,613 NetApp, Inc. 15,474
7,596 Samsung Electronics Co. Ltd. 17,748
----------
56,000
----------
Total Information Technology 991,257
----------
Total Common Stocks (cost: $914,106) 1,435,880
----------
PREFERRED STOCKS (0.1%)
INFORMATION TECHNOLOGY (0.1%)
-----------------------------
INTERNET SOFTWARE & SERVICES (0.1%)
55,796 Uber Technologies, Inc., 0.00%, *,(c),(d),(e) (Cost: $865,566) 1,958
----------
Total Equity Securities (cost: $914,972) 1,437,838
----------
MONEY MARKET INSTRUMENTS (1.2%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (1.2%)
17,297,318 State Street Institutional Treasury Money Market Fund Premier
Class, 1.23%(f) (cost: $17,297) 17,297
----------
SHORT-TERM INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED (0.6%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (0.6%)
65,320 Federated Government Obligations Fund Institutional Class, 1.19%(f) 65
6,442,720 Goldman Sachs Financial Square Government Fund
Institutional Class, 1.21%(f) 6,357
43,125 Invesco Government & Agency Portfolio Institutional Class, 1.24%(f) 43
1,550,561 Morgan Stanley Institutional Liquidity Funds Government Portfolio
Institutional Class, 1.21%(f) 1,551
1,519,401 Western Asset Institutional Government Reserves Institutional Class, 1.22%(f) 1,520
----------
Total Short-Term Investments Purchased with Cash Collateral from
Securities Loaned (cost: $9,536) 9,536
----------
TOTAL INVESTMENTS (COST: $941,805) $1,464,671
==========
================================================================================
PORTFOLIO OF INVESTMENTS | 9
================================================================================
--------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
--------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
--------------------------------------------------------------------------------------------------------------
Equity Securities:
Common Stocks $1,434,772 $- $1,108 $1,435,880
Preferred Stocks - - 1,958 1,958
Money Market Instruments:
Government & U.S. Treasury
Money Market Funds 17,297 - - 17,297
Short-Term Investments
Purchased with Cash Collateral
from Securities Loaned:
Government & U.S. Treasury
Money Market Funds 9,536 - - 9,536
--------------------------------------------------------------------------------------------------------------
Total $1,461,605 $- $3,066 $1,464,671
--------------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
--------------------------------------------------------------------------------------------------------------
RECONCILIATION OF LEVEL 3 INVESTMENTS
--------------------------------------------------------------------------------------------------------------
($ IN 000s) COMMON STOCKS PREFERRED STOCKS
--------------------------------------------------------------------------------------------------------------
Balance as of July 31, 2017 $ 1,778 $ 5,520
Purchases - -
Sales (1,015) (2,548)
Transfers into Level 3 - -
Transfers out of Level 3 - -
Net realized gain (loss) on investments 321 1,348
Change in net unrealized appreciation/(depreciation)
of investments 24 (2,362)
--------------------------------------------------------------------------------------------------------------
Balance as of January 31, 2018 $ 1,108 $ 1,958
--------------------------------------------------------------------------------------------------------------
For the period of August 1, 2017, through January 31, 2018, there were no
transfers of securities between levels. The Fund's policy is to recognize any
transfers in and transfers out as of the beginning of the reporting period in
which the event or circumstance that caused the transfer occurred.
================================================================================
10 | USAA SCIENCE & TECHNOLOGY FUND
================================================================================
--------------------------------------------------------------------------------------------------------------
QUANTITATIVE INFORMATION ABOUT LEVEL 3 FAIR VALUE MEASUREMENTS**
--------------------------------------------------------------------------------------------------------------
FAIR VALUE AT SIGNIFICANT
JANUARY 31, 2018 VALUATION UNOBSERVABLE
ASSETS ($ IN 000's) TECHNIQUE(S) INPUT(S) RANGE
--------------------------------------------------------------------------------------------------------------
EQUITY SECURITIES:
Common Stocks $1,108 Market Revenue Multiple(a)
Comparables 4.7x - 10.0x
Discount for lack
of marketability(b) 10%
--------------------------------------------------------------------------------------------------------------
(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, or earnings per share will
increase the value of the security while an increase in the discount for lack of
marketability will decrease the value of the security.
================================================================================
PORTFOLIO OF INVESTMENTS | 11
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
January 31, 2018 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
Market values of securities are determined by procedures and practices
discussed in Note 1A to the financial statements.
The Portfolio of Investments category percentages shown represent the
percentages of the investments to net assets, and, in total, may not equal
100%. A category percentage of 0.0% represents less than 0.1% of net
assets. Investments in foreign securities were 20.2% of net assets at
January 31, 2018.
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) The security, or a portion thereof, was out on loan as of
January 31, 2018.
(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.
================================================================================
12 | USAA SCIENCE & TECHNOLOGY FUND
================================================================================
(c) Security was fair valued at January 31, 2018, by the Manager in
accordance with valuation procedures approved by the Board. The total
value of all such securities was $3,066,000, which represented 0.2% of
the Fund's net assets.
(d) Security deemed illiquid by the Manager, under liquidity guidelines
approved by the Board. The aggregate market value of these securities at
January 31, 2018, was $3,066,000, which represented 0.2% of the Fund's
net assets.
(e) Security was fair valued at Level 3.
(f) Rate represents the money market fund annualized seven-day yield at
January 31, 2018.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 13
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
January 31, 2018 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (including securities on
loan of $61,018) (cost of $941,805) $1,464,671
Cash 218
Receivables:
Capital shares sold 1,025
Dividends and interest 330
Securities sold 3,333
Other 20
----------
Total assets 1,469,597
----------
LIABILITIES
Payables:
Upon return of securities loaned 9,536
Securities purchased 3,668
Capital shares redeemed 1,072
Accrued management fees 866
Accrued transfer agent's fees 59
Other accrued expenses and payables 220
----------
Total liabilities 15,421
----------
Net assets applicable to capital shares outstanding $1,454,176
==========
NET ASSETS CONSIST OF:
Paid-in capital $ 893,959
Accumulated undistributed net investment loss (2,823)
Accumulated net realized gain on investments 40,173
Net unrealized appreciation of investments 522,866
Net unrealized appreciation of foreign currency translations 1
----------
Net assets applicable to capital shares outstanding $1,454,176
==========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $1,330,098/46,299
capital shares outstanding, no par value) $ 28.73
==========
Adviser Shares (net assets of $124,078/4,419
capital shares outstanding, no par value) $ 28.08
==========
See accompanying notes to financial statements.
================================================================================
14 | USAA SCIENCE & TECHNOLOGY FUND
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended January 31, 2018 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $166) $ 4,279
Interest 98
Securities lending (net) 85
----------
Total income 4,462
----------
EXPENSES
Management fees 4,975
Administration and servicing fees:
Fund Shares 908
Adviser Shares 89
Transfer agent's fees:
Fund Shares 741
Adviser Shares 79
Distribution and service fees (Note 7F):
Adviser Shares 148
Custody and accounting fees:
Fund Shares 90
Adviser Shares 9
Postage:
Fund Shares 38
Adviser Shares 3
Shareholder reporting fees:
Fund Shares 20
Adviser Shares 1
Trustees' fees 17
Registration fees:
Fund Shares 18
Adviser Shares 11
Professional fees 69
Other 14
----------
Total expenses 7,230
Expenses paid indirectly:
Fund Shares (1)
----------
Net expenses 7,229
----------
NET INVESTMENT LOSS (2,767)
----------
================================================================================
FINANCIAL STATEMENTS | 15
================================================================================
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY
Net realized gain on:
Investments $ 69,201
Foreign currency transactions 6
Change in net unrealized appreciation/(depreciation) of:
Investments 129,573
Foreign currency translations (1)
----------
Net realized and unrealized gain 198,779
----------
Increase in net assets resulting from operations $ 196,012
==========
See accompanying notes to financial statements.
================================================================================
16 | USAA SCIENCE & TECHNOLOGY FUND
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended January 31, 2018 (unaudited), and year ended
July 31, 2017
----------------------------------------------------------------------------------------
1/31/2018 7/31/2017
----------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment loss $ (2,767) $ (3,399)
Net realized gain on investments 69,201 113,122
Net realized gain on foreign currency transactions 6 119
Change in net unrealized appreciation/(depreciation) of:
Investments 129,573 155,827
Foreign currency translations (1) (3)
------------------------
Increase in net assets resulting from operations 196,012 265,666
------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net realized gains:
Fund Shares (93,869) (36,810)
Adviser Shares (9,146) (4,096)
------------------------
Distributions to shareholders (103,015) (40,906)
------------------------
NET INCREASE IN NET ASSETS FROM
CAPITAL SHARE TRANSACTIONS (NOTE 6)
Fund Shares 107,748 31,884
Adviser Shares 616 (27,888)
------------------------
Total net increase in net assets
from capital share transactions 108,364 3,996
------------------------
Net increase in net assets 201,361 228,756
NET ASSETS
Beginning of period 1,252,815 1,024,059
------------------------
End of period $1,454,176 $1,252,815
========================
Accumulated undistributed net investment loss:
End of period $ (2,823) $ (56)
========================
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 17
================================================================================
NOTES TO FINANCIAL STATEMENTS
January 31, 2018 (unaudited)
--------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company Act
of 1940, as amended (the 1940 Act), is an open-end management investment
company organized as a Delaware statutory trust consisting of 51 separate funds.
The USAA Science & Technology 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 long-term capital appreciation.
The Fund consists of two classes of shares: Science & Technology Fund Shares
(Fund Shares) and Science & Technology Fund Adviser Shares (Adviser Shares).
Each class of shares has equal rights to assets and earnings, except that each
class bears certain class-related expenses specific to the particular class.
These expenses include administration and servicing fees, transfer agent fees,
postage, shareholder reporting fees, distribution and service (12b-1) fees, and
certain registration and custodian fees. Expenses not attributable to a specific
class, income, and realized gains or losses on investments are allocated to each
class of shares based on each class' relative net assets. Each class has
exclusive voting rights on matters related solely to that class and separate
voting rights on matters that relate to all classes. The Adviser Shares permit
investors to purchase shares through financial intermediaries, including banks,
broker-dealers, insurance companies, investment advisers, plan sponsors, and
financial professionals that provide various administrative and distribution
services.
A. SECURITY VALUATION - The Trust's Board of Trustees (the Board) has
established the Valuation Committee (the Committee), and subject to Board
oversight, the Committee administers and oversees the Fund's
================================================================================
18 | USAA SCIENCE & TECHNOLOGY FUND
================================================================================
valuation policies and procedures, which are approved by the Board. Among
other things, these policies and procedures allow the Fund to utilize
independent pricing services, quotations from securities dealers, and a
wide variety of sources and information to establish and adjust the fair
value of securities as events occur and circumstances warrant.
The Committee reports to the Board on a quarterly basis and makes
recommendations to the Board as to pricing methodologies and services used
by the Fund and presents additional information to the Board regarding
application of the pricing and fair valuation policies and procedures
during the preceding quarter.
The Committee meets as often as necessary to make pricing and fair value
determinations. In addition, the Committee holds regular monthly meetings
to review prior actions taken by the Committee and USAA Asset Management
Company (the Manager), an affiliate of the Fund. Among other things, these
monthly meetings include a review and analysis of backtesting reports,
pricing service quotation comparisons, illiquid securities and fair value
determinations, pricing movements, and daily stale price monitoring.
The value of each security is determined (as of the close of trading on the
New York Stock Exchange (NYSE) on each business day the NYSE is open) as
set forth below:
1. Equity securities, including exchange-traded funds (ETFs), except as
otherwise noted, traded primarily on a domestic securities exchange or
the over-the-counter markets, are valued at the last sales price or
official closing price on the exchange or primary market on which they
trade. Securities traded primarily on foreign securities exchanges or
markets are valued at the last quoted sale price, or the most recently
determined official closing price calculated according to local market
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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 19
================================================================================
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 will
monitor for events that would materially affect the value of the Fund's
foreign securities. The Fund's subadviser has agreed to notify the
Manager of significant events they identify that would materially
affect the value of the Fund's foreign securities. If the Manager
determines that a particular event would materially affect the value of
the Fund's foreign securities, then the Committee will consider such
available information that it deems relevant and will determine a fair
value for the affected foreign securities in accordance with valuation
procedures. In addition, information from an external vendor or other
sources may be used to adjust the foreign market closing prices of
foreign equity securities to reflect what the Committee believes to be
the fair value of the securities as of the close of the NYSE. Fair
valuation of affected foreign equity securities may occur frequently
based on an assessment that events which occur on a fairly regular
basis (such as U.S. market movements) are significant. Such securities
are categorized in Level 2 of the fair value hierarchy.
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. Forward foreign currency contracts are valued on a daily basis using
forward foreign currency exchange rates obtained from an
================================================================================
20 | USAA SCIENCE & TECHNOLOGY FUND
================================================================================
independent pricing service and are categorized in Level 2 of the fair
value hierarchy.
7. In the event that price quotations or valuations are not readily
available, are not reflective of market value, or a significant event
has been recognized in relation to a security or class of securities,
the securities are valued in good faith by the Committee in accordance
with valuation procedures approved by the Board. The effect of fair
value pricing is that securities may not be priced on the basis of
quotations from the primary market in which they are traded and the
actual price realized from the sale of a security may differ materially
from the fair value price. Valuing these securities at fair value is
intended to cause the Fund's NAV to be more reliable than it otherwise
would be.
Fair value methods used by the Manager include, but are not limited to,
obtaining market quotations from secondary pricing services,
broker-dealers, other pricing services, or widely used quotation
systems. General factors considered in determining the fair value of
securities include fundamental analytical data, the nature and duration
of any restrictions on disposition of the securities, evaluation of
credit quality, and an evaluation of the forces that influenced the
market in which the securities are purchased and sold.
B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The
three-level valuation hierarchy disclosed in the Portfolio of Investments
is based upon the transparency of inputs to the valuation of an asset or
liability as of the measurement date. The three levels are defined as
follows:
Level 1 - inputs to the valuation methodology are quoted prices (unadjusted)
in active markets for identical securities.
Level 2 - inputs to the valuation methodology are other significant
observable inputs, including quoted prices for similar securities, inputs
that are observable for the securities, either directly or indirectly, and
market-corroborated inputs such as market indexes.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 21
================================================================================
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 is primarily
supported by a weighted average price between the tender offer price and the
original direct offer 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 year. Securities that were previously valued using valuation
models are now being valued at a weighted average price between the tender
offer price and the original direct offer price.
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 January 31, 2018, the Fund did not incur any
income tax, interest, or penalties, and has recorded no liability for net
================================================================================
22 | USAA SCIENCE & TECHNOLOGY FUND
================================================================================
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
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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 23
================================================================================
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 January 31,
2018, brokerage commission recapture credits reduced the Fund Shares and
Adviser Shares by $1,000 and less than $500 respectively. For the six-month
period ended January 31, 2018, 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.
================================================================================
24 | USAA SCIENCE & TECHNOLOGY FUND
================================================================================
I. USE OF ESTIMATES - The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts in the
financial statements.
(2) LINE OF CREDIT
The Fund participates, 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 January 31, 2018, the Fund paid CAPCO facility
fees of $5,000, which represents 1.6% of the total fees paid to CAPCO by the
funds of the Trusts. The Fund had no borrowings under this agreement during the
six-month period ended January 31, 2018.
(3) DISTRIBUTIONS
The tax basis of distributions and accumulated undistributed net investment
income will be determined as of the Fund's tax year-end of July 31, 2018, in
accordance with applicable federal tax law.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 25
================================================================================
Distributions of net investment income and realized gains from security
transactions not offset by capital losses are made annually in the succeeding
fiscal year or as otherwise required to avoid the payment of federal taxes.
At July 31, 2017, the Fund had no capital loss carryforwards, for federal income
tax purposes.
As of January 31, 2018, the cost of securities, including short-term securities,
for federal income tax purposes, was approximately the same as the cost reported
in the financial statements.
Gross unrealized appreciation and depreciation of investments as of January 31,
2018, were $538,237,000 and $15,371,000, respectively, resulting in net
unrealized appreciation of $522,866,000.
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities, excluding
short-term securities, for the six-month period ended January 31, 2018, were
$347,525,000 and $334,391,000, respectively.
(5) SECURITIES LENDING
The Fund, through a 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
================================================================================
26 | USAA SCIENCE & TECHNOLOGY FUND
================================================================================
borrower default. Cash collateral is listed in the Fund's Portfolio of
Investments and Financial Statements while non-cash collateral is not included.
At January 31, 2018, 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
--------------------------------------------------------------------------------------------------
$61,018,000 $52,434,000 $9,536,000
--------------------------------------------------------------------------------------------------
(6) CAPITAL SHARE TRANSACTIONS
At January 31, 2018, there were an unlimited number of shares of capital stock
at no par value authorized for the Fund.
Capital share transactions for all classes were as follows, in thousands:
SIX-MONTH PERIOD ENDED YEAR ENDED
JANUARY 31, 2018 JULY 31, 2017
---------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------
FUND SHARES:
Shares sold 4,089 $113,470 8,225 $ 191,312
Shares issued from
reinvested dividends 3,464 91,940 1,688 36,120
Shares redeemed (3,542) (97,662) (8,557) (195,548)
---------------------------------------------------
Net increase from capital
share transactions 4,011 $107,748 1,356 $ 31,884
===================================================
ADVISER SHARES:
Shares sold 317 $ 8,590 1,324 $ 30,059
Shares issued from
reinvested dividends 344 8,928 191 4,015
Shares redeemed (625) (16,902) (2,782) (61,962)
---------------------------------------------------
Net increase (decrease) from capital
share transactions 36 $ 616 (1,267) $ (27,888)
===================================================
(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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 27
================================================================================
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 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 Science & Technology Funds Index. The Lipper
Science & Technology Funds Index tracks the total return performance of
funds within the Lipper Science & Technology 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.
================================================================================
28 | USAA SCIENCE & TECHNOLOGY FUND
================================================================================
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 Science & Technology Funds Index over that period,
even if the class had overall negative returns during the performance
period.
For the six-month period ended January 31, 2018, the Fund incurred total
management fees, paid or payable to the Manager, of $4,975,000, which
included a performance adjustment for the Fund Shares and Adviser Shares of
($3,000) and ($8,000), respectively. For the Fund Shares and Adviser
Shares, the performance adjustments were less than (0.01%) and (0.01%),
respectively.
B. SUBADVISORY ARRANGEMENT(S) - The Manager entered into an Investment
Subadvisory Agreement with Wellington Management Company LLP (Wellington
Management), under which Wellington Management 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 Wellington Management a subadvisory fee in
the annual amount of 0.45% of the Fund's average net assets for the first
$100 million in assets that Wellington Management manages, plus 0.35% of
the Fund's average net assets for assets over $100 million that Wellington
Management manages. For the six-month period ended January 31, 2018, the
Manager incurred subadvisory fees with respect to the Fund, paid or payable
to Wellington Management, of $2,381,000.
C. ADMINISTRATION AND SERVICING FEES - The Manager provides certain
administration and servicing functions for the Fund. For such services,
================================================================================
NOTES TO FINANCIAL STATEMENTS | 29
================================================================================
the Manager receives a fee accrued daily and paid monthly at an annualized
rate of 0.15% of average net assets for both the Fund Shares and Adviser
Shares. For the six-month period ended January 31, 2018, the Fund Shares
and Adviser Shares incurred administration and servicing fees, paid or
payable to the Manager, of $908,000 and $89,000, 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 January 31, 2018, the 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. EXPENSE LIMITATION - The Manager agreed, through November 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 November 30, 2018, without
approval of the Board, and may be changed or terminated by the Manager at
any time after that date. Prior to December 1, 2017, the Adviser Shares's
expense limitation was 1.40% of its average net assets. For the six-month
period ended January 31, 2018, the Adviser Shares did not incur any
reimbursable expenses.
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. For the six-month period
ended January 31, 2018, the Fund Shares and Adviser Shares incurred transfer
agent's fees, paid or payable to SAS, of $741,000 and $79,000, respectively.
================================================================================
30 | USAA SCIENCE & TECHNOLOGY FUND
================================================================================
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 January 31, 2018, the Adviser Shares incurred
distribution and service (12b-1) fees of $148,000.
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.
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 December 2017, the
SEC issued Temporary Final Rule Release No. 33-10442, INVESTMENT COMPANY
REPORTING MODERNIZATION (Temporary Rule), which extends to April 2019 the
compliance date on which funds in larger fund groups, such as the Fund, are
required to begin filing form N-PORT. In the interim, in lieu of filing form
N-PORT, the Temporary Rule
================================================================================
NOTES TO FINANCIAL STATEMENTS | 31
================================================================================
requires that funds in larger fund groups maintain in their records the
information that is required to be included in form N-PORT. The Temporary Rule
does not affect the filing date or requirements of form N-CEN.
In October 2016, the SEC issued Final Rule Release No. 33-10233, INVESTMENT
COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS (Liquidity Rule). The Liquidity Rule
requires funds to establish a liquidity risk management program and enhances
disclosures regarding funds' liquidity.
In February 2018, the SEC issued Interim Final Rule Release No. IC-33010,
INVESTMENT COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS; COMMISSION GUIDANCE FOR
IN-KIND ETFs, which extends, among others, the compliance dates for certain
disclosure requirements under the Liquidity Rule. The compliance date for the
liquidity disclosure required in form N-PORT has been extended to June 1, 2019
for larger entities such as the Fund. The compliance date for the liquidity
disclosure required in form N-CEN for large entities such as the Fund remains
December 1, 2018. The Fund is expected to comply with these compliance dates for
forms N-PORT and N-CEN. The Manager continues to evaluate the impact these rules
and amendments will have on the financial statements and other disclosures.
================================================================================
32 | USAA SCIENCE & TECHNOLOGY FUND
================================================================================
(10) FINANCIAL HIGHLIGHTS - FUND SHARES
Per share operating performance for a share outstanding throughout each
period is as follows:
SIX-MONTH
PERIOD ENDED
JANUARY 31, YEAR ENDED JULY 31,
-------------------------------------------------------------------------------------
2018 2017 2016 2015 2014 2013
-------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 26.89 $ 22.03 $ 23.07 $ 20.96 $ 17.78 $ 14.24
-------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment
income (loss) (.05) .05 (.01) .27 (.09)(b) .03(a)
Net realized and
unrealized gain 4.09 5.68 .37 4.35 4.86(b) 3.51
-------------------------------------------------------------------------------------
Total from investment
operations 4.04 5.73 .36 4.62 4.77(b) 3.54
-------------------------------------------------------------------------------------
Less distributions from:
Net investment income - - - (.31) (.40) -
Realized capital gains (2.20) (.87) (1.40) (2.20) (1.19) -
-------------------------------------------------------------------------------------
Total distributions (2.20) (.87) (1.40) (2.51) (1.59) -
-------------------------------------------------------------------------------------
Net asset value at
end of period $ 28.73 $ 26.89 $ 22.03 $ 23.07 $ 20.96 $ 17.78
=====================================================================================
Total return (%)* 15.70 27.05 1.74 23.45 27.94 24.86
Net assets at end
of period (000) $1,330,098 $1,137,256 $901,629 $853,755 $589,615 $436,613
Ratios to average
net assets:**
Expenses (%)(c) 1.06(d) 1.14 1.17 1.18 1.24 1.34
Net investment
income (loss) (%) (.39)(d) (.28) (.24) .52 (.44) (.08)
Portfolio turnover (%) 26 75 83 73 91 93
* 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 January 31, 2018, average net assets were
$1,203,464,000.
(a) Reflected a net realized and unrealized gain per share, whereas the
Statement of Operations reflected a net realized and unrealized loss for the
period. The difference in realized and unrealized gains and losses was due
to the timing of sales and repurchases of shares in relation to fluctuating
market values for the portfolio.
(b) Calculated using average shares.
(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 by less than 0.01%.
(d) 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
JANUARY 31, YEAR ENDED JULY 31,
-----------------------------------------------------------------------------------
2018 2017 2016 2015 2014 2013
-----------------------------------------------------------------------------------
Net asset value at
beginning of period $ 26.36 $ 21.67 $ 22.77 $ 20.78 $ 17.64 $14.16
-----------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment
income (loss) (.09) (.02) (.07) .13(b) (.12)(b) .00(a)
Net realized and
unrealized gain 4.01 5.58 .37 4.39(b) 4.82(b) 3.48
-----------------------------------------------------------------------------------
Total from investment
operations 3.92 5.56 .30 4.52(b) 4.70(b) 3.48
-----------------------------------------------------------------------------------
Less distributions from:
Net investment income - - - (.33) (.37) -
Realized capital gains (2.20) (.87) (1.40) (2.20) (1.19) -
-----------------------------------------------------------------------------------
Total distributions (2.20) (.87) (1.40) (2.53) (1.56) -
-----------------------------------------------------------------------------------
Net asset value
at end of period $ 28.08 $ 26.36 $ 21.67 $ 22.77 $ 20.78 $17.64
===================================================================================
Total return (%)* 15.55 26.71 1.48 23.18 27.73 24.58
Net assets at end of
period (000) $124,078 $115,559 $122,430 $122,019 $17,901 $8,815
Ratios to average
net assets:**
Expenses (%)(c) 1.33(d),(g) 1.41(f) 1.42 1.42 1.41(e) 1.56
Expenses, excluding
reimbursements (%)(c) 1.33(d) 1.42 1.42 1.42 1.41 1.56
Net investment
income (loss) (%) (.65)(d) (.55) (.50) .59 (.61) (.30)
Portfolio turnover (%) 26 75 83 73 91 93
* 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 January 31, 2018, average net assets were
$117,297,000.
(a) Represents less than $0.01 per share.
(b) Calculated using average shares.
(c) Reflects total annual operating expenses of the Adviser Shares before
reductions of any expenses paid indirectly. The Adviser Shares' expenses
paid indirectly decreased the expense ratios by less than 0.01%.
(d) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(e) Prior to December 1, 2013, the Manager had voluntarily agreed to limit the
annual expenses of the Adviser Shares to 1.65% of the Adviser Shares'
average net assets.
(f) Effective to December 1, 2016, the Manager voluntarily agreed to limit the
annual expenses of the Adviser Shares to 1.40% of the Adviser Shares'
average net assets.
(g) Effective to December 1, 2017, the Manager voluntarily agreed to limit the
annual expenses of the Adviser Shares to 1.35% of the Adviser Shares'
average net assets.
================================================================================
34 | USAA SCIENCE & TECHNOLOGY FUND
================================================================================
EXPENSE EXAMPLE
January 31, 2018 (unaudited)
--------------------------------------------------------------------------------
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: direct costs, such
as wire fees, redemption fees, and low balance fees; and indirect costs,
including management fees, transfer agency fees, distribution and service
(12b-1) fees, and other Fund operating expenses. This example is intended to
help you understand your indirect costs, also referred to as "ongoing costs" (in
dollars), of investing in the Fund and to compare these costs with the ongoing
costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire six-month period of August 1, 2017, through
January 31, 2018.
ACTUAL EXPENSES
The line labeled "actual" under each share class in the table provides
information about actual account values and actual expenses. You may use the
information in this line, together with the amount you invested at the beginning
of the period, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number for your share
class in the "actual" line under the heading "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The line labeled "hypothetical" under each share class in the table provides
information about hypothetical account values and hypothetical expenses based on
the Fund's actual expense ratios for each class and an assumed rate of return of
5% per year before expenses, which is not the Fund's actual
================================================================================
EXPENSE EXAMPLE | 35
================================================================================
return. The hypothetical account values and expenses may not be used to estimate
the actual ending account balance or expenses you paid for the period. You may
use this information to compare the ongoing costs of investing in the Fund and
other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any direct costs, such as wire fees,
redemption fees, or low balance fees. Therefore, the line labeled "hypothetical"
is useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if these direct
costs were included, your costs would have been higher.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE AUGUST 1, 2017 -
AUGUST 1, 2017 JANUARY 31, 2018 JANUARY 31, 2018
----------------------------------------------------------------
FUND SHARES
Actual $ 1,000.00 $ 1,157.00 $ 5.76
Hypothetical
(5% return before expenses) 1,000.00 1,019.86 5.40
ADVISER SHARES
Actual 1,000.00 1,155.50 7.23
Hypothetical
(5% return before expenses) 1,000.00 1,018.50 6.77
*Expenses are equal to the Fund's annualized expense ratio of 1.06% for Fund
Shares and 1.33% for Adviser Shares, which are net of any expenses paid
indirectly, multiplied by the average account value over the period, multiplied
by 184 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 15.70% for Fund
Shares and 15.55% for Adviser Shares for the six-month period of August 1,
2017, through January 31, 2018.
================================================================================
36 | USAA SCIENCE & TECHNOLOGY 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)
=============================================================================
31704-0318 (C)2018, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA VALUE FUND]
==============================================================
SEMIANNUAL REPORT
USAA VALUE FUND
FUND SHARES (UVALX) o INSTITUTIONAL SHARES (UIVAX)
o ADVISER SHARES (UAVAX)
JANUARY 31, 2018
==============================================================
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
INVESTMENT OVERVIEW 2
FINANCIAL INFORMATION
Portfolio of Investments 3
Notes to Portfolio of Investments 11
Financial Statements 13
Notes to Financial Statements 16
EXPENSE EXAMPLE 34
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 VALUE FUND (THE FUND) SEEKS LONG-TERM GROWTH OF CAPITAL.
--------------------------------------------------------------------------------
TYPES OF INVESTMENTS
The Fund invests its assets primarily in equity securities of companies that are
considered to be undervalued. Although the Fund will invest primarily in U.S.
securities, it may invest up to 20% of its total assets in foreign securities
including securities issued in emerging markets.
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* - 1/31/18 o
(% of Net Assets)
Wells Fargo & Co. ...................................................... 2.1%
JPMorgan Chase & Co. ................................................... 2.1%
Johnson Controls International plc ..................................... 2.1%
Anthem, Inc. ........................................................... 2.0%
Dollar General Corp. ................................................... 1.9%
Philip Morris International, Inc. ...................................... 1.8%
QUALCOMM, Inc. ......................................................... 1.8%
Microsoft Corp. ........................................................ 1.8%
BP plc ADR ............................................................. 1.8%
Medtronic plc .......................................................... 1.8%
o SECTOR ALLOCATION* - 1/31/18 o
[PIE CHART OF SECTOR ALLOCATION*]
FINANCIALS 19.8%
INDUSTRIALS 15.5%
INFORMATION TECHNOLOGY 15.0%
HEALTH CARE 13.8%
CONSUMER DISCRETIONARY 11.4%
ENERGY 9.7%
CONSUMER STAPLES 5.8%
MATERIALS 5.2%
TELECOMMUNICATION SERVICES 1.3%
UTILITIES 1.0%
[END CHART]
*Does not include 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%.
You will find a complete list of securities that the Fund owns on pages 3-10.
================================================================================
2 | USAA VALUE FUND
================================================================================
PORTFOLIO OF INVESTMENTS
January 31, 2018 (unaudited)
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (98.5%)
COMMON STOCKS (98.5%)
CONSUMER DISCRETIONARY (11.4%)
------------------------------
APPAREL RETAIL (0.5%)
150,400 L Brands, Inc. $ 7,534
----------
APPAREL, ACCESSORIES & LUXURY GOODS (0.5%)
381,700 Hanesbrands, Inc. 8,290
----------
AUTO PARTS & EQUIPMENT (0.6%)
36,100 Adient plc 2,340
469,023 American Axle & Manufacturing Holdings, Inc.* 8,278
----------
10,618
----------
CABLE & SATELLITE (1.1%)
452,700 Comcast Corp. "A" 19,253
----------
GENERAL MERCHANDISE STORES (1.9%)
322,810 Dollar General Corp. 33,288
----------
HOME IMPROVEMENT RETAIL (1.7%)
285,552 Lowe's Cos., Inc. 29,906
----------
HOTELS, RESORTS & CRUISE LINES (2.5%)
197,260 Carnival Corp. 14,125
248,400 Norwegian Cruise Line Holdings Ltd.* 15,088
110,400 Royal Caribbean Cruises Ltd. 14,744
----------
43,957
----------
HOUSEHOLD APPLIANCES (0.8%)
77,747 Whirlpool Corp. 14,105
----------
LEISURE FACILITIES (0.2%)
262,600 SeaWorld Entertainment, Inc.*(a) 4,005
----------
MOVIES & ENTERTAINMENT (1.2%)
557,000 Twenty-First Century Fox, Inc. "A" 20,553
----------
PUBLISHING (0.4%)
91,500 Meredith Corp. 6,052
----------
Total Consumer Discretionary 197,561
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 3
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES (5.8%)
-----------------------
AGRICULTURAL PRODUCTS (0.4%)
390,300 Darling Ingredients, Inc.* $ 7,236
----------
DRUG RETAIL (1.1%)
229,300 CVS Health Corp. 18,044
----------
SOFT DRINKS (1.1%)
481,800 Coca-Cola European Partners plc 19,349
----------
TOBACCO (3.2%)
348,918 Altria Group, Inc. 24,543
292,587 Philip Morris International, Inc. 31,374
----------
55,917
----------
Total Consumer Staples 100,546
----------
ENERGY (9.7%)
-------------
INTEGRATED OIL & GAS (4.3%)
718,256 BP plc ADR 30,734
174,900 Chevron Corp. 21,924
292,624 Occidental Petroleum Corp. 21,938
----------
74,596
----------
OIL & GAS EXPLORATION & PRODUCTION (4.0%)
522,200 Callon Petroleum Co.* 5,927
481,557 ConocoPhillips 28,320
254,700 Devon Energy Corp. 10,537
1,434,600 Kosmos Energy Ltd.* 9,913
372,900 Vermilion Energy, Inc. 14,096
----------
68,793
----------
OIL & GAS REFINING & MARKETING (1.4%)
244,777 Phillips 66 25,065
----------
Total Energy 168,454
----------
FINANCIALS (19.8%)
------------------
ASSET MANAGEMENT & CUSTODY BANKS (0.9%)
143,000 State Street Corp. 15,754
----------
CONSUMER FINANCE (3.3%)
223,241 American Express Co. 22,190
85,800 Capital One Financial Corp. 8,920
563,100 Navient Corp. 8,024
90,000 PRA Group, Inc.* 3,218
1,235,500 SLM Corp.* 14,134
----------
56,486
----------
================================================================================
4 | USAA VALUE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
DIVERSIFIED BANKS (7.3%)
836,666 Bank of America Corp. $ 26,773
332,653 Citigroup, Inc. 26,107
314,044 JPMorgan Chase & Co. 36,326
565,132 Wells Fargo & Co. 37,174
----------
126,380
----------
INSURANCE BROKERS (1.0%)
106,207 Willis Towers Watson plc 17,043
----------
MULTI-LINE INSURANCE (1.1%)
304,428 American International Group, Inc. 19,459
----------
PROPERTY & CASUALTY INSURANCE (1.3%)
201,900 FNF Group 7,870
414,200 XL Group Ltd. 15,259
----------
23,129
----------
REGIONAL BANKS (3.8%)
298,800 Fifth Third Bancorp 9,890
703,100 KeyCorp 15,046
96,199 PNC Financial Services Group, Inc. 15,202
102,200 Prosperity Bancshares, Inc. 7,747
121,300 Texas Capital Bancshares, Inc.* 11,499
96,500 UMB Financial Corp. 7,352
----------
66,736
----------
THRIFTS & MORTGAGE FINANCE (1.1%)
594,300 MGIC Investment Corp.* 8,807
726,400 New York Community Bancorp, Inc. 10,286
----------
19,093
----------
Total Financials 344,080
----------
HEALTH CARE (13.8%)
-------------------
HEALTH CARE DISTRIBUTORS (1.3%)
214,700 Cardinal Health, Inc. 15,413
226,200 Patterson Companies, Inc. 8,119
----------
23,532
----------
HEALTH CARE EQUIPMENT (2.0%)
229,300 Invacare Corp. 4,219
354,783 Medtronic plc 30,472
----------
34,691
----------
HEALTH CARE FACILITIES (0.4%)
126,080 Encompass Health Corp. 6,672
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 5
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
HEALTH CARE SERVICES (1.0%)
217,597 Express Scripts Holding Co.* $ 17,229
----------
MANAGED HEALTH CARE (3.8%)
141,255 Anthem, Inc. 35,010
79,200 Cigna Corp. 16,501
60,122 UnitedHealth Group, Inc. 14,236
----------
65,747
----------
PHARMACEUTICALS (5.3%)
180,857 Johnson & Johnson 24,993
276,229 Merck & Co., Inc. 16,367
727,443 Pfizer, Inc. 26,944
348,665 Sanofi ADR 15,317
420,191 Teva Pharmaceutical Industries Ltd. ADR 8,576
----------
92,197
----------
Total Health Care 240,068
----------
INDUSTRIALS (15.5%)
-------------------
AEROSPACE & DEFENSE (4.1%)
77,233 General Dynamics Corp. 17,183
48,444 Raytheon Co. 10,122
165,800 Spirit AeroSystems Holdings, Inc. "A" 16,971
193,169 United Technologies Corp. 26,659
----------
70,935
----------
AIR FREIGHT & LOGISTICS (0.4%)
259,814 Air Transport Services Group, Inc.* 6,459
----------
BUILDING PRODUCTS (4.3%)
125,825 Gibraltar Industries, Inc.* 4,668
928,303 Johnson Controls International plc 36,325
216,600 Owens Corning 20,137
132,900 Simpson Manufacturing Co., Inc. 7,807
46,800 Trex Co., Inc.* 5,222
----------
74,159
----------
CONSTRUCTION & ENGINEERING (0.7%)
135,221 Comfort Systems USA, Inc. 5,761
245,900 Primoris Services Corp. 6,393
----------
12,154
----------
CONSTRUCTION MACHINERY & HEAVY TRUCKS (0.8%)
309,500 Federal Signal Corp. 6,295
167,502 Terex Corp. 7,876
----------
14,171
----------
================================================================================
6 | USAA VALUE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
DIVERSIFIED SUPPORT SERVICES (0.3%)
139,330 Mobile Mini, Inc. $ 5,274
----------
ELECTRICAL COMPONENTS & EQUIPMENT (0.3%)
97,800 Encore Wire Corp. 4,949
----------
INDUSTRIAL CONGLOMERATES (1.2%)
1,318,700 General Electric Co. 21,323
----------
INDUSTRIAL MACHINERY (1.8%)
256,000 Actuant Corp. "A" 6,336
83,100 Barnes Group, Inc. 5,467
146,300 Colfax Corp.* 5,855
79,700 Stanley Black & Decker, Inc. 13,249
----------
30,907
----------
RAILROADS (0.5%)
55,900 Norfolk Southern Corp. 8,434
----------
RESEARCH & CONSULTING SERVICES (0.2%)
124,600 Nielsen Holdings plc 4,661
----------
TRUCKING (0.9%)
43,600 AMERCO 15,917
----------
Total Industrials 269,343
----------
INFORMATION TECHNOLOGY (15.0%)
------------------------------
APPLICATION SOFTWARE (1.3%)
740,700 Micro Focus International plc ADR 22,399
----------
DATA PROCESSING & OUTSOURCED SERVICES (0.2%)
76,219 Black Knight, Inc.* 3,773
----------
ELECTRONIC COMPONENTS (1.3%)
242,700 II-VI, Inc.* 10,351
539,440 Vishay Intertechnology, Inc. 11,841
----------
22,192
----------
ELECTRONIC EQUIPMENT & INSTRUMENTS (0.6%)
116,200 FARO Technologies, Inc.* 6,264
96,300 MTS Systems Corp. 4,993
----------
11,257
----------
ELECTRONIC MANUFACTURING SERVICES (0.6%)
95,100 Park Electrochemical Corp. 1,740
137,900 Plexus Corp.* 8,240
----------
9,980
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 7
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT (1.4%)
336,500 Brooks Automation, Inc. $ 9,388
420,386 Photronics, Inc.* 3,531
241,700 Versum Materials, Inc. 8,895
293,100 Xcerra Corp.* 2,925
----------
24,739
----------
SEMICONDUCTORS (4.9%)
50,200 Broadcom Ltd. 12,451
250,230 Diodes, Inc.* 7,054
142,000 Microchip Technology, Inc. 13,521
458,019 QUALCOMM, Inc. 31,260
188,512 Texas Instruments, Inc. 20,674
----------
84,960
----------
SYSTEMS SOFTWARE (3.5%)
325,321 Microsoft Corp. 30,909
586,266 Oracle Corp. 30,245
----------
61,154
----------
TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (1.2%)
1,253,600 Hewlett Packard Enterprise Co. 20,559
----------
Total Information Technology 261,013
----------
MATERIALS (5.2%)
----------------
DIVERSIFIED CHEMICALS (1.2%)
282,788 DowDuPont, Inc. 21,373
----------
DIVERSIFIED METALS & MINING (0.7%)
637,800 Ferroglobe plc 9,223
62,000 Materion Corp. 3,081
----------
12,304
----------
INDUSTRIAL GASES (1.3%)
129,365 Air Products & Chemicals, Inc. 21,781
----------
SPECIALTY CHEMICALS (1.4%)
271,300 Axalta Coating Systems Ltd.* 8,546
58,600 Celanese Corp. "A" 6,338
234,100 Flotek Industries, Inc.* 1,288
176,800 PolyOne Corp. 7,684
----------
23,856
----------
STEEL (0.6%)
399,400 Allegheny Technologies, Inc.* 10,768
----------
Total Materials 90,082
----------
================================================================================
8 | USAA VALUE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES (1.3%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (1.3%)
413,914 Verizon Communications, Inc. $ 22,380
----------
UTILITIES (1.0%)
----------------
ELECTRIC UTILITIES (0.8%)
84,300 Pinnacle West Capital Corp. 6,740
165,300 Xcel Energy, Inc. 7,544
----------
14,284
----------
MULTI-UTILITIES (0.2%)
140,800 CenterPoint Energy, Inc. 3,968
----------
Total Utilities 18,252
----------
Total Common Stocks (cost: $1,155,927) 1,711,779
----------
RIGHTS (0.0%)
MATERIALS (0.0%)
----------------
DIVERSIFIED METALS & MINING (0.0%)
545,600 Ferroglobe Representation & Warranty Insurance Trust *(b),(c) (cost: $0) -
----------
Total Equity Securities (cost: $1,155,927) 1,711,779
----------
MONEY MARKET INSTRUMENTS (1.5%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (1.5%)
25,504,527 State Street Institutional Treasury Money Market Fund Premier Class, 1.23%(d)
(cost: $25,504) 25,504
----------
SHORT-TERM INVESTMENTS PURCHASED WITH CASH
COLLATERAL FROM SECURITIES LOANED (0.1%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (0.1%)
387,000 Goldman Sachs Financial Square Government Fund
Institutional Class, 1.21%(d) 387
1,713,800 Invesco Government & Agency Portfolio Institutional Class, 1.24%(d) 1,714
----------
Total Short-Term Investments Purchased with Cash Collateral
from Securities Loaned (cost: $2,101) 2,101
----------
TOTAL INVESTMENTS (COST: $1,183,532) $1,739,384
==========
================================================================================
PORTFOLIO OF INVESTMENTS | 9
================================================================================
------------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
------------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------------------------------------------------------------------------------------------------------------------
Equity Securities:
Common Stocks $1,711,779 $- $- $1,711,779
Rights - - - -
Money Market Instruments:
Government & U.S. Treasury
Money Market Funds 25,504 - - 25,504
Short-Term Investments Purchased with
Cash Collateral from Securities Loaned:
Government & U.S. Treasury
Money Market Funds 2,101 - - 2,101
------------------------------------------------------------------------------------------------------------------
Total $1,739,384 $- $- $1,739,384
------------------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
For the period of August 1, 2017, through January 31, 2018, there were no
transfers of securities between levels. The Fund's policy is to recognize any
transfers in and transfers out as of the beginning of the reporting period in
which the event or circumstance that caused the transfer occurred.
================================================================================
10 | USAA VALUE FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
January 31, 2018 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
Market values of securities are determined by procedures and practices
discussed in Note 1A to the financial statements.
The Portfolio of Investments category percentages shown represent the
percentages of the investments to net assets, and, in total, may not equal
100%. A category percentage of 0.0% represents less than 0.1% of net
assets. Investments in foreign securities were 7.2% of net assets at
January 31, 2018.
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.
o SPECIFIC NOTES
(a) The security, or a portion thereof, was out on loan as of January 31,
2018.
(b) Security was fair valued at January 31, 2018, by USAA Asset Management
Company (the Manager) in accordance with valuation procedures approved
by USAA Mutual Funds Trust's Board of Trustees (the Board).
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 11
================================================================================
(c) Security was fair valued at Level 3.
(d) Rate represents the money market fund annualized seven-day yield at
January 31, 2018.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
12 | USAA VALUE FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
January 31, 2018 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (including securities on
loan of $2,002) (cost of $1,183,532) $1,739,384
Receivables:
Capital shares sold 993
Dividends and interest 1,678
Other 2
----------
Total assets 1,742,057
----------
LIABILITIES
Payables:
Upon return of securities loaned 2,101
Securities purchased 551
Capital shares redeemed 881
Accrued management fees 952
Accrued transfer agent's fees 41
Other accrued expenses and payables 184
----------
Total liabilities 4,710
----------
Net assets applicable to capital shares outstanding $1,737,347
==========
NET ASSETS CONSIST OF:
Paid-in capital $1,160,589
Accumulated undistributed net investment income 671
Accumulated net realized gain on investments 20,235
Net unrealized appreciation of investments 555,852
----------
Net assets applicable to capital shares outstanding $1,737,347
==========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $1,051,884/46,462 capital
shares outstanding, no par value) $ 22.64
==========
Institutional Shares (net assets of $675,367/29,856 capital
shares outstanding, no par value) $ 22.62
==========
Adviser Shares (net assets of $10,096/447 capital
shares outstanding, no par value) $ 22.57
==========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 13
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended January 31, 2018 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $62) $ 16,593
Interest 169
Securities lending (net) 26
--------
Total income 16,788
--------
EXPENSES
Management fees 5,767
Administration and servicing fees:
Fund Shares 737
Institutional Shares 311
Adviser Shares 7
Transfer agent's fees:
Fund Shares 606
Institutional Shares 311
Distribution and service fees (Note 7F):
Adviser Shares 12
Custody and accounting fees:
Fund Shares 59
Institutional Shares 34
Adviser Shares 1
Postage:
Fund Shares 33
Shareholder reporting fees:
Fund Shares 18
Trustees' fees 17
Registration fees:
Fund Shares 22
Institutional Shares 10
Adviser Shares 6
Professional fees 60
Other 16
--------
Total expenses 8,027
--------
NET INVESTMENT INCOME 8,761
--------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
AND FOREIGN CURRENCY
Net realized gain on:
Investments 39,620
Foreign currency transactions 1
Change in net unrealized appreciation/(depreciation) of:
Investments 148,511
--------
Net realized and unrealized gain 188,132
--------
Increase in net assets resulting from operations $196,893
========
See accompanying notes to financial statements.
================================================================================
14 | USAA VALUE FUND
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended January 31, 2018 (unaudited), and year ended July 31,
2017
----------------------------------------------------------------------------------------
1/31/2018 7/31/2017
----------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 8,761 $ 20,260
Net realized gain on investments 39,620 98,299
Net realized gain on foreign currency transactions 1 -
Change in net unrealized appreciation/(depreciation)
of investments 148,511 90,231
------------------------
Increase in net assets resulting from operations 196,893 208,790
------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares (9,527) (12,200)
Institutional Shares (6,564) (8,357)
Adviser Shares (68) (103)
------------------------
Total distributions of net investment income (16,159) (20,660)
------------------------
Net realized gains:
Fund Shares (59,944) (23,765)
Institutional Shares (37,650) (15,022)
Adviser Shares (620) (258)
------------------------
Total distributions of net realized gains (98,214) (39,045)
------------------------
Distributions to shareholders (114,373) (59,705)
------------------------
NET INCREASE IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS (NOTE 6)
Fund Shares 65,056 39,314
Institutional Shares 52,157 10,807
Adviser Shares (26) (106)
------------------------
Total net increase in net assets from capital
share transactions 117,187 50,015
------------------------
Net increase in net assets 199,707 199,100
NET ASSETS
Beginning of period 1,537,640 1,338,540
------------------------
End of period $1,737,347 $1,537,640
========================
Accumulated undistributed net investment income:
End of period $ 671 $ 8,069
========================
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 15
================================================================================
NOTES TO FINANCIAL STATEMENTS
January 31, 2018 (unaudited)
--------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company Act
of 1940, as amended (the 1940 Act), is an open-end management investment
company organized as a Delaware statutory trust consisting of 51 separate funds.
The USAA Value 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
long-term growth of capital.
The Fund consists of three classes of shares: Value Fund Shares (Fund Shares),
Value Fund Institutional Shares (Institutional Shares), and Value Fund Adviser
Shares (Adviser Shares). Each class of shares has equal rights to assets and
earnings, except that each class bears certain class-related expenses specific
to the particular class. These expenses include administration and servicing
fees, transfer agent fees, postage, shareholder reporting fees, distribution and
service (12b-1) fees, and certain registration and custodian fees. Expenses not
attributable to a specific class, income, and realized gains or losses on
investments are allocated to each class of shares based on each class' relative
net assets. Each class has exclusive voting rights on matters related solely to
that class and separate voting rights on matters that relate to all classes. The
Institutional Shares are available for investment through a USAA discretionary
managed account program and certain advisory programs sponsored by financial
intermediaries, such as brokerage firms, investment advisors, financial
planners, third-party administrators, and insurance companies. Institutional
Shares also are available to institutional investors, which include retirement
plans, endowments, foundations, and bank trusts, as well as other persons or
legal entities that
================================================================================
16 | USAA VALUE FUND
================================================================================
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
official closing price on the exchange or primary market on which
================================================================================
NOTES TO FINANCIAL STATEMENTS | 17
================================================================================
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 will
monitor for events that would materially affect the value of the Fund's
foreign securities. The Fund's subadviser has agreed to notify the
Manager of significant events they identify that would materially
affect the value of the Fund's foreign securities. If the Manager
determines that a particular event would materially affect the value of
the Fund's foreign securities, then the Committee will consider such
available information that it deems relevant and will determine a fair
value for the affected foreign securities in accordance with valuation
procedures. In addition, information from an external vendor or other
sources may be used to adjust the foreign market closing prices of
foreign equity securities to reflect what the Committee believes to be
the fair value of the securities as of the close of the NYSE. Fair
valuation of affected foreign equity securities may occur frequently
based on an assessment that events which occur on a fairly regular
basis (such as U.S. market
================================================================================
18 | USAA VALUE FUND
================================================================================
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
three-level valuation hierarchy disclosed in the Portfolio of Investments is
based upon the transparency of inputs to the valuation of an asset or
================================================================================
NOTES TO FINANCIAL STATEMENTS | 19
================================================================================
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 January 31, 2018, the Fund did not incur any
income tax, interest, or penalties, and has recorded no liability for net
unrecognized tax benefits relating to uncertain income tax positions. On an
ongoing basis, the Manager will monitor the Fund's tax basis to determine if
adjustments to this conclusion are necessary. The statute of limitations on
the Fund's tax return filings generally remain open for the three preceding
fiscal reporting year ends and remain subject to examination by the Internal
Revenue Service and state taxing authorities.
D. 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
================================================================================
20 | USAA VALUE FUND
================================================================================
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 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 21
================================================================================
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 January 31, 2018, the Fund
did not receive any brokerage commission recapture credits. For the
six-month period ended January 31, 2018, 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
================================================================================
22 | USAA VALUE FUND
================================================================================
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 January 31, 2018, the Fund paid CAPCO facility
fees of $6,000, which represents 2.0% 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 January 31, 2018.
(3) DISTRIBUTIONS
The tax basis of distributions and accumulated undistributed net investment
income will be determined as of the Fund's tax year-end of July 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 taxes.
At July 31, 2017, the Fund had no capital loss carryforwards, for federal income
tax purposes.
As of January 31, 2018, the cost of securities, including short-term securities,
for federal income tax purposes, was approximately the same as the cost reported
in the financial statements.
Gross unrealized appreciation and depreciation of investments as of January 31,
2018, were $586,242,000 and $30,390,000, respectively, resulting in net
unrealized appreciation of $555,852,000.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 23
================================================================================
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities, excluding
short-term securities, for the six-month period ended January 31, 2018, were
$236,219,000 and $195,495,000, respectively.
(5) SECURITIES LENDING
The Fund, through a 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 January 31, 2018, 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
--------------------------------------------------------------------------------
$2,002,000 $- $2,101,000
(6) CAPITAL SHARE TRANSACTIONS
At January 31, 2018, there were an unlimited number of shares of capital stock
at no par value authorized for the Fund.
Capital share transactions for the Institutional Shares resulted from purchases
and sales by the affiliated USAA fund-of-funds as well as other
================================================================================
24 | USAA VALUE 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
JANUARY 31, 2018 JULY 31, 2017
---------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------
FUND SHARES:
Shares sold 2,985 $ 65,985 6,705 $ 137,918
Shares issued from reinvested
dividends 3,176 68,754 1,721 35,535
Shares redeemed (3,165) (69,683) (6,549) (134,139)
-----------------------------------------------------------
Net increase from capital
share transactions 2,996 $ 65,056 1,877 $ 39,314
===========================================================
INSTITUTIONAL SHARES:
Shares sold 1,563 $ 34,660 4,534 $ 93,612
Shares issued from reinvested
dividends 2,043 44,214 1,133 23,375
Shares redeemed (1,204) (26,717) (5,156) (106,180)
-----------------------------------------------------------
Net increase from capital
share transactions 2,402 $ 52,157 511 $ 10,807
===========================================================
ADVISER SHARES:
Shares sold 1 $ 18 2 $ 43
Shares issued from reinvested
dividends 1 11 -* 4
Shares redeemed (3) (55) (7) (153)
-----------------------------------------------------------
Net decrease from
capital share transactions (1) $ (26) (5) $ (106)
===========================================================
*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.
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 the Fund's assets.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 25
================================================================================
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 0.65% of the Fund's average net assets.
Prior to December 1, 2017, the base investment management fee was 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 Multi-Cap Value Funds Index. The Lipper
Multi-Cap Value Funds Index tracks the total return performance of funds
within the Lipper Multi-Cap Value 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). The resulting amount is then added to (in the case of
overperformance), or subtracted from (in the case of underperformance) the
base fee.
================================================================================
26 | USAA VALUE FUND
================================================================================
Under the performance fee arrangement, each class will pay a positive
performance fee adjustment for a performance period whenever the class
outperforms the Lipper Multi-Cap Value Funds Index over that period, even if
the class had overall negative returns during the performance period.
For the six-month period ended January 31, 2018, the Fund incurred total
management fees, paid or payable to the Manager, of $5,767,000. For the
six-month period ended January 31, 2018, the Fund Shares, Institutional
Shares, and Adviser Shares did not incur any performance adjustment.
B. SUBADVISORY ARRANGEMENT(s) - The Manager entered into an Investment
Subadvisory Agreement with Barrow, Hanley, Mewhinney & Strauss, LLC (BHMS),
under which BHMS 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 BHMS a subadvisory fee based on the
aggregate average net assets that BHMS manages in the USAA Value Fund and
the USAA Growth & Income Fund combined, in the annual amount of 0.75% on the
first $15 million in assets, 0.55% on assets over $15 million and up to $25
million, 0.45% on assets over $25 million and up to $100 million, 0.35% on
assets over $100 million and up to $200 million, 0.25% on assets over $200
million and up to $1 billion, and 0.15% on assets over $1 billion. For the
six-month period ended January 31, 2018, the Manager incurred subadvisory
fees with respect to the Fund, paid or payable to BHMS, of $1,685,000.
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 January 31, 2018, the Fund Shares, Institutional Shares, and
Adviser Shares incurred administration and servicing fees, paid or payable
to the Manager, of $737,000, $311,000, and $7,000, respectively.
In addition to the services provided under its Administration and Servicing
Agreement with the Fund, the Manager also provides certain
================================================================================
NOTES TO FINANCIAL STATEMENTS | 27
================================================================================
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 January 31, 2018, the 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. EXPENSE LIMITATION - The Manager agreed, through November 30, 2018, to
limit the total annual operating expenses of the Adviser Shares to 1.30% 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 November 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 January
31, 2018, the Adviser Shares did not incur any reimbursable expenses.
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 January 31, 2018, the Fund Shares, Institutional
Shares, and Adviser Shares incurred transfer agent's fees, paid or payable
to SAS, of $606,000, $311,000, 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
================================================================================
28 | USAA VALUE FUND
================================================================================
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 January
31, 2018, the Adviser Shares incurred distribution and service (12b-1) fees
of $12,000.
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 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 January 31, 2018, the USAA
fund-of-funds owned the following percentages of the total outstanding shares of
the Fund:
AFFILIATED USAA FUND OWNERSHIP %
--------------------------------------------------------------------------------
Cornerstone Conservative 0.2
Cornerstone Equity 1.3
Target Retirement Income 0.8
Target Retirement 2020 2.3
Target Retirement 2030 6.9
Target Retirement 2040 9.5
Target Retirement 2050 5.8
Target Retirement 2060 0.6
The Manager is indirectly wholly owned by United Services Automobile Association
(USAA), a large, diversified financial services institution. At January 31,
2018, USAA and its affiliates owned 441,000 R6 Shares, which represents 98.5% of
the R6 Shares outstanding and 0.6% of the Fund's total outstanding shares.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 29
================================================================================
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 December 2017, the
SEC issued Temporary Final Rule Release No. 33-10442, INVESTMENT COMPANY
REPORTING MODERNIZATION (Temporary Rule), which extends to April 2019 the
compliance date on which funds in larger fund groups, such as the Fund, are
required to begin filing form N-PORT. In the interim, in lieu of filing form
N-PORT, the Temporary Rule requires that funds in larger fund groups maintain in
their records the information that is required to be included in form N-PORT.
The Temporary Rule does not affect the filing date or requirements of form
N-CEN.
In October 2016, the SEC issued Final Rule Release No. 33-10233, INVESTMENT
COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS (Liquidity Rule). The Liquidity Rule
requires funds to establish a liquidity risk management program and enhances
disclosures regarding funds' liquidity.
In February 2018, the SEC issued Interim Final Rule Release No. IC-33010,
INVESTMENT COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS; COMMISSION GUIDANCE FOR
IN-KIND ETFs, which extends, among others, the compliance dates for certain
disclosure requirements under the Liquidity Rule. The compliance date for the
liquidity disclosure required in form N-PORT has been extended to June 1, 2019
for larger entities such as the Fund. The compliance date for the liquidity
disclosure required in form N-CEN for large entities such as the Fund remains
December 1, 2018. The Fund is expected to comply with these compliance dates for
forms N-PORT and N-CEN. The Manager continues to evaluate the impact these rules
and amendments will have on the financial statements and other disclosures.
================================================================================
30 | USAA VALUE FUND
================================================================================
(10) FINANCIAL HIGHLIGHTS - FUND SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JANUARY 31, YEAR ENDED JULY 31,
--------------------------------------------------------------------------------
2018 2017 2016 2015 2014 2013
--------------------------------------------------------------------------------
Net asset value at
beginning of period $ 21.55 $ 19.41 $ 20.50 $ 20.00 $ 18.37 $ 14.22
--------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .10 .27 .23 .20 .27 .21
Net realized and
unrealized gain (loss) 2.58 2.74 (.31) 1.28 2.11 4.17
--------------------------------------------------------------------------------
Total from investment
operations 2.68 3.01 (.08) 1.48 2.38 4.38
--------------------------------------------------------------------------------
Less distributions from:
Net investment income (.21) (.29) (.23) (.25) (.20) (.23)
Realized capital gains (1.38) (.58) (.78) (.73) (.55) -
--------------------------------------------------------------------------------
Total distributions (1.59) (.87) (1.01) (.98) (.75) (.23)
--------------------------------------------------------------------------------
Net asset value at
end of period $ 22.64 $ 21.55 $ 19.41 $ 20.50 $ 20.00 $ 18.37
================================================================================
Total return (%)* 12.83 15.72 (.14) 7.47 13.21 31.15
Net assets at end
of period (000) $1,051,884 $936,630 $807,052 $960,925 $844,121 $633,228
Ratios to average
net assets:**
Expenses (%)(a) 1.02(c) 1.08 1.11 1.09 1.11(b) 1.15
Expenses, excluding
reimbursements (%)(a) 1.02(c) 1.08 1.11 1.09 1.11 1.25
Net investment
income (%) 1.05(c) 1.37 1.28 1.06 1.55 1.40
Portfolio turnover (%) 12 27 20 30 20 26
* 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 January 31, 2018, average net assets were
$975,380,000.
(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%)(+) (.00%)(+)
(+) Represents less than 0.01% of average net assets.
(b) Prior to December 1, 2013, the Manager had voluntarily agreed to limit the
annual expenses of the Fund Shares to 1.15% of the Fund Shares' average net
assets.
(c) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 31
================================================================================
(10) FINANCIAL HIGHLIGHTS (CONTINUED) - INSTITUTIONAL SHARES
Per share operating performance for a share outstanding throughout each
period is as follows:
SIX-MONTH
PERIOD ENDED
JANUARY 31, YEAR ENDED JULY 31,
------------------------------------------------------------------------------
2018 2017 2016 2015 2014 2013
------------------------------------------------------------------------------
Net asset value at
beginning of period $ 21.54 $ 19.40 $ 20.49 $ 20.00 $ 18.36 $ 14.22
------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .12 .30 .25 .26(a) .29 .25
Net realized and
unrealized gain (loss) 2.57 2.73 (.31) 1.24(a) 2.11 4.15
------------------------------------------------------------------------------
Total from investment
operations 2.69 3.03 (.06) 1.50(a) 2.40 4.40
------------------------------------------------------------------------------
Less distributions from:
Net investment income (.23) (.31) (.25) (.28) (.21) (.26)
Realized capital gains (1.38) (.58) (.78) (.73) (.55) -
------------------------------------------------------------------------------
Total distributions (1.61) (.89) (1.03) (1.01) (.76) (.26)
------------------------------------------------------------------------------
Net asset value at end of
period $ 22.62 $ 21.54 $ 19.40 $ 20.49 $ 20.00 $ 18.36
==============================================================================
Total return (%)* 12.88 15.86 (.04) 7.57 13.34 31.31
Net assets at
end of period (000) $675,367 $591,384 $522,721 $299,990 $330,114 $214,855
Ratios to average
net assets:**
Expenses (%)(b) .94(c) .98 .98 .98 1.00 1.01
Net investment
income (%) 1.14(c) 1.48 1.41 1.23 1.59 1.54
Portfolio turnover (%) 12 27 20 30 20 26
* 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 January 31, 2018, average net assets were
$616,840,000.
(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%)(+)
(+) Represents less than 0.01% of average net assets.
(c) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
32 | USAA VALUE 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
JANUARY 31, YEAR ENDED JULY 31,
-----------------------------------------------------------------------------
2018 2017 2016 2015 2014 2013
-----------------------------------------------------------------------------
Net asset value at
beginning of period $ 21.46 $19.32 $20.43 $19.94 $18.29 $14.16
-----------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .09 .23 .17 .17 .25 .15
Net realized and
unrealized gain (loss) 2.55 2.72 (.32) 1.26 2.08 4.15
-----------------------------------------------------------------------------
Total from investment
operations 2.64 2.95 (.15) 1.43 2.33 4.30
-----------------------------------------------------------------------------
Less distributions from:
Net investment income (.15) (.23) (.18) (.21) (.13) (.17)
Realized capital gains (1.38) (.58) (.78) (.73) (.55) -
-----------------------------------------------------------------------------
Total distributions (1.53) (.81) (.96) (.94) (.68) (.17)
-----------------------------------------------------------------------------
Net asset value at end of
period $ 22.57 $21.46 $19.32 $20.43 $19.94 $18.29
=============================================================================
Total return (%)* 12.70 15.46 (.52) 7.22 12.94 30.63
Net assets at
end of period (000) $10,096 $9,626 $8,767 $9,269 $8,861 $8,237
Ratios to average
net assets:**
Expenses (%)(a) 1.28(c) 1.33(d) 1.42 1.34 1.35(b) 1.57
Expenses, excluding
reimbursements (%)(a) 1.28(c) 1.38 1.42 1.34 1.35 1.57
Net investment
income (%) .80(c) 1.13 .97 .82 1.30 .99
Portfolio turnover (%) 12 27 20 30 20 26
* 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 January 31, 2018, average net assets were
$9,849,000.
(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%)(+) - (.01%) (.00%)(+)
(+) Represents less than 0.01% of average net assets.
(b) Prior to December 1, 2013, the Manager had voluntarily agreed to limit the
annual expenses of the Adviser Shares to 1.65% of the Adviser Shares'
average net assets.
(c) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(d) Effective December 1, 2016, the Manager had voluntarily agreed to limit the
annual expenses of the Adviser Shares to 1.30% of the Adviser Shares'
average net assets.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 33
================================================================================
EXPENSE EXAMPLE
January 31, 2018 (unaudited)
--------------------------------------------------------------------------------
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: direct costs, such
as wire fees, redemption fees, and low balance fees; and indirect costs,
including management fees, transfer agency fees, distribution and service
(12b-1) fees, and other Fund operating expenses. This example is intended to
help you understand your indirect costs, also referred to as "ongoing costs" (in
dollars), of investing in the Fund and to compare these costs with the ongoing
costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire six-month period of August 1, 2017, through
January 31, 2018.
ACTUAL EXPENSES
The line labeled "actual" under each share class in the table provides
information about actual account values and actual expenses. You may use the
information in this line, together with the amount you invested at the beginning
of the period, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number for your share
class in the "actual" line under the heading "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The line labeled "hypothetical" under each share class in the table provides
information about hypothetical account values and hypothetical expenses based on
the Fund's actual expense ratios for each class and an assumed rate
================================================================================
34 | USAA VALUE FUND
================================================================================
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.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE AUGUST 1, 2017 -
AUGUST 1, 2017 JANUARY 31, 2018 JANUARY 31, 2018
------------------------------------------------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $1,128.30** $5.47**
Hypothetical
(5% return before expenses) 1,000.00 1,020.06** 5.19**
INSTITUTIONAL SHARES
Actual 1,000.00 1,128.80** 5.04**
Hypothetical
(5% return before expenses) 1,000.00 1,020.47** 4.79**
ADVISER SHARES
Actual 1,000.00 1,127.00** 6.86**
Hypothetical
(5% return before expenses) 1,000.00 1,018.75** 6.51**
*Expenses are equal to the annualized expense ratio of 1.02% for Fund Shares,
0.94% for Institutional Shares, and 1.28% for Adviser Shares, which are net of
any reimbursements and expenses paid indirectly, multiplied by the average
account value over the period, multiplied by 184 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 12.83% for Fund Shares, 12.88% for Institutional
Shares, and 12.70% for Adviser Shares for the six-month period of August 1,
2017, through January 31, 2018.
================================================================================
EXPENSE EXAMPLE | 35
================================================================================
**The Fund's annualized expense ratio of 1.02% for Fund Shares, 0.94% for
Institutional Shares, and 1.28% for Adviser Shares above reflects a decrease
in management fees from 0.75% to 0.65% effective December 1, 2017. Had the
decrease been in effect for the entire six-month period of August 1, 2017,
through January 31, 2018, the Fund's expense ratio would have been 0.96% for
Fund Shares, 0.88% for Institutional Shares, and 1.21% for Adviser Shares,
which is net of expenses paid indirectly, and the values in the table above
would be as shown below.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE AUGUST 1, 2017 -
AUGUST 1, 2017 JANUARY 31, 2018 JANUARY 31, 2018
------------------------------------------------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $1,128.80 $5.15
Hypothetical
(5% return before expenses) 1,000.00 1,020.37 4.89
INSTITUTIONAL SHARES
Actual 1,000.00 1,129.30 4.72
Hypothetical
(5% return before expenses) 1,000.00 1,020.77 4.48
ADVISER SHARES
Actual 1,000.00 1,127.50 6.49
Hypothetical
(5% return before expenses) 1,000.00 1,019.11 6.16
================================================================================
36 | USAA VALUE 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)
=============================================================================
40847-0318 (C)2018, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA GROWTH & INCOME FUND]
==============================================================
SEMIANNUAL REPORT
USAA GROWTH & INCOME FUND
FUND SHARES (USGRX) o INSTITUTIONAL SHARES (UIGIX)
o ADVISER SHARES (USGIX)
JANUARY 31, 2018
==============================================================
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FUND OBJECTIVE 1
INVESTMENT OVERVIEW 2
FINANCIAL INFORMATION
Portfolio of Investments 3
Notes to Portfolio of Investments 12
Financial Statements 14
Notes to Financial Statements 18
EXPENSE EXAMPLE 37
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 & INCOME FUND (THE FUND) SEEKS CAPITAL GROWTH
WITH A SECONDARY INVESTMENT OBJECTIVE OF CURRENT INCOME.
--------------------------------------------------------------------------------
TYPES OF INVESTMENTS
The Fund invests its assets primarily in equity securities that show the best
potential for total return through a combination of capital growth and income.
Although the Fund invests primarily in U.S. securities, it may invest up to 20%
of its total assets in foreign securities, including securities issued in
emerging markets.
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* - 1/31/18 o
(% of Net Assets)
Amazon.com, Inc. ......................................................... 2.5%
Norwegian Cruise Line Holdings Ltd. ...................................... 2.4%
Microsoft Corp. .......................................................... 2.3%
Royal Caribbean Cruises Ltd. ............................................. 2.1%
Bank of America Corp. .................................................... 1.9%
Alphabet, Inc. "A" ....................................................... 1.9%
Canadian Pacific Railway Ltd. ............................................ 1.8%
Oracle Corp. ............................................................. 1.7%
Broadcom Ltd. ............................................................ 1.7%
Spirit AeroSystems Holdings, Inc. "A" .................................... 1.5%
o SECTOR ALLOCATION* - 1/31/18 o
[PIE CHART OF SECTOR ALLOCATION]
FINANCIALS 20.2%
CONSUMER DISCRETIONARY 18.6%
INFORMATION TECHNOLOGY 17.9%
INDUSTRIALS 14.9%
HEALTH CARE 9.7%
ENERGY 7.4%
CONSUMER STAPLES 5.2%
MATERIALS 3.4%
TELECOMMUNICATION SERVICES 1.0%
[END CHART]
*Does not include 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%.
You will find a complete list of securities that the Fund owns on pages 3-11.
================================================================================
2 | USAA GROWTH & INCOME FUND
================================================================================
PORTFOLIO OF INVESTMENTS
January 31, 2018 (unaudited)
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
EQUITY SECURITIES (98.3%)
COMMON STOCKS (98.3%)
CONSUMER DISCRETIONARY (18.6%)
-----------------------------
APPAREL, ACCESSORIES & LUXURY GOODS (0.3%)
321,600 Hanesbrands, Inc. $ 6,985
----------
CABLE & SATELLITE (1.2%)
583,400 Comcast Corp. "A" 24,812
----------
CASINOS & GAMING (2.8%)
341,610 Las Vegas Sands Corp. 26,482
779,900 MGM Resorts International 28,427
----------
54,909
----------
GENERAL MERCHANDISE STORES (0.7%)
127,300 Dollar General Corp. 13,127
----------
HOME IMPROVEMENT RETAIL (1.9%)
115,890 Home Depot, Inc. 23,282
136,700 Lowe's Cos., Inc. 14,317
----------
37,599
----------
HOMEBUILDING (0.9%)
318,000 CalAtlantic Group, Inc. 17,849
----------
HOTELS, RESORTS & CRUISE LINES (5.3%)
104,900 Carnival Corp. 7,512
91,700 Hilton Worldwide Holdings, Inc. 7,854
784,300 Norwegian Cruise Line Holdings Ltd.* 47,638
311,800 Royal Caribbean Cruises Ltd. 41,641
----------
104,645
----------
HOUSEWARES & SPECIALTIES (0.2%)
123,300 Newell Brands, Inc. 3,260
----------
INTERNET & DIRECT MARKETING RETAIL (2.5%)
34,810 Amazon.com, Inc.* 50,506
----------
LEISURE FACILITIES (0.2%)
294,700 SeaWorld Entertainment, Inc.*(a) 4,494
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 3
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
MOVIES & ENTERTAINMENT (1.7%)
348,600 Twenty-First Century Fox, Inc. "A" $ 12,863
193,200 Walt Disney Co. 20,995
----------
33,858
----------
RESTAURANTS (0.2%)
10,000 Chipotle Mexican Grill, Inc.* 3,248
----------
SPECIALTY STORES (0.7%)
96,590 Tiffany & Co. 10,301
16,000 Ulta Beauty, Inc.* 3,554
----------
13,855
----------
Total Consumer Discretionary 369,147
----------
CONSUMER STAPLES (5.2%)
----------------------
DRUG RETAIL (0.5%)
120,000 CVS Health Corp. 9,443
----------
FOOD RETAIL (1.1%)
705,000 Kroger Co. 21,404
----------
HOUSEHOLD PRODUCTS (0.4%)
83,215 Procter & Gamble Co. 7,185
----------
HYPERMARKETS & SUPER CENTERS (0.7%)
125,000 Wal-Mart Stores, Inc. 13,325
----------
PACKAGED FOODS & MEATS (0.9%)
170,000 Blue Buffalo Pet Products, Inc.* 5,777
162,500 Kraft Heinz Co. 12,738
----------
18,515
----------
SOFT DRINKS (0.7%)
217,400 Coca-Cola European Partners plc 8,731
48,700 PepsiCo, Inc. 5,858
----------
14,589
----------
TOBACCO (0.9%)
136,800 Altria Group, Inc. 9,623
82,200 Philip Morris International, Inc. 8,814
----------
18,437
----------
Total Consumer Staples 102,898
----------
ENERGY (7.4%)
-------------
INTEGRATED OIL & GAS (1.6%)
263,500 BP plc ADR 11,275
90,300 Chevron Corp. 11,319
132,700 Occidental Petroleum Corp. 9,948
----------
32,542
----------
================================================================================
4 | USAA GROWTH & INCOME FUND
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
OIL & GAS DRILLING (0.2%)
200,000 Patterson-UTI Energy, Inc. $ 4,724
----------
OIL & GAS EQUIPMENT & SERVICES (0.9%)
572,800 Fairmount Santrol Holdings, Inc.* 3,191
252,650 Halliburton Co. 13,567
----------
16,758
----------
OIL & GAS EXPLORATION & PRODUCTION (4.2%)
380,000 Antero Resources Corp.* 7,383
250,000 Cabot Oil & Gas Corp. 6,588
101,540 Cimarex Energy Co. 11,393
206,300 ConocoPhillips 12,133
195,000 EOG Resources, Inc. 22,425
186,300 Hess Corp. 9,410
790,651 Kosmos Energy Ltd.* 5,463
199,000 Vermilion Energy, Inc. 7,522
----------
82,317
----------
OIL & GAS REFINING & MARKETING (0.5%)
104,200 Phillips 66 10,670
----------
Total Energy 147,011
----------
FINANCIALS (20.2%)
-----------------
ASSET MANAGEMENT & CUSTODY BANKS (2.8%)
116,122 Ameriprise Financial, Inc. 19,590
252,500 Bank of New York Mellon Corp. 14,316
236,400 Invesco Ltd. 8,541
116,900 State Street Corp. 12,879
----------
55,326
----------
CONSUMER FINANCE (2.1%)
135,200 American Express Co. 13,439
79,300 Capital One Financial Corp. 8,244
475,420 Navient Corp. 6,775
1,211,920 SLM Corp.* 13,864
----------
42,322
----------
DIVERSIFIED BANKS (5.4%)
1,203,926 Bank of America Corp. 38,526
249,250 Citigroup, Inc. 19,561
167,385 JPMorgan Chase & Co. 19,362
300,000 U.S. Bancorp 17,142
203,335 Wells Fargo & Co. 13,375
----------
107,966
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 5
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
FINANCIAL EXCHANGES & DATA (1.4%)
177,070 CME Group, Inc. $ 27,177
----------
INSURANCE BROKERS (0.5%)
56,600 Willis Towers Watson plc 9,083
----------
INVESTMENT BANKING & BROKERAGE (2.8%)
397,900 Charles Schwab Corp. 21,224
201,247 E*TRADE Financial Corp.* 10,606
430,700 Morgan Stanley 24,356
----------
56,186
----------
MULTI-LINE INSURANCE (0.3%)
104,355 American International Group, Inc. 6,670
----------
MULTI-SECTOR HOLDINGS (0.6%)
56,500 Berkshire Hathaway, Inc. "B"* 12,112
----------
PROPERTY & CASUALTY INSURANCE (2.1%)
100,000 Allstate Corp. 9,877
178,900 FNF Group 6,973
670,900 XL Group Ltd. 24,716
----------
41,566
----------
REGIONAL BANKS (1.8%)
1,057,900 KeyCorp 22,639
80,750 PNC Financial Services Group, Inc. 12,760
----------
35,399
----------
THRIFTS & MORTGAGE FINANCE (0.4%)
559,800 New York Community Bancorp, Inc. 7,927
----------
Total Financials 401,734
----------
HEALTH CARE (9.7%)
-----------------
BIOTECHNOLOGY (0.8%)
58,280 Amgen, Inc. 10,843
15,284 Biogen, Inc.* 5,316
----------
16,159
----------
HEALTH CARE DISTRIBUTORS (0.4%)
112,100 Cardinal Health, Inc. 8,048
----------
HEALTH CARE EQUIPMENT (2.2%)
90,000 Danaher Corp. 9,115
536,000 Hologic, Inc.* 22,887
124,600 Medtronic plc 10,702
----------
42,704
----------
================================================================================
6 | USAA GROWTH & INCOME FUND
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
HEALTH CARE SERVICES (0.5%)
116,100 Express Scripts Holding Co.* $ 9,193
----------
MANAGED HEALTH CARE (2.7%)
53,728 Anthem, Inc. 13,316
57,460 Cigna Corp. 11,972
120,000 UnitedHealth Group, Inc. 28,414
----------
53,702
----------
PHARMACEUTICALS (3.1%)
63,265 Allergan plc 11,404
145,080 Johnson & Johnson 20,049
151,875 Merck & Co., Inc. 8,999
296,182 Pfizer, Inc. 10,970
142,600 Sanofi ADR 6,264
192,257 Teva Pharmaceutical Industries Ltd. ADR 3,924
----------
61,610
----------
Total Health Care 191,416
----------
INDUSTRIALS (14.9%)
------------------
AEROSPACE & DEFENSE (3.7%)
65,360 Boeing Co. 23,162
34,600 General Dynamics Corp. 7,698
302,800 Spirit AeroSystems Holdings, Inc. "A" 30,994
87,205 United Technologies Corp. 12,035
----------
73,889
----------
AIR FREIGHT & LOGISTICS (0.8%)
62,055 FedEx Corp. 16,288
----------
AIRLINES (2.4%)
287,625 Southwest Airlines Co. 17,488
443,380 United Continental Holdings, Inc.* 30,070
----------
47,558
----------
BUILDING PRODUCTS (1.0%)
236,103 Johnson Controls International plc 9,238
119,800 Owens Corning 11,138
----------
20,376
----------
ENVIRONMENTAL & FACILITIES SERVICES (0.7%)
186,700 Republic Services, Inc. 12,845
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 7
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES (1.1%)
686,300 General Electric Co. $ 11,098
69,720 Honeywell International, Inc. 11,132
----------
22,230
----------
INDUSTRIAL MACHINERY (1.4%)
100,000 Illinois Tool Works, Inc. 17,367
65,200 Stanley Black & Decker, Inc. 10,838
----------
28,205
----------
RAILROADS (3.1%)
191,500 Canadian Pacific Railway Ltd. 35,435
300,000 CSX Corp. 17,031
70,500 Kansas City Southern 7,976
----------
60,442
----------
RESEARCH & CONSULTING SERVICES (0.3%)
157,300 Nielsen Holdings plc 5,885
----------
TRUCKING (0.4%)
23,300 AMERCO 8,506
----------
Total Industrials 296,224
----------
INFORMATION TECHNOLOGY (17.9%)
-----------------------------
APPLICATION SOFTWARE (1.8%)
122,200 Adobe Systems, Inc.* 24,411
387,149 Micro Focus International plc ADR 11,707
----------
36,118
----------
COMMUNICATIONS EQUIPMENT (0.3%)
200,000 Juniper Networks, Inc. 5,230
----------
DATA PROCESSING & OUTSOURCED SERVICES (1.4%)
60,196 Black Knight, Inc.* 2,980
195,960 Visa, Inc. "A"(a) 24,344
----------
27,324
----------
INTERNET SOFTWARE & SERVICES (2.3%)
31,416 Alphabet, Inc. "A"* 37,141
48,800 Facebook, Inc. "A"* 9,120
----------
46,261
----------
SEMICONDUCTOR EQUIPMENT (1.5%)
264,000 Applied Materials, Inc. 14,158
55,000 Lam Research Corp. 10,534
121,650 Versum Materials, Inc. 4,477
----------
29,169
----------
================================================================================
8 | USAA GROWTH & INCOME FUND
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
SEMICONDUCTORS (4.1%)
133,472 Broadcom Ltd. $ 33,105
200,000 Maxim Integrated Products, Inc. 12,200
138,500 Microchip Technology, Inc. 13,188
187,200 QUALCOMM, Inc. 12,776
98,400 Texas Instruments, Inc. 10,792
----------
82,061
----------
SYSTEMS SOFTWARE (4.0%)
485,335 Microsoft Corp. 46,112
657,165 Oracle Corp. 33,903
----------
80,015
----------
TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (2.5%)
121,950 Apple, Inc. 20,418
667,400 Hewlett Packard Enterprise Co. 10,945
769,000 HP, Inc. 17,933
----------
49,296
----------
Total Information Technology 355,474
----------
MATERIALS (3.4%)
---------------
COMMODITY CHEMICALS (0.4%)
71,100 LyondellBasell Industries N.V. "A" 8,521
----------
CONSTRUCTION MATERIALS (1.2%)
176,500 Vulcan Materials Co. 23,898
----------
DIVERSIFIED CHEMICALS (0.6%)
161,003 DowDuPont, Inc. 12,169
----------
INDUSTRIAL GASES (0.6%)
70,000 Air Products & Chemicals, Inc. 11,786
----------
SPECIALTY CHEMICALS (0.6%)
100,800 Celanese Corp. "A" 10,902
----------
Total Materials 67,276
----------
TELECOMMUNICATION SERVICES (1.0%)
--------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (0.6%)
210,040 Verizon Communications, Inc. 11,357
----------
WIRELESS TELECOMMUNICATION SERVICES (0.4%)
142,500 T-Mobile US, Inc.* 9,277
----------
Total Telecommunication Services 20,634
----------
Total Common Stocks (cost: $1,209,474) 1,951,814
----------
Total Equity Securities (cost: $1,209,474) 1,951,814
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 9
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON MATURITY VALUE
(000) SECURITY RATE DATE (000)
-----------------------------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS (1.7%)
COMMERCIAL PAPER (1.1%)
$ 5,000 Gotham Funding Corp.(b) 1.55% 02/09/2018 $ 4,998
7,250 LMA Americas, LLC(b) 1.50 02/13/2018 7,247
5,556 Manhattan Asset Funding Co., LLC(b) 1.55 02/08/2018 5,554
4,000 Manhattan Asset Funding Co., LLC(b) 1.54 02/12/2018 3,998
----------
Total Commercial Paper (cost: $21,797) 21,797
----------
-----------------------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES
-----------------------------------------------------------------------------------------------------------------------
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (0.6%)
11,071,227 State Street Institutional Treasury Money Market Fund
Premier Class, 1.23%(c) (cost: $11,071) 11,071
----------
Total Money Market Instruments (cost: $32,868) 32,868
----------
SHORT-TERM INVESTMENTS PURCHASED WITH CASH
COLLATERAL FROM SECURITIES LOANED (0.1%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (0.1%)
53,500 Federated Government Obligations Fund Institutional Class, 1.19%(c) 54
1,090,250 Goldman Sachs Financial Square Government Fund
Institutional Class, 1.21%(c) 1,090
----------
Total Short-Term Investments Purchased with Cash Collateral
from Securities Loaned (cost: $1,144) 1,144
----------
TOTAL INVESTMENTS (COST: $1,243,486) $1,985,826
==========
================================================================================
10 | USAA GROWTH & INCOME FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
-----------------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
-----------------------------------------------------------------------------------------------------------------------
Equity Securities:
Common Stocks $1,951,814 $ - $- $1,951,814
Money Market Instruments:
Commercial Paper - 21,797 - 21,797
Government & U.S. Treasury
Money Market Funds 11,071 - - 11,071
Short-Term Investments Purchased
with Cash Collateral from
Securities Loaned:
Government & U.S. Treasury
Money Market Funds 1,144 - - 1,144
-----------------------------------------------------------------------------------------------------------------------
Total $1,964,029 $21,797 $- $1,985,826
-----------------------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
For the period of August 1, 2017, through January 31, 2018, there were no
transfers of securities between levels. The Fund's policy is to recognize any
transfers in and transfers out as of the beginning of the reporting period in
which the event or circumstance that caused the transfer occurred.
================================================================================
PORTFOLIO OF INVESTMENTS | 11
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
January 31, 2018 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
Market values of securities are determined by procedures and practices
discussed in Note 1A to the financial statements.
The Portfolio of Investments category percentages shown represent the
percentages of the investments to net assets, and, in total, may not equal
100%. A category percentage of 0.0% represents less than 0.1% of net assets.
Investments in foreign securities were 5.5% of net assets at January 31,
2018.
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) The security, or a portion thereof, was out on loan as of January 31,
2018.
(b) Restricted security that is not registered under the Securities Act of
1933. A resale of this security in the United States may occur in an
exempt transaction to a qualified institutional buyer as defined by Rule
144A, and as such has been deemed liquid by USAA Asset Management Company
under liquidity guidelines approved by
================================================================================
12 | USAA Growth & Income Fund
================================================================================
USAA Mutual Funds Trust's Board of Trustees, unless otherwise noted as
illiquid.
(c) Rate represents the money market fund annualized seven-day yield at
January 31, 2018.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 13
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
January 31, 2018 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (including securities on
loan of $25,244) (cost of $1,243,486) $1,985,826
Receivables:
Capital shares sold 1,123
Dividends and interest 921
Other 7
----------
Total assets 1,987,877
----------
LIABILITIES
Payables:
Upon return of securities loaned 1,144
Capital shares redeemed 727
Accrued management fees 1,000
Accrued transfer agent's fees 31
Other accrued expenses and payables 211
----------
Total liabilities 3,113
----------
Net assets applicable to capital shares outstanding $1,984,764
==========
NET ASSETS CONSIST OF:
Paid-in capital $1,230,817
Overdistribution of net investment income (149)
Accumulated net realized gain on investments 11,756
Net unrealized appreciation of investments 742,340
----------
Net assets applicable to capital shares outstanding $1,984,764
==========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $1,813,634/68,109 capital shares
outstanding, no par value) $ 26.63
==========
Institutional Shares (net assets of $160,137/6,019 capital shares
outstanding, no par value) $ 26.61
==========
Adviser Shares (net assets of $10,993/414 capital shares
outstanding, no par value) $ 26.54
==========
See accompanying notes to financial statements.
================================================================================
14 | USAA GROWTH & INCOME FUND
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended January 31, 2018 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $49) $ 15,342
Interest 203
Securities lending (net) 36
--------
Total income 15,581
--------
EXPENSES
Management fees 5,509
Administration and servicing fees:
Fund Shares 1,258
Institutional Shares 74
Adviser Shares 8
Transfer agent's fees:
Fund Shares 880
Institutional Shares 74
Adviser Shares 1
Distribution and service fees (Note 7F):
Adviser Shares 13
Custody and accounting fees:
Fund Shares 95
Institutional Shares 8
Adviser Shares 1
Postage:
Fund Shares 46
Shareholder reporting fees:
Fund Shares 27
Trustees' fees 16
Registration fees:
Fund Shares 16
Institutional Shares 11
Adviser Shares 8
Professional fees 78
Other 18
--------
Total expenses 8,141
Expenses reimbursed:
Adviser Shares (1)
--------
Net expenses 8,140
--------
NET INVESTMENT INCOME 7,441
--------
================================================================================
FINANCIAL STATEMENTS | 15
================================================================================
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY
Net realized gain on:
Investments $ 34,774
Foreign currency transactions 3
Change in net unrealized appreciation/(depreciation) of:
Investments 220,326
Foreign currency translations (4)
--------
Net realized and unrealized gain 255,099
--------
Increase in net assets resulting from operations $262,540
========
See accompanying notes to financial statements.
================================================================================
16 | USAA GROWTH & INCOME FUND
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended January 31, 2018 (unaudited), and year ended July 31,
2017
-----------------------------------------------------------------------------------------------------------------------
1/31/2018 7/31/2017
-----------------------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 7,441 $ 14,570
Net realized gain on investments 34,774 75,445
Net realized gain on foreign currency transactions 3 -
Change in net unrealized appreciation/(depreciation) of:
Investments 220,326 211,600
Foreign currency translations (4) 4
------------------------
Increase in net assets resulting from operations 262,540 301,619
------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares (6,910) (14,678)
Institutional Shares (652) (1,319)
Adviser Shares (28) (59)
------------------------
Total distributions of net investment income (7,590) (16,056)
------------------------
Net realized gains:
Fund Shares (72,206) (4,824)
Institutional Shares (6,301) (401)
Adviser Shares (456) (30)
------------------------
Total distributions of net realized gains (78,963) (5,255)
------------------------
Distributions to shareholders (86,553) (21,311)
------------------------
NET INCREASE (DECREASE) IN NET ASSETS FROM
CAPITAL SHARE TRANSACTIONS (NOTE 6)
Fund Shares 47,641 (32,164)
Institutional Shares 6,038 456
Adviser Shares 25 69
------------------------
Total net increase (decrease) in net assets from capital
share transactions 53,704 (31,639)
------------------------
Net increase in net assets 229,691 248,669
NET ASSETS
Beginning of period 1,755,073 1,506,404
------------------------
End of period $1,984,764 $1,755,073
========================
Overdistribution of net investment income:
End of period $ (149) $ -
========================
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 17
================================================================================
NOTES TO FINANCIAL STATEMENTS
January 31, 2018 (unaudited)
--------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company Act
of 1940, as amended (the 1940 Act), is an open- end management investment
company organized as a Delaware statutory trust consisting of 51 separate funds.
The USAA Growth & Income Fund (the Fund) qualifies as a registered investment
company under Accounting Standards Codification Topic 946. The information
presented in this semiannual report pertains only to the Fund, which is
classified as diversified under the 1940 Act. The Fund's investment objectives
are to seek capital growth and, secondarily, current income.
The Fund consists of three classes of shares: Growth & Income Fund Shares (Fund
Shares), Growth & Income Fund Institutional Shares (Institutional Shares), and
Growth & Income 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
================================================================================
18 | USAA GROWTH & INCOME FUND
================================================================================
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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 19
================================================================================
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
================================================================================
20 | USAA GROWTH & INCOME FUND
================================================================================
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. 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 | 21
================================================================================
value is intended to cause the Fund's NAV to be more reliable than it
otherwise would be.
Fair value methods used by the Manager include, but are not limited to,
obtaining market quotations from secondary pricing services,
broker-dealers, other pricing services, or widely used quotation systems.
General factors considered in determining the fair value of securities
include fundamental analytical data, the nature and duration of any
restrictions on disposition of the securities, evaluation of credit
quality, and an evaluation of the forces that influenced the market in
which the securities are purchased and sold.
B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The
three-level valuation hierarchy disclosed in the Portfolio of Investments is
based upon the transparency of inputs to the valuation of an asset or
liability as of the measurement date. The three levels are defined as
follows:
Level 1 - inputs to the valuation methodology are quoted prices (unadjusted)
in active markets for identical securities.
Level 2 - inputs to the valuation methodology are other significant
observable inputs, including quoted prices for similar securities, inputs
that are observable for the securities, either directly or indirectly, and
market-corroborated inputs such as market indexes.
Level 3 - inputs to the valuation methodology are unobservable and
significant to the fair value measurement, including the Manager's own
assumptions in determining the fair value.
The inputs or methodologies used for valuing securities are not necessarily
an indication of the risks associated with investing in those securities.
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
================================================================================
22 | USAA GROWTH & INCOME FUND
================================================================================
income and net capital gains, if any, to its shareholders. Therefore, no
federal income tax provision is required.
For the six-month period ended January 31, 2018, the Fund did not incur any
income tax, interest, or penalties, and has recorded no liability for net
unrecognized tax benefits relating to uncertain income tax positions. On an
ongoing basis, the Manager will monitor the Fund's tax basis to determine if
adjustments to this conclusion are necessary. The statute of limitations on
the Fund's tax return filings generally remain open for the three preceding
fiscal reporting year ends and remain subject to examination by the Internal
Revenue Service and state taxing authorities.
D. 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 23
================================================================================
2. Market value of securities, other assets, and liabilities at the exchange
rate obtained from an independent pricing service on a daily basis.
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss
from investments.
Separately, net realized foreign currency gains/losses may arise from sales
of foreign currency, currency gains/losses realized between the trade and
settlement dates on security transactions, and from the difference between
amounts of dividends, interest, and foreign withholding taxes recorded on
the Fund's books and the U.S. dollar equivalent of the amounts received. At
the end of the Fund's fiscal year, net realized foreign currency
gains/losses are reclassified from accumulated net realized gains/losses to
accumulated undistributed net investment income on the Statement of Assets
and Liabilities, as such amounts are treated as ordinary income/loss for
federal income tax purposes. Net unrealized foreign currency exchange
gains/losses arise from changes in the value of assets and liabilities,
other than investments in securities, resulting from changes in the exchange
rate.
G. EXPENSES PAID INDIRECTLY - 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 January 31, 2018, the Fund
did not receive any brokerage commission recapture credits. For the
six-month period ended January 31, 2018, 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
================================================================================
24 | USAA GROWTH & INCOME FUND
================================================================================
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.
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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 25
================================================================================
For the six-month period ended January 31, 2018, the Fund paid CAPCO facility
fees of $7,000, which represents 2.2% 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 January 31, 2018.
(3) DISTRIBUTIONS
The tax basis of distributions and accumulated undistributed net investment
income will be determined as of the Fund's tax year-end of July 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 taxes.
At July 31, 2017, the Fund had no capital loss carryforwards, for federal income
tax purposes.
As of January 31, 2018, the cost of securities, including short-term securities,
for federal income tax purposes, was approximately the same as the cost reported
in the financial statements.
Gross unrealized appreciation and depreciation of investments as of January 31,
2018, were $768,655,000 and $26,315,000, respectively, resulting in net
unrealized appreciation of $742,340,000.
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities, excluding
short-term securities, for the six-month period ended January 31, 2018, were
$117,092,000 and $129,220,000, respectively.
(5) SECURITIES LENDING
The Fund, through a securities lending agreement with Citibank, N.A.
(Citibank), may lend its securities to qualified financial institutions, such as
================================================================================
26 | USAA GROWTH & INCOME FUND
================================================================================
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 January 31, 2018, 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
--------------------------------------------------------------------------------
$25,244,000 $24,453,000 $1,144,000
--------------------------------------------------------------------------------
(6) CAPITAL SHARE TRANSACTIONS
At January 31, 2018, there were an unlimited number of shares of capital stock
at no par value authorized for the Fund.
Capital share transactions for the Institutional Shares resulted from purchases
and sales by the affiliated USAA fund-of-funds as well as other
================================================================================
NOTES TO FINANCIAL STATEMENTS | 27
================================================================================
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
JANUARY 31, 2018 YEAR ENDED JULY 31, 2017
--------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------
FUND SHARES:
Shares sold 2,519 $ 63,548 5,011 $ 112,928
Shares issued from
reinvested dividends 3,119 77,922 857 19,179
Shares redeemed (3,735) (93,829) (7,363) (164,271)
--------------------------------------------------
Net increase (decrease)
from capital share transactions 1,903 $ 47,641 (1,495) $ (32,164)
==================================================
INSTITUTIONAL SHARES:
Shares sold 255 $ 6,314 978 $ 21,688
Shares issued from
reinvested dividends 279 6,953 77 1,720
Shares redeemed (288) (7,229) (1,048) (22,952)
--------------------------------------------------
Net increase from capital
share transactions 246 $ 6,038 7 $ 456
==================================================
ADVISER SHARES:
Shares sold 1 $ 34 6 $ 127
Shares issued from
reinvested dividends 1 16 _* 3
Shares redeemed (1) (25) (3) (61)
--------------------------------------------------
Net increase from capital
share transactions 1 $ 25 3 $ 69
==================================================
*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 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
================================================================================
28 | USAA GROWTH & INCOME FUND
================================================================================
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 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 0.60% 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 Multi-Cap Core Funds Index. The Lipper
Multi-Cap Core Funds Index tracks the total return performance of funds
within the Lipper Multi-Cap Core Funds category.
For the Fund Shares and Adviser Shares, the performance period consists of
the current month plus the previous 35 months. The performance period for
the Institutional Shares includes the performance of the Fund Shares for
periods prior to August 7, 2015. The following table is utilized to
determine the extent of the performance adjustment:
OVER/UNDER PERFORMANCE
RELATIVE TO INDEX ANNUAL ADJUSTMENT RATE
(IN BASIS POINTS)(1) (IN BASIS POINTS)(1)
---------------------------------------------------------------------
+/- 100 to 400 +/- 4
+/- 401 to 700 +/- 5
+/- 701 and greater +/- 6
(1)Based on the difference between average annual performance of the
relevant share class of the Fund and its relevant index, rounded to the
nearest basis point. Average net assets of the share class are calculated
over a rolling 36-month period.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 29
================================================================================
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 Multi-Cap Core Funds Index over that period, even if
the class had overall negative returns during the performance period.
For the six-month period ended January 31, 2018, the Fund incurred total
management fees, paid or payable to the Manager, of $5,509,000, which
included a performance adjustment for the Institutional Shares of $2,000.
For the Institutional Shares, the performance adjustment was less than
0.01%. For the six-month period year ended January 31, 2018, the Fund Shares
and the Advisor shares did not incur any performance adjustment.
B. SUBADVISORY ARRANGEMENT(S) - The Manager entered into an Investment
Subadvisory Agreement with Barrow, Hanley, Mewhinney & Strauss, LLC (BHMS),
under which BHMS directs 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 BHMS a subadvisory fee based on the
aggregate net assets that BHMS manages in the USAA Value Fund and the USAA
Growth & Income Fund combined, in an annual amount of 0.75% on the first $15
million of assets, 0.55% on assets over $15 million and up to $25 million,
0.45% on assets over $25 million and up to $100 million, 0.35% on assets
over $100 million and up to $200 million, 0.25% on assets over $200 million
and up to $1 billion, and 0.15% on assets over $1 billion. For the six-month
period ended January 31, 2018, the Manager incurred subadvisory fees with
respect to the Fund, paid or payable to BHMS, of $745,000.
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
================================================================================
30 | USAA GROWTH & INCOME 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 January 31, 2018, the Fund Shares,
Institutional Shares, and Adviser Shares incurred administration and
servicing fees, paid or payable to the Manager, of $1,258,000, $74,000, and
$8,000, 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 January 31, 2018, the Fund reimbursed the Manager
$6,000 for these compliance and legal services. These expenses are included
in the professional fees on the Fund's Statement of Operations.
D. EXPENSE LIMITATION - The Manager agreed, through November 30, 2018, to limit
the total annual operating expenses of the Institutional Shares and Adviser
Shares to 0.85% and 1.15%, 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 November 30, 2018,
without approval of the Board, and may be changed or terminated by the
Manager at any time after that date. Prior to December 1, 2017, the expense
limitation for the Advisor Shares was 1.20%. For the six-month period ended
January 31, 2018, the Adviser Shares incurred reimbursable expenses of
$1,000, 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 31
================================================================================
the Institutional Shares' average net assets, plus out-of-pocket expenses.
For the six-month period ended January 31, 2018, the Fund Shares,
Institutional Shares, and Adviser Shares incurred transfer agent's fees,
paid or payable to SAS, of $880,000, $74,000, and $1,000, 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 January 31, 2018, the Adviser Shares incurred
distribution and service (12b-1) fees of $13,000.
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 January 31,
2018, USAA and its affiliates owned 398,000 Adviser Shares, which represents
96.0% 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
================================================================================
32 | USAA GROWTH & INCOME FUND
================================================================================
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 December 2017, the SEC issued Temporary Final Rule Release No.
33-10442, INVESTMENT COMPANY REPORTING MODERNIZATION (Temporary Rule), which
extends to April 2019 the compliance date on which funds in larger fund groups,
such as the Fund, are required to begin filing form N-PORT. In the interim, in
lieu of filing form N-PORT, the Temporary Rule requires that funds in larger
fund groups maintain in their records the information that is required to be
included in form N-PORT. The Temporary Rule does not affect the filing date or
requirements of form N-CEN.
In October 2016, the SEC issued Final Rule Release No. 33-10233, INVESTMENT
COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS (Liquidity Rule). The Liquidity Rule
requires funds to establish a liquidity risk management program and enhances
disclosures regarding funds' liquidity.
In February 2018, the SEC issued Interim Final Rule Release No. IC-33010,
INVESTMENT COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS; COMMISSION GUIDANCE FOR
IN-KIND ETFs, which extends, among others, the compliance dates for certain
disclosure requirements under the Liquidity Rule. The compliance date for the
liquidity disclosure required in form N-PORT has been extended to June 1, 2019
for larger entities such as the Fund. The compliance date for the liquidity
disclosure required in form N-CEN for large entities such as the Fund remains
December 1, 2018. The Fund is expected to comply with these compliance dates for
forms N-PORT and N-CEN. The Manager continues to evaluate the impact these rules
and amendments will have on the financial statements and other disclosures.
(10) NEW ACCOUNTING PRONOUNCEMENTS
In March 2017, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Update (ASU) 2017-08, Premium Amortization of Purchased Callable Debt
Securities. The amendments in the ASU shorten the premium amortization period on
a purchased callable debt security from the security's contractual life to the
earliest call date. It is anticipated that this change will enhance disclosures
by reducing losses recognized when a security is called on an earlier date. This
ASU is effective for fiscal years beginning after December 15, 2018. The Manager
continues to evaluate the impact this ASU will have on the financial statement
disclosures.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 33
================================================================================
(11) FINANCIAL HIGHLIGHTS - FUND SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JANUARY 31, YEAR ENDED JULY 31,
---------------------------------------------------------------------------------------
2018 2017 2016 2015 2014 2013
---------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 24.25 $ 20.39 $ 22.00 $ 22.63 $ 19.39 $ 15.44
---------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .11 .21 .15 .17 .21 .18
Net realized and
unrealized gain (loss) 3.47 3.94 (.51) 2.14 3.24 3.95
---------------------------------------------------------------------------------------
Total from investment
operations 3.58 4.15 (.36) 2.31 3.45 4.13
---------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.10) (.22) (.14) (.18) (.21) (.18)
Realized capital gains (1.10) (.07) (1.11) (2.76) - -
---------------------------------------------------------------------------------------
Total distributions (1.20) (.29) (1.25) (2.94) (.21) (.18)
---------------------------------------------------------------------------------------
Net asset value at
end of period $ 26.63 $ 24.25 $ 20.39 $ 22.00 $ 22.63 $ 19.39
=======================================================================================
Total return (%)* 15.14 20.49 (1.49) 10.70 17.86 26.90
Net assets at
end of period (000) $1,813,634 $1,605,220 $1,380,560 $1,583,353 $1,514,795 $1,418,296
Ratios to average
net assets:**
Expenses (%)(a) .89(d) .91 .95 .93 .94 .96
Net investment income (%) .81(d) .89 .78 .66 .97 1.04
Portfolio turnover (%) 7 21 22 35 61(c) 112(b)
* 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 January 31, 2018, average net assets were
$1,665,817,000.
(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) Reflects increased trading activity due to changes in subadviser(s).
(c) Reflects decreased trading activity due to changes in subadviser(s).
(d) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
34 | USAA GROWTH & INCOME FUND
================================================================================
(11) 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
JANUARY 31, JULY 31, JULY 31,
----------------------------------------------------------
2018 2017 2016***
----------------------------------------------------------
Net asset value at beginning of period $ 24.23 $ 20.38 $ 22.10
-----------------------------------------------------
Income (loss) from investment operations:
Net investment income .09 .22 .16
Net realized and unrealized gain (loss) 3.50 3.94 (.60)
-----------------------------------------------------
Total from investment operations 3.59 4.16 (.44)
-----------------------------------------------------
Less distributions from:
Net investment income (.11) (.24) (.17)
Realized capital gains (1.10) (.07) (1.11)
-----------------------------------------------------
Total distributions (1.21) (.31) (1.28)
-----------------------------------------------------
Net asset value at end of period $ 26.61 $ 24.23 $ 20.38
=====================================================
Total return (%)* 15.19 20.54 (1.87)
Net assets at end of period (000) $160,137 $139,866 $117,512
Ratios to average net assets:**
Expenses (%) .84(a) .85 .85(a)
Expenses, excluding reimbursements (%) .84(a) .85 .87(a)
Net investment income (%) .85(a) .95 .83(a)
Portfolio turnover (%) 7 21 22
* 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 January 31, 2018, average net assets were
$146,435,000.
*** 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 | 35
================================================================================
(11) FINANCIAL HIGHLIGHTS (CONTINUED) - ADVISER SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JANUARY 31, YEAR ENDED JULY 31,
---------------------------------------------------------------------------------------
2018 2017 2016 2015 2014 2013
---------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 24.17 $20.32 $21.93 $22.56 $19.34 $15.42
------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .08 .15 .10 .10 .15 .12
Net realized and
unrealized gain (loss) 3.46 3.91 (.50) 2.14 3.23 3.93
------------------------------------------------------------------------------------
Total from investment
operations 3.54 4.06 (.40) 2.24 3.38 4.05
------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.07) (.14) (.10) (.11) (.16) (.13)
Realized capital gains (1.10) (.07) (1.11) (2.76) - -
------------------------------------------------------------------------------------
Total distributions (1.17) (.21) (1.21) (2.87) (.16) (.13)
------------------------------------------------------------------------------------
Net asset value at
end of period $ 26.54 $24.17 $20.32 $21.93 $22.56 $19.34
====================================================================================
Total return (%)* 14.98 20.10 (1.72) 10.40 17.51 26.37
Net assets at
end of period (000) $10,993 $9,987 $8,332 $9,098 $9,305 $7,919
Ratios to average
net assets:**
Expenses (%)(a) 1.18(d),(e) 1.20 1.20 1.22(c) 1.22 1.30
Expenses, excluding
reimbursements (%)(a) 1.21(e) 1.24 1.28 1.27 1.22 1.39
Net investment income (%) .52(e) .60 .53 .37 .70 .70
Portfolio turnover (%) 7 21 22 35 61(b) 112(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 January 31, 2018, average net assets were
$10,330,000
(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 as follows:
- - - - (.00%)(+) (.00%)(+)
(+) Represents less than 0.01% of average net assets.
(b) Reflects decreased trading activity due to changes in subadviser(s).
(c) Prior to December 1, 2014, the Manager had voluntarily agreed to limit the
annual expenses of the Adviser Shares to 1.30% of the Adviser Shares'
average net assets.
(d) Prior to December 1, 2017, the Manager has voluntarily agreed to limit the
annual expenses of the Adviser Shares to 1.20% of the Adviser Shares'
average net assets.
(e) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(f) Reflects increased trading activity due to changes in subadviser(s).
================================================================================
36 | USAA GROWTH & INCOME FUND
================================================================================
EXPENSE EXAMPLE
January 31, 2018 (unaudited)
--------------------------------------------------------------------------------
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: direct costs, such
as wire fees, redemption fees, and low balance fees; and indirect costs,
including management fees, transfer agency fees, distribution and service
(12b-1) fees, and other Fund operating expenses. This example is intended to
help you understand your indirect costs, also referred to as "ongoing costs" (in
dollars), of investing in the Fund and to compare these costs with the ongoing
costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire six-month period of August 1, 2017, through
January 31, 2018.
ACTUAL EXPENSES
The line labeled "actual" under each share class in the table provides
information about actual account values and actual expenses. You may use the
information in this line, together with the amount you invested at the beginning
of the period, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number for your share
class in the "actual" line under the heading "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The line labeled "hypothetical" under each share class in the table provides
information about hypothetical account values and hypothetical expenses based on
the Fund's actual expense ratios for each class and an assumed rate of return of
5% per year before expenses, which is not the Fund's actual
================================================================================
EXPENSE EXAMPLE | 37
================================================================================
return. The hypothetical account values and expenses may not be used to estimate
the actual ending account balance or expenses you paid for the period. You may
use this information to compare the ongoing costs of investing in the Fund and
other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any direct costs, such as wire fees,
redemption fees, or low balance fees. Therefore, the line labeled "hypothetical"
is useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if these direct
costs were included, your costs would have been higher.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE AUGUST 1, 2017 -
AUGUST 1, 2017 JANUARY 31, 2018 JANUARY 31, 2018
-------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $1,151.40 $4.83
Hypothetical
(5% return before expenses) 1,000.00 1,020.72 4.53
INSTITUTIONAL SHARES
Actual 1,000.00 1,151.90 4.56
Hypothetical
(5% return before expenses) 1,000.00 1,020.97 4.28
ADVISER SHARES
Actual 1,000.00 1,149.80** 6.39**
Hypothetical
(5% return before expenses) 1,000.00 1,019.26** 6.01**
*Expenses are equal to the annualized expense ratio of 0.89% for Fund Shares,
0.84% for Institutional Shares, and 1.18% for Adviser Shares, which are net of
any reimbursements and expenses paid indirectly, multiplied by the average
account value over the period, multiplied by 184 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 15.14% for Fund Shares, 15.19% for Institutional
Shares, and 14.98% for Adviser Shares for the six-month period of August 1,
2017, through January 31, 2018.
================================================================================
38 | USAA GROWTH & INCOME FUND
================================================================================
**The Fund's annualized expense ratio of 1.18% for the Adviser Shares above
reflects a change effective December 1, 2017, in the rate of the Manager's
expense limitation for the Adviser Shares from 1.20% to 1.15% of the Adviser
Shares' average annual net assets. Had the expense limitation of 1.15%, which
is net of expenses paid indirectly, been in effect for the entire six-month
period of August 1, 2017, through January 31, 2018, the values in the table
above would be as shown below.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE AUGUST 1, 2017 -
AUGUST 1, 2017 JANUARY 31, 2018 JANUARY 31, 2018
-------------------------------------------------------------
ADVISOR SHARES
Actual $1,000.00 $1,150.30 $6.12
Hypothetical
(5% return before expenses) 1,000.00 1,019.51 5.75
================================================================================
EXPENSE EXAMPLE | 39
================================================================================
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)
=============================================================================
23432-0318 (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 January 31, 2018
By:* /S/ KRISTEN MILLAN
-----------------------------------------------------------
Signature and Title: Kristen Millan, Assistant Secretary
Date: 03/23/2018
------------------------------
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: 03/23/2018
------------------------------
By:* /S/ JAMES K. DE VRIES
-----------------------------------------------------
Signature and Title: James K. De Vries, Treasurer
Date: 03/23/2018
------------------------------
*Print the name and title of each signing officer under his or her signature.