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: DECEMBER 31
Date of reporting period: JUNE 30, 2018
ITEM 1. SEMIANNUAL REPORT TO STOCKHOLDERS.
USAA MUTUAL FUNDS TRUST - SEMIANNUAL REPORT FOR PERIOD ENDED JUNE 30, 2018
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA EXTENDED MARKET INDEX FUND]
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SEMIANNUAL REPORT
USAA EXTENDED MARKET INDEX FUND (USMIX)
JUNE 30, 2018
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TABLE OF CONTENTS
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INVESTMENT OVERVIEW 1
FINANCIAL INFORMATION
Portfolio of Investments 2
Notes to Portfolio of Investments 51
Financial Statements 53
Notes to Financial Statements 57
Financial Highlights 71
EXPENSE EXAMPLE 73
ADVISORY AGREEMENT(S) 75
SUBADVISORY AGREEMENT 81
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE
RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY
USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN
PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS
ABOUT THE FUND.
IRA DISTRIBUTION WITHHOLDING DISCLOSURE
We generally must withhold federal income tax at a rate of 10% of the taxable
portion of your distribution and, if you live in a state that requires state
income tax withholding, at your state's tax rate. However, you may elect not to
have withholding apply or to have income tax withheld at a higher rate. Any
withholding election that you make will apply to any subsequent distribution
unless and until you change or revoke the election. If you wish to make a
withholding election or change or revoke a prior withholding election, call
(800) 531-USAA (8722) or (210) 531-8722.
If you do not have a withholding election in place by the date of a
distribution, federal income tax will be withheld from the taxable portion of
your distribution at a rate of 10%. If you must pay estimated taxes, you may be
subject to estimated tax penalties if your estimated tax payments are not
sufficient and sufficient tax is not withheld from your distribution.
For more specific information, please consult your tax adviser.
(C)2018, USAA. All rights reserved.
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INVESTMENT OVERVIEW
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o TOP 10 HOLDINGS* - 6/30/18 o
(% of Net Assets)
Tesla, Inc. .............................................................. 0.9%
ServiceNow, Inc. ......................................................... 0.6%
Las Vegas Sands Corp. .................................................... 0.5%
Worldpay, Inc., "A" ...................................................... 0.5%
Dr. Pepper Snapple Group, Inc. ........................................... 0.4%
Palo Alto Networks, Inc. ................................................. 0.4%
Workday, Inc., "A" ....................................................... 0.4%
Square, Inc., "A" ........................................................ 0.4%
T-Mobile US, Inc. ........................................................ 0.3%
Dell Technologies, Inc., "V" ............................................. 0.3%
o TOP 10 SECTOR ALLOCATION* - 6/30/18 o
(% of Net Assets)
Information Technology ................................................... 18.7%
Financials ............................................................... 18.0%
Consumer Discretionary ................................................... 14.4%
Industrials .............................................................. 13.2%
Health Care .............................................................. 11.8%
Real Estate .............................................................. 6.5%
Materials ................................................................ 5.1%
Energy ................................................................... 4.8%
Consumer Staples ......................................................... 3.2%
Utilities ................................................................ 2.7%
*Does not include futures, money market instruments and short-term investments
purchased with cash collateral from securities loaned.
Refer to the Portfolio of Investments for a complete list of securities.
Percentages are of net assets of the Fund and may not equal 100%.
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INVESTMENT OVERVIEW | 1
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PORTFOLIO OF INVESTMENTS
June 30, 2018 (unaudited)
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MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (99.3%)
COMMON STOCKS (99.3%)
CONSUMER DISCRETIONARY (14.4%)
------------------------------
ADVERTISING (0.0%)
1,148 Boston Omaha Corp., "A"(a) $ 24
5,624 Clear Channel Outdoor Holdings, Inc., "A" 24
4,083 Emerald Expositions Events, Inc. 84
4,661 Fluent, Inc.(a) 11
674 Harte-Hanks, Inc.(a) 8
9,730 National CineMedia, Inc. 82
3,165 SPAR Group, Inc.(a) 4
--------
237
--------
APPAREL RETAIL (0.7%)
10,514 Abercrombie & Fitch Co., "A" 257
25,423 American Eagle Outfitters, Inc. 591
25,130 Ascena Retail Group, Inc.(a) 100
5,049 Boot Barn Holdings, Inc.(a) 105
3,973 Buckle, Inc. 107
10,694 Burlington Stores, Inc.(a) 1,610
6,897 Caleres, Inc. 237
3,894 Cato Corp., "A" 96
19,485 Chico's FAS, Inc. 159
2,749 Children's Place, Inc. 332
6,159 Christopher & Banks Corp.(a) 6
2,593 Citi Trends, Inc. 71
2,770 Destination Maternity Corp.(a) 16
8,559 Destination XL Group, Inc.(a) 19
11,768 DSW, Inc., "A" 304
12,371 Express, Inc.(a) 113
6,453 Francesca's Holdings Corp.(a) 49
3,006 Genesco, Inc.(a) 119
9,276 Guess?, Inc. 199
1,051 J. Jill, Inc.(a) 10
2,381 Shoe Carnival, Inc. 77
4,672 Stage Stores, Inc. 11
4,383 Stein Mart, Inc.(a) 11
7,130 Tailored Brands, Inc. 182
2,102 Tilly's, Inc., "A" 32
12,318 Urban Outfitters, Inc.(a) 549
2,839 Zumiez, Inc.(a) 71
--------
5,433
--------
APPAREL, ACCESSORIES & LUXURY GOODS (0.5%)
7,394 Carter's, Inc. 801
1,956 Cherokee, Inc.(a) 1
4,496 Columbia Sportswear Co. 411
2,823 Forward Industries, Inc.(a) 5
6,527 Fossil Group, Inc.(a) 175
6,412 G-III Apparel Group Ltd.(a) 285
9,546 Iconix Brand Group, Inc.(a) 5
2,101 Lakeland Industries, Inc.(a) 30
14,793 Lululemon Athletica, Inc.(a) 1,847
2,476 Movado Group, Inc. 120
2,562 Oxford Industries, Inc. 213
2,072 Perry Ellis International, Inc.(a) 56
7,426 Sequential Brands Group, Inc.(a) 15
1,222 Superior Group of Companies, Inc. 25
3,075 Vera Bradley, Inc.(a) 43
298 Vince Holding Corp.(a) 5
--------
4,037
--------
================================================================================
2 | USAA EXTENDED MARKET INDEX FUND
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MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
AUTO PARTS & EQUIPMENT (1.3%)
14,905 Adient plc $ 733
15,871 American Axle & Manufacturing Holdings, Inc.(a) 247
13,503 Autoliv, Inc.(b) 1,934
2,562 Cooper-Standard Holdings, Inc.(a) 335
21,805 Dana, Inc. 440
13,755 Delphi Technologies plc 625
4,690 Dorman Products, Inc.(a) 320
6,431 Fox Factory Holding Corp.(a) 299
42,849 GENTEX CORP. 986
5,458 Gentherm, Inc.(a) 215
3,297 Horizon Global Corp.(a) 20
3,780 LCI Industries 341
10,502 Lear Corp. 1,951
7,896 Modine Manufacturing Co.(a) 144
2,943 Motorcar Parts of America, Inc.(a) 55
2,952 Standard Motor Products, Inc. 143
4,259 Stoneridge, Inc.(a) 150
573 Strattec Security Corp. 18
3,414 Superior Industries International, Inc. 61
8,465 Tenneco, Inc. 372
3,363 Tower International, Inc. 107
4,842 Visteon Corp.(a) 626
4,073 VOXX International Corp.(a) 22
--------
10,144
--------
AUTOMOBILE MANUFACTURERS (1.0%)
20,868 Tesla, Inc.(a),(b) 7,157
7,641 Thor Industries, Inc. 744
4,162 Winnebago Industries, Inc. 169
--------
8,070
--------
AUTOMOTIVE RETAIL (0.3%)
1,386 America's Car-Mart, Inc.(a) 86
3,061 Asbury Automotive Group, Inc.(a) 210
9,193 AutoNation, Inc.(a) 446
4,597 Camping World Holdings, Inc., "A" 115
4,962 Carvana Co.(a),(b) 206
3,063 Group 1 Automotive, Inc. 193
3,754 Lithia Motors, Inc., "A" 355
5,194 Monro, Inc. 302
4,950 Murphy USA, Inc.(a) 368
5,762 Penske Automotive Group, Inc. 270
4,134 Sonic Automotive, Inc., "A" 85
--------
2,636
--------
BROADCASTING (0.4%)
6,802 AMC Networks, Inc., "A"(a) 423
2,692 Beasley Broadcast Group, Inc., "A" 30
16,001 Central European Media Enterprises Ltd., "A"(a) 66
2,653 Emmis Communications Corp., "A"(a) 14
21,239 Entercom Communications Corp., "A"(b) 160
10,513 Entravision Communications Corp., "A" 53
8,572 EW Scripps Co., "A" 115
11,894 Gray Television, Inc.(a) 188
2,349 Hemisphere Media Group, Inc.(a) 31
7,209 Nexstar Media Group, Inc., "A" 529
1,046 Saga Communications, Inc., "A" 40
12,177 Sinclair Broadcast Group, Inc., "A" 392
33,291 TEGNA, Inc. 361
11,076 Tribune Media Co., "A" 424
--------
2,826
--------
CABLE & SATELLITE (1.4%)
19,333 Altice USA, Inc., "A" 330
747 Cable One, Inc. 548
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PORTFOLIO OF INVESTMENTS | 3
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MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
15,296 GCI Liberty, Inc., "A"(a) $ 690
4,166 Liberty Broadband Corp., "A"(a) 315
23,616 Liberty Broadband Corp., "C"(a) 1,788
34,499 Liberty Global plc, "A"(a) 950
93,674 Liberty Global plc, "C"(a) 2,493
6,706 Liberty Latin America LTD., "A"(A) 128
17,478 Liberty Latin America Ltd., "C"(a) 339
26,707 Liberty Media Corp-Liberty SiriusXM(a) 1,211
13,183 Liberty Media Corp-Liberty SiriusXM, "A"(a) 594
1,784 Loral Space & Communications, Inc.(a) 67
9,903 MSG Networks, Inc.,"A"(a) 237
224,823 Sirius XM Holdings, Inc.(b) 1,522
2,718 WideOpenWest, Inc.(a) 26
--------
11,238
--------
CASINOS & GAMING (1.0%)
12,688 Boyd Gaming Corp. 440
21,357 Caesars Entertainment Corp.(a) 229
6,355 Century Casinos, Inc.(a) 56
1,799 Churchill Downs, Inc. 533
6,916 Dover Downs Gaming & Entertainment, Inc.(a) 12
9,671 Eldorado Resorts, Inc.(a) 378
827 Empire Resorts, Inc.(a) 16
8,160 Full House Resorts, Inc.(a) 27
1,026 Gaming Partners International Corp. 9
1,723 Golden Entertainment, Inc.(a) 47
57,000 Las Vegas Sands Corp. 4,353
2,088 Monarch Casino & Resort, Inc.(a) 92
12,929 Penn National Gaming, Inc.(a) 434
8,636 Pinnacle Entertainment, Inc.(a) 291
1,400 PlayAGS, Inc.(a) 38
10,925 Red Rock Resorts, Inc., "A" 366
8,615 Scientific Games Corp., "A"(a) 423
--------
7,744
--------
COMPUTER & ELECTRONICS RETAIL (0.1%)
3,781 Conn's, Inc.(a) 125
15,760 GameStop Corp., "A"(b) 229
7,864 Rent-A-Center, Inc. 116
--------
470
--------
CONSUMER ELECTRONICS (0.1%)
15,121 GoPro, Inc., "A"(a),(b) 97
7,440 Roku, Inc.(a) 317
1,515 Turtle Beach Corp.(a) 31
2,235 Universal Electronics, Inc.(a) 74
3,153 Vuzix Corp.(a) 24
4,990 ZAGG, Inc.(a) 86
--------
629
--------
DEPARTMENT STORES (0.1%)
3,366 Dillard's, Inc., "A"(b) 318
46,484 JC Penney Co., Inc.(a),(b) 109
4,842 Sears Holdings Corp.(a),(b) 11
--------
438
--------
DISTRIBUTORS (0.1%)
7,129 Core-Mark Holding Co., Inc. 162
6,438 Pool Corp. 975
1,357 Weyco Group, Inc. 50
--------
1,187
--------
EDUCATION SERVICES (0.5%)
9,173 Adtalem Global Education, Inc.(a) 441
2,731 American Public Education, Inc.(a) 115
2,758 Bridgepoint Education, Inc.(a) 18
9,356 Bright Horizons Family Solutions, Inc.(a) 959
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4 | USAA EXTENDED MARKET INDEX FUND
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MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
4,720 Cambium Learning Group, Inc.(a) $ 52
1,792 Capella Education Co. 177
10,687 Career Education Corp.(a) 173
13,846 CHEGG, INC.(A) 385
728 Graham Holdings Co., "B" 427
7,545 Grand Canyon Education, Inc.(a) 842
15,421 Houghton Mifflin Harcourt Co.(a) 118
5,636 K12, Inc.(a) 92
5,435 Laureate Education, Inc., "A"(a) 78
1,653 Strayer Education, Inc. 187
3,377 Universal Technical Institute, Inc.(a) 11
--------
4,075
--------
FOOTWEAR (0.3%)
11,409 Crocs, Inc.(a) 201
4,841 Deckers Outdoor Corp.(a) 547
1,306 Rocky Brands, Inc. 39
20,773 Skechers U.S.A., Inc., "A"(a) 623
8,495 Steven Madden Ltd. 451
15,101 Wolverine World Wide, Inc. 525
--------
2,386
--------
GENERAL MERCHANDISE STORES (0.1%)
6,639 Big Lots, Inc. 277
65 BJ's Wholesale Club Holdings, Inc.(a) 2
4,994 Fred's, Inc., "A"(b) 11
8,072 Ollie's Bargain Outlet Holdings, Inc.(a) 585
6,404 Tuesday Morning Corp.(a) 20
--------
895
--------
HOME FURNISHINGS (0.1%)
1,739 Bassett Furniture Industries, Inc. 48
2,900 Dixie Group, Inc.(a) 7
3,943 Ethan Allen Interiors, Inc. 97
1,215 Flexsteel Industries, Inc. 48
1,876 Hooker Furniture Corp. 88
7,437 La-Z-Boy, Inc. 228
7,002 Tempur Sealy International, Inc.(a) 336
--------
852
--------
HOME IMPROVEMENT RETAIL (0.1%)
6,722 Floor & Decor Holdings, Inc., "A"(a) 332
4,057 Lumber Liquidators Holdings, Inc.(a) 99
5,605 Tile Shop Holdings, Inc. 43
--------
474
--------
HOMEBUILDING (0.7%)
2,544 AV Homes, Inc.(a) 55
5,712 Beazer Homes USA, Inc.(a) 84
1,393 Cavco Industries, Inc.(a) 289
3,342 Century Communities, Inc.(a) 105
1,729 Comstock Holding Companies, Inc.(a) 5
3,198 Green Brick Partners, Inc.(a) 31
21,351 Hovnanian Enterprises, Inc., "A"(a) 35
3,192 Installed Building Products, Inc.(a) 181
13,368 KB Home 364
2,808 LGI Homes, Inc.(a) 162
4,013 M/I Homes, Inc.(a) 106
6,411 MDC Holdings, Inc. 197
5,844 Meritage Homes Corp.(a) 257
2,131 New Home Co., Inc.(a) 21
534 NVR, Inc.(a) 1,586
4,035 PICO Holdings, Inc.(a) 47
1,078 Skyline Champion Corp. 38
17,164 Taylor Morrison Home Corp., "A"(a) 357
22,487 Toll Brothers, Inc. 832
5,614 TopBuild Corp.(a) 440
23,803 TRI Pointe Group, Inc.(a) 389
4,111 William Lyon Homes, "A"(a) 95
--------
5,676
--------
HOMEFURNISHING RETAIL (0.3%)
9,518 Aaron's, Inc. 413
4,048 At Home Group, Inc.(a) 158
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PORTFOLIO OF INVESTMENTS | 5
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MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
21,609 Bed Bath & Beyond, Inc. $ 431
3,228 Haverty Furniture Companies, Inc. 70
2,707 Kirkland's, Inc.(a) 31
12,905 Pier 1 Imports, Inc. 31
3,106 RH(a) 434
6,400 Sleep Number Corp.(a) 186
12,429 Williams-Sonoma, Inc. 763
--------
2,517
--------
HOTELS, RESORTS & CRUISE LINES (0.7%)
10,905 BBX Capital Corp. 99
12,500 Belmond Ltd., "A"(a) 139
5,449 Choice Hotels International, Inc. 412
30,077 Extended Stay America, Inc. 650
15,509 Hilton Grand Vacations, Inc.(a) 538
7,436 Hyatt Hotels Corp., "A" 574
17,146 ILG, Inc. 566
3,668 Lindblad Expeditions Holdings, Inc.(a) 49
3,630 Marriott Vacations Worldwide Corp. 410
8,176 Playa Hotels & Resorts N.V.(a) 88
5,052 Red Lion Hotels Corp.(a) 59
15,453 Wyndham Destinations, Inc. 684
15,453 Wyndham Hotels & Resorts, Inc. 909
--------
5,177
--------
HOUSEHOLD APPLIANCES (0.1%)
1,598 Hamilton Beach Brands Holding Co., "A" 47
4,370 Helen of Troy Ltd.(a) 430
4,266 iRobot Corp.(a),(b) 323
--------
800
--------
HOUSEWARES & SPECIALTIES (0.1%)
1,461 CSS Industries, Inc. 25
3,627 Libbey, Inc. 30
2,050 Lifetime Brands, Inc. 26
7,915 Tupperware Brands Corp. 326
--------
407
--------
INTERNET & DIRECT MARKETING RETAIL (0.5%)
5,670 1-800-Flowers.com, Inc., "A"(a) 71
1,333 Duluth Holdings, Inc., "B"(a),(b) 32
7,906 EVINE Live, Inc.(a) 10
3,190 FTD Companies, Inc.(a) 15
1,794 Gaia, Inc.(a) 36
60,701 Groupon, Inc.(a) 261
2,026 Lands' End, Inc.(a) 56
8,378 Liberty Expedia Holdings, Inc., "A"(a) 368
10,940 Liberty TripAdvisor Holdings, Inc., "A"(a) 176
4,434 Nutrisystem, Inc. 171
2,766 Overstock.com, Inc.(a) 93
3,455 PetMed Express, Inc. 152
69,093 Qurate Retail, Inc.(a) 1,466
5,172 Shutterfly, Inc.(a) 466
1,300 Stitch Fix, Inc., "A"(a),(b) 36
3,527 U.S. Auto Parts Network, Inc.(a) 5
6,685 Wayfair, Inc., "A"(a) 794
--------
4,208
--------
LEISURE FACILITIES (0.5%)
1,592 Dover Motorsports, Inc. 3
11,272 Drive Shack, Inc.(a) 87
3,864 International Speedway Corp., "A" 173
13,139 Planet Fitness, Inc., "A"(a) 577
1,637 RCI Hospitality Holdings, Inc. 52
9,937 SeaWorld Entertainment, Inc.(a) 217
12,304 Six Flags Entertainment Corp. 862
1,762 Speedway Motorsports, Inc. 31
5,154 Town Sports International Holdings, Inc.(a) 75
6,235 Vail Resorts, Inc. 1,709
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3,786
--------
================================================================================
6 | USAA EXTENDED MARKET INDEX FUND
================================================================================
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MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
LEISURE PRODUCTS (0.4%)
6,183 Acushnet Holdings Corp. $ 151
8,805 American Outdoor Brands Corp.(a) 106
13,583 Brunswick Corp. 876
14,931 Callaway Golf Co. 283
4,738 Clarus Corp.(a) 39
2,070 Escalade, Inc. 29
710 Johnson Outdoors, Inc., "A" 60
3,744 Malibu Boats, Inc., "A"(a) 157
1,493 Marine Products Corp. 27
2,500 MCBC Holdings, Inc.(a) 72
4,821 Nautilus, Inc.(a) 76
9,151 Polaris Industries, Inc. 1,118
2,841 Sturm Ruger & Co., Inc. 159
9,083 Vista Outdoor, Inc.(a) 141
--------
3,294
--------
MOVIES & ENTERTAINMENT (0.7%)
9,009 AMC Entertainment Holdings, Inc., "A" 143
16,653 Cinemark Holdings, Inc. 584
7,875 Global Eagle Entertainment, Inc.(a),(b) 20
1,620 Liberty Media Corp-Liberty Braves, "A"(a) 42
6,324 Liberty Media Corp-Liberty Braves, "C"(a) 164
3,415 Liberty Media Corp-Liberty Formula One, "A"(a) 121
31,342 Liberty Media Corp-Liberty Formula One, "C"(a) 1,164
9,936 Lions Gate Entertainment Corp., "A" 247
17,152 Lions Gate Entertainment Corp., "B" 402
20,841 Live Nation Entertainment, Inc.(a) 1,012
2,548 Madison Square Garden Co., "A"(a) 790
3,067 Marcus Corp. 100
2,601 Reading International, Inc., "A"(a) 41
6,568 World Wrestling Entertainment, Inc., "A" 478
--------
5,308
--------
PUBLISHING (0.2%)
3,599 AH Belo Texas, Inc., "A" 17
137 Daily Journal Corp.(a) 31
17,822 Gannett Co., Inc. 191
7,025 John Wiley & Sons, Inc., "A" 438
8,464 Lee Enterprises, Inc.(a) 24
1,090 McClatchy Co., "A"(a) 11
5,876 Meredith Corp.(b) 300
9,733 New Media Investment Group, Inc. 180
19,643 New York Times Co., "A" 509
4,495 Scholastic Corp. 199
3,616 tronc, Inc.(a) 62
--------
1,962
--------
RESTAURANTS (1.3%)
38,126 Aramark 1,414
18 Biglari Holdings, Inc., "A"(a) 17
187 Biglari Holdings, Inc., "B"(a) 34
3,216 BJ's Restaurants, Inc. 193
15,088 Bloomin' Brands, Inc. 303
1,669 Bojangles', Inc.(a) 24
6,365 Brinker International, Inc. 303
6,109 Carrols Restaurant Group, Inc.(a) 91
6,609 Cheesecake Factory, Inc.(b) 364
2,773 Chuy's Holdings, Inc.(a) 85
3,874 Cracker Barrel Old Country Store, Inc.(b) 605
6,499 Dave & Buster's Entertainment, Inc.(a) 309
4,306 Del Frisco's Restaurant Group, Inc.(a) 54
6,237 Del Taco Restaurants, Inc.(a) 88
10,532 Denny's Corp.(a) 168
================================================================================
PORTFOLIO OF INVESTMENTS | 7
================================================================================
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MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
2,576 Dine Brands Global, Inc. $ 193
6,515 Domino's Pizza, Inc. 1,838
12,988 Dunkin'Brands Group, Inc.(b) 897
3,382 El Pollo Loco Holdings, Inc.(a) 39
1,894 Famous Dave's of America, Inc.(a) 13
4,111 Fiesta Restaurant Group, Inc.(a) 118
2,486 Habit Restaurants, Inc., "A"(a) 25
4,126 J Alexander's Holdings, Inc.(a) 46
4,166 Jack in the Box, Inc. 355
3,045 Jamba, Inc.(a) 32
5,639 Luby's, Inc.(a) 15
408 Nathan's Famous, Inc. 38
3,634 Noodles & Co.(a),(b) 45
4,041 Papa John's International, Inc. 205
4,799 Potbelly Corp.(a) 62
1,864 Red Robin Gourmet Burgers, Inc.(a) 87
4,841 Ruth's Hospitality Group, Inc. 136
2,951 Shake Shack, Inc., "A"(a) 195
5,657 Sonic Corp. 195
10,098 Texas Roadhouse, Inc. 662
28,430 Wendy's Co. 488
5,041 Wingstop, Inc. 263
3,126 Zoe's Kitchen, Inc.(a) 31
--------
10,030
--------
SPECIALIZED CONSUMER SERVICES (0.4%)
2,129 Ascent Capital Group, Inc., "A"(a) 6
2,462 Carriage Services, Inc. 60
1,741 Collectors Universe, Inc. 26
5,786 Regis Corp.(a) 96
28,833 Service Corp. International 1,032
21,046 ServiceMaster Global Holdings, Inc.(a) 1,251
6,051 Sotheby's(a) 329
5,913 Weight Watchers International, Inc.(a) 598
--------
3,398
--------
SPECIALTY STORES (0.4%)
6,163 Barnes & Noble Education, Inc.(a) 35
8,898 Barnes & Noble, Inc. 57
2,684 Big 5 Sporting Goods Corp. 20
2,727 Build-A-Bear Workshop, Inc.(a) 21
2,847 Container Store Group, Inc.(a) 24
11,520 Dick's Sporting Goods, Inc. 406
8,834 Five Below, Inc.(a) 863
10,229 GNC Holdings, Inc., "A"(a),(b) 36
3,484 Hibbett Sports, Inc.(a) 80
4,129 MarineMax, Inc.(a) 78
16,397 Michaels Companies, Inc.(a) 314
5,082 National Vision Holdings, Inc.(a) 186
84,454 Office Depot, Inc. 215
3,899 Party City Holdco, Inc.(a) 59
17,615 Sally Beauty Holdings, Inc.(a) 282
9,558 Signet Jewelers Ltd. 533
4,298 Sportsman's Warehouse Holdings, Inc.(a) 22
3,693 Vitamin Shoppe, Inc.(a) 26
437 Winmark Corp. 65
--------
3,322
--------
TEXTILES (0.0%)
2,014 Culp, Inc. 49
2,485 Unifi, Inc.(a) 79
--------
128
--------
TIRES & RUBBER (0.0%)
8,072 Cooper Tire & Rubber Co. 212
--------
Total Consumer Discretionary 113,996
--------
================================================================================
8 | USAA EXTENDED MARKET INDEX FUND
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
CONSUMER STAPLES (3.2%)
-----------------------
AGRICULTURAL PRODUCTS (0.5%)
610 Alico, Inc. $ 19
21,925 Bunge Ltd. 1,528
26,203 Darling Ingredients, Inc.(a) 521
5,263 Fresh Del Monte Produce, Inc. 235
11,183 Ingredion, Inc. 1,238
2,404 Limoneira Co. 59
--------
3,600
--------
BREWERS (0.0%)
1,287 Boston Beer Co., Inc., "A"(a) 386
1,760 Craft Brew Alliance, Inc.(a) 36
--------
422
--------
DISTILLERS & VINTNERS (0.0%)
1,817 MGP Ingredients, Inc. 161
2,312 Willamette Valley Vineyards, Inc.(a) 20
--------
181
--------
DRUG RETAIL (0.0%)
169,282 Rite Aid Corp.(a),(b) 293
--------
FOOD DISTRIBUTORS (0.3%)
3,787 Andersons, Inc. 129
3,358 Chefs' Warehouse, Inc.(a) 96
13,433 Performance Food Group Co.(a) 493
5,521 SpartanNash Co. 141
22,157 U.S. Foods Holding Corp.(a) 838
7,684 United Natural Foods, Inc.(a) 328
--------
2,025
--------
FOOD RETAIL (0.2%)
5,909 Casey's General Stores, Inc. 621
2,303 Ingles Markets, Inc., "A" 73
4,080 Smart & Final Stores, Inc.(a) 23
19,601 Sprouts Farmers Market, Inc.(a) 433
5,901 Supervalu, Inc.(a) 121
1,095 Village Super Market, Inc., "A" 32
2,324 Weis Markets, Inc. 124
--------
1,427
--------
HOUSEHOLD PRODUCTS (0.2%)
1,690 Central Garden & Pet Co.(a) 74
5,587 Central Garden & Pet Co., "A"(a) 226
9,658 Energizer Holdings, Inc. 608
22,134 HRG Group, Inc.(a) 290
1,129 Oil-Dri Corp. of America 48
1,530 Orchids Paper Products Co.(a),(b) 6
3,826 Spectrum Brands Holdings, Inc.(b) 312
2,313 WD-40 Co. 338
--------
1,902
--------
HYPERMARKETS & SUPER CENTERS (0.0%)
3,440 PriceSmart, Inc. 311
--------
PACKAGED FOODS & MEATS (1.0%)
10,478 B&G Foods, Inc.(b) 313
2,423 Calavo Growers, Inc. 233
4,515 Cal-Maine Foods, Inc.(a) 207
13,709 Dean Foods Co. 144
1,660 Farmer Brothers Co.(a) 51
29,404 Flowers Foods, Inc. 613
3,781 Freshpet, Inc.(a) 104
16,146 Hain Celestial Group, Inc.(a) 481
13,475 Hostess Brands, Inc.(a) 183
4,100 HQ Sustainable Maritime Industries, Inc.(a),(c),(d) -
2,381 J&J Snack Foods Corp. 363
1,422 John B Sanfilippo & Son, Inc. 106
23,153 Lamb Weston Holdings, Inc. 1,586
2,973 Lancaster Colony Corp. 412
4,881 Landec Corp.(a) 73
1,804 Lifeway Foods, Inc.(a) 9
9,086 Pilgrim's Pride Corp.(a) 183
================================================================================
PORTFOLIO OF INVESTMENTS | 9
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
18,245 Pinnacle Foods, Inc. $ 1,187
10,224 Post Holdings, Inc.(a) 879
2,724 Rocky Mountain Chocolate Factory, Inc. 31
2,996 Sanderson Farms, Inc. 315
38 Seaboard Corp. 151
1,343 Seneca Foods Corp., "A"(a) 36
7,497 Simply Good Foods Co.(a) 108
2,862 Tootsie Roll Industries, Inc. 88
9,028 TreeHouse Foods, Inc.(a) 474
--------
8,330
--------
PERSONAL PRODUCTS (0.4%)
65,408 Avon Products, Inc.(a) 106
8,921 Edgewell Personal Care Co.(a) 450
3,912 elf Beauty, Inc.(a) 60
17,872 Herbalife Nutrition Ltd.(a) 960
2,513 Inter Parfums, Inc. 135
3,491 Lifevantage Corp.(a) 22
644 Mannatech, Inc. 13
1,806 Medifast, Inc. 289
1,354 Natural Health Trends Corp. 34
8,847 Nu Skin Enterprises, Inc., "A" 692
59 Reliv International, Inc.(a) -
1,899 Revlon, Inc., "A"(a),(b) 33
1,572 USANA Health Sciences, Inc.(a) 181
--------
2,975
--------
SOFT DRINKS (0.5%)
720 Coca-Cola Bottling Co. Consolidated 97
27,732 Dr. Pepper Snapple Group, Inc. 3,383
1,810 National Beverage Corp. 194
2,290 New Age Beverages Corp.(a) 4
4,659 Primo Water Corp.(A) 82
--------
3,760
--------
TOBACCO (0.1%)
10,809 22nd Century Group, Inc.(a),(b) 27
1,357 Alliance One International, Inc.(a) 22
1,708 Turning Point Brands, Inc. 54
4,150 Universal Corp. 274
17,151 Vector Group Ltd. 327
--------
704
--------
Total Consumer Staples 25,930
--------
ENERGY (4.8%)
-------------
COAL & CONSUMABLE FUELS (0.2%)
3,168 Arch Coal, Inc., "A" 248
9,192 Cloud Peak Energy, Inc.(a) 32
4,032 CONSOL Energy, Inc.(a) 154
1,809 Hallador Energy Co. 13
16,507 Peabody Energy Corp. 751
19,733 Uranium Energy Corp.(a) 32
--------
1,230
--------
OIL & GAS DRILLING (0.4%)
9,726 Diamond Offshore Drilling, Inc.(a),(b) 203
66,458 Ensco plc, "A"(b) 482
6,135 Independence Contract Drilling, Inc.(a) 25
52,329 Nabors Industries Ltd. 335
36,851 Noble Corp. plc(a) 233
19,733 Parker Drilling Co.(a) 8
35,678 Patterson-UTI Energy, Inc. 642
13,617 Pioneer Energy Services Corp.(a) 80
18,906 Rowan Companies plc, "A"(a) 307
66,556 Transocean Ltd.(a) 895
8,312 Unit Corp.(a) 212
--------
3,422
--------
OIL & GAS EQUIPMENT & SERVICES (0.9%)
11,713 Apergy Corp.(a) 489
21,300 Archrock, Inc. 256
================================================================================
10 | USAA EXTENDED MARKET INDEX FUND
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
3,146 Basic Energy Services, Inc.(a) $ 35
5,197 Bristow Group, Inc. 73
10,271 C&J Energy Services, Inc.(a) 242
4,400 Cactus, Inc., "A"(a) 149
2,969 CARBO Ceramics, Inc.(a) 27
6,788 Core Laboratories N.V. 857
4,745 Covia Holdings Corp.(a) 88
5,573 Dawson Geophysical Co.(a) 44
6,059 Dril-Quip, Inc.(a) 311
2,473 Era Group, Inc.(a) 32
5,172 Exterran Corp.(a) 129
11,673 Forum Energy Technologies, Inc.(a) 144
9,047 Frank's International N.V. 71
2,700 FTS International, Inc.(a) 38
2,032 Geospace Technologies Corp.(a) 29
2,513 Gulf Island Fabrication, Inc. 23
22,690 Helix Energy Solutions Group, Inc.(a) 189
5,026 Hornbeck Offshore Services, Inc.(a) 20
1,418 ION Geophysical Corp.(A) 34
7,874 Keane Group, Inc.(a) 108
2,315 Key Energy Services, Inc.(a) 38
1,300 Liberty Oilfield Services, Inc., "A"(a) 24
1,425 Mammoth Energy Services, Inc.(a) 48
4,118 Matrix Service Co.(a) 76
26,929 McDermott International, Inc.(a) 529
4,047 Mitcham Industries, Inc.(a) 16
2,187 Natural Gas Services Group, Inc.(a) 52
2,191 NCS Multistage Holdings, Inc.(a) 32
13,319 Newpark Resources, Inc.(a) 144
1,000 Nine Energy Service, Inc.(a) 33
14,799 Oceaneering International, Inc. 377
9,156 Oil States International, Inc.(a) 294
1,452 PHI, Inc.(a) 15
12,484 ProPetro Holding Corp.(a) 196
2,435 RigNet, Inc.(a) 25
9,161 RPC, Inc. 133
2,530 SEACOR Holdings, Inc.(a) 145
2,543 SEACOR Marine Holdings, Inc.(a) 59
7,949 Select Energy Services, Inc., "A"(a) 115
2,218 Smart Sand, Inc.(a),(b) 12
2,914 Solaris Oilfield Infrastructure, Inc., "A"(a) 42
22,991 Superior Energy Services, Inc.(a) 224
7,207 Synthesis Energy Systems, Inc.(a) 24
23,714 TETRA Technologies, Inc.(a) 105
3,661 Tidewater, Inc.(a) 106
12,423 U.S. Silica Holdings, Inc. 319
158,970 Weatherford International plc(a) 523
--------
7,094
--------
OIL & GAS E XPLORATION & PRODUCTION (2.5%)
26,599 Abraxas Petroleum Corp.(a) 77
14,400 Alta Mesa Resources, Inc.(a) 98
32,796 Antero Resources Corp.(a) 700
5,719 Approach Resources, Inc.(a) 14
4,904 Barnwell Industries, Inc.(a) 10
2,943 Bonanza Creek Energy, Inc.(a) 111
6,858 California Resources Corp.(a) 312
36,839 Callon Petroleum Co.(a) 396
12,186 Carrizo Oil & Gas, Inc.(a) 339
26,526 Centennial Resource Development, Inc., "A"(a) 479
================================================================================
PORTFOLIO OF INVESTMENTS | 11
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
143,316 Chesapeake Energy Corp.(a) $ 751
32,261 CNX Resources Corp.(a) 574
2,950 Comstock Resources, Inc.(a) 31
4,568 Contango Oil & Gas Co.(a) 26
13,189 Continental Resources, Inc.(a) 854
62,278 Denbury Resources, Inc.(a) 300
15,245 Diamondback Energy, Inc. 2,006
5,174 Earthstone Energy, Inc., "A"(a) 46
13,713 Eclipse Resources Corp.(a) 22
15,502 Energen Corp.(a) 1,129
6,570 Energy XXI Gulf Coast, Inc.(a) 58
8,656 EP Energy Corp., "A"(a) 26
4,825 Evolution Petroleum Corp. 47
20,347 Extraction Oil & Gas, Inc.(a) 299
27,518 Gastar Exploration, Inc.(a),(b) 15
25,889 Gulfport Energy Corp.(a) 325
22,003 Halcon Resources Corp.(a) 97
537 Harvest Natural Resources, Inc.(a),(c),(d) -
16,900 HighPoint Resources Corp.(a) 103
5,104 Houston American Energy Corp.(a) 2
299 Isramco, Inc.(a) 37
5,962 Jagged Peak Energy, Inc.(a),(b) 78
10,938 Jones Energy, Inc., "A"(a) 4
35,154 Kosmos Energy Ltd.(A) 291
21,343 Laredo Petroleum, Inc.(a) 205
9,585 Lilis Energy, Inc.(a) 50
5,226 Lonestar Resources U.S., Inc., "A"(a) 44
16,914 Matador Resources Co.(a) 508
3,505 Midstates Petroleum Co., Inc.(a) 48
25,471 Murphy Oil Corp. 860
26,973 Northern Oil and Gas, Inc.(a) 85
40,499 Oasis Petroleum, Inc.(a) 525
3,182 Panhandle Oil and Gas, Inc., "A" 61
39,380 Parsley Energy, Inc., "A"(a) 1,192
10,482 PDC Energy, Inc.(a) 634
2,039 Penn Virginia Corp.(a) 173
36,814 QEP Resources, Inc.(a) 451
36,726 Range Resources Corp. 614
3,759 Resolute Energy Corp.(a),(b) 117
8,085 Ring Energy, Inc.(a) 102
19,929 RSP Permian, Inc.(a) 877
8,884 Sanchez Energy Corp.(a) 40
5,487 SandRidge Energy, Inc.(a) 97
1,592 SilverBow Resources, Inc.(a) 46
16,896 SM Energy Co. 434
77,434 Southwestern Energy Co.(a) 410
36,861 SRC Energy, Inc.(a) 406
2,765 Talos Energy, Inc.(a) 89
10,805 Tellurian, Inc.(a) 90
15,877 Torchlight Energy Resources, Inc.(a) 22
30,594 Ultra Petroleum Corp.(a) 71
10,701 VAALCO Energy, Inc.(a) 29
16,320 W&T Offshore, Inc.(a) 117
13,888 Whiting Petroleum Corp.(a) 732
3,979 WildHorse Resource Development Corp.(a) 101
62,097 WPX Energy, Inc.(a) 1,120
9,032 Zion Oil & Gas, Inc.(a),(b) 37
--------
20,044
--------
OIL & GAS REFINING & MARKETING (0.3%)
460 Adams Resources & Energy, Inc. 20
3,787 Aemetis, Inc.(a) 6
4,745 Amyris, Inc.(a) 30
15,034 Clean Energy Fuels Corp.(a) 56
2,373 CVR Energy, Inc.(b) 88
11,601 Delek U.S. Holdings, Inc. 582
================================================================================
12 | USAA EXTENDED MARKET INDEX FUND
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
5,207 Green Plains, Inc. $ 95
6,461 Pacific Ethanol, Inc.(a) 17
4,280 Par Pacific Holdings, Inc.(a) 74
17,125 PBF Energy, Inc., "A" 718
5,292 Renewable Energy Group, Inc.(a) 94
921 REX American Resources Corp.(a) 75
10,630 World Fuel Services Corp. 217
--------
2,072
--------
OIL & GAS STORAGE & TRANSPORTATION (0.5%)
32,181 Cheniere Energy, Inc.(a) 2,098
4,352 Dorian LPG Ltd.(a) 33
4,889 International Seaways, Inc.(a) 113
5,813 Overseas Shipholding Group, Inc., "A"(a) 23
10,186 SemGroup Corp., "A" 259
33,793 Targa Resources Corp. 1,672
--------
4,198
--------
Total Energy 38,060
--------
FINANCIALS (18.0%)
------------------
ASSET MANAGEMENT & CUSTODY BANKS (0.7%)
4,113 Arlington Asset Investment Corp., "A"(b) 42
8,027 Artisan Partners Asset Management, Inc., "A" 242
394 Ashford, Inc.(a) 26
805 Associated Capital Group, Inc., "A" 31
3,036 Cohen & Steers, Inc. 127
522 Diamond Hill Investment Group, Inc. 101
19,123 Eaton Vance Corp. 998
14,961 Federated Investors, Inc., "B" 349
9,678 Financial Engines, Inc. 435
805 GAMCO Investors, Inc., "A" 22
4,587 Great Elm Capital Group, Inc.(a) 16
2,610 Hamilton Lane, Inc., "A" 125
28,145 Janus Henderson Group plc 865
13,239 Legg Mason, Inc. 460
3,173 Pzena Investment Management, Inc., "A" 29
4,085 Safeguard Scientifics, Inc.(a) 52
20,493 SEI Investments Co. 1,281
4,302 U.S. Global Investors, Inc., "A" 7
1,800 Victory Capital Holdings, Inc., "A"(a) 19
1,153 Virtus Investment Partners, Inc. 147
12,521 Waddell & Reed Financial, Inc., "A" 225
1,466 Westwood Holdings Group, Inc. 87
17,278 WisdomTree Investments, Inc. 157
--------
5,843
--------
CONSUMER FINANCE (0.9%)
67,714 Ally Financial, Inc. 1,779
1,501 Asta Funding, Inc. 5
251 Atlanticus Holdings Corp.(a) -
5,716 Consumer Portfolio Services, Inc.(a) 23
1,948 Credit Acceptance Corp.(a) 688
1,905 Curo Group Holdings Corp.(a) 48
3,846 Encore Capital Group, Inc.(a) 141
4,701 Enova International, Inc.(a) 172
8,094 EZCORP, Inc., "A"(a) 98
6,827 FirstCash, Inc. 613
7,093 Green Dot Corp., "A"(a) 521
58,525 LendingClub Corp.(a) 222
40,813 Navient Corp. 532
2,846 Nelnet, Inc., "A" 166
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
11,075 OneMain Holdings, Inc.(a) $ 369
7,260 PRA Group, Inc.(a) 280
1,727 Regional Management Corp.(a) 60
17,383 Santander Consumer USA Holdings, Inc. 332
67,458 SLM Corp.(a) 772
1,064 World Acceptance Corp.(a) 118
--------
6,939
--------
FINANCIAL EXCHANGES & DATA (0.2%)
5,132 Donnelley Financial Solutions, Inc.(a) 89
5,863 MarketAxess Holdings, Inc. 1,160
2,851 Morningstar, Inc. 366
16,585 TheStreet, Inc.(a) 36
906 Value Line, Inc. 21
--------
1,672
--------
INSURANCE BROKERS (0.2%)
35,892 Brown & Brown, Inc. 995
3,693 Crawford & Co., "B" 32
2,920 eHealth, Inc.(a) 65
742 Goosehead Insurance, Inc., "A"(a) 18
2,459 Health Insurance Innovations, Inc., "A"(a) 80
--------
1,190
--------
INVESTMENT BANKING & BROKERAGE (1.1%)
1,329 B. Riley Financial, Inc. 30
40,061 BGC Partners, Inc., "A" 453
4,324 Cowen, Inc.(a) 60
6,350 Evercore, Inc., "A" 670
3,488 GAIN Capital Holdings, Inc. 26
4,276 Greenhill & Co., Inc. 121
5,248 Houlihan Lokey, Inc. 269
10,971 Interactive Brokers Group, Inc., "A" 707
2,537 INTL. FCStone, Inc.(a) 131
5,189 Investment Technology Group, Inc. 109
20,288 Ladenburg Thalmann Financial Services, Inc. 69
20,140 Lazard Ltd., "A" 985
13,870 LPL Financial Holdings, Inc. 909
5,629 Moelis & Co., "A" 330
1,705 Oppenheimer Holdings, Inc., "A" 48
2,366 Piper Jaffray Companies 182
2,864 PJT Partners, Inc., "A" 153
11,050 Stifel Financial Corp. 577
42,828 TD Ameritrade Holding Corp. 2,346
9,943 Virtu Financial, Inc., "A" 264
--------
8,439
--------
LIFE & HEALTH INSURANCE (0.4%)
13,679 American Equity Investment Life Holding Co. 492
19,658 Athene Holding Ltd., "A"(a) 862
8,213 Citizens, Inc.(a) 64
26,587 CNO Financial Group, Inc. 506
1,787 FBL Financial Group, Inc., "A" 141
72,971 Genworth Financial, Inc., "A"(a) 328
1,003 Independence Holding Co. 33
376 National Western Life Group, Inc., "A" 116
6,834 Primerica, Inc. 681
3,225 Trupanion, Inc.(a),(b) 125
--------
3,348
--------
MULTI-LINE INSURANCE (0.3%)
10,959 American Financial Group, Inc. 1,176
1,402 American National Insurance Co. 168
2,927 Atlantic American Corp. 8
6,108 Horace Mann Educators Corp. 272
================================================================================
14 | USAA EXTENDED MARKET INDEX FUND
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
7,415 Kemper Corp. $ 561
9,620 National General Holdings Corp. 253
--------
2,438
--------
MULTI-SECTOR HOLDINGS (0.0%)
10,622 Cannae Holdings, Inc.(a) 197
--------
OTHER DIVERSIFIED FINANCIAL SERVICES (0.2%)
22,035 AXA Equitable Holdings, Inc.(a) 454
23,700 FGL Holdings(a) 199
26,070 Voya Financial, Inc. 1,225
--------
1,878
--------
PROPERTY & CASUALTY INSURANCE (2.1%)
6,380 Ambac Financial Group, Inc.(a) 127
3,104 AMERISAFE, Inc. 179
14,768 AmTrust Financial Services, Inc. 215
62,683 Arch Capital Group Ltd.(a) 1,659
5,252 Argo Group International Holdings Ltd. 305
9,432 Aspen Insurance Holdings Ltd. 384
18,111 Assured Guaranty Ltd. 647
12,768 Axis Capital Holdings Ltd. 710
2,261 Baldwin & Lyons, Inc., "B" 55
4,047 CNA Financial Corp. 185
2,337 Donegal Group, Inc., "A" 32
1,652 EMC Insurance Group, Inc. 46
5,205 Employers Holdings, Inc. 209
3,061 Erie Indemnity Co., "A" 359
2,537 FedNat Holding Co. 59
17,443 First American Financial Corp. 902
43,499 FNF Group 1,637
1,701 Global Indemnity Ltd. 66
6,734 Hanover Insurance Group, Inc. 805
1,768 HCI Group, Inc. 74
4,282 Heritage Insurance Holdings, Inc. 71
1,752 Infinity Property & Casualty Corp. 249
214 Investors Title Co. 40
5,148 James River Group Holdings Ltd. 202
1,272 Kingstone Companies, Inc. 22
2,771 Kinsale Capital Group, Inc. 152
2,187 Markel Corp.(a) 2,372
15,602 MBIA, Inc.(a) 141
5,530 Mercury General Corp. 252
3,594 Navigators Group, Inc. 205
1,366 NI Holdings, Inc.(a) 23
38,386 Old Republic International Corp. 764
7,994 ProAssurance Corp. 283
6,231 RLI Corp. 412
2,336 Safety Insurance Group, Inc. 200
9,298 Selective Insurance Group, Inc. 511
2,450 State Auto Financial Corp. 73
3,587 Stewart Information Services Corp. 155
2,551 Tiptree, Inc. 17
3,306 United Fire Group, Inc. 180
3,080 United Insurance Holdings Corp. 60
4,997 Universal Insurance Holdings, Inc. 175
466 White Mountains Insurance Group Ltd. 423
14,760 WR Berkley Corp. 1,069
--------
16,706
--------
REAL ESTATE SERVICES (0.2%)
7,034 Jones Lang LaSalle, Inc. 1,168
--------
REGIONAL BANKS (7.1%)
2,766 1st Source Corp. 148
2,130 Access National Corp. 61
================================================================================
PORTFOLIO OF INVESTMENTS | 15
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
841 ACNB Corp. $ 29
2,075 Allegiance Bancshares, Inc.(a) 90
1,447 American National Bankshares, Inc. 58
6,026 Ameris Bancorp 321
2,125 Ames National Corp. 66
2,876 Arrow Financial Corp. 105
26,263 Associated Banc-Corp 717
4,653 Atlantic Capital Bancshares, Inc.(a) 91
7,769 Banc of California, Inc. 152
2,708 BancFirst Corp. 160
2,234 Bancorp of New Jersey, Inc. 40
9,211 Bancorp, Inc.(a) 96
12,804 BancorpSouth Bank 422
2,129 Bank of Commerce Holdings 27
6,623 Bank of Hawaii Corp. 552
926 Bank of Marin Bancorp 75
794 Bank of Princeton(a) 26
18,890 Bank of the Ozarks, Inc. 851
16,457 BankUnited, Inc. 672
866 Bankwell Financial Group, Inc. 28
5,420 Banner Corp. 326
2,588 Bar Harbor Bankshares 78
3,436 BCB Bancorp, Inc. 52
5,465 Berkshire Hills Bancorp, Inc. 222
4,488 Blue Hills Bancorp, Inc. 100
3,791 BOK Financial Corp. 356
12,591 Boston Private Financial Holdings, Inc. 200
3,096 Bridge Bancorp, Inc. 111
11,463 Brookline Bancorp, Inc. 213
2,983 Bryn Mawr Bank Corp. 138
2,432 Byline Bancorp, Inc.(a) 54
452 C&F Financial Corp. 28
7,320 Cadence BanCorp 211
506 Cambridge Bancorp 44
2,953 Camden National Corp. 135
2,343 Capital City Bank Group, Inc. 55
1,129 Capstar Financial Holdings, Inc.(a) 21
2,748 Carolina Financial Corp. 118
12,024 Cathay General Bancorp 487
9,978 CenterState Bank Corp. 298
4,919 Central Pacific Financial Corp. 141
1,418 Central Valley Community Bancorp 30
547 Century Bancorp, Inc., "A" 42
10,846 Chemical Financial Corp. 604
529 Chemung Financial Corp. 27
18,556 CIT Group, Inc. 935
2,833 Citizens & Northern Corp. 73
2,469 City Holding Co. 186
1,968 Civista Bancshares, Inc. 48
2,894 CNB Financial Corp. 87
6,271 CoBiz Financial, Inc. 135
1,237 Codorus Valley Bancorp, Inc. 38
463 Colony Bankcorp, Inc. 8
11,464 Columbia Banking System, Inc. 469
14,553 Commerce Bancshares, Inc. 942
7,777 Community Bank System, Inc. 459
3,073 Community Bankers Trust Corp.(a) 27
629 Community Financial Corp. 22
2,821 Community Trust Bancorp, Inc. 141
4,852 ConnectOne Bancorp, Inc. 121
771 County Bancorp, Inc. 21
8,928 Cullen/Frost Bankers, Inc. 966
4,665 Customers Bancorp, Inc.(a) 132
16,850 CVB Financial Corp. 378
4,741 Eagle Bancorp, Inc.(a) 291
22,470 East West Bancorp, Inc. 1,465
1,672 Enterprise Bancorp, Inc. 68
4,041 Enterprise Financial Services Corp. 218
================================================================================
16 | USAA EXTENDED MARKET INDEX FUND
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
1,761 Equity Bancshares, Inc., "A"(a) $ 73
666 Evans Bancorp, Inc. 31
1,226 Farmers & Merchants Bancorp, Inc. 49
1,739 Farmers Capital Bank Corp. 91
3,624 Farmers National Banc Corp. 58
1,886 FB Financial Corp. 77
7,651 FCB Financial Holdings, Inc., "A"(a) 450
3,947 Fidelity Southern Corp. 100
2,741 Financial Institutions, Inc. 90
4,500 First Bancorp 184
30,332 First BanCorp(a) 232
2,552 First Bancorp, Inc. 72
1,274 First Bancshares, Inc. 46
1,775 First Bank 25
6,358 First Busey Corp. 202
1,147 First Business Financial Services, Inc. 30
1,983 First Choice Bancorp 61
1,356 First Citizens BancShares, Inc., "A" 547
16,472 First Commonwealth Financial Corp. 255
3,087 First Community Bancshares, Inc. 98
3,182 First Connecticut Bancorp, Inc.(b) 97
15,366 First Financial Bancorp 471
10,240 First Financial Bankshares, Inc. 521
2,125 First Financial Corp. 96
2,323 First Financial Northwest, Inc. 45
5,061 First Foundation, Inc.(a) 94
484 First Guaranty Bancshares, Inc. 13
11,884 First Hawaiian, Inc. 345
50,252 First Horizon National Corp. 896
1,101 First Internet Bancorp 38
3,371 First Interstate BancSystem, Inc., "A" 142
6,558 First Merchants Corp. 304
1,269 First Mid-Illinois Bancshares, Inc. 50
15,829 First Midwest Bancorp, Inc. 403
1,641 First Northwest Bancorp(a) 26
4,315 First of Long Island Corp. 107
25,516 First Republic Bank 2,470
1,412 First United Corp. 29
4,602 Flushing Financial Corp. 120
735 FNB Bancorp 27
49,170 FNB Corp. 660
1,262 Franklin Financial Network, Inc.(a) 47
28,522 Fulton Financial Corp. 471
3,628 German American Bancorp, Inc. 130
12,854 Glacier Bancorp, Inc. 497
2,007 Great Southern Bancorp, Inc. 115
9,153 Great Western Bancorp, Inc. 384
3,427 Green Bancorp, Inc. 74
4,287 Guaranty Bancorp 128
13,573 Hancock Whitney Corp. 633
5,135 Hanmi Financial Corp. 146
6,258 HarborOne Bancorp, Inc.(a) 119
4,509 Heartland Financial USA, Inc. 247
5,501 Heritage Commerce Corp. 93
4,642 Heritage Financial Corp. 162
12,181 Hilltop Holdings, Inc. 269
25,070 Home BancShares, Inc. 566
3,223 HomeTrust Bancshares, Inc.(a) 91
19,879 Hope Bancorp, Inc. 354
5,895 Horizon Bancorp, Inc. 122
1,208 Howard Bancorp, Inc.(a) 22
9,099 IBERIABANK Corp. 690
4,331 Independent Bank Corp. 340
4,221 Independent Bank Corp. 108
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
2,685 Independent Bank Group, Inc. $ 179
8,860 International Bancshares Corp. 379
1,219 Investar Holding Corp. 34
39,923 Investors Bancorp, Inc. 511
6,993 Lakeland Bancorp, Inc. 139
4,198 Lakeland Financial Corp. 202
1,228 LCNB Corp. 24
6,540 LegacyTexas Financial Group, Inc. 255
1,229 Limestone Bancorp, Inc.(a) 19
4,074 Live Oak Bancshares, Inc. 125
6,531 Macatawa Bank Corp. 79
12,919 MB Financial, Inc. 603
3,026 MBT Financial Corp. 32
3,191 Mercantile Bank Corp. 118
507 Metropolitan Bank Holding Corp.(a) 27
463 Middlefield Banc Corp. 23
2,571 Midland States Bancorp, Inc. 88
2,061 MidSouth Bancorp, Inc. 27
1,932 MidWestOne Financial Group, Inc. 65
1,697 MutualFirst Financial, Inc. 64
4,215 National Bank Holdings Corp., "A" 163
1,700 National Bankshares, Inc. 79
1,938 National Commerce Corp.(a) 90
6,847 NBT Bancorp, Inc. 261
1,114 Nicolet Bankshares, Inc.(a) 61
1,140 Northeast Bancorp 25
1,757 Northrim BanCorp, Inc. 69
1,137 Norwood Financial Corp. 41
501 Oak Valley Bancorp 11
7,031 OFG Bancorp 99
1,099 Ohio Valley Banc Corp. 58
1,166 Old Line Bancshares, Inc. 41
21,036 Old National Bancorp 391
6,505 Old Second Bancorp, Inc. 94
3,144 Opus Bank 90
2,093 Orrstown Financial Services, Inc. 54
6,184 Pacific Premier Bancorp, Inc.(a) 236
19,695 PacWest Bancorp 973
2,061 Park National Corp. 230
2,519 Peapack Gladstone Financial Corp. 87
1,023 Penns Woods Bancorp, Inc. 46
1,646 Peoples Bancorp of North Carolina, Inc. 53
3,210 Peoples Bancorp, Inc. 121
947 Peoples Financial Services Corp. 45
2,781 People's Utah Bancorp 99
11,585 Pinnacle Financial Partners, Inc. 711
15,935 Popular, Inc. 720
2,333 Preferred Bank 143
1,118 Premier Financial Bancorp, Inc. 21
10,871 Prosperity Bancshares, Inc. 743
2,381 QCR Holdings, Inc. 113
600 Reliant Bancorp, Inc. 17
6,817 Renasant Corp. 310
1,667 Republic Bancorp, Inc., "A" 76
9,649 Republic First Bancorp, Inc.(a) 76
5,620 S&T Bancorp, Inc. 243
5,313 Sandy Spring Bancorp, Inc. 218
807 SB One Bancorp 24
7,343 Seacoast Banking Corp. of Florida(a) 232
7,126 ServisFirst Bancshares, Inc. 297
2,306 Shore Bancshares, Inc. 44
2,508 Sierra Bancorp 71
8,345 Signature Bank(a) 1,067
================================================================================
18 | USAA EXTENDED MARKET INDEX FUND
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
12,486 Simmons First National Corp., "A" $ 373
1,070 SmartFinancial, Inc.(a) 28
5,792 South State Corp. 500
932 Southern First Bancshares, Inc.(a) 41
3,026 Southern National Bancorp of Virginia, Inc. 54
4,206 Southside Bancshares, Inc. 142
5,894 State Bank Financial Corp. 197
34,986 Sterling Bancorp 822
3,828 Stock Yards Bancorp, Inc. 146
2,289 Summit Financial Group, Inc. 61
18,486 Synovus Financial Corp. 977
26,862 TCF Financial Corp. 661
7,746 Texas Capital Bancshares, Inc.(a) 709
2,027 Tompkins Financial Corp. 174
9,809 Towne Bank 315
3,317 TriCo Bancshares 124
3,072 TriState Capital Holdings, Inc.(a) 80
2,964 Triumph Bancorp, Inc.(a) 121
10,227 Trustmark Corp. 334
6,940 UMB Financial Corp. 529
34,570 Umpqua Holdings Corp. 781
8,439 Union Bankshares Corp. 328
503 Union Bankshares, Inc. 26
1,255 United Bancorp, Inc. 17
16,539 United Bankshares, Inc. 602
11,340 United Community Banks, Inc. 348
4,213 United Security Bancshares 47
1,064 Unity Bancorp, Inc. 24
4,547 Univest Corp. of Pennsylvania 125
42,353 Valley National Bancorp 515
2,762 Veritex Holdings, Inc.(a) 86
2,472 Washington Trust Bancorp, Inc. 144
14,693 Webster Financial Corp. 936
7,349 WesBanco, Inc. 331
3,190 West Bancorporation, Inc. 80
4,025 Westamerica Bancorporation 227
15,095 Western Alliance Bancorp(a) 855
8,746 Wintrust Financial Corp. 761
--------
55,898
--------
REINSURANCE (0.6%)
2,375 Alleghany Corp. 1,365
1,890 Enstar Group Ltd.(a) 392
5,039 Greenlight Capital Re Ltd., "A"(a) 72
11,098 Maiden Holdings Ltd. 86
9,964 Reinsurance Group of America, Inc. 1,330
6,266 RenaissanceRe Holdings Ltd. 754
12,602 Third Point Reinsurance Ltd.(a) 157
12,809 Validus Holdings Ltd. 866
33,498 WMIH Corp.(a) 45
--------
5,067
--------
REITs - DIVERSIFIED (0.1%)
5,033 Gladstone Commercial Corp. 97
3,004 PS Business Parks, Inc. 386
--------
483
--------
REITs - HEALTH CARE (0.1%)
19,124 Healthcare Realty Trust, Inc. 556
27,219 Sabra Health Care REIT, Inc. 592
--------
1,148
--------
REITs - HOTEL & RESORT (0.3%)
13,385 Ashford Hospitality Trust, Inc. 108
6,442 Chatham Lodging Trust 137
31,613 DiamondRock Hospitality Co. 388
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
26,342 Hospitality Properties Trust $ 754
11,019 Pebblebrook Hotel Trust 428
16,267 Summit Hotel Properties, Inc. 233
34,433 Sunstone Hotel Investors, Inc. 572
--------
2,620
--------
REITs - INDUSTRIAL (0.1%)
20,225 First Industrial Realty Trust, Inc. 674
--------
REITs - MORTGAGE (1.2%)
4,544 AG Mortgage Investment Trust, Inc. 85
66,827 AGNC Investment Corp.(e) 1,242
183,131 Annaly Capital Management, Inc. 1,884
16,369 Anworth Mortgage Asset Corp. 81
17,452 Apollo Commercial Real Estate Finance, Inc. 319
9,585 Arbor Realty Trust, Inc. 100
4,921 Ares Commercial Real Estate Corp. 68
5,832 ARMOUR Residential REIT, Inc. 133
16,314 Blackstone Mortgage Trust, Inc., "A" 513
13,401 Capstead Mortgage Corp. 120
1,626 Cherry Hill Mortgage Investment Corp. 29
28,744 Chimera Investment Corp. 525
22,334 CYS Investments, Inc. 168
9,436 Dynex Capital, Inc. 62
5,570 Exantas Capital Corp. 57
6,535 Granite Point Mortgage Trust, Inc. 120
2,174 Great Ajax Corp. 28
8,464 Hannon Armstrong Sustainable Infrastructure Capital, Inc. 167
16,844 Invesco Mortgage Capital, Inc. 268
1,495 KKR Real Estate Finance Trust, Inc. 30
15,697 Ladder Capital Corp. 245
59,642 MFA Financial, Inc. 452
7,285 MTGE Investment Corp. 143
51,570 New Residential Investment Corp. 902
18,994 New York Mortgage Trust, Inc. 114
7,148 Orchid Island Capital, Inc. 54
1,554 Owens Realty Mortgage, Inc. 26
10,450 PennyMac Mortgage Investment Trust 198
12,292 Redwood Trust, Inc. 202
39,988 Starwood Property Trust, Inc. 868
2,183 Sutherland Asset Management Corp. 36
1,494 TPG RE Finance Trust, Inc. 30
27,250 Two Harbors Investment Corp. 431
7,954 Western Asset Mortgage Capital Corp. 83
--------
9,783
--------
REITs - OFFICE (0.3%)
15,539 Corporate Office Properties Trust 451
19,392 Equity Commonwealth(a) 611
15,738 Franklin Street Properties Corp. 135
14,908 Government Properties Income Trust 236
15,935 Highwoods Properties, Inc. 808
13,234 Mack-Cali Realty Corp. 268
--------
2,509
--------
================================================================================
20 | USAA EXTENDED MARKET INDEX FUND
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
REITs - RESIDENTIAL (0.4%)
14,273 Camden Property Trust $ 1,301
12,344 Education Realty Trust, Inc. 512
14,042 Equity LifeStyle Properties, Inc. 1,290
--------
3,103
--------
REITs - RETAIL (0.2%)
25,400 CBL & Associates Properties, Inc.(b) 142
12,330 Ramco-Gershenson Properties Trust 163
15,295 Tanger Factory Outlet Centers, Inc. 359
9,740 Taubman Centers, Inc. 572
--------
1,236
--------
REITs - SPECIALIZED (0.2%)
10,228 EPR Properties 663
19,634 Rayonier, Inc. 759
--------
1,422
--------
SPECIALIZED FINANCE (0.0%)
1,640 Marlin Business Services Corp. 49
6,601 On Deck Capital, Inc.(a) 46
--------
95
--------
THRIFTS & MORTGAGE FINANCE (1.1%)
3,939 BankFinancial Corp. 70
12,021 Beneficial Bancorp, Inc. 195
8,936 BofI Holding, Inc.(a) 366
1,189 BSB Bancorp, Inc.(a) 41
21,111 Capitol Federal Financial, Inc. 278
1,980 Charter Financial Corp. 48
6,987 Columbia Financial, Inc.(a) 116
5,246 Dime Community Bancshares, Inc. 102
954 Entegra Financial Corp.(a) 28
3,300 ESSA Bancorp, Inc. 52
12,674 Essent Group Ltd.(a) 454
1,321 Federal Agricultural Mortgage Corp., "C" 118
152 First Capital, Inc. 6
1,683 First Defiance Financial Corp. 113
3,391 Flagstar Bancorp, Inc.(a) 116
435 FS Bancorp, Inc. 27
211 Hingham Institution for Savings 46
1,907 HMN Financial, Inc.(a) 38
1,217 Home Bancorp, Inc. 57
4,892 HomeStreet, Inc.(a) 132
1,830 Impac Mortgage Holdings, Inc.(a) 17
16,033 Kearny Financial Corp. 216
1,214 LendingTree, Inc.(a) 260
1,900 Luther Burbank Corp. 22
914 Malvern Bancorp, Inc.(a) 22
1,021 Merchants Bancorp 29
8,210 Meridian Bancorp, Inc. 157
1,484 Meta Financial Group, Inc. 145
58,906 MGIC Investment Corp.(a) 631
5,186 Nationstar Mortgage Holdings, Inc.(a) 91
75,733 New York Community Bancorp, Inc. 836
9,420 NMI Holdings, Inc., "A"(a) 154
7,214 Northfield Bancorp, Inc. 120
16,275 Northwest Bancshares, Inc. 283
6,064 OceanFirst Financial Corp. 182
16,212 Ocwen Financial Corp.(a) 64
6,851 Oritani Financial Corp. 111
3,534 PCSB Financial Corp. 70
3,348 PennyMac Financial Services, Inc., "A"(a) 66
5,718 PHH Corp.(a) 62
1,344 Provident Bancorp, Inc.(a) 35
2,303 Provident Financial Holdings, Inc. 44
9,234 Provident Financial Services, Inc. 254
================================================================================
PORTFOLIO OF INVESTMENTS | 21
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
33,786 Radian Group, Inc. $ 548
5,394 Riverview Bancorp, Inc. 46
1,546 SI Financial Group, Inc. 23
983 Southern Missouri Bancorp, Inc. 38
2,100 Sterling Bancorp, Inc. 28
2,198 Territorial Bancorp, Inc. 68
9,927 TFS Financial Corp. 157
852 Timberland Bancorp, Inc. 32
14,741 TrustCo Bank Corp. 131
9,075 United Community Financial Corp. 100
8,517 United Financial Bancorp, Inc. 149
4,301 Walker & Dunlop, Inc. 239
13,679 Washington Federal, Inc. 447
4,794 Waterstone Financial, Inc. 82
4,939 Western New England Bancorp, Inc. 54
5,346 WSFS Financial Corp. 285
--------
8,701
--------
TRADING COMPANIES & DISTRIBUTORS (0.0%)
8,419 Aircastle Ltd. 173
--------
Total Financials 142,730
--------
HEALTH CARE (11.8%)
-------------------
BIOTECHNOLOGY (4.9%)
4,376 Abeona Therapeutics, Inc.(a),(b) 70
15,263 ACADIA Pharmaceuticals, Inc.(a) 233
5,881 Acceleron Pharma, Inc.(a) 285
4,545 Achaogen, Inc.(a),(b) 39
18,775 Achillion Pharmaceuticals, Inc.(a) 53
6,967 Acorda Therapeutics, Inc.(a) 200
8,447 Actinium Pharmaceuticals, Inc.(a) 5
4,307 Adamas Pharmaceuticals, Inc.(a) 111
4,726 Aduro Biotech, Inc.(a) 33
5,697 Advaxis, Inc.(a) 8
8,035 Adverum Biotechnologies, Inc.(a) 43
4,587 Aeglea BioTherapeutics, Inc.(a) 49
7,157 Aevi Genomic Medicine, Inc.(a) 8
11,520 Agenus, Inc.(a) 26
8,050 Agios Pharmaceuticals, Inc.(a) 678
5,551 Aimmune Therapeutics, Inc.(a) 149
7,617 Akebia Therapeutics, Inc.(a) 76
951 Albireo Pharma, Inc.(a) 34
10,702 Alder Biopharmaceuticals, Inc.(a) 169
2,978 Aldeyra Therapeutics, Inc.(a) 24
24,167 Alkermes plc(a) 995
13,322 Alnylam Pharmaceuticals, Inc.(a) 1,312
1,451 Altimmune, Inc.(a) 1
5,495 AMAG Pharmaceuticals, Inc.(a) 107
28,332 Amicus Therapeutics, Inc.(a) 443
2,257 AnaptysBio, Inc.(a) 160
8,408 Anavex Life Sciences Corp.(a) 22
6,534 Apellis Pharmaceuticals, Inc.(a) 144
2,151 Applied Genetic Technologies Corp.(a) 8
2,249 Aptevo Therapeutics, Inc.(a) 11
323 Aptinyx, Inc.(a) 8
136 AquaBounty Technologies, Inc.(a) -
4,402 Aquinox Pharmaceuticals, Inc.(a) 12
3,200 Arcus Biosciences, Inc.(a),(b) 39
3,216 Ardelyx, Inc.(a) 12
================================================================================
22 | USAA EXTENDED MARKET INDEX FUND
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
7,961 Arena Pharmaceuticals, Inc.(a) $ 347
14,883 ArQule, Inc.(a) 82
31,950 Array BioPharma, Inc.(a) 536
15,796 Arrowhead Pharmaceuticals, Inc.(a) 215
1,000 Arsanis, Inc.(a) 4
7,504 Atara Biotherapeutics, Inc.(a) 276
5,875 Athenex, Inc.(a) 110
16,987 Athersys, Inc.(a) 33
4,158 Audentes Therapeutics, Inc.(a) 159
13,305 AVEO Pharmaceuticals, Inc.(a) 30
5,102 Avid Bioservices, Inc.(a) 20
9,560 Bellicum Pharmaceuticals, Inc.(a) 71
14,777 BioCryst Pharmaceuticals, Inc.(a) 85
4,720 Biohaven Pharmaceutical Holding Co. Ltd.(a) 187
27,666 BioMarin Pharmaceutical, Inc.(a) 2,606
943 BioSpecifics Technologies Corp.(a) 42
25,411 BioTime, Inc.(a) 52
8,003 Bluebird Bio, Inc.(a) 1,256
5,964 Blueprint Medicines Corp.(a) 379
3,854 BrainStorm Cell Therapeutics, Inc.(a) 15
5,271 Calithera Biosciences, Inc.(a) 26
1,028 Calyxt, Inc.(a) 19
1,665 Capricor Therapeutics, Inc.(a) 2
4,726 Cara Therapeutics, Inc.(a),(b) 91
4,470 CareDx, Inc.(a) 55
7,740 CASI Pharmaceuticals, Inc.(a),(b) 64
1,426 Catalyst Biosciences, Inc.(a) 17
12,442 Catalyst Pharmaceuticals, Inc.(a) 39
14,541 Celldex Therapeutics, Inc.(a) 7
1,597 Cellular Biomedicine Group, Inc.(a) 31
861 CEL-SCI Corp.(a) 1
2,693 ChemoCentryx, Inc.(a) 35
6,230 Chimerix, Inc.(a) 30
2,800 Cleveland BioLabs, Inc.(a) 7
8,681 Clovis Oncology, Inc.(a) 395
6,587 Cohbar, Inc.(a) 43
9,832 Coherus Biosciences, Inc.(a) 138
4,930 Conatus Pharmaceuticals, Inc.(a) 21
2,663 Concert Pharmaceuticals, Inc.(a) 45
6,152 Corbus Pharmaceuticals Holdings, Inc.(a) 31
3,721 Corvus Pharmaceuticals, Inc.(a) 41
10,286 CTI BioPharma Corp.(a) 51
1,500 Cue Biopharma, Inc.(a) 18
3,831 Curis, Inc.(a) 7
8,453 Cytokinetics, Inc.(a) 70
3,758 CytomX Therapeutics, Inc.(a) 86
259 Cytori Therapeutics, Inc.(a) -
7,637 CytRx Corp.(a) 9
1,381 Deciphera Pharmaceuticals, Inc.(a) 54
2,006 Denali Therapeutics, Inc.(a) 31
2,670 Dicerna Pharmaceuticals, Inc.(a) 33
21,860 DYAX Corp.(c),(d) -
8,647 Dynavax Technologies Corp.(a) 132
1,253 Eagle Pharmaceuticals, Inc.(a) 95
3,751 Edge Therapeutics, Inc.(a) 4
================================================================================
PORTFOLIO OF INVESTMENTS | 23
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
5,680 Editas Medicine, Inc.(a) $ 204
65 Eidos Therapeutics, Inc.(a) 1
1,169 Eiger BioPharmaceuticals, Inc.(a) 14
5,255 Emergent BioSolutions, Inc.(a) 265
2,510 Enanta Pharmaceuticals, Inc.(a) 291
8,144 Epizyme, Inc.(a) 110
3,157 Esperion Therapeutics, Inc.(a) 124
741 Evelo Biosciences, Inc.(a) 9
19,479 Exact Sciences Corp.(a) 1,165
43,336 Exelixis, Inc.(a) 933
6,457 Fate Therapeutics, Inc.(a) 73
305 Fibrocell Science, Inc.(a) 1
12,334 FibroGen, Inc.(a) 772
4,356 Five Prime Therapeutics, Inc.(a) 69
5,440 Flexion Therapeutics, Inc.(a),(b) 141
6,807 Fortress Biotech, Inc.(a) 20
2,486 Foundation Medicine, Inc.(a) 340
2,858 G1 Therapeutics, Inc.(a) 124
5,878 Galectin Therapeutics, Inc.(a) 37
3,917 Genocea Biosciences, Inc.(a) 3
2,857 Genomic Health, Inc.(a) 144
25,126 Geron Corp.(a),(b) 86
7,295 Global Blood Therapeutics, Inc.(a) 330
5,466 GlycoMimetics, Inc.(a) 88
1,784 GTx, Inc.(a) 27
21,550 Halozyme Therapeutics, Inc.(a) 364
299 Heat Biologics, Inc.(a) 1
5,727 Hemispherx Biopharma, Inc.(a) 2
9,521 Heron Therapeutics, Inc.(a) 370
1,354 Histogenics Corp.(a) 3
2,985 Homology Medicines, Inc.(a) 61
2,101 iBio, Inc.(a) 2
26,398 Idera Pharmaceuticals, Inc.(a) 35
1,494 Immune Design Corp.(a) 7
22,945 ImmunoGen, Inc.(a) 223
23,531 Immunomedics, Inc.(a) 557
7,013 Infinity Pharmaceuticals, Inc.(a) 13
800 InflaRx N.V.(a) 26
15,084 Inovio Pharmaceuticals, Inc.(a) 59
11,760 Insmed, Inc.(a) 278
3,557 Insys Therapeutics, Inc.(a),(b) 26
3,020 Intellia Therapeutics, Inc.(a) 83
3,339 Intercept Pharmaceuticals, Inc.(a) 280
9,391 Intrexon Corp.(a) 131
12,739 Invitae Corp.(a) 94
20,290 Ionis Pharmaceuticals, Inc.(a) 846
11,990 Iovance Biotherapeutics, Inc.(a) 153
22,499 Ironwood Pharmaceuticals, Inc.(a) 430
15,938 IsoRay, Inc.(a) 7
875 Jounce Therapeutics, Inc.(a) 7
10,641 Kadmon Holdings, Inc.(a) 42
258 KalVista Pharmaceuticals, Inc.(a) 2
8,479 Karyopharm Therapeutics, Inc.(a) 144
16,183 Keryx Biopharmaceuticals, Inc.(a),(b) 61
5,720 Kindred Biosciences, Inc.(a) 61
3,171 Kura Oncology, Inc.(a) 58
3,299 La Jolla Pharmaceutical Co.(a) 96
6,848 Lexicon Pharmaceuticals, Inc.(a) 82
================================================================================
24 | USAA EXTENDED MARKET INDEX FUND
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
3,414 Ligand Pharmaceuticals, Inc.(a) $ 707
3,416 Loxo Oncology, Inc.(a) 593
4,979 MacroGenics, Inc.(a) 103
1,287 Madrigal Pharmaceuticals, Inc.(a) 360
65 Magenta Therapeutics, Inc.(a) 1
17,465 MannKind Corp.(a) 33
11,213 Matinas BioPharma Holdings, Inc.(a) 5
4,864 MediciNova, Inc.(a) 39
8,459 MEI Pharma, Inc.(a) 33
739 MeiraGTx Holdings plc(a) 8
2,006 Merrimack Pharmaceuticals, Inc.(a) 10
15,260 MiMedx Group, Inc.(a),(b) 98
7,034 Minerva Neurosciences, Inc.(a) 58
5,343 Miragen Therapeutics, Inc.(a) 34
4,241 Mirati Therapeutics, Inc.(a) 209
996 Molecular Templates, Inc.(a) 5
12,237 Momenta Pharmaceuticals, Inc.(a) 250
2,155 Mustang Bio, Inc.(a) 15
11,502 Myriad Genetics, Inc.(a) 430
4,139 NantKwest, Inc.(a) 13
4,291 Natera, Inc.(a) 81
26,298 Navidea Biopharmaceuticals, Inc.(a) 6
324 Neon Therapeutics, Inc.(a) 4
1,335 Neuralstem, Inc.(a) 1
14,344 Neurocrine Biosciences, Inc.(a) 1,409
3,137 NewLink Genetics Corp.(a) 15
56,785 Novavax, Inc.(a) 76
9,287 Ohr Pharmaceutical, Inc.(a) 2
478 Oncocyte Corp.(a) 1
3,414 OncoMed Pharmaceuticals, Inc.(a) 8
4,442 Ophthotech Corp.(a) 12
59,668 OPKO Health, Inc.(a),(b) 280
12,913 Organovo Holdings, Inc.(a),(b) 18
5,645 OvaScience, Inc.(a) 5
23,498 Palatin Technologies, Inc.(a) 23
23,556 PDL BioPharma, Inc.(a) 55
2,551 Pfenex, Inc.(a) 14
1,633 PolarityTE, Inc.(a),(b) 38
10,050 Portola Pharmaceuticals, Inc.(a) 380
10,933 Progenics Pharmaceuticals, Inc.(a) 88
1,296 Protagonist Therapeutics, Inc.(a) 9
1,374 Proteon Therapeutics, Inc.(a) 3
3,485 Proteostasis Therapeutics, Inc.(a) 10
6,403 Prothena Corp. plc(a) 93
5,755 PTC Therapeutics, Inc.(a) 194
4,673 Puma Biotechnology, Inc.(a) 276
1,016 Ra Pharmaceuticals, Inc.(a) 10
6,378 Radius Health, Inc.(a),(b) 188
2,418 Recro Pharma, Inc.(a) 12
4,051 REGENXBIO, Inc.(a) 291
33,260 Regulus Therapeutics, Inc.(a) 22
5,757 Repligen Corp.(a) 271
6,278 Retrophin, Inc.(a) 171
4,487 Rexahn Pharmaceuticals, Inc.(a) 6
1,025 Rhythm Pharmaceuticals, Inc.(a) 32
23,395 Rigel Pharmaceuticals, Inc.(a) 66
2,922 Rocket Pharmaceuticals, Inc.(a) 57
7,453 Sage Therapeutics, Inc.(a) 1,167
16,243 Sangamo Therapeutics, Inc.(a) 231
================================================================================
PORTFOLIO OF INVESTMENTS | 25
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
9,454 Sarepta Therapeutics, Inc.(a) $ 1,250
5,254 Savara, Inc.(a) 59
16,182 Seattle Genetics, Inc.(a) 1,074
46 SELLAS Life Sciences Group, Inc.(a) -
3,552 Seres Therapeutics, Inc.(a) 31
998 Solid Biosciences, Inc.(a) 36
10,396 Sorrento Therapeutics, Inc.(a),(b) 75
4,759 Spark Therapeutics, Inc.(a) 394
13,926 Spectrum Pharmaceuticals, Inc.(a) 292
1,951 Spring Bank Pharmaceuticals, Inc.(a) 23
5,320 Stemline Therapeutics, Inc.(a) 85
2,343 Sunesis Pharmaceuticals, Inc.(a) 5
2,311 Syndax Pharmaceuticals, Inc.(a) 16
37,825 Synergy Pharmaceuticals, Inc.(a),(b) 66
4,000 Synlogic, Inc.(a) 39
13,497 Synthetic Biologics, Inc.(a) 3
3,718 Syros Pharmaceuticals, Inc.(a) 38
4,053 T2 Biosystems, Inc.(a) 31
94 Tenax Therapeutics, Inc.(a) 1
5,933 TESARO, Inc.(a),(b) 264
10,091 TG Therapeutics, Inc.(a) 133
1,311 Tocagen, Inc.(a) 12
155 Tonix Pharmaceuticals Holding Corp.(a) 1
1,428 Tracon Pharmaceuticals, Inc.(a) 4
7,025 Trevena, Inc.(a) 10
460 Trovagene, Inc.(a) -
7,018 Ultragenyx Pharmaceutical, Inc.(a) 539
6,749 United Therapeutics Corp.(a) 764
148 UNITY Biotechnology, Inc.(a) 2
9,210 Vanda Pharmaceuticals, Inc.(a) 175
834 Vaxart, Inc.(a) 3
4,395 Veracyte, Inc.(a) 41
11,945 Verastem, Inc.(a) 82
7,335 Vericel Corp.(a) 71
3,367 Versartis, Inc.(a) 7
2,976 Vical, Inc.(a) 3
5,108 Viking Therapeutics, Inc.(a) 48
3,761 Vital Therapies, Inc.(a),(b) 26
3,638 Voyager Therapeutics, Inc.(a) 71
3,229 XBiotech, Inc.(a) 14
7,331 Xencor, Inc.(a) 271
1,089 XOMA Corp.(a) 23
233 Yield10 Bioscience, Inc.(a) -
2,989 Zafgen, Inc.(a) 31
18,936 ZIOPHARM Oncology, Inc.(a),(b) 57
--------
38,574
--------
HEALTH CARE DISTRIBUTORS (0.1%)
4,429 Aceto Corp. 15
9,148 Owens & Minor, Inc. 153
13,000 Patterson Companies, Inc. 295
939 PetIQ, Inc.(a) 25
--------
488
--------
HEALTH CARE EQUIPMENT (2.1%)
3,511 Abaxis, Inc. 291
12,884 Accuray, Inc.(a) 53
1,899 Alphatec Holdings, Inc.(a) 6
6,101 AngioDynamics, Inc.(a) 136
5,376 AtriCure, Inc.(a) 145
4,935 AxoGen, Inc.(a) 248
2,225 Biolase, Inc.(a) 3
4,719 Bovie Medical Corp.(a) 21
5,588 Cantel Medical Corp. 550
5,198 Cardiovascular Systems, Inc.(a) 168
5,799 Conformis, Inc.(a) 7
4,165 CONMED Corp. 305
20,807 Corindus Vascular Robotics, Inc.(a),(b) 17
================================================================================
26 | USAA EXTENDED MARKET INDEX FUND
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
4,639 CryoLife, Inc.(a) $ 129
4,188 CryoPort, Inc.(a),(b) 66
2,275 Cutera, Inc.(a) 92
4,303 CytoSorbents Corp.(a) 49
13,588 DexCom, Inc.(a) 1,291
1,417 FONAR Corp.(a) 38
7,790 GenMark Diagnostics, Inc.(a) 50
4,900 Glaukos Corp.(a) 199
11,083 Globus Medical, Inc., "A"(a) 559
4,000 Helius Medical Technologies, Inc.(a),(b) 38
963 Heska Corp.(a) 100
10,357 Hill-Rom Holdings, Inc. 905
2,775 Inogen, Inc.(a) 517
9,111 Insulet Corp.(A) 781
4,501 Integer Holdings Corp.(a) 291
10,908 Integra LifeSciences Holdings Corp.(a) 703
1,361 IntriCon Corp.(a) 55
4,891 Invacare Corp. 91
230 InVivo Therapeutics Holdings Corp.(a) -
2,986 iRhythm Technologies, Inc.(a) 242
6,090 K2M Group Holdings, Inc.(a) 137
2,222 LeMaitre Vascular, Inc. 74
6,732 LivaNova plc(a) 672
7,624 Masimo Corp.(a) 745
246 Microbot Medical, Inc.(a) -
5,169 Natus Medical, Inc.(a) 178
4,286 Nevro Corp.(a) 342
7,914 NuVasive, Inc.(a) 412
1,322 Nuvectra Corp.(a) 27
10,176 NxStage Medical, Inc.(a) 284
2,789 Orthofix International N.V.(a) 158
4,848 Penumbra, Inc.(a) 670
522 Pulse Biosciences, Inc.(a) 8
7,565 Rockwell Medical, Inc.(a),(b) 37
1,779 SeaSpine Holdings Corp.(a) 22
13,340 STERIS plc 1,401
2,327 Surmodics, Inc.(a) 128
1,840 Tactile Systems Technology, Inc.(a) 96
5,665 Tandem Diabetes Care, Inc.(a) 125
7,031 Teleflex, Inc. 1,886
19,556 TransEnterix, Inc.(a),(b) 85
5,658 Varex Imaging Corp.(a) 210
7,494 ViewRay, Inc.(a) 52
1,837 Viveve Medical, Inc.(a),(b) 5
17,581 Wright Medical Group N.V.(a) 456
--------
16,356
--------
HEALTH CARE FACILITIES (0.5%)
2,226 AAC Holdings, Inc.(a) 21
12,505 Acadia Healthcare Co., Inc.(a) 512
28,172 Brookdale Senior Living, Inc.(a) 256
4,670 Capital Senior Living Corp.(a) 50
17,321 Community Health Systems, Inc.(a) 57
15,180 Encompass Health Corp. 1,028
8,076 Ensign Group, Inc. 289
16,250 Five Star Senior Living, Inc.(a) 24
5,313 Genesis Healthcare, Inc.(a) 12
12,162 Kindred Healthcare, Inc.(a) 109
6,081 LifePoint Health, Inc.(a) 297
1,472 National HealthCare Corp. 104
4,330 Quorum Health Corp.(a) 22
7,324 Regional Health Properties, Inc.(a) 2
16,098 Select Medical Holdings Corp.(a) 292
3,215 Surgery Partners, Inc.(a) 48
12,189 Tenet Healthcare Corp.(a) 409
1,955 U.S. Physical Therapy, Inc. 188
--------
3,720
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 27
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
HEALTH CARE SERVICES (0.5%)
1,286 Addus HomeCare Corp.(a) 74
4,240 Amedisys, Inc.(a) 362
1,388 American Renal Associates Holdings, Inc.(a) 22
7,750 AMN Healthcare Services, Inc.(a) 454
20,256 BioScrip, Inc.(a) 59
4,630 BioTelemetry, Inc.(a) 208
2,486 Chemed Corp. 800
2,868 Civitas Solutions, Inc.(a) 47
1,635 CorVel Corp.(a) 88
5,168 Cross Country Healthcare, Inc.(a) 58
6,690 Diplomat Pharmacy, Inc.(A) 171
4,647 LHC Group, Inc.(a) 398
14,693 MEDNAX, Inc.(a) 636
2,134 National Research Corp. 80
8,583 Premier, Inc., "A"(a) 312
2,023 Providence Service Corp.(a) 159
1,320 Psychemedics Corp. 26
14,948 R1 RCM, Inc.(a) 130
5,911 RadNet, Inc.(a) 89
3,499 Sharps Compliance Corp.(a) 13
5,011 Tivity Health, Inc.(a) 176
--------
4,362
--------
HEALTH CARE SUPPLIES (0.7%)
2,272 Anika Therapeutics, Inc.(a) 73
26,095 Antares Pharma, Inc.(a) 67
224 Atrion Corp. 134
7,764 Avanos Medical, Inc. 445
22,365 Cerus Corp.(a) 149
12,883 Endologix, Inc.(a) 73
8,216 Haemonetics Corp.(a) 737
2,348 ICU Medical, Inc.(a) 690
4,633 Lantheus Holdings, Inc.(a) 67
6,734 Meridian Bioscience, Inc. 107
8,267 Merit Medical Systems, Inc.(a) 423
8,099 Neogen Corp.(a) 649
9,831 OraSure Technologies, Inc.(a) 162
5,240 Quidel Corp.(a) 348
4,605 Retractable Technologies, Inc.(a) 3
10,112 RTI Surgical, Inc.(a) 47
4,449 Sientra, Inc.(a) 87
5,027 STAAR Surgical Co.(a) 156
662 Utah Medical Products, Inc. 73
6,405 VolitionRX Ltd.(a) 13
11,434 West Pharmaceutical Services, Inc. 1,135
--------
5,638
--------
HEALTH CARE TECHNOLOGY (0.7%)
28,232 Allscripts Healthcare Solutions, Inc.(a) 339
6,362 athenahealth, Inc.(a) 1,013
9,141 Castlight Health, Inc., "B"(a) 39
1,686 Computer Programs & Systems, Inc. 56
5,882 Cotiviti Holdings, Inc.(a) 260
9,665 Evolent Health, Inc., "A"(a) 203
3,976 HealthStream, Inc. 109
13,041 HMS Holdings Corp.(a) 282
10,521 Inovalon Holdings, Inc., "A"(a),(b) 104
1,807 Inspire Medical Systems, Inc.(a) 64
9,003 Medidata Solutions, Inc.(a) 725
6,517 Omnicell, Inc.(a) 342
6,990 Quality Systems, Inc.(a) 136
1,541 Simulations Plus, Inc. 34
2,049 Tabula Rasa HealthCare, Inc.(a) 131
8,617 Teladoc, Inc.(a) 500
18,516 Veeva Systems, Inc., "A"(a) 1,423
4,197 Vocera Communications, Inc.(a) 125
--------
5,885
--------
================================================================================
28 | USAA EXTENDED MARKET INDEX FUND
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
LIFE SCIENCES TOOLS & SERVICES (0.7%)
4,620 Accelerate Diagnostics, Inc.(a) $ 103
3,214 Bio-Rad Laboratories, Inc., "A"(a) 927
5,848 Bio-Techne Corp. 865
15,403 Bruker Corp. 447
5,555 Cambrex Corp.(a) 290
7,392 Charles River Laboratories International, Inc.(a) 830
6,641 Codexis, Inc.(a) 96
8,028 Enzo Biochem, Inc.(a) 42
4,592 Fluidigm Corp.(a) 27
6,840 Harvard Bioscience, Inc.(a) 37
6,445 Luminex Corp. 190
1,622 Medpace Holdings, Inc.(a) 70
3,715 NanoString Technologies, Inc.(a) 51
9,277 NeoGenomics, Inc.(a) 122
17,021 Pacific Biosciences of California, Inc.(a) 60
8,216 PRA Health Sciences, Inc.(a) 767
8,614 Syneos Health, Inc.(a) 404
--------
5,328
--------
MANAGED HEALTH CARE (0.4%)
8,298 HealthEquity, Inc.(a) 623
3,731 Magellan Health, Inc.(a) 358
7,642 Molina Healthcare, Inc.(a) 749
3,526 Triple-S Management Corp., "B"(a) 138
6,921 WellCare Health Plans, Inc.(a) 1,704
--------
3,572
--------
PHARMACEUTICALS (1.2%)
6,998 AcelRx Pharmaceuticals, Inc.(a) 24
3,985 Aclaris Therapeutics, Inc.(a) 80
4,970 Adamis Pharmaceuticals Corp.(a),(b) 16
6,620 Aerie Pharmaceuticals, Inc.(a) 447
2,216 Akcea Therapeutics, Inc.(a) 53
14,236 Akorn, Inc.(a) 236
7,469 Alimera Sciences, Inc.(a) 7
10,889 Amneal Pharmaceuticals, Inc.(a) 179
5,565 Amphastar Pharmaceuticals, Inc.(a) 85
8,902 Ampio Pharmaceuticals, Inc.(a),(b) 20
1,215 ANI Pharmaceuticals, Inc.(a) 81
1,237 Apricus Biosciences, Inc.(a) -
4,787 Aratana Therapeutics, Inc.(a) 20
2,704 Assembly Biosciences, Inc.(a) 106
8,009 BioDelivery Sciences International, Inc.(a) 24
1,672 Bio-Path Holdings, Inc.(a) 2
20,553 Catalent, Inc.(a) 861
6,599 Chiasma, Inc.(a) 10
4,842 Clearside Biomedical, Inc.(a) 52
3,841 Collegium Pharmaceutical, Inc.(a) 92
2,250 ContraVir Pharmaceuticals, Inc.(a),(b) 3
14,708 Corcept Therapeutics, Inc.(a) 231
5,260 Corium International, Inc.(a) 42
7,588 CorMedix, Inc.(a) 2
4,500 Cumberland Pharmaceuticals, Inc.(a) 28
7,957 Cymabay Therapeutics, Inc.(a) 107
9,157 Depomed, Inc.(a) 61
5,933 Dermira, Inc.(a) 55
1,914 Dova Pharmaceuticals, Inc.(a) 57
19,556 Durect Corp.(a) 30
================================================================================
PORTFOLIO OF INVESTMENTS | 29
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
2,864 Egalet Corp.(a) $ 1
2,953 Eloxx Pharmaceuticals, Inc.(a) 50
30,244 Endo International plc(a) 285
10,936 Endocyte, Inc.(a) 151
269 Evofem Biosciences, Inc.(a) 1
1,481 Evolus, Inc.(a),(b) 41
6,822 EyePoint Pharmaceuticals, Inc.(a) 14
2,196 Flex Pharma, Inc.(a) 2
27,036 Horizon Pharma plc(a) 448
10,270 Innoviva, Inc.(a) 142
4,481 Intersect ENT, Inc.(a) 168
8,486 Intra-Cellular Therapies, Inc.(a) 150
9,315 Jazz Pharmaceuticals plc(a) 1,605
2,517 Juniper Pharmaceuticals, Inc.(a) 22
4,202 KemPharm, Inc.(a) 27
4,569 Lannett Co., Inc.(a) 62
5,425 Lipocine, Inc.(a) 7
13,783 Mallinckrodt plc(a) 257
4,047 Marinus Pharmaceuticals, Inc.(a) 29
10,769 Medicines Co.(a) 395
9,754 Melinta Therapeutics, Inc.(a) 62
900 Menlo Therapeutics, Inc.(a) 7
4,938 MyoKardia, Inc.(a) 245
2,984 Neos Therapeutics, Inc.(a) 19
164 Novus Therapeutics, Inc.(a) 1
3,033 Ocular Therapeutix, Inc.(a) 20
1,000 Odonate Therapeutics, Inc.(a) 22
6,534 Omeros Corp.(a) 118
1,169 Optinose, Inc.(a) 33
4,226 Otonomy, Inc.(a) 16
6,722 Pacira Pharmaceuticals, Inc.(a) 215
1,248 Pain Therapeutics, Inc.(a) 3
3,569 Paratek Pharmaceuticals, Inc.(a) 36
763 Pernix Therapeutics Holdings, Inc.(a) 2
2,839 Phibro Animal Health Corp., "A" 131
8,836 Prestige Brands Holdings, Inc.(a) 339
1,583 Reata Pharmaceuticals, Inc., "A"(a) 55
4,980 Revance Therapeutics, Inc.(a) 137
5,985 SIGA Technologies, Inc.(a),(b) 36
7,679 Supernus Pharmaceuticals, Inc.(a) 460
6,994 Teligent, Inc.(a),(b) 24
9,610 Tetraphase Pharmaceuticals, Inc.(a) 34
25,609 TherapeuticsMD, Inc.(a),(b) 160
6,417 Theravance Biopharma, Inc.(a) 146
3,672 Titan Pharmaceuticals, Inc.(a) 4
739 Verrica Pharmaceuticals, Inc.(a) 15
17,507 VIVUS, Inc.(a) 12
2,712 WaVe Life Sciences Ltd.(a) 104
5,192 Zogenix, Inc.(a) 229
1,503 Zynerba Pharmaceuticals, Inc.(a),(b) 15
--------
9,568
--------
Total Health Care 93,491
--------
INDUSTRIALS (13.2%)
-------------------
AEROSPACE & DEFENSE (1.3%)
4,851 AAR Corp. 225
12,531 Aerojet Rocketdyne Holdings, Inc.(a) 370
3,384 Aerovironment, Inc.(a) 242
3,613 Astronics Corp.(a) 130
9,230 Axon Enterprise, Inc.(a) 583
15,533 BWX Technologies, Inc. 968
================================================================================
30 | USAA EXTENDED MARKET INDEX FUND
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
2,281 CPI Aerostructures, Inc.(a) $ 24
3,758 Cubic Corp. 241
6,910 Curtiss-Wright Corp. 822
1,874 Ducommun, Inc.(a) 62
2,637 Engility Holdings, Inc.(A) 81
4,222 Esterline Technologies Corp.(a) 312
6,460 HEICO Corp. 471
10,828 HEICO Corp., "A" 660
14,046 Hexcel Corp. 932
4,600 Innovative Solutions & Support, Inc.(a) 13
6,373 KeyW Holding Corp.(a) 56
7,894 KLX, Inc.(a) 568
12,478 Kratos Defense & Security Solutions, Inc.(A) 144
4,945 Moog, Inc., "A" 385
790 National Presto Industries, Inc. 98
1,071 Sparton Corp.(a) 20
17,796 Spirit AeroSystems Holdings, Inc., "A" 1,529
5,502 Teledyne Technologies, Inc.(a) 1,095
7,487 Triumph Group, Inc. 147
1,852 Vectrus, Inc.(a) 57
8,960 Wesco Aircraft Holdings, Inc.(a) 101
--------
10,336
--------
AGRICULTURE & FARM MACHINERY (0.2%)
10,320 AGCO Corp. 627
1,858 Lindsay Corp. 180
6,931 Titan International, Inc. 74
16,519 Toro Co. 995
--------
1,876
--------
AIR FREIGHT & LOGISTICS (0.3%)
7,220 Air Transport Services Group, Inc.(a) 163
3,769 Atlas Air Worldwide Holdings, Inc.(a) 270
4,536 Echo Global Logistics, Inc.(a) 133
4,502 Forward Air Corp. 266
5,287 Hub Group, Inc., "A"(a) 263
3,916 Radiant Logistics, Inc.(a) 15
15,521 XPO Logistics, Inc.(a) 1,555
--------
2,665
--------
AIRLINES (0.3%)
1,928 Allegiant Travel Co. 268
8,543 Hawaiian Holdings, Inc. 307
49,758 JetBlue Airways Corp.(a) 945
8,426 SkyWest, Inc. 437
10,544 Spirit Airlines, Inc.(a) 383
--------
2,340
--------
AIRPORT SERVICES (0.1%)
12,971 Macquarie Infrastructure Corp. 547
--------
BUILDING PRODUCTS (1.0%)
6,524 AAON, Inc. 217
5,721 Advanced Drainage Systems, Inc. 163
2,117 American Woodmark Corp.(a) 194
4,823 Apogee Enterprises, Inc. 232
4,145 Armstrong Flooring, Inc.(a) 58
8,107 Armstrong World Industries, Inc.(a) 512
16,643 Builders FirstSource, Inc.(a) 304
6,349 Continental Building Products, Inc.(a) 200
2,567 CSW Industrials, Inc.(a) 136
5,276 Gibraltar Industries, Inc.(a) 198
4,996 Griffon Corp. 89
2,808 Insteel Industries, Inc. 94
10,473 JELD-WEN Holding, Inc.(a) 299
5,798 Lennox International, Inc. 1,161
4,641 Masonite International Corp.(a) 334
6,628 NCI Building Systems, Inc.(a) 139
================================================================================
PORTFOLIO OF INVESTMENTS | 31
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
17,282 Owens Corning $ 1,095
3,589 Patrick Industries, Inc.(a) 204
7,825 PGT Innovations, Inc.(a) 163
5,075 Quanex Building Products Corp. 91
6,383 Simpson Manufacturing Co., Inc. 397
1,236 Tecogen, Inc.(a) 5
8,886 Trex Co., Inc.(a) 556
9,009 Universal Forest Products, Inc. 330
13,980 USG Corp.(a) 603
--------
7,774
--------
COAL & CONSUMABLE FUELS (0.0%)
799 NACCO Industries, Inc., "A" 27
--------
COMMERCIAL PRINTING (0.2%)
8,034 Brady Corp., "A" 310
7,253 Deluxe Corp. 480
3,906 Ennis, Inc. 80
7,279 InnerWorkings, Inc.(a) 63
6,424 LSC Communications, Inc. 101
2,155 Multi-Color Corp. 139
4,359 Quad/Graphics, Inc. 91
10,646 RR Donnelley & Sons Co. 61
--------
1,325
--------
CONSTRUCTION & ENGINEERING (0.6%)
24,730 AECOM(a) 817
5,610 Aegion Corp.(a) 144
3,372 Ameresco, Inc., "A"(a) 41
1,952 Argan, Inc. 80
5,684 Comfort Systems USA, Inc. 260
4,818 Dycom Industries, Inc.(a) 455
9,242 EMCOR Group, Inc. 704
3,448 Goldfield Corp.(a) 15
7,056 Granite Construction, Inc. 393
9,666 Great Lakes Dredge & Dock Corp.(a) 51
4,461 HC2 Holdings, Inc.(a) 26
1,636 IES Holdings, Inc.(a) 27
21,005 KBR, Inc. 376
9,701 MasTec, Inc.(a) 492
2,843 MYR Group, Inc.(a) 101
2,132 Northwest Pipe Co.(a) 41
1,219 NV5 Global, Inc.(a) 85
5,034 Orion Group Holdings, Inc.(a) 42
5,751 Primoris Services Corp. 157
5,074 Sterling Construction Co., Inc.(a) 66
6,087 Tutor Perini Corp.(a) 112
3,655 Valmont Industries, Inc. 551
--------
5,036
--------
CONSTRUCTION MACHINERY & HEAVY TRUCKS (1.0%)
1,607 Alamo Group, Inc. 145
20,848 Allison Transmission Holdings, Inc. 844
1,354 American Railcar Industries, Inc. 53
2,944 Astec Industries, Inc. 176
1,405 Blue Bird Corp.(a) 31
5,294 Commercial Vehicle Group, Inc.(a) 39
3,445 Douglas Dynamics, Inc. 165
9,098 Federal Signal Corp. 212
2,656 FreightCar America, Inc. 45
4,279 Greenbrier Companies, Inc. 226
2,717 Manitex International, Inc.(a) 34
5,858 Manitowoc Co., Inc.(a) 152
14,861 Meritor, Inc.(a) 306
2,019 Miller Industries, Inc. 52
9,906 Navistar International Corp.(a) 403
11,784 Oshkosh Corp. 829
4,260 REV Group, Inc. 72
5,545 Spartan Motors, Inc. 84
11,893 Terex Corp. 502
23,379 Trinity Industries, Inc. 801
1,831 Twin Disc, Inc.(a) 45
10,252 Wabash National Corp. 191
7,907 WABCO Holdings, Inc.(a) 925
13,427 Wabtec Corp.(b) 1,324
--------
7,656
--------
================================================================================
32 | USAA EXTENDED MARKET INDEX FUND
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
DATA PROCESSING & OUTSOURCED SERVICES (0.0%)
5,857 Sykes Enterprises, Inc.(a) $ 169
--------
DIVERSIFIED SUPPORT SERVICES (0.4%)
11,747 Healthcare Services Group, Inc.(b) 507
20,902 KAR Auction Services, Inc. 1,145
4,866 Matthews International Corp., "A" 286
3,639 McGrath RentCorp 230
7,352 Mobile Mini, Inc. 345
2,444 Odyssey Marine Exploration, Inc.(A) 20
2,344 UniFirst Corp. 415
3,107 Viad Corp. 169
1,288 VSE Corp. 62
--------
3,179
--------
ELECTRICAL COMPONENTS & EQUIPMENT (0.8%)
6,580 Acuity Brands, Inc. 762
1,620 Allied Motion Technologies, Inc. 78
5,737 Atkore International Group, Inc.(a) 119
3,537 Encore Wire Corp. 168
2,400 Energous Corp.(a) 36
4,423 Energy Focus, Inc.(a) 8
6,551 EnerSys 489
8,240 Enphase Energy, Inc.(a),(b) 55
6,237 FuelCell Energy, Inc.(a) 8
9,944 Generac Holdings, Inc.(a) 514
5,085 GrafTech International Ltd. 91
8,417 Hubbell, Inc. 890
4,195 LSI Industries, Inc. 22
25,113 nVent Electric plc(a) 630
7,855 Orion Energy Systems, Inc.(a) 9
38,979 Plug Power, Inc.(a),(b) 79
1,398 Powell Industries, Inc. 49
368 Preformed Line Products Co. 33
6,944 Regal Beloit Corp. 568
26,687 Sensata Technologies Holding plc(a) 1,270
10,004 Sunrun, Inc.(a) 132
4,851 Sunworks, Inc.(a) 5
5,345 Thermon Group Holdings, Inc.(a) 122
4,545 Ultralife Corp.(a) 44
3,135 Vicor Corp.(a) 137
7,224 Vivint Solar, Inc.(a),(b) 36
--------
6,354
--------
ELECTRONIC COMPONENTS (0.1%)
6,483 Belden, Inc. 396
--------
ENVIRONMENTAL & FACILITIES SERVICES (0.4%)
10,823 ABM Industries, Inc. 316
6,022 Advanced Disposal Services, Inc.(a) 149
1,767 Aqua Metals, Inc.(a) 5
324 BrightView Holdings, Inc.(a) 7
6,369 Casella Waste Systems, Inc., "A"(a) 163
4,277 CECO Environmental Corp. 26
8,279 Clean Harbors, Inc.(a) 460
20,330 Covanta Holding Corp. 336
3,226 Heritage-Crystal Clean, Inc.(a) 65
5,638 Hudson Technologies, Inc.(a),(b) 11
4,810 Perma-Fix Environmental Services(a) 22
2,241 Quest Resource Holding Corp.(a) 4
15,119 Rollins, Inc. 795
2,950 SP Plus Corp.(a) 110
4,703 Team, Inc.(a) 109
8,976 Tetra Tech, Inc. 525
3,348 U.S. Ecology, Inc. 213
--------
3,316
--------
HEAVY ELECTRICAL EQUIPMENT (0.0%)
3,998 AZZ, Inc. 174
30,920 Babcock & Wilcox Enterprises, Inc.(a) 74
================================================================================
PORTFOLIO OF INVESTMENTS | 33
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
4,880 Broadwind Energy, Inc.(a) $ 12
3,678 Capstone Turbine Corp.(a) 5
1,146 Ocean Power Technologies, Inc.(a) 1
1,658 TPI Composites, Inc.(a) 48
--------
314
--------
HUMAN RESOURCE & EMPLOYMENT SERVICES (0.5%)
7,474 ASGN, Inc.(a) 584
1,189 Barrett Business Services, Inc. 115
2,295 BG Staffing, Inc. 53
2,813 GP Strategies Corp.(a) 50
2,753 Heidrick & Struggles International, Inc. 96
7,493 Hudson Global, Inc.(a) 12
5,654 Insperity, Inc. 539
4,059 Kelly Services, Inc., "A" 91
3,944 Kforce, Inc. 135
8,860 Korn/Ferry International 549
10,425 ManpowerGroup, Inc. 897
1,020 Mastech Digital, Inc.(a) 17
6,312 TriNet Group, Inc.(a) 353
6,460 TrueBlue, Inc.(a) 174
5,921 WageWorks, Inc.(a) 296
--------
3,961
--------
INDUSTRIAL CONGLOMERATES (0.2%)
9,566 Carlisle Companies, Inc. 1,036
5,522 Raven Industries, Inc. 212
--------
1,248
--------
INDUSTRIAL MACHINERY (2.5%)
9,588 Actuant Corp., "A" 281
4,299 Albany International Corp., "A" 259
4,683 Altra Industrial Motion Corp. 202
7,572 Barnes Group, Inc. 446
6,373 Briggs & Stratton Corp. 112
4,840 Chart Industries, Inc.(a) 299
494 Chicago Rivet & Machine Co. 16
2,547 CIRCOR International, Inc. 94
15,461 Colfax Corp.(a) 474
2,933 Columbus McKinnon Corp. 127
8,061 Crane Co. 646
2,800 DMC Global, Inc. 126
20,008 Donaldson Co., Inc. 903
871 Eastern Co. 24
5,232 Energy Recovery, Inc.(a) 42
3,440 EnPro Industries, Inc. 241
3,900 ESCO Technologies, Inc. 225
8,762 Evoqua Water Technologies Corp.(a) 180
1,784 ExOne Co.(a),(b) 13
5,838 Franklin Electric Co., Inc. 263
10,894 Gardner Denver Holdings, Inc.(a) 320
5,500 Gates Industrial Corp. plc(a) 90
3,673 Global Brass & Copper Holdings, Inc. 115
2,838 Gorman-Rupp Co. 99
26,262 Graco, Inc. 1,188
1,902 Graham Corp. 49
11,862 Harsco Corp.(a) 262
9,955 Hillenbrand, Inc. 469
1,373 Hurco Companies, Inc. 61
1,727 Hyster-Yale Materials Handling, Inc. 111
12,085 IDEX Corp. 1,649
13,665 ITT, Inc. 714
4,507 Jason Industries, Inc.(a) 10
4,869 John Bean Technologies Corp. 433
1,829 Kadant, Inc. 176
12,554 Kennametal, Inc. 451
1,479 LB Foster Co., "A"(a) 34
9,781 Lincoln Electric Holdings, Inc. 858
2,799 Lydall, Inc.(a) 122
8,629 Middleby Corp.(a) 901
8,386 Milacron Holdings Corp.(a) 159
9,270 Mueller Industries, Inc. 274
================================================================================
34 | USAA EXTENDED MARKET INDEX FUND
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
24,820 Mueller Water Products, Inc., "A" $ 291
4,181 NN, Inc. 79
7,922 Nordson Corp. 1,017
980 Omega Flex, Inc. 78
1,321 Park-Ohio Holdings Corp. 49
1,937 Perma-Pipe International Holdings, Inc.(A) 18
3,849 Proto Labs, Inc.(a) 458
3,670 RBC Bearings, Inc.(a) 473
15,645 Rexnord Corp.(a) 455
6,490 SPX Corp.(a) 227
6,381 SPX FLOW, Inc.(a) 279
2,053 Standex International Corp. 210
4,381 Sun Hydraulics Corp. 211
2,625 Tennant Co. 207
10,466 Timken Co. 456
6,652 TriMas Corp.(a) 196
4,454 Watts Water Technologies, Inc., "A" 349
22,964 Welbilt, Inc.(a) 512
8,805 Woodward, Inc. 677
--------
19,760
--------
MARINE (0.1%)
2,047 Genco Shipping & Trading Ltd.(a) 32
8,614 Kirby Corp.(a) 720
6,329 Matson, Inc. 243
--------
995
--------
OFFICE SERVICES & SUPPLIES (0.3%)
16,442 ACCO Brands Corp. 228
6,901 ARC Document Solutions, Inc.(A) 12
1,034 CompX International, Inc. 14
5,328 Essendant, Inc. 70
8,959 Herman Miller, Inc. 304
6,656 HNI Corp. 248
9,610 Interface, Inc. 221
5,240 Kimball International, Inc., "B" 85
7,374 Knoll, Inc. 153
5,371 MSA Safety, Inc. 517
28,398 Pitney Bowes, Inc. 243
12,921 Steelcase, Inc., "A" 174
5,315 Virco Manufacturing Corp. 24
--------
2,293
--------
RAILROADS (0.1%)
9,759 Genesee & Wyoming, Inc., "A"(a) 794
--------
RESEARCH & CONSULTING SERVICES (0.8%)
8,239 Acacia Research Corp.(a) 34
9,058 CBIZ, Inc.(a) 208
5,669 CoStar Group, Inc.(a) 2,339
1,412 CRA International, Inc. 72
5,713 Dun & Bradstreet Corp. 701
7,770 Exponent, Inc. 375
1,630 Forrester Research, Inc. 68
2,677 Franklin Covey Co.(a) 66
5,963 FTI Consulting, Inc.(a) 361
7,303 Hill International, Inc.(a) 43
3,240 Huron Consulting Group, Inc.(a) 132
3,065 ICF International, Inc. 218
2,701 Mistras Group, Inc.(a) 51
7,309 Navigant Consulting, Inc.(a) 162
621 Red Violet, Inc.(a) 5
4,605 Resources Connection, Inc. 78
23,892 TransUnion 1,712
1,423 Willdan Group, Inc.(a) 44
--------
6,669
--------
SECURITY & ALARM SERVICES (0.1%)
15,773 ADT, Inc.(b) 137
7,775 Brink's Co. 620
--------
757
--------
TRADING COMPANIES & DISTRIBUTORS (1.1%)
14,722 Air Lease Corp. 618
6,349 Applied Industrial Technologies, Inc. 445
================================================================================
PORTFOLIO OF INVESTMENTS | 35
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
10,402 Beacon Roofing Supply, Inc.(a) $ 443
1,431 BlueLinx Holdings, Inc.(a) 54
10,503 BMC Stock Holdings, Inc.(a) 219
2,930 CAI International, Inc.(a) 68
2,735 DXP Enterprises, Inc.(a) 105
998 Foundation Building Materials, Inc.(a) 15
6,015 GATX Corp. 447
3,943 General Finance Corp.(a) 53
4,803 GMS, Inc.(a) 130
4,783 H&E Equipment Services, Inc. 180
29,438 HD Supply Holdings, Inc.(a) 1,263
4,409 Herc Holdings, Inc.(a) 248
3,110 Houston Wire & Cable Co.(a) 26
4,613 Kaman Corp. 322
1,032 Lawson Products, Inc.(a) 25
14,516 MRC Global, Inc.(a) 315
7,246 MSC Industrial Direct Co., Inc., "A" 615
9,162 Nexeo Solutions, Inc.(a) 84
16,086 NOW, Inc.(a) 214
5,240 Rush Enterprises, Inc., "A"(a) 227
684 Rush Enterprises, Inc., "B"(a) 30
6,301 SiteOne Landscape Supply, Inc.(a) 529
2,671 Titan Machinery, Inc.(a) 42
7,149 Triton International Ltd. 219
17,535 Univar, Inc.(a) 460
2,308 Veritiv Corp.(A) 92
4,931 Watsco, Inc. 879
7,166 WESCO International, Inc.(a) 409
1,351 Willis Lease Finance Corp.(a) 43
--------
8,819
--------
TRUCKING (0.8%)
1,019 AMERCO 363
3,519 ArcBest Corp. 161
11,544 Avis Budget Group, Inc.(a) 375
2,275 Covenant Transportation Group, Inc., "A"(a) 72
7,115 Daseke, Inc.(a) 71
6,722 Heartland Express, Inc. 125
13,240 Hertz Global Holdings, Inc.(a) 203
19,728 Knight-Swift Transportation Holdings, Inc. 754
6,731 Landstar System, Inc. 735
5,945 Marten Transport Ltd. 139
10,622 Old Dominion Freight Line, Inc. 1,582
659 PAM Transportation Services, Inc.(a) 31
627 Patriot Transportation Holding, Inc.(a) 14
4,706 Roadrunner Transportation Systems, Inc.(a) 10
8,575 Ryder System, Inc. 616
4,133 Saia, Inc.(a) 334
3,952 Schneider National, Inc., "B" 109
1,233 Universal Logistics Holdings, Inc. 32
1,622 USA Truck, Inc.(a) 38
6,869 Werner Enterprises, Inc. 258
4,920 YRC Worldwide, Inc.(a) 49
--------
6,071
--------
Total Industrials 104,677
--------
INFORMATION TECHNOLOGY (18.7%)
------------------------------
AEROSPACE & DEFENSE (0.0%)
7,626 Mercury Systems, Inc.(a) 290
--------
APPLICATION SOFTWARE (3.3%)
14,330 8x8, Inc.(a) 287
17,713 ACI Worldwide, Inc.(a) 437
3,119 Agilysys, Inc.(a) 48
================================================================================
36 | USAA EXTENDED MARKET INDEX FUND
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
3,261 Altair Engineering, Inc., "A"(a) $ 111
5,062 American Software, Inc., "A" 74
10,897 Aspen Technology, Inc.(a) 1,011
3,050 Asure Software, Inc.(a) 49
16,500 Avaya Holdings Corp.(a) 331
7,425 Blackbaud, Inc. 761
5,897 Blackline, Inc.(a) 256
5,000 Bottomline Technologies de, Inc.(a) 249
18,949 CDK Global, Inc. 1,233
3,067 Ceridian HCM Holding, Inc.(a) 102
1,894 Digimarc Corp.(a) 51
32 Domo, Inc., "B" 1
3,364 Ebix, Inc. 257
5,282 Ellie Mae, Inc.(a),(b) 549
3,078 Everbridge, Inc.(a) 146
2,275 Evolving Systems, Inc.(a) 7
4,791 Fair Isaac Corp.(a) 926
17,785 Glu Mobile, Inc.(a) 114
5,963 GSE Systems, Inc.(a) 19
12,310 Guidewire Software, Inc.(a) 1,093
5,646 HubSpot, Inc.(a) 708
10,859 Manhattan Associates, Inc.(a) 511
1,631 MicroStrategy, Inc., "A"(a) 208
6,170 Mitek Systems, Inc.(a),(f) 55
8,172 MobileIron, Inc.(a) 36
4,111 Model N, Inc.(A) 76
6,127 Monotype Imaging Holdings, Inc. 124
42,388 Nuance Communications, Inc.(a) 589
3,280 Park City Group, Inc.(a) 26
7,530 Paycom Software, Inc.(a) 744
4,271 Paylocity Holding Corp.(a) 251
5,608 Pegasystems, Inc. 307
5,141 Pivotal Software, Inc., "A"(a) 125
2,866 Pluralsight, Inc., "A"(a) 70
4,092 PROS Holdings, Inc.(a) 150
18,060 PTC, Inc.(a) 1,694
1,451 QAD, Inc., "A" 73
311 QAD, Inc., "B" 13
5,145 RealNetworks, Inc.(a) 19
11,162 RealPage, Inc.(a) 615
10,706 RingCentral, Inc., "A"(a) 753
7,106 Seachange International, Inc.(a) 24
2,449 Smartsheet, Inc., "A"(a),(b) 64
3,086 Smith Micro Software, Inc.(a) 7
41,342 Snap, Inc., "A"(a),(b) 541
2,214 Sonic Foundry, Inc.(a) 5
22,860 Splunk, Inc.(a) 2,266
31,666 SS&C Technologies Holdings, Inc. 1,643
5,854 Telenav, Inc.(a) 33
5,580 Tyler Technologies, Inc.(a) 1,239
4,560 Ultimate Software Group, Inc.(a) 1,173
1,929 Upland Software, Inc.(a) 66
9,691 Verint Systems, Inc.(a) 430
6,877 VirnetX Holding Corp.(a),(b) 23
22,970 Workday, Inc., "A"(a) 2,782
4,543 Workiva, Inc.(a) 111
4,053 Zedge, Inc., "B"(a) 15
15,887 Zendesk, Inc.(a) 866
10,588 Zix Corp.(a) 57
--------
26,604
--------
COMMUNICATIONS EQUIPMENT (1.6%)
3,044 Acacia Communications, Inc.(a),(b) 106
7,492 ADTRAN, Inc. 111
3,106 Aerohive Networks, Inc.(a) 12
3,123 Applied Optoelectronics, Inc.(a),(b) 140
7,463 Arista Networks, Inc.(a) 1,922
27,540 ARRIS International plc(a) 673
2,668 Black Box Corp. 5
5,908 CalAmp Corp.(a) 138
7,426 Calix, Inc.(a) 58
================================================================================
PORTFOLIO OF INVESTMENTS | 37
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
1,978 Casa Systems, Inc.(a) $ 32
22,176 Ciena Corp.(a) 588
2,370 Clearfield, Inc.(a) 26
29,803 CommScope Holding Co., Inc.(a) 870
3,715 Comtech Telecommunications Corp. 118
4,719 Digi International, Inc.(a) 62
7,895 EchoStar Corp., "A"(a) 351
4,624 EMCORE Corp.(a) 23
18,940 Extreme Networks, Inc.(a) 151
17,636 Finisar Corp.(a) 318
300 Frontline Capital Group(c),(d) -
12,042 Harmonic, Inc.(a) 51
22,378 Infinera Corp.(a) 222
5,491 InterDigital, Inc. 444
2,945 KVH Industries, Inc.(a) 40
9,095 Lantronix, Inc.(a) 26
9,473 Lumentum Holdings, Inc.(a) 549
5,225 NETGEAR, Inc.(a) 327
12,397 NetScout Systems, Inc.(a) 368
26,290 Oclaro, Inc.(a) 235
1,750 Optical Cable Corp.(a) 7
14,249 Palo Alto Networks, Inc.(a) 2,928
4,644 ParkerVision, Inc.(a) 3
4,538 PC-Tel, Inc.(a) 28
5,004 Plantronics, Inc. 382
3,665 Quantenna Communications, Inc.(a) 57
8,411 Ribbon Communications, Inc.(a) 60
3,524 Ubiquiti Networks, Inc.(a),(b) 299
8,405 ViaSat, Inc.(a) 552
36,093 Viavi Solutions, Inc.(a) 370
--------
12,652
--------
DATA PROCESSING & OUTSOURCED SERVICES (2.3%)
22,258 Black Knight, Inc.(a) 1,192
7,594 Cardtronics plc, "A"(a) 184
1,445 Cass Information Systems, Inc. 99
30,270 Conduent, Inc.(a) 550
14,425 Convergys Corp. 353
13,193 CoreLogic, Inc.(a) 685
4,927 CSG Systems International, Inc. 201
8,232 Euronet Worldwide, Inc.(a) 690
10,402 Everi Holdings, Inc.(a) 75
9,459 EVERTEC, Inc. 207
740 Evo Payments, Inc., "A"(a) 15
5,026 ExlService Holdings, Inc.(a) 285
70,778 First Data Corp., "A"(a) 1,481
23,525 Genpact Ltd. 681
148 GreenSky, Inc., "A"(a) 3
6,741 Innodata, Inc.(a) 7
12,124 Jack Henry & Associates, Inc. 1,580
10,231 MAXIMUS, Inc. 635
5,436 MoneyGram International, Inc.(a) 36
6,115 PRGX Global, Inc.(a) 59
38,965 Sabre Corp. 960
45,060 Square, Inc., "A"(a) 2,777
3,340 StarTek, Inc.(a) 21
9,568 Steel Connect, Inc.(a) 21
5,667 Syntel, Inc.(a) 182
19,914 Travelport Worldwide Ltd. 369
2,549 TTEC Holdings, Inc. 88
6,351 WEX, Inc.(a) 1,210
46,793 Worldpay, Inc., "A"(a) 3,827
--------
18,473
--------
ELECTRONIC COMPONENTS (0.4%)
1,429 Akoustis Technologies, Inc.(a) 11
6,239 AVX Corp. 98
2,157 Bel Fuse, Inc., "B" 45
9,356 Dolby Laboratories, Inc., "A" 577
8,248 II-VI, Inc.(a) 358
================================================================================
38 | USAA EXTENDED MARKET INDEX FUND
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
15,810 Knowles Corp.(a) $ 242
3,813 Littelfuse, Inc. 870
2,685 Rogers Corp.(a) 299
20,274 Vishay Intertechnology, Inc. 470
--------
2,970
--------
ELECTRONIC EQUIPMENT & INSTRUMENTS (1.2%)
6,764 Applied DNA Sciences, Inc.(a) 9
4,645 Badger Meter, Inc. 208
27,068 Cognex Corp. 1,207
3,889 Coherent, Inc.(a) 608
3,575 Control4 Corp.(a) 87
6,043 Daktronics, Inc. 51
5,070 Electro Scientific Industries, Inc.(a) 80
2,690 FARO Technologies, Inc.(a) 146
27,916 Fitbit, Inc., "A"(a) 182
3,541 ID Systems, Inc.(a) 22
3,365 Identiv, Inc.(a) 13
4,248 Iteris, Inc.(a) 21
5,094 Itron, Inc.(a) 306
28,772 Keysight Technologies, Inc.(a) 1,698
6,052 LightPath Technologies, Inc., "A"(a) 14
8,678 LRAD Corp.(a) 23
562 Mesa Laboratories, Inc. 119
10,983 MicroVision, Inc.(a) 12
2,593 MTS Systems Corp. 136
2,478 Napco Security Technologies, Inc.(a) 36
16,838 National Instruments Corp. 707
1,369 nLight, Inc.(a) 45
5,098 Novanta, Inc.(a) 318
2,791 OSI Systems, Inc.(a) 216
3,332 PAR Technology Corp.(a) 59
5,552 Research Frontiers, Inc.(a) 5
38,641 Trimble, Inc.(a) 1,269
17,417 VeriFone Systems, Inc.(a) 397
2,569 Vishay Precision Group, Inc.(a) 98
8,305 Zebra Technologies Corp., "A"(a) 1,190
--------
9,282
--------
ELECTRONIC MANUFACTURING SERVICES (0.4%)
7,614 Benchmark Electronics, Inc. 222
5,283 CTS Corp. 190
6,297 eMagin Corp.(a) 11
6,340 Fabrinet(a) 234
27,147 Jabil, Inc. 751
7,636 KEMET Corp.(a) 185
5,162 Kimball Electronics, Inc.(a) 95
5,619 Maxwell Technologies, Inc.(a),(b) 29
5,654 Methode Electronics, Inc. 228
12,904 Neonode, Inc.(a) 5
3,206 Park Electrochemical Corp. 74
5,087 Plexus Corp.(a) 303
11,339 Sanmina Corp.(a) 332
13,962 TTM Technologies, Inc.(a) 246
--------
2,905
--------
FINANCIAL EXCHANGES & DATA (0.1%)
6,080 FactSet Research Systems, Inc. 1,204
--------
HOME ENTERTAINMENT SOFTWARE (0.1%)
3,678 Rosetta Stone, Inc.(a) 59
126,814 Zynga, Inc., "A"(a) 516
--------
575
--------
INTERNET SOFTWARE & SERVICES (2.8%)
8,757 2U, Inc.(a) 732
3,603 Alarm.com Holdings, Inc.(a) 146
3,544 Alteryx, Inc., "A"(a) 135
4,539 Amber Road, Inc.(a) 43
8,054 ANGI Homeservices, Inc., "A"(a) 124
1,791 Appfolio, Inc., "A"(a) 110
5,621 Apptio, Inc., "A"(a) 204
2,014 AutoWeb, Inc.(a) 9
1,147 Bandwidth, Inc., "A"(a) 44
================================================================================
PORTFOLIO OF INVESTMENTS | 39
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
3,803 Benefitfocus, Inc.(a) $ 128
6,758 Blucora, Inc.(a) 250
20,851 Box, Inc., "A"(a) 521
5,883 Brightcove, Inc.(a) 57
3,394 Carbonite, Inc.(a) 119
1,738 Care.com, Inc.(a),(f) 36
1,300 Cargurus, Inc.(a) 45
11,105 Cars.com, Inc.(a) 315
4,783 ChannelAdvisor Corp.(a) 67
7,365 Cision Ltd.(a) 110
11,972 Cloudera, Inc.(a),(f) 163
7,793 Cornerstone OnDemand, Inc.(a) 370
4,657 Coupa Software, Inc.(a) 290
2,985 Determine, Inc.(a) 4
8,680 DHI Group, Inc.(a) 20
3,001 DocuSign, Inc.(a),(b) 159
7,757 Dropbox, Inc., "A"(a) 252
3,549 eGain Corp.(a) 54
12,628 Endurance International Group Holdings, Inc.(a) 126
7,421 Envestnet, Inc.(a) 408
17,454 Etsy, Inc.(a) 736
65 EverQuote, Inc., "A"(a) 1
8,034 Five9, Inc.(a) 278
24,462 GoDaddy, Inc., "A"(a) 1,727
8,869 Gogo, Inc.(a),(b) 43
14,006 GrubHub, Inc.(a) 1,469
5,160 GTT Communications, Inc.(a),(b) 232
10,779 Hortonworks, Inc.(a) 196
12,036 IAC/Interactivecorp(a) 1,835
4,379 Instructure, Inc.(a) 186
2,303 Internap Corp.(a) 24
12,564 iPass, Inc.(a) 4
7,542 j2 Global, Inc. 653
4,096 Leaf Group Ltd.(a) 44
18,696 Limelight Networks, Inc.(a) 84
4,477 Liquidity Services, Inc.(a) 29
8,346 LivePerson, Inc.(a) 176
8,216 LogMeIn, Inc. 848
5,246 Marchex, Inc., "B" 16
10,225 Match Group, Inc.(a),(b) 396
13,832 Meet Group, Inc.(a) 62
4,662 MINDBODY, Inc., "A"(a) 180
3,605 MongoDB, Inc.(a) 179
6,653 New Relic, Inc.(a) 669
9,602 NIC, Inc. 149
10,509 Nutanix, Inc., "A"(a) 542
12,075 Okta, Inc.(a) 608
37,583 Pandora Media, Inc.(a) 296
5,319 Q2 Holdings, Inc.(a) 303
7,427 QuinStreet, Inc.(a) 94
2,149 Qumu Corp.(a) 5
11,904 Quotient Technology, Inc.(a) 156
1,837 Reis, Inc. 40
4,264 Remark Holdings, Inc.(a) 17
1,170 SendGrid, Inc.(a) 31
2,987 Shutterstock, Inc.(a) 142
2,618 SPS Commerce, Inc.(a) 192
2,679 Stamps.com, Inc.(a) 678
5,782 Support.com, Inc.(a) 17
2,802 TechTarget, Inc.(a) 80
3,552 Trade Desk, Inc., "A"(a) 333
2,100 Travelzoo(a) 36
11,249 TrueCar, Inc.(a),(f) 114
10,986 Twilio, Inc., "A"(a) 615
8,012 Web.com Group, Inc.(a) 207
4,167 XO Group, Inc.(a) 133
11,606 Yelp, Inc.(a) 455
11,509 Yext, Inc.(a) 223
7,314 Zillow Group, Inc., "A"(a) 437
17,671 Zillow Group, Inc., "C"(a) 1,044
--------
22,055
--------
IT CONSULTING & OTHER SERVICES (0.9%)
11,802 Acxiom Corp.(a) 353
22,634 Booz Allen Hamilton Holding Corp. 990
3,899 CACI International, Inc., "A"(a) 657
245 Computer Task Group, Inc.(a) 2
6,273 ConvergeOne Holdings, Inc. 59
7,974 EPAM Systems, Inc.(a) 991
4,211 Hackett Group, Inc. 68
================================================================================
40 | USAA EXTENDED MARKET INDEX FUND
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
22,407 Leidos Holdings, Inc. $ 1,322
3,813 ManTech International Corp., "A" 204
5,910 Perficient, Inc.(a) 156
22,151 Perspecta, Inc. 455
4,111 PFSweb, Inc.(a) 40
5,328 Presidio, Inc.(a) 70
6,692 Science Applications International Corp. 542
10,518 ServiceSource International, Inc.(a) 41
5,146 Switch, Inc., "A" 63
19,206 Teradata Corp.(a) 771
7,423 Unisys Corp.(a) 96
4,107 Virtusa Corp.(a) 200
--------
7,080
--------
SEMICONDUCTOR EQUIPMENT (0.8%)
6,210 Advanced Energy Industries, Inc.(a) 361
18,642 Amkor Technology, Inc.(a) 160
2,148 Amtech Systems, Inc.(a) 13
4,811 Axcelis Technologies, Inc.(a) 95
6,341 AXT, Inc.(a) 45
10,683 Brooks Automation, Inc. 349
4,023 Cabot Microelectronics Corp. 433
4,081 Cohu, Inc. 100
1,663 CyberOptics Corp.(a) 29
21,468 Entegris, Inc. 728
11,782 FormFactor, Inc.(a) 157
2,560 Ichor Holdings Ltd.(a) 54
10,388 Kulicke & Soffa Industries, Inc. 247
8,485 MKS Instruments, Inc. 812
4,363 Nanometrics, Inc.(a) 155
4,645 PDF Solutions, Inc.(a) 56
10,897 Photronics, Inc.(a) 87
529 Rubicon Technology, Inc.(a) 4
5,365 Rudolph Technologies, Inc.(a) 159
6,341 SolarEdge Technologies, Inc.(a) 303
30,363 Teradyne, Inc. 1,156
5,086 Ultra Clean Holdings, Inc.(a) 84
8,156 Veeco Instruments, Inc.(a) 116
17,213 Versum Materials, Inc. 639
9,468 Xcerra Corp.(a) 132
7,141 Xperi Corp. 115
--------
6,589
--------
SEMICONDUCTORS (1.8%)
2,913 Alpha & Omega Semiconductor Ltd.(a) 41
10,919 Cavium, Inc.(a) 944
3,467 CEVA, Inc.(a) 105
9,552 Cirrus Logic, Inc.(a) 366
16,134 Cree, Inc.(a) 671
54,719 Cypress Semiconductor Corp. 852
5,690 Diodes, Inc.(a) 196
4,564 DSP Group, Inc.(a) 57
12,518 First Solar, Inc.(a) 659
4,254 GSI Technology, Inc.(a) 32
2,838 Impinj, Inc.(a) 63
6,551 Inphi Corp.(a) 214
20,498 Integrated Device Technology, Inc.(a) 653
11,813 Kopin Corp.(a) 34
19,222 Lattice Semiconductor Corp.(a) 126
6,324 MACOM Technology Solutions Holdings, Inc.(a) 146
68,235 Marvell Technology Group Ltd. 1,463
43,248 Maxim Integrated Products, Inc. 2,537
9,324 MaxLinear, Inc.(a) 145
5,914 Monolithic Power Systems, Inc. 790
1,465 MoSys, Inc.(a) 3
4,903 NeoPhotonics Corp.(a),(b) 31
974 NVE Corp. 119
66,007 ON Semiconductor Corp.(a) 1,468
5,286 Pixelworks, Inc.(a) 19
4,924 Power Integrations, Inc. 360
================================================================================
PORTFOLIO OF INVESTMENTS | 41
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
9,826 Quicklogic Corp.(a) $ 11
16,362 Rambus, Inc.(a) 205
10,811 Semtech Corp.(a) 509
6,054 Sigma Designs, Inc.(a) 37
6,872 Silicon Laboratories, Inc.(a) 684
785 SMART Global Holdings, Inc.(a) 25
9,200 SunPower Corp.(a),(b) 71
5,229 Synaptics, Inc.(a) 263
6,605 Universal Display Corp. 568
--------
14,467
--------
SYSTEMS SOFTWARE (2.0%)
6,913 A10 Networks, Inc.(a) 43
1,834 Appian Corp.(a) 66
1,934 Carbon Black, Inc.(a) 50
6,399 Commvault Systems, Inc.(a) 421
30,960 Dell Technologies, Inc., "V"(a) 2,619
29,722 FireEye, Inc.(a) 457
3,900 ForeScout Technologies, Inc.(a) 134
22,598 Fortinet, Inc.(a) 1,411
5,073 Imperva, Inc.(a) 245
4,683 OneSpan, Inc.(a) 92
7,313 Progress Software Corp. 284
7,773 Proofpoint, Inc.(a) 896
4,934 Qualys, Inc.(a) 416
6,794 Rapid7, Inc.(a) 192
6,574 Rubicon Project, Inc.(a) 19
7,550 SailPoint Technologies Holding, Inc.(a) 185
27,439 ServiceNow, Inc.(a) 4,732
10,506 Tableau Software, Inc., "A"(a) 1,027
18,079 TiVo Corp. 243
3,341 Varonis Systems, Inc.(a) 249
11,008 Vmware, Inc., "A"(a) 1,618
1,974 Zscaler, Inc.(a),(b) 71
1,543 Zuora, Inc., "A"(a) 42
--------
15,512
--------
TECHNOLOGY DISTRIBUTORS (0.7%)
4,284 Anixter International, Inc.(a) 271
13,714 Arrow Electronics, Inc.(a) 1,032
18,437 Avnet, Inc. 791
23,398 CDW Corp. 1,890
2,204 ePlus, Inc.(a) 207
5,507 Insight Enterprises, Inc.(a) 270
1,900 PC Connection, Inc. 63
1,516 PCM, Inc.(a) 23
3,608 ScanSource, Inc.(a) 146
4,401 SYNNEX Corp. 425
1,844 Systemax, Inc. 63
5,204 Tech Data Corp.(a) 427
--------
5,608
--------
TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (0.3%)
17,506 3D Systems Corp.(a),(b) 242
5,767 Avid Technology, Inc.(a) 30
6,048 Cray, Inc.(a) 149
12,634 Diebold Nixdorf, Inc. 151
6,100 Eastman Kodak Co.(a) 23
7,109 Electronics For Imaging, Inc.(a) 231
5,072 Immersion Corp.(a) 78
5,485 Intevac, Inc.(a) 27
18,598 NCR Corp.(a) 558
17,291 Pure Storage, Inc., "A"(a),(f) 413
5,670 Quantum Corp.(a) 12
6,046 Super Micro Computer, Inc.(a) 143
2,692 TransAct Technologies, Inc. 34
7,417 USA Technologies, Inc.(a) 104
--------
2,195
--------
Total Information Technology 148,461
--------
MATERIALS (5.1%)
----------------
ALUMINUM (0.2%)
27,165 Alcoa Corp.(a) 1,274
7,937 Century Aluminum Co.(a) 125
2,778 Kaiser Aluminum Corp. 289
--------
1,688
--------
================================================================================
42 | USAA EXTENDED MARKET INDEX FUND
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
COMMODITY CHEMICALS (0.5%)
4,587 AdvanSix, Inc.(a) $ 168
9,923 Cabot Corp. 613
1,620 Hawkins, Inc. 57
3,456 Koppers Holdings, Inc.(a) 133
3,366 Kronos Worldwide, Inc. 76
1,700 Loop Industries, Inc.(a) 19
25,949 Olin Corp. 745
4,189 Trecora Resources(a) 62
3,711 Tredegar Corp. 87
7,002 Trinseo S.A. 497
13,331 Tronox Ltd., "A" 262
31,346 Valvoline, Inc. 676
5,649 Westlake Chemical Corp. 608
--------
4,003
--------
CONSTRUCTION MATERIALS (0.2%)
7,609 Eagle Materials, Inc. 799
2,885 Forterra, Inc.(a) 28
17,224 Summit Materials, Inc., "A"(a) 452
2,627 U.S. Concrete, Inc.(a),(b) 138
311 United States Lime & Minerals, Inc. 26
--------
1,443
--------
DIVERSIFIED CHEMICALS (0.3%)
27,232 Chemours Co. 1,208
32,571 Huntsman Corp. 951
2,939 LSB Industries, Inc.(a) 16
--------
2,175
--------
DIVERSIFIED METALS & MINING (0.1%)
5,446 Compass Minerals International, Inc. 358
21,436 General Moly, Inc.(a) 9
3,097 Materion Corp. 168
15,315 Solitario Zinc Corp.(a) 6
74 U.S. Gold Corp.(a) -
--------
541
--------
FERTILIZERS & AGRICULTURAL CHEMICALS (0.1%)
3,270 AgroFresh Solutions, Inc.(a) 23
3,882 American Vanguard Corp. 89
18,112 Intrepid Potash, Inc.(a) 74
6,384 Scotts Miracle-Gro Co. 531
--------
717
--------
FOREST PRODUCTS (0.1%)
5,862 Boise Cascade Co. 262
22,936 Louisiana-Pacific Corp. 624
--------
886
--------
GOLD (0.1%)
8,706 Gold Resource Corp. 57
36,703 McEwen Mining, Inc.(a) 76
5,475 Pershing Gold Corp.(a) 10
10,083 Royal Gold, Inc. 936
--------
1,079
--------
INDUSTRIAL GASES (0.0%)
22 MagneGas Corp.(a) -
--------
METAL & GLASS CONTAINERS (0.5%)
9,688 AptarGroup, Inc. 905
20,191 Berry Global Group, Inc.(a) 927
21,282 Crown Holdings, Inc.(a) 953
4,371 Greif, Inc., "A" 231
1,017 Greif, Inc., "B" 59
3,762 Myers Industries, Inc. 72
25,629 Owens-Illinois, Inc.(a) 431
12,070 Silgan Holdings, Inc. 324
--------
3,902
--------
PAPER PACKAGING (0.3%)
14,048 Bemis Co., Inc. 593
49,694 Graphic Packaging Holding Co. 721
15,359 Sonoco Products Co. 806
1,471 UFP Technologies, Inc.(a) 46
--------
2,166
--------
PAPER PRODUCTS (0.2%)
2,534 Clearwater Paper Corp.(a) 58
9,442 Domtar Corp. 451
13,378 KapStone Paper and Packaging Corp. 462
6,229 Mercer International, Inc. 109
2,503 Neenah, Inc. 212
================================================================================
PORTFOLIO OF INVESTMENTS | 43
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
6,319 PH Glatfelter Co. $ 124
12,838 Resolute Forest Products, Inc.(a) 133
4,407 Schweitzer-Mauduit International, Inc. 193
5,490 Verso Corp., "A"(a) 119
--------
1,861
--------
PRECIOUS METALS & MINERALS (0.0%)
9,302 Golden Minerals Co.(a) 3
--------
SILVER (0.1%)
28,493 Coeur Mining, Inc.(a) 216
61,702 Hecla Mining Co. 215
--------
431
--------
SPECIALTY CHEMICALS (1.6%)
4,402 A Schulman, Inc. 196
2,935 Advanced Emissions Solutions, Inc. 33
9,543 Ashland Global Holdings, Inc. 746
34,158 Axalta Coating Systems Ltd.(a) 1,035
4,848 Balchem Corp. 476
21,187 Celanese Corp., "A" 2,353
1,295 Chase Corp. 152
13,135 Ferro Corp.(a) 274
8,081 Flotek Industries, Inc.(a) 26
3,639 FutureFuel Corp. 51
10,983 GCP Applied Technologies, Inc.(a) 318
7,981 HB Fuller Co. 428
6,519 Ingevity Corp.(a) 527
3,017 Innophos Holdings, Inc. 144
3,555 Innospec, Inc. 272
1,984 KMG Chemicals, Inc. 146
4,717 Kraton Corp.(a) 218
5,478 Minerals Technologies, Inc. 413
1,458 NewMarket Corp. 590
6,506 OMNOVA Solutions, Inc.(a) 68
34,204 Platform Specialty Products Corp.(a) 397
12,483 PolyOne Corp. 540
3,954 PQ Group Holdings, Inc.(a) 71
2,000 Quaker Chemical Corp. 310
7,822 Rayonier Advanced Materials, Inc. 134
20,752 RPM International, Inc. 1,210
7,801 Senomyx, Inc.(a) 9
6,656 Sensient Technologies Corp. 476
2,878 Stepan Co. 224
6,929 Valhi, Inc. 33
7,386 Venator Materials plc(a) 121
10,750 WR Grace & Co. 788
--------
12,779
--------
STEEL (0.8%)
48,143 AK Steel Holding Corp.(a),(b) 209
19,439 Allegheny Technologies, Inc.(a) 488
1,955 Ampco-Pittsburgh Corp.(a) 20
7,069 Carpenter Technology Corp. 372
45,149 Cleveland-Cliffs, Inc.(a) 381
17,547 Commercial Metals Co. 370
2,787 Friedman Industries, Inc. 23
2,039 Haynes International, Inc. 75
1,597 Olympic Steel, Inc. 33
11,267 Reliance Steel & Aluminum Co. 986
2,400 Ryerson Holding Corp.(a) 27
4,015 Schnitzer Steel Industries, Inc., "A" 135
36,801 Steel Dynamics, Inc. 1,691
9,743 SunCoke Energy, Inc.(a) 131
2,147 Synalloy Corp. 43
5,808 TimkenSteel Corp.(a) 95
27,323 United States Steel Corp. 949
1,302 Universal Stainless & Alloy Products, Inc.(a) 31
6,981 Warrior Met Coal, Inc. 192
6,911 Worthington Industries, Inc. 290
--------
6,541
--------
Total Materials 40,215
--------
================================================================================
44 | USAA EXTENDED MARKET INDEX FUND
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
REAL ESTATE (6.5%)
------------------
CONSTRUCTION & ENGINEERING (0.0%)
4,800 Willscot Corp.(a),(b) $ 71
--------
DIVERSIFIED REAL ESTATE ACTIVITIES (0.0%)
1,011 Consolidated-Tomoka Land Co. 62
1,340 RMR Group, Inc., "A" 105
10,898 St Joe Co.(a) 196
3,190 Tejon Ranch Co.(a) 77
--------
440
--------
REAL ESTATE DEVELOPMENT (0.1%)
1,509 Forestar Group, Inc.(a) 31
6,183 Howard Hughes Corp.(a) 819
2,281 Maui Land & Pineapple Co., Inc.(a) 26
511 Stratus Properties, Inc.(a) 16
--------
892
--------
REAL ESTATE OPERATING COMPANIES (0.1%)
1,631 American Realty Investors, Inc.(a) 26
1,209 FRP Holdings, Inc.(a) 78
1,073 Griffin Industrial Realty, Inc. 47
20,399 Kennedy-Wilson Holdings, Inc. 431
1,486 Rafael Holdings, Inc., "B"(a) 14
1,093 Trinity Place Holdings, Inc.(a) 7
--------
603
--------
REAL ESTATE SERVICES (0.2%)
1,818 Altisource Portfolio Solutions S.A.(a) 53
5,858 HFF, Inc., "A" 201
2,728 Marcus & Millichap, Inc.(a) 107
18,900 Newmark Group, Inc., "A" 269
2,929 RE/MAX Holdings, Inc.,"A" 154
21,092 Realogy Holdings Corp.(b) 481
1,360 Redfin Corp.(a),(b) 31
--------
1,296
--------
REITs - DIVERSIFIED (1.0%)
10,584 Alexander & Baldwin, Inc. 249
5,923 American Assets Trust, Inc. 227
7,680 Armada Hoffler Properties, Inc. 114
73,624 Colony Capital, Inc. 459
19,567 Empire State Realty Trust, Inc., "A" 335
40,744 Forest City Realty Trust, Inc., "A" 929
11,847 Global Net Lease, Inc. 242
11,959 iStar, Inc.(a) 129
31,494 Lexington Realty Trust 275
22,607 Liberty Property Trust 1,002
2,978 One Liberty Properties, Inc. 79
9,802 Select Income REIT 220
26,260 STORE Capital Corp. 720
151,732 VEREIT, Inc. 1,129
11,952 Washington Real Estate Investment Trust 362
16,708 WP Carey, Inc. 1,109
--------
7,580
--------
REITs - HEALTH CARE (0.7%)
12,118 CareTrust REIT, Inc. 202
2,796 Community Healthcare Trust, Inc. 84
2,946 Global Medical REIT, Inc. 26
31,565 Healthcare Trust of America, Inc., "A" 851
6,172 LTC Properties, Inc. 264
4,425 MedEquities Realty Trust, Inc. 49
55,582 Medical Properties Trust, Inc. 780
6,241 National Health Investors, Inc. 460
14,071 New Senior Investment Group, Inc. 107
30,915 Omega Healthcare Investors, Inc. 958
27,835 Physicians Realty Trust 444
14,098 Quality Care Properties, Inc.(a) 303
================================================================================
PORTFOLIO OF INVESTMENTS | 45
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
38,277 Senior Housing Properties Trust $ 692
2,237 Universal Health Realty Income Trust 143
--------
5,363
--------
REITs - HOTEL & RESORT (0.6%)
34,977 Apple Hospitality REIT, Inc. 625
5,078 Braemar Hotels & Resorts, Inc. 58
8,980 Chesapeake Lodging Trust 284
151 Condor Hospitality Trust, Inc. 2
6,237 CorePoint Lodging, Inc.(a) 161
6,587 Hersha Hospitality Trust 141
17,826 LaSalle Hotel Properties 610
31,428 Park Hotels & Resorts, Inc. 963
27,386 RLJ Lodging Trust 604
8,226 Ryman Hospitality Properties, Inc. 684
17,434 Xenia Hotels & Resorts, Inc. 425
--------
4,557
--------
REITs - INDUSTRIAL (0.5%)
6,500 Americold Realty Trust 143
14,945 DCT Industrial Trust, Inc. 997
5,483 EastGroup Properties, Inc. 524
24,671 Gramercy Property Trust 674
2,700 Industrial Logistics Properties Trust 61
840 Innovative Industrial Properties, Inc. 31
12,241 Monmouth Real Estate Investment Corp. 202
12,939 Rexford Industrial Realty, Inc. 406
14,917 STAG Industrial, Inc. 406
8,380 Terreno Realty Corp. 316
--------
3,760
--------
REITs - OFFICE (0.8%)
29,179 Brandywine Realty Trust 493
2,998 CIM Commercial Trust Corp. 45
5,013 City Office REIT, Inc. 64
18,064 Columbia Property Trust, Inc. 410
65,203 Cousins Properties, Inc. 632
24,612 Douglas Emmett, Inc. 989
7,189 Easterly Government Properties, Inc. 142
23,986 Hudson Pacific Properties, Inc. 850
14,163 JBG SMITH Properties 516
15,188 Kilroy Realty Corp. 1,149
9,768 NorthStar Realty Europe Corp. 142
33,090 Paramount Group, Inc. 510
19,792 Piedmont Office Realty Trust, Inc., "A" 394
7,404 Tier REIT, Inc. 176
--------
6,512
--------
REITs - RESIDENTIAL (0.6%)
21,380 American Campus Communities, Inc. 917
39,598 American Homes 4 Rent, "A" 878
4,733 Bluerock Residential Growth REIT, Inc. 42
3,601 BRT Apartments Corp. 46
9,073 Front Yard Residential Corp. 95
13,622 Independence Realty Trust, Inc. 140
19,805 Investors Real Estate Trust 110
43,675 Invitation Homes, Inc. 1,007
3,248 NexPoint Residential Trust, Inc. 92
6,566 Preferred Apartment Communities, Inc., "A" 112
12,741 Sun Communities, Inc. 1,247
5,693 UMH Properties, Inc. 87
--------
4,773
--------
REITs - RETAIL (0.8%)
12,259 Acadia Realty Trust 336
4,964 Agree Realty Corp. 262
================================================================================
46 | USAA EXTENDED MARKET INDEX FUND
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
553 Alexander's, Inc. $ 212
47,285 Brixmor Property Group, Inc. 824
12,109 Cedar Realty Trust, Inc. 57
24,346 DDR Corp. 436
4,438 Getty Realty Corp. 125
12,411 Kite Realty Group Trust 212
24,079 National Retail Properties, Inc. 1,058
10,348 Pennsylvania Real Estate Investment Trust 114
18,131 Retail Opportunity Investments Corp. 347
36,165 Retail Properties of America, Inc., "A" 462
1,841 Saul Centers, Inc. 99
4,194 Seritage Growth Properties, "A"(b) 178
6,802 Spirit MTA REIT(a) 70
68,029 SPIRIT REALTY CAPITAL, INC. 546
15,710 Urban Edge Properties 359
4,981 Urstadt Biddle Properties, Inc., "A" 113
30,002 Washington Prime Group, Inc. 243
18,323 Weingarten Realty Investors 565
7,047 Whitestone REIT 88
--------
6,706
--------
REITs - SPECIALIZED (1.1%)
7,387 CatchMark Timber Trust, INC., "A" 94
17,915 CoreCivic, Inc. 428
2,295 CorEnergy Infrastructure Trust, Inc. 86
5,210 CoreSite Realty Corp. 577
28,024 CubeSmart 903
15,854 CyrusOne, Inc. 925
5,867 Farmland Partners, Inc. 52
10,488 Four Corners Property Trust, Inc. 258
31,105 Gaming and Leisure Properties, Inc. 1,114
20,145 GEO Group, Inc. 555
1,785 Gladstone Land Corp. 23
6,218 InfraREIT, Inc. 138
1,863 Jernigan Capital, Inc. 35
12,881 Lamar Advertising Co., "A" 880
7,129 Life Storage, Inc. 694
8,526 National Storage Affiliates Trust 263
22,277 Outfront Media, Inc. 433
9,422 PotlatchDeltic Corp. 479
7,599 QTS Realty Trust, Inc., "A" 300
1,418 Safety, Income & Growth, Inc. 27
26,939 Uniti Group, Inc. 540
9,860 VICI Properties, Inc. 203
--------
9,007
--------
Total Real Estate 51,560
--------
TELECOMMUNICATION SERVICES (0.9%)
---------------------------------
ALTERNATIVE CARRIERS (0.3%)
6,834 Cogent Communications Holdings, Inc. 365
62,873 Globalstar, Inc.(a) 31
12,372 Iridium Communications, Inc.(a) 199
12,823 ORBCOMM, Inc.(a) 129
1,832 pdvWireless, Inc.(a) 46
33,009 Vonage Holdings Corp.(a) 425
29,599 Zayo Group Holdings, Inc.(a) 1,080
--------
2,275
--------
INTEGRATED TELECOMMUNICATION SERVICES (0.1%)
1,577 ATN International, Inc. 83
6,259 Cincinnati Bell, Inc.(a) 98
9,996 Consolidated Communications Holdings, Inc. 124
12,098 Frontier Communications Corp.(b) 65
2,127 Hawaiian Telcom Holdco, Inc.(a) 62
2,972 IDT Corp., "B"(a) 17
================================================================================
PORTFOLIO OF INVESTMENTS | 47
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
2,194 Ooma, Inc.(a) $ 31
5,747 Windstream Holdings, Inc.(a) 30
--------
510
--------
WIRELESS TELECOMMUNICATION SERVICES (0.5%)
6,907 Boingo Wireless, Inc.(a) 156
14,857 NII Holdings, Inc.(a) 58
7,479 Shenandoah Telecommunications Co. 245
3,740 Spok Holdings, Inc. 56
104,044 Sprint Corp.(a) 566
15,218 Telephone & Data Systems, Inc. 417
45,867 T-Mobile US, Inc.(a) 2,741
1,710 United States Cellular Corp.(a) 63
--------
4,302
--------
Total Telecommunication Services 7,087
--------
UTILITIES (2.7%)
----------------
ELECTRIC UTILITIES (0.7%)
8,202 ALLETE, Inc. 635
8,369 Avangrid, Inc. 443
6,588 El Paso Electric Co. 389
3,673 Genie Energy Ltd., "B" 18
17,112 Hawaiian Electric Industries, Inc. 587
7,629 IDACORP, Inc. 704
5,537 MGE Energy, Inc. 349
31,439 OGE Energy Corp. 1,107
5,878 Otter Tail Corp. 280
11,944 PNM Resources, Inc. 465
13,614 Portland General Electric Co. 582
2,263 Spark Energy, Inc., "A" 22
--------
5,581
--------
GAS UTILITIES (1.0%)
17,116 Atmos Energy Corp. 1,543
2,612 Chesapeake Utilities Corp. 209
13,759 National Fuel Gas Co. 729
13,782 New Jersey Resources Corp. 617
4,404 Northwest Natural Gas Co. 281
8,429 ONE Gas, Inc. 630
1,321 RGC Resources, Inc. 38
14,021 South Jersey Industries, Inc. 469
7,584 Southwest Gas Holdings, Inc. 578
8,176 Spire, Inc. 578
26,803 UGI Corp. 1,396
8,060 WGL Holdings, Inc. 715
--------
7,783
--------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS (0.2%)
6,065 NRG Yield, Inc., "A" 103
9,117 NRG Yield, Inc., "C" 157
57,684 Vistra Energy Corp.(a) 1,365
--------
1,625
--------
MULTI-UTILITIES (0.4%)
10,331 Avista Corp. 544
8,064 Black Hills Corp. 494
30,233 MDU Resources Group, Inc. 867
7,806 NorthWestern Corp. 447
2,550 Unitil Corp. 130
13,062 Vectren Corp. 933
--------
3,415
--------
RENEWABLE ENERGY (0.1%)
5,791 Ormat Technologies, Inc. 308
13,384 Pattern Energy Group, Inc., "A" 251
7,031 TerraForm Power, Inc., "A" 82
--------
641
--------
WATER UTILITIES (0.3%)
5,470 American States Water Co. 313
27,284 Aqua America, Inc. 960
1,801 AquaVenture Holdings Ltd.(a) 28
1,250 Artesian Resources Corp., "A" 48
4,834 Cadiz, Inc.(a),(b) 63
================================================================================
48 | USAA EXTENDED MARKET INDEX FUND
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
7,033 California Water Service Group $ 274
2,258 Connecticut Water Service, Inc. 147
2,592 Middlesex Water Co. 109
2,322 SJW Group 154
2,157 York Water Co. 69
--------
2,165
--------
Total Utilities 21,210
--------
Total Common Stocks (cost: $513,300) 787,417
--------
RIGHTS (0.0%)
HEALTH CARE (0.0%)
------------------
BIOTECHNOLOGY (0.0%)
259 Cytori Therapeutics, Inc.(a),(c) (cost: $0) -
--------
Total Equity Securities (cost: $513,300) 787,417
--------
MONEY MARKET INSTRUMENTS (0.6%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (0.6%)
4,440,399 State Street Institutional Treasury Money Market Fund
Premier Class, 1.74%(g) (cost: $4,440) 4,440
--------
----------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT
(000)
----------------------------------------------------------------------------------------------------------
U.S. TREASURY SECURITIES (0.0%)
BILLS (0.0%)(h)
$ 250 1.86%, 09/06/2018(e) (cost: $249) 249
--------
Total Money Market Instruments (cost: $4,689) 4,689
--------
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED (3.0%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (3.0%)
15,065,879 Goldman Sachs Financial Square Government Fund Institutional Class, 1.84%(g) 15,066
8,478,575 Invesco Government & Agency Portfolio Institutional Class, 1.83%(g) 8,479
505,248 Western Asset Institutional Government Reserves Institutional Class, 1.80%(g) 505
--------
Total Short-Term Investments Purchased with Cash Collateral
from Securities Loaned (cost: $24,050) 24,050
--------
TOTAL INVESTMENTS (COST: $542,039) $816,156
========
================================================================================
PORTFOLIO OF INVESTMENTS | 49
================================================================================
-----------------------------------------------------------------------------------------------------------------
UNREALIZED
NOTIONAL CONTRACT APPRECIATION/
NUMBER OF EXPIRATION AMOUNT VALUE (DEPRECIATION)
CONTRACTS DESCRIPTION DATE (000) (000) (000)
-----------------------------------------------------------------------------------------------------------------
FUTURES (0.7%)
LONG FUTURES
EQUITY CONTRACTS
34 Russell 2000 E-mini
Index 9/21/2018 USD 2,850 $ 2,801 $ (49)
14 S&P MidCap 400
E-mini Index 9/21/2018 USD 2,802 2,738 (64)
------- -----
TOTAL LONG FUTURES $ 5,539 $(113)
------- -----
TOTAL FUTURES $ 5,539 $(113)
======= =====
-----------------------------------------------------------------------------------------------------------------
($ in 000s) VALUATION HIERARCHY
-----------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
-----------------------------------------------------------------------------------------------------------------
Equity Securities:
Common Stocks $787,417 $- $- $787,417
Rights - - - -
Money Market Instruments:
Government & U.S. Treasury
Money Market Funds 4,440 - - 4,440
U.S. Treasury Securities 249 - - 249
Short-Term Investments Purchased with
Cash Collateral from Securities Loaned:
Government & U.S. Treasury
Money Market Funds 24,050 - - 24,050
-----------------------------------------------------------------------------------------------------------------
Total $816,156 $- $- $816,156
-----------------------------------------------------------------------------------------------------------------
LIABILITIES LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
-----------------------------------------------------------------------------------------------------------------
Futures(1) $ (113) $- $- $ (113)
-----------------------------------------------------------------------------------------------------------------
Total $ (113) $- $- $ (113)
-----------------------------------------------------------------------------------------------------------------
(1)Futures are valued at the unrealized appreciation/(depreciation) on the
investment.
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
For the period of January 1, 2018, through June 30, 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.
================================================================================
50 | USAA EXTENDED MARKET INDEX FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
June 30, 2018 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
Market values of securities are determined by procedures and practices
discussed in Note 1A to the financial statements.
The Portfolio of Investments category percentages shown represent the
percentages of the investments to net assets, and, in total, may not equal
100%. A category percentage of 0.0% represents less than 0.1% of net assets.
The Fund may rely on certain Securities and Exchange Commission (SEC)
exemptive orders or rules that permit funds meeting various conditions to
invest in an exchange-traded fund (ETF) in amounts exceeding limits set forth
in the Investment Company Act of 1940, as amended, that would otherwise be
applicable.
o CATEGORIES AND DEFINITIONS
RIGHTS - Enable the holder to buy a specified number of shares of new issues
of a common stock before it is offered to the public.
o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS
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.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 51
================================================================================
o SPECIFIC NOTES
(a) Non-income-producing security.
(b) The security, or a portion thereof, was out on loan as of June 30, 2018.
(c) Security was fair valued at June 30, 2018, by USAA Asset Management
Company in accordance with valuation procedures approved by USAA Mutual
Funds Trust's Board of Trustees.
(d) Security was classified at Level 3.
(e) Securities with a value of $1,491,000 are segregated as collateral for
initial margin requirements on open futures contracts.
(f) Restricted security that is not registered under the Securities Act of
1933.
(g) Rate represents the money market fund annualized seven-day yield at
June 30, 2018.
(h) Rate represents an annualized yield at time of purchase, not coupon rate.
See accompanying notes to financial statements.
================================================================================
52 | USAA EXTENDED MARKET INDEX FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
June 30, 2018 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investment in Securities, at market value (including
securities on loan of $23,150) (cost of $542,039) $816,156
Cash 111
Receivables:
Capital shares sold 194
Dividends and interest 894
Securities sold 3,369
Other 17
--------
Total assets 820,741
--------
LIABILITIES
Payables:
Upon return of securities loaned 24,050
Securities purchased 3,393
Capital shares redeemed 223
Variation margin on futures contracts 113
Accrued management fees 66
Other accrued expenses and payables 113
Total liabilities 27,958
--------
Net assets applicable to capital shares outstanding $792,783
========
NET ASSETS CONSIST OF:
Paid-in capital $494,422
Accumulated undistributed net investment income 3,341
Accumulated net realized gain on investments and futures transactions 21,016
Net unrealized appreciation of investments and futures contracts 274,004
--------
Net assets applicable to capital shares outstanding $792,783
========
Capital shares outstanding, no par value 39,427
========
Net asset value, redemption price, and offering price per share $ 20.11
========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 53
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended June 30, 2018 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividend Income (net of foreign taxes withheld of $2) $ 4,441
Interest Income 29
Securities lending 17
--------
Total income 4,487
--------
ALLOCATED FROM MASTER EXTENDED MARKET INDEX SERIES*:
Dividends - unaffiliated (474)
Foreign taxes withheld (1)
Securities lending - affiliated 54
Dividends - affiliated 19
--------
Total income (402)
Expenses (Note 6) (73)
--------
Net allocated investment income (475)
--------
Total Income 4,012
--------
FUND EXPENSES
Management fees 270
Administration and servicing fees 692
Transfer agent's fees 344
Custody and accounting fees 74
Postage 15
Shareholder reporting fees 19
Trustees' fees 16
Registration fees 15
Professional fees 56
Other 30
--------
Total Fund expenses 1,531
--------
NET INVESTMENT INCOME 2,481
--------
================================================================================
54 | USAA EXTENDED MARKET INDEX FUND
================================================================================
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FUTURES CONTRACTS
Net realized gain on:
Investment transactions $ 21,516
Futures transactions 260
ALLOCATED FROM MASTER EXTENDED MARKET INDEX SERIES*:
Investment transactions 2,385
Futures transactions 134
Change in net unrealized appreciation/(depreciation) of:
Investments (31,989)
Futures contracts (113)
ALLOCATED FROM MASTER EXTENDED MARKET INDEX SERIES*:
Investments 53,863
Futures contracts (78)
--------
Net realized and unrealized gain 45,978
--------
Increase in net assets resulting from operations $ 48,459
========
* USAA Extended Market Index Fund converted from a feeder fund in a
master-feeder structure investing in Master Extended Market Index Series to a
stand-alone fund on February 23, 2018.
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 55
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended June 30, 2018 (unaudited), and year ended
December 31, 2017
-------------------------------------------------------------------------------------------------------
6/30/2018* 12/31/2017
-------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 2,481 $ 6,640
Net realized gain on investments 23,901 39,632
Net realized gain on futures transactions 394 1,314
Change in net unrealized appreciation/(depreciation) of:
Investments 21,874 69,651
Futures contracts (191) 155
---------------------------
Increase in net assets resulting from operations 48,459 117,392
---------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income - (7,270)
Net realized gains - (46,582)
---------------------------
Distributions to shareholders - (53,852)
---------------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 25,313 66,396
Reinvested dividends - 52,983
Cost of shares redeemed (46,200) (89,411)
---------------------------
Increase (decrease) in net assets from capital
share transactions (20,887) 29,968
---------------------------
Net increase in net assets 27,572 93,508
NET ASSETS
Beginning of period 765,211 671,703
---------------------------
End of period $792,783 $765,211
===========================
Accumulated undistributed net investment income:
End of period $ 3,341 $ 860
===========================
CHANGE IN SHARES OUTSTANDING
Shares sold 1,495 3,603
Shares issued for dividends reinvested - 2,793
Shares redeemed (2,378) (4,823)
---------------------------
Increase (decrease) in shares outstanding (883) 1,573
===========================
* USAA Extended Market Index Fund converted from a feeder fund in a
master-feeder structure investing in Master Extended Market Index Series to a
stand-alone fund on February 23, 2018.
See accompanying notes to financial statements.
================================================================================
56 | USAA EXTENDED MARKET INDEX FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
June 30, 2018 (unaudited)
--------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company Act
of 1940, as amended (the 1940 Act), is an open-end management investment company
organized as a Delaware statutory trust consisting of 50 separate funds. The
USAA Extended Market Index Fund (the Fund) qualifies as a registered investment
company under Accounting Standards Codification Topic 946. The information
presented in this semiannual report pertains only to the Fund, which is
classified as diversified under the 1940 Act and is authorized to issue an
unlimited number of shares. The Fund's investment objective is to seek to
match, before fees and expenses, the performance of all small- and mid-cap
stocks as measured by the Dow Jones U.S. Completion Total Stock Market Index(SM)
(the Index).
Prior to February 24, 2018, the Fund operated as a feeder fund in a
master-feeder structure and invested all of its investable assets in the
Extended Market Portfolio, which is a separate fund advised by BlackRock
Advisors, LLC (BlackRock).
A. SECURITY VALUATION - The Board has established the Valuation and Liquidity
Committee (the Committee), and subject to Board oversight, the Committee
administers and oversees the Fund's valuation policies and procedures, which
are approved by the Board. Among other things, these policies and procedures
allow the Fund to utilize independent pricing services, quotations from
securities dealers, and a wide variety of sources and information to
establish and adjust the fair value of securities as events occur and
circumstances warrant.
The Committee reports to the Board on a quarterly basis and makes
recommendations to the Board as to pricing methodologies and services used
by the Fund and presents additional information to the Board
================================================================================
NOTES TO FINANCIAL STATEMENTS | 57
================================================================================
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.
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
================================================================================
58 | USAA EXTENDED MARKET INDEX FUND
================================================================================
Fund's NAV is calculated will not need to be reflected in the value of
the Fund's foreign securities. However, the Manager will monitor for
events that would materially affect the value of the Fund's foreign
securities and the Committee will consider such available information
that it deems relevant and will determine a fair value for the affected
foreign securities in accordance with valuation procedures. In addition,
information from an external vendor or other sources may be used to
adjust the foreign market closing prices of foreign equity securities to
reflect what the Committee believes to be the fair value of the
securities as of the close of the NYSE. Fair valuation of affected
foreign equity securities may occur frequently based on an assessment
that events which occur on a fairly regular basis (such as U.S. market
movements) are significant. Such securities are categorized in Level 2 of
the fair value hierarchy.
3. Investments in open-end investment companies, commingled, or other funds,
other than ETFs, are valued at their NAV at the end of each business day
and are categorized in Level 1 of the fair value hierarchy.
4. Short-term debt securities with original or remaining maturities of 60
days or less may be valued at amortized cost, provided that amortized
cost represents the fair value of such securities.
5. Debt securities with maturities greater than 60 days are valued each
business day by a pricing service (the Service) approved by the Board.
The Service uses an evaluated mean between quoted bid and ask prices or
the last sales price to value a security when, in the Service's judgment,
these prices are readily available and are representative of the
security's market value. For many securities, such prices are not readily
available. The Service generally prices those securities based on methods
which include consideration of yields or prices of securities of
comparable quality, coupon, maturity, and type; indications as to values
from dealers in securities; and general market conditions. Generally,
debt securities are categorized in Level 2 of the fair value hierarchy;
however, to the extent the valuations include significant unobservable
inputs, the securities would be categorized in Level 3.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 59
================================================================================
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. 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. 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
================================================================================
60 | USAA EXTENDED MARKET INDEX FUND
================================================================================
transaction between market participants at the measurement date. The
three-level valuation hierarchy disclosed in the Portfolio of Investments is
based upon the transparency of inputs to the valuation of an asset or
liability as of the measurement date. The three levels are defined as
follows:
Level 1 - inputs to the valuation methodology are quoted prices (unadjusted)
in active markets for identical securities.
Level 2 - inputs to the valuation methodology are other significant
observable inputs, including quoted prices for similar securities, inputs
that are observable for the securities, either directly or indirectly, and
market-corroborated inputs such as market indexes.
Level 3 - inputs to the valuation methodology are unobservable and
significant to the fair value measurement, including the Manager's own
assumptions in determining the fair value.
The inputs or methodologies used for valuing securities are not necessarily
an indication of the risks associated with investing in those securities.
C. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - The Fund may buy, sell, and
enter into certain types of derivatives, including, but not limited to,
futures contracts, options, and options on futures contracts, under
circumstances in which such instruments are expected by the portfolio
manager to aid in achieving the Fund's investment objective. The Fund also
may use derivatives in circumstances where the portfolio manager believes
they offer an economical means of gaining exposure to a particular asset
class or securities market or to keep cash on hand to meet shareholder
redemptions or other needs while maintaining exposure to the market. With
exchange-listed futures contracts and options, counterparty credit risk to
the Fund is limited to the exchange's clearinghouse which, as counterparty
to all exchange-traded futures contracts and options, guarantees the
transactions against default from the actual counterparty to the
transaction. The Fund's derivative agreements held at June 30, 2018, did not
include master netting provisions.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 61
================================================================================
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 JUNE 30, 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 $(113)**
depreciation of
investments and
futures contracts
---------------------------------------------------------------------------------------------------
*For open derivative instruments as of June 30, 2018, see the Portfolio of
Investments.
** Includes cumulative appreciation/(depreciation) of futures as reported on
the Portfolio of Investments. Only the variation margin from the last
business day of the reporting period is reported within the Statement of
Assets and Liabilities.
================================================================================
62 | USAA EXTENDED MARKET INDEX FUND
================================================================================
THE EFFECT OF DERIVATIVE INSTRUMENTS ON THE STATEMENT OF OPERATIONS FOR THE
SIX-MONTH PERIOD ENDED JUNE 30, 2018 (IN THOUSANDS)
CHANGE IN
UNREALIZED
DERIVATIVES NOT REALIZED APPRECIATION/
ACCOUNTED FOR AS STATEMENT OF GAIN (LOSS) (DEPRECIATION)
HEDGING INSTRUMENTS OPERATIONS LOCATION ON DERIVATIVES ON DERIVATIVES
-----------------------------------------------------------------------------------------
Equity contracts Net realized gain on $394 $(191)
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 June 30, 2018, the Fund did not incur any
income tax, interest, or penalties, and has recorded no liability for net
unrecognized tax benefits relating to uncertain income tax positions. On an
ongoing basis, the Manager will monitor the Fund's tax basis to determine if
adjustments to this conclusion are necessary. The statute of limitations on
the Fund's tax return filings generally remain open for the three preceding
fiscal reporting year ends and remain subject to examination by the Internal
Revenue Service and state taxing authorities.
E. FOREIGN TAXATION - Foreign income and capital gains on some foreign
securities may be subject to foreign taxes, which are reflected as a
reduction to such income and realized gains. The Fund records a liability
based on unrealized gains to provide for potential foreign taxes payable
upon the sale of these securities. Foreign taxes have been provided for in
accordance with the Fund's understanding of the applicable countries'
prevailing tax rules and rates.
F. INVESTMENTS IN SECURITIES - Securities transactions are accounted for as of
the date the securities are purchased or sold (trade date). Gains or losses
from sales of investment securities are computed on the identified cost
basis. Dividend income, less foreign taxes, if any, is recorded on
================================================================================
NOTES TO FINANCIAL STATEMENTS | 63
================================================================================
the ex-dividend date. If the ex-dividend date has passed, certain dividends
from foreign securities are recorded upon notification. Interest income is
recorded daily on the accrual basis. Premiums and discounts are amortized
over the life of the respective securities, using the effective yield method
for long-term securities and the straight-line method for short-term
securities.
G. FOREIGN CURRENCY TRANSLATIONS - The Fund's assets may be invested in the
securities of foreign issuers and may be traded in foreign currency. Since
the Fund's accounting records are maintained in U.S. dollars, foreign
currency amounts are translated into U.S. dollars on the following bases:
1. Purchases and sales of securities, income, and expenses at the exchange
rate obtained from an independent pricing service on the respective
dates of such transactions.
2. Market value of securities, other assets, and liabilities at the
exchange rate obtained from an independent pricing service on a daily
basis.
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss
from investments.
Separately, net realized foreign currency gains/losses may arise from sales
of foreign currency, currency gains/losses realized between the trade and
settlement dates on security transactions, and from the difference between
amounts of dividends, interest, and foreign withholding taxes recorded on
the Fund's books and the U.S. dollar equivalent of the amounts received. At
the end of the Fund's fiscal year, net realized foreign currency
gains/losses are reclassified from accumulated net realized gains/losses to
accumulated undistributed net investment income on the Statement of Assets
and Liabilities, as such amounts are treated as ordinary income/loss for
federal income tax purposes. Net unrealized foreign currency exchange
gains/losses arise from changes in the value of assets and liabilities,
other than investments in securities, resulting from changes in the exchange
rate.
================================================================================
64 | USAA EXTENDED MARKET INDEX 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 | 65
================================================================================
For the six-month period ended June 30, 2018, the Fund paid CAPCO facility fees
of $3,000, which represents 0.9% 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 June 30, 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 December 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 December 31, 2017, the Fund had no capital loss carryforwards, for federal
income tax purposes. Net capital losses incurred after October 31, and within
the taxable year are deemed to arise on the first business day of the Fund's
next taxable year. For the year ended December 31, 2017, the Fund deferred to
January 1, 2018, post October capital losses of $1,138,058.
As of June 30, 2018, the cost of securities, including short-term securities,
for federal income tax purposes, was approximately the same as the cost reported
in the financial statements.
Gross unrealized appreciation and depreciation of investments as of June 30
2018, were $321,867,000 and $47,750,000, respectively, resulting in net
unrealized appreciation of $274,117,000.
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities, excluding
short-term securities, for the period February 24, 2018, to June 30, 2018, were
$45,735,000 and $49,637,000, 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, net of income retained by
================================================================================
66 | USAA EXTENDED MARKET INDEX FUND
================================================================================
Citibank. 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. Loans are terminable
upon demand and the borrower must return the loaned securities within the lesser
of one standard settlement period or five business days. 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 June 30, 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
------------------------------------------------------------------------------------
$23,150,000 $- $24,050,000
------------------------------------------------------------------------------------
(6) TRANSACTIONS WITH MANAGER
MANAGEMENT FEES - The Manager provides investment management services to the
Fund pursuant to an Advisory Agreement. Under this agreement, the Manager is
responsible for managing the business and affairs of the Fund. 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 67
================================================================================
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.
Effective February 24, 2018, the Fund's management fees are accrued daily and
paid monthly at an annualized rate of 0.10% of the Fund's average net assets.
For the period February 24, 2018, to June 30, 2018, the Fund incurred management
fees, paid or payable to the Manager, of $270,000.
Prior to February 24, 2018, the Fund operated as a feeder fund in a master-
feeder structure and invested all of its investable assets in the Extended
Market Portfolio of the Master LLC, a separate registered mutual fund advised by
BlackRock. Under the Management Agreement, the Manager was responsible for
monitoring the services provided to the Extended Market Portfolio by BlackRock.
The Manager received no fee from the Fund for providing those monitoring
services performed on its behalf. For the period January 1, 2018 to February 23,
2018, the Master LLC incurred expenses of $73,000.
SUBADVISORY ARRANGEMENT(S) - The Manager entered into an Investment Subadvisory
Agreement with BNY Mellon Asset Management North America Corporation (BNYM
AMNA), under which BNYM AMNA directs the investment and reinvestment of the
Fund's assets (as allocated from time to time by the Manager). This arrangement
provides for monthly fees that are paid by the Manager.
The Manager (not the Fund) pays BNYM AMNA a subadvisory fee in the amount of
0.02% of the Fund's average net assets for the first $500 million; 0.015% of net
assets for amounts over $500 million and up to $1 billion; and 0.01% of net
assets for amounts over $1 billion. For the period February 24, 2018, to June
30, 2018, the Manager incurred subadvisory fees with respect to the Fund, paid
or payable to BNYM AMNA, of $48,000.
ADMINISTRATION AND SERVICING FEES - The Manager provides certain administration
and servicing functions for the Fund. For such services, the Manager receives a
fee accrued daily and paid monthly at an annualized rate of 0.15% of the Fund's
average net assets. Prior to February 24, 2018, the
================================================================================
68 | USAA EXTENDED MARKET INDEX FUND
================================================================================
annualized rate was equal to 0.25% of average net assets. For the six-month
period ended June 30, 2018, the Fund incurred administration and servicing fees,
paid or payable to the Manager, of $692,000.
Prior to February 24, 2018, the Manager paid BlackRock up to 0.10% for
subadministration services provided on the Manager's behalf. For the period
January 1, 2018 to February 23, 2018, the Manager incurred subadministration
fees, paid or payable to BlackRock, of $34,000.
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 June 30, 2018, the Fund reimbursed the Manager $7,000 for these compliance
and legal services. These expenses are included in the professional fees on the
Fund's Statement of Operations.
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 June 30, 2018, the Fund
incurred transfer agent's fees, paid or payable to SAS, of $344,000.
UNDERWRITING SERVICES - USAA Investment Management Company provides exclusive
underwriting and distribution of the Fund's shares on a continuing best-efforts
basis and receives no fee or other compensation for these services.
(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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 69
================================================================================
(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 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.
================================================================================
70 | USAA EXTENDED MARKET INDEX FUND
================================================================================
FINANCIAL HIGHLIGHTS
FUND SHARES (UNAUDITED)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------------------
2018 2017 2016 2015 2014 2013
---------------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 18.98 $ 17.34 $ 16.06 $ 18.02 $ 17.63 $ 13.33
---------------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .06 .18 .18 .14 .16 .13
Net realized and
unrealized gain (loss) 1.07 2.88 2.33 (.81) 1.09 4.82
---------------------------------------------------------------------------------------------
Total from investment
operations 1.13 3.06 2.51 (.67) 1.25 4.95
---------------------------------------------------------------------------------------------
Less distributions from:
Net investment income - (.18) (.18) (.15) (.16) (.13)
Realized capital gains - (1.24) (1.05) (1.14) (.70) (.52)
---------------------------------------------------------------------------------------------
Total distributions - (1.42) (1.23) (1.29) (.86) (.65)
---------------------------------------------------------------------------------------------
Net asset value at
end of period $ 20.11 $ 18.98 $ 17.34 $ 16.06 $ 18.02 $ 17.63
=============================================================================================
Total return (%)* 5.95 17.72 15.48 (3.76) 7.18 37.26
Net assets at
end of period (000) $792,783 $765,211 $671,703 $619,624 $660,930 $615,739
Ratios to average
net assets:**
Expenses (%)(d) .42(c),(e) .44 .48 .48(b) .48 .50(a)
Expenses excluding
reimbursements (%)(d) .42(c),(e) .44 .48 .48 .48 .51
Net investment income (%) .64(c) .93 1.14 .86 .94 .89
Portfolio turnover (%) 6(f) 11(g) 13(g) 14(g) 10(g) 18(g)
* 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 period ended June 30, 2018, average net assets were $776,434,000.
================================================================================
FINANCIAL HIGHLIGHTS | 71
================================================================================
(a) Reflects total annual operating expenses of the Fund before reductions of
any expenses paid indirectly. The Funds expenses paid indirectly decreased
the expense ratio by less than 0.01%.
(b) Prior to May 1, 2015, the Manager had voluntarily agreed to limit the annual
expenses of the Fund to 0.50% of the Fund's average net assets.
(c) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(d) Does not include acquired fund fees, if any.
(e) Prior to February 24, 2018, the Fund was a feeder fund in a master-feeder
structure investing in Master Extended Market Index Series to a stand-alone
fund. Expenses include expenses of the Master Extended Market Index Series
prior to the conversion.
(f) Reflects the period February 24, 2018, to June 30, 2018, after the Fund
converted to a stand-alone fund.
(g) Represents the portfolio turnover of the Master Extended Market Index Series
(the Series).
================================================================================
72 | USAA EXTENDED MARKET INDEX FUND
================================================================================
EXPENSE EXAMPLE
June 30, 2018 (unaudited)
--------------------------------------------------------------------------------
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: direct costs, such
as wire fees, redemption fees, and low balance fees; and indirect costs,
including administration fees, transfer agency fees, expenses allocated to the
Fund by the Master Extended Market Index Series (the Series), 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 January 1, 2018, through June
30, 2018.
ACTUAL EXPENSES
The line labeled "actual" in the table provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested at the beginning of the period, to estimate the
expenses that you paid over the period. Simply divide your account value by
$1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number in the "actual" line under the heading
"Expenses Paid During Period" to estimate the expenses you paid on your account
during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The line labeled "hypothetical" in the table provides information about
hypothetical account values and hypothetical expenses based on the Fund's actual
expense ratio and an assumed rate of return of 5% per year before expenses,
which is not the Fund's actual return. The hypothetical account
================================================================================
EXPENSE EXAMPLE | 73
================================================================================
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 JANUARY 1, 2018 -
JANUARY 1, 2018 JUNE 30, 2018 JUNE 30, 2018
--------------------------------------------------------------
Actual $1,000.00 $1,059.50** $2.14**
Hypothetical
(5% return before expenses) 1,000.00 1,022.71** 2.11**
*Expenses are equal to the Fund's annualized expense ratio of 0.42%, which
includes expenses of the Series, and is net of any reimbursements and
expenses paid indirectly, multiplied by the average account value over the
period, multiplied by 181 days/365 days (to reflect the one-half-year
period). The Fund's actual ending account value is based on its actual total
return of 5.95% for the six-month period of January 1, 2018, through June 30,
2018.
**The Fund's annualized expense ratio of 0.42% above reflects a decrease in
administration and servicing fees from 0.25% to 0.15%, and the implementation
of a management fee of 0.10%, both effective February 24, 2018. Additionally,
the expense ratio also included expenses of the Master Extended Market Index
Series for the period January 1, 2018, to February 23, 2018. Had the decrease
in administration and servicing fees, implementation of the management fee
and conversion of the feeder fund to a stand-alone fund been in effect for
the entire six-month period of January 1, 2018, through June 30, 2018, the
Fund's expense ratio would have been 0.40%, 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 JANUARY 1, 2018 -
JANUARY 1, 2018 JUNE 30, 2018 JUNE 30, 2018
--------------------------------------------------------------
Actual $1,000.00 $1,059.50 $2.04
Hypothetical
(5% return before expenses) 1,000.00 1,024.77 2.01
================================================================================
74 | USAA EXTENDED MARKET INDEX FUND
================================================================================
ADVISORY AGREEMENT(S)
June 30, 2018 (unaudited)
--------------------------------------------------------------------------------
At an in-person meeting of the Board of Trustees (the Board) held on April 18,
2018, the Board, including the Trustees who are not "interested persons" (as
that term is defined in the Investment Company Act of 1940, as amended) of the
Trust (the Independent Trustees), approved for an annual period the continuance
of the Management Agreement between the Trust and the Manager. The Board noted
that the Fund's subadvisory agreement was not being considered for renewal at
this meeting since it was approved for an initial two-year period at the Board's
September 22, 2017 meeting in connection with the approval of the conversion of
the Fund from a master-feeder structure to a subadvised structure.
In advance of the meeting, the Trustees received and considered a variety of
information relating to the Management Agreement and the Manager and were given
the opportunity to ask questions and request additional information from
management. The information provided to the Board included, among other things:
(i) a separate report prepared by an independent third party, which provided a
statistical analysis comparing the Fund's investment performance, expenses, and
fees to comparable investment companies; (ii) information concerning the
services rendered to the Fund, as well as information regarding the Manager's
revenues and costs of providing services to the Fund and compensation paid to
affiliates of the Manager; and (iii) information about the Manager's operations
and personnel. Prior to voting, the Independent Trustees reviewed the proposed
continuance of the Management Agreement with management and with experienced
counsel retained by the Independent Trustees (Independent Counsel) and received
materials from such Independent Counsel discussing the legal standards for their
consideration of the proposed continuation of the Management Agreement with
respect to the Fund. The Independent Trustees also reviewed the proposed
continuation of the Management Agreement with respect to the Fund in private
sessions with Independent Counsel at which no representatives of management were
present.
================================================================================
ADVISORY AGREEMENT(S) | 75
================================================================================
At each regularly scheduled meeting of the Board and its committees, the Board
receives and reviews, among other things, information concerning the Fund's
performance and related services provided by the Manager and by the subadviser.
At the meeting at which the renewal of the Management Agreement is considered,
particular focus is given to information concerning Fund performance, fees and
total expenses as compared to comparable investment companies, and the Manager's
profitability with respect to the Fund. However, the Board noted that the
evaluation process with respect to the Manager is an ongoing one. In this
regard, the Board's and its committees' consideration of the Management
Agreement included certain information previously received at such meetings.
MANAGEMENT AGREEMENT
After full consideration of a variety of factors, the Board, including the
Independent Trustees, voted to approve the Management Agreement. In approving
the Management Agreement, the Trustees did not identify any single factor as
controlling, and each Trustee may have attributed different weights to various
factors. Throughout their deliberations, the Independent Trustees were
represented and assisted by Independent Counsel.
NATURE, EXTENT, AND QUALITY OF SERVICES - In considering the nature, extent, and
quality of the services provided by the Manager under the Management Agreement,
the Board reviewed information provided by the Manager relating to its
operations and personnel. The Board also took into account its knowledge of the
Manager's management and the quality of the performance of the Manager's duties
through Board meetings, discussions, and reports during the preceding year. The
Board considered the fees paid to the Manager and the services provided to the
Fund by the Manager under the Management Agreement, as well as other services
provided by the Manager and its affiliates under other agreements, and the
personnel who provide these services. In addition to the investment advisory
services provided to the Fund, the Manager and its affiliates provide
administrative services, shareholder services, oversight of Fund accounting,
marketing services, assistance in meeting legal and regulatory requirements, and
other services necessary for the operation of the Fund and the Trust. The Board
also considered the significant risks assumed by the Manager in connection with
================================================================================
76 | USAA EXTENDED MARKET INDEX FUND
================================================================================
the services provided to the Fund, including investment, operational,
enterprise, litigation, regulatory and compliance risks.
The Board considered the Manager's management style and the performance of the
Manager's duties under the Management Agreement. The Board considered the level
and depth of knowledge of the Manager, including the professional experience and
qualifications of senior personnel and investment personnel, as well as current
staffing levels. The Board considered the Manager's process for monitoring the
performance of the Subadviser and its timeliness in responding to performance
issues. The allocation of the Fund's brokerage, including the Manager's process
for monitoring "best execution," also was considered. The Manager's role in
coordinating the activities of the Fund's other service providers also was
considered. The Board also considered the Manager's risk management processes.
The Board considered the Manager's financial condition and that it had the
financial wherewithal to continue to provide the same scope and high quality of
services under the Management Agreement. In reviewing the Management Agreement,
the Board focused on the experience, resources, and strengths of the Manager and
its affiliates in managing the Fund, as well as the other funds in the Trust.
The Board also reviewed the compliance and administrative services provided to
the Fund by the Manager, including the Manager's and its affiliates' oversight
of the Fund's day-to-day operations and Fund accounting. The Trustees, guided
also by information obtained from their experiences as trustees of the Trust,
also focused on the quality of the Manager's compliance and administrative
staff.
EXPENSES AND PERFORMANCE - In connection with its consideration of the
Management Agreement, the Board evaluated the advisory fees and total expense
ratio of the Fund as compared to other open-end investment companies deemed to
be comparable to each class of the Fund as determined by the independent third
party in its report. The Fund was compared to (i) a group of investment
companies chosen by the independent third party to be comparable to the class of
the Fund based upon certain factors, including fund type, comparability of
investment objective and classification, sales load type (in this case, retail
investment companies with
================================================================================
ADVISORY AGREEMENT(S) | 77
================================================================================
front-end loads and no sales loads), asset size, and expense components (the
"expense group") and (ii) a larger group of investment companies that includes
all front-end load and no-load retail open-end investment companies with the
same investment classification/objective as the Fund regardless of asset size,
excluding outliers (the "expense universe"). Among other data, the Board noted
that the Fund's management fee rate - which includes advisory and administrative
services - was equal to the median of its expense group and below the median of
its expense universe. The data indicated that the Fund's total expenses were
equal to the median of its expense group and below the median of its expense
universe. The Board took into account the various services provided to the Fund
by the Manager and its affiliates, including the high quality of services
received by the Fund from the Manager. The Board also noted the level and method
of computing the management fee. The Trustees also took into account that the
subadvisory fees under the Subadvisory Agreement are paid by the Manager. The
Board also considered and discussed information about the subadviser's fees
including the amount of the management fee retained by the Manager after payment
of the subadvisory fee.
In considering the Fund's performance, the Board noted that it reviews at its
regularly scheduled meetings information about the Fund's performance results.
The Trustees also reviewed various comparative data provided to them in
connection with their consideration of the renewal of the Management Agreement,
including, among other information, a comparison of the average annual total
returns of the Fund with its Lipper index and with that of other mutual funds
deemed to be in its peer group by the independent third party in its report (the
"performance universe"). The performance universe of the Fund consisted of the
Fund and all retail and institutional open-end investment companies with the
same classification/objective as the Fund regardless of asset size or primary
channel of distribution. This comparison indicated that, among other data, the
Fund's performance was above the average of its performance universe for the
one-, three-, five- and ten-year periods ended December 31, 2017, and the Fund's
performance was above its Lipper index for the one- and five-year periods ended
December 31, 2017, and was below its Lipper index for the three- and ten-year
periods ended December 31, 2017. The Board also noted that the Fund's percentile
================================================================================
78 | USAA EXTENDED MARKET INDEX FUND
================================================================================
performance ranking was in the top 15% of its performance universe for the
one-year period ended December 31, 2017, was in the top 50% of its performance
universe for the three- and ten-year periods ended December 31, 2017, and was in
the top 40% of its performance universe for the five-year period ended December
31, 2017. The Board took into account management's discussion of the Fund's
performance, including the Fund's high level of correlation between the Fund's
performance and its corresponding index.
COMPENSATION AND PROFITABILITY - The Board took into consideration the level and
method of computing the Fund's management fee. The information considered by the
Board included operating profit margin information for the Manager's business as
a whole. The Board also received and considered profitability information
related to the level of management revenues from the Fund. This information
included a review of the methodology used in the allocation of certain costs to
the Fund. In considering the profitability data with respect to the Fund, the
Trustees noted that the Manager pays the Fund's subadvisory fees. The Trustees
reviewed the profitability of the Manager's relationship with the Fund before
tax expenses. In reviewing the overall profitability of the management fee to
the Manager, the Board also considered the fact that affiliates provide
shareholder servicing and administrative services to the Fund for which they
receive compensation. The Board also considered the possible direct and indirect
benefits to the Manager from its relationship with the Trust, including that the
Manager may derive reputational and other benefits from its association with the
Fund. The Trustees recognized that the Manager should be able to earn a
reasonable level of profits in exchange for the level of services it provides to
the Fund and the entrepreneurial risk that it assumes as Manager.
ECONOMIES OF SCALE - The Board considered whether there should be changes in the
management fee rate or structure in order to enable the Fund to participate in
any economies of scale. The Board took into account management's discussion of
the Fund's current advisory fee structure. The Board also considered that the
Manager pays the subadvisory fee. The Board also considered the effects of the
Fund's growth and size on the Fund's performance and fees, noting that if the
Fund's assets increase over time, the Fund may realize other economies of scale
if assets increase proportionally
================================================================================
ADVISORY AGREEMENT(S) | 79
================================================================================
more than some expenses. The Board determined that the current investment
management fee structure was reasonable.
CONCLUSIONS - The Board reached the following conclusions regarding the Fund's
Management Agreement with the Manager, among others: (i) the Manager has
demonstrated that it possesses the capability and resources to perform the
duties required of it under the Management Agreement; (ii) the Manager maintains
an appropriate compliance program; (iii) the performance of the Fund is
reasonable in relation to the performance of funds with similar investment
objectives and to relevant indices; (iv) the Fund's advisory expenses are
reasonable in relation to those of similar funds and to the services to be
provided by the Manager; and (v) the Manager's and its affiliates' level of
profitability, if any, from its relationship with the Fund is reasonable in
light of the nature and high quality of services provided by the Manager and the
type of fund. Based on its conclusions, the Board determined that continuation
of the Management Agreement would be in the best interests of the Fund and its
shareholders.
================================================================================
80 | USAA EXTENDED MARKET INDEX FUND
================================================================================
SUBADVISORY AGREEMENT
June 30, 2018 (unaudited)
--------------------------------------------------------------------------------
At an in-person meeting of the Board of Trustees (the Board) held on September
22, 2017, the Board, including the Trustees who are not "interested persons" (as
that term is defined in the Investment Company Act of 1940, as amended) of the
Trust (the Independent Trustees), approved the Subadvisory Agreement between the
Manager and Mellon Capital Management Corporation (the Subadviser) with respect
to the Fund.
In advance of the meeting, the Board received and considered a variety of
information relating to the Subadvisory Agreement and the Subadviser, and had
the opportunity to ask questions and request additional information from
management. The information provided to the Board included, among other things:
(i) the experience and qualifications of the Subadviser and the individuals at
the company who would be responsible for providing investment management
services for the Fund; (ii) the fees to be paid to the Subadviser; and (iii)
performance and tracking error information of a collective investment trust
managed by the Subadviser pursuant to a similar strategy over various time
periods. Prior to voting, the Independent Trustees reviewed the proposed
Subadvisory Agreement with management and with experienced independent counsel
retained by the Independent Trustees (Independent Counsel) and received
materials from such Independent Counsel discussing the legal standards for their
consideration of the proposed Subadvisory Agreement with respect to the Fund.
The Independent Trustees also reviewed the proposed Subadvisory Agreement with
respect to the Fund in private sessions with Independent Counsel at which no
representatives of management were present.
In approving the Fund's Subadvisory Agreement, the Board considered various
factors, among them: (i) the nature, extent, and quality of services to be
provided to the Fund by the Subadviser, including the personnel who will be
providing services; (ii) compensation and any other benefits expected to be
derived from the subadvisory relationship by the Subadviser;
================================================================================
SUBADVISORY AGREEMENT | 81
================================================================================
(iii) performance and tracking error of an account with a similar strategy to
the Fund currently managed by the Subadviser; and (iv) the terms of the
Subadvisory Agreement. The Board's analysis of these factors is set forth below.
After full consideration of a variety of factors, the Board, including the
Independent Trustees, voted to approve the Subadvisory Agreement. In approving
the Subadvisory Agreement, the Board did not identify any single factor as
controlling, and each Independent Trustee may have attributed different weights
to various factors. Throughout their deliberations, the Independent Trustees
were represented and assisted by Independent Counsel.
NATURE, EXTENT, AND QUALITY OF SERVICES PROVIDED; INVESTMENT PERSONNEL - In
considering the nature, extent and quality of the services to be provided by the
Subadviser, the Board reviewed information provided by the Subadviser relating
to its operations and management. The Board considered the Subadviser's level of
knowledge and investment style. The Board reviewed the experience and
credentials of the investment personnel who will be responsible for managing the
investment of portfolio securities with respect to the Fund and the Subadviser's
level of staffing. The Board also noted the Subadviser's brokerage practices.
The Board also considered the Subadviser's regulatory and compliance history.
The Board also took into account the Subadviser's risk management and
cybersecurity processes. The Board noted that the Manager's monitoring processes
of the Subadviser will include: (i) regular telephonic meetings to discuss,
among other matters, investment strategies and to review portfolio performance;
(ii) monthly portfolio compliance checklists and quarterly compliance
certifications to the Board; and (iii) periodic due diligence reviews of the
Subadviser.
SUBADVISER COMPENSATION - The Board also took into consideration the financial
condition of the Subadviser. In considering the cost of services to be provided
by the Subadviser and the anticipated profitability to the Subadviser of its
relationship with the Fund, the Board noted that the fees under the Subadvisory
Agreement will be paid by the Manager. The Trustees also relied on the ability
of the Manager to negotiate the Subadvisory Agreement and the fees thereunder at
arm's length. Because the subadvisory fees are paid by the Manager and not by
the Fund, the Board determined that the costs of the services to be provided by
the Subadviser and the
================================================================================
82 | USAA EXTENDED MARKET INDEX FUND
================================================================================
profitability of the Subadviser from its relationship with the Fund was not a
material factor in its deliberations with respect to the consideration of the
approval of the Subadvisory Agreement. For similar reasons, the Board concluded
that the potential for economies of scale in the Subadviser's management of the
Fund was not a material factor in considering the Subadvisory Agreement,
although the Board noted that the Subadvisory Agreement contains breakpoints in
its fee schedule.
SUBADVISORY FEES AND PERFORMANCE - The Board took into consideration that prior
to its conversion from a feeder fund in a master-feeder structure, the Manager
did not receive an advisory fee from the Fund, and that the Board had approved a
0.10% advisory fee to be paid by the Fund after the conversion. The Board
considered that the Fund will pay a management fee to the Manager and that, in
turn, the Manager will pay a subadvisory fee to the Subadviser. The Board noted
the Manager's expertise and resources in monitoring the performance, investment
style, and risk-adjusted performance of other subadvisors in the Fund complex.
The Board also reviewed the historical performance and tracking error of a
collective investment trust managed by the Subadviser pursuant to a market
completion indexing strategy similar to that of the Fund. The Board noted that
the tracking error for the collective investment trust was at or below 0.06
basis points over the 1-, 3-, and 5-year periods.
CONCLUSIONS - The Board reached the following conclusions regarding the
Subadvisory Agreement, among others: (i) the Subadviser is qualified to manage
the Fund's assets in accordance with its investment objectives and policies;
(ii) the Subadviser maintains an appropriate compliance program; (iii) the
performance and tracking error of comparable investment products managed by the
Subadviser are reasonable in relation to those of similar funds and (iv) the
Fund's advisory expenses are reasonable in relation to those of similar funds
and to the services to be provided by the Subadviser. Based on its conclusions,
the Board determined that approval of the Subadvisory Agreement with respect to
the Fund would be in the best interests of the Fund and its shareholders. As a
result the Board, including the Independent Trustees, voted to approve the
Subadvisory Agreement.
================================================================================
SUBADVISORY AGREEMENT | 83
================================================================================
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
--------------------------------------------------------------------------------
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
--------------
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================================================================================
37757-0818 (C)2018, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA FLEXIBLE INCOME FUND]
============================================================
SEMIANNUAL REPORT
USAA FLEXIBLE INCOME FUND
FUND SHARES (USFIX) o INSTITUTIONAL SHARES (UIFIX)
o ADVISER SHARES (UAFIX)
JUNE 30, 2018
============================================================
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
INVESTMENT OVERVIEW 1
FINANCIAL INFORMATION
Portfolio of Investments 3
Notes to Portfolio of Investments 7
Financial Statements 9
Notes to Financial Statements 13
Financial Highlights 31
EXPENSE EXAMPLE 36
ADVISORY AGREEMENT(S) 38
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE
RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY
USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN
PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS
ABOUT THE FUND.
IRA DISTRIBUTION WITHHOLDING DISCLOSURE
We generally must withhold federal income tax at a rate of 10% of the taxable
portion of your distribution and, if you live in a state that requires state
income tax withholding, at your state's tax rate. However, you may elect not to
have withholding apply or to have income tax withheld at a higher rate. Any
withholding election that you make will apply to any subsequent distribution
unless and until you change or revoke the election. If you wish to make a
withholding election or change or revoke a prior withholding election, call
(800) 531-USAA (8722) or (210) 531-8722.
If you do not have a withholding election in place by the date of a
distribution, federal income tax will be withheld from the taxable portion of
your distribution at a rate of 10%. If you must pay estimated taxes, you may be
subject to estimated tax penalties if your estimated tax payments are not
sufficient and sufficient tax is not withheld from your distribution.
For more specific information, please consult your tax adviser.
(C)2018, USAA. All rights reserved.
================================================================================
================================================================================
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
o TOP 10 HOLDINGS* - 6/30/18 o
(% of Net Assets)
Ivanhoe Mines Ltd. "A" ................................................... 1.4%
Novagold Resources, Inc. ................................................. 1.4%
Gazprom PJSC ADR ......................................................... 1.3%
Alamos Gold, Inc. "A" .................................................... 1.1%
Northern Dynasty Minerals Ltd. ........................................... 0.7%
Kinross Gold Corp. ....................................................... 0.7%
Hycroft Mining Corp., 15.00%, 10/22/2020 ................................. 0.6%
Goldcorp, Inc. ........................................................... 0.5%
Prospect Capital Corp. ................................................... 0.3%
Hycroft Mining Corp. ..................................................... 0.0%**
Refer to the Portfolio of Investments for a complete list of securities.
*Does not include money market instruments and short-term investments purchased
with cash collateral from securities loaned.
**Less than 0.1%
================================================================================
INVESTMENT OVERVIEW | 1
================================================================================
o ASSET ALLOCATION* - 6/30/18 o
[PIE CHART OF ASSET ALLOCATION]
MONEY MARKET INSTRUMENTS 75.1%
COMMON STOCKS 7.4%
CONVERTIBLE SECURITIES 0.6%
[END PIE CHART]
*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%.
================================================================================
2 | USAA FLEXIBLE INCOME FUND
================================================================================
PORTFOLIO OF INVESTMENTS
June 30, 2018 (unaudited)
--------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (7.4%)
COMMON STOCKS (7.4%)
ENERGY (1.3%)
-------------
INTEGRATED OIL & GAS (1.3%)
150,000 Gazprom PJSC ADR $ 661
--------
FINANCIALS (0.3%)
-----------------
ASSET MANAGEMENT & CUSTODY BANKS (0.3%)
25,000 Prospect Capital Corp.(a) 168
--------
MATERIALS (5.8%)
----------------
DIVERSIFIED METALS & MINING (2.1%)
350,000 Ivanhoe Mines Ltd. "A"(b) 719
703,600 Northern Dynasty Minerals Ltd.(a),(b) 381
--------
1,100
--------
GOLD (3.7%)
104,500 Alamos Gold, Inc."A" 595
20,000 Goldcorp, Inc. 274
49,180 Hycroft Mining Corp., acquired 5/30/2014-5/21/2015;
cost $4,195(b),(c),(d),(e),(f) -
100,000 Kinross Gold Corp.(b) 376
160,000 Novagold Resources, Inc.(b) 712
--------
1,957
--------
Total Materials 3,057
--------
Total Common Stocks (cost: $8,252) 3,886
--------
Total Equity Securities (cost: $8,252) 3,886
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 3
================================================================================
----------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------------
BONDS (0.6%)
CONVERTIBLE SECURITIES (0.6%)
MATERIALS (0.6%)
----------------
GOLD (0.6%)
$ 2,024 Hycroft Mining Corp., acquired
10/21/2015-6/30/2018; cost $1,962(c),(d),(e),(g)
(cost: $1,989) 15.00%(h) 10/22/2020 $ 324
--------
Total Bonds (cost: $1,989) 324
--------
MONEY MARKET INSTRUMENTS (75.1%)
COMMERCIAL PAPER (25.2%)
550 Amphenol Corp.(i) 2.35 7/23/2018 549
530 Arizona Public Service 2.15 7/02/2018 530
550 AT&T, Inc.(i) 2.27 7/20/2018 549
550 Centerpoint Energy, Inc.(i) 2.30 7/09/2018 550
550 CNH Industrial Capital(i) 2.60 7/06/2018 550
550 Eaton Corp.(i) 2.25 7/12/2018 550
550 Ei Dupont(i) 2.24 7/17/2018 549
550 Enterprise Products Operating, LLC(i) 2.30 7/19/2018 549
550 Eversource Energy(i) 2.23 7/02/2018 550
550 Florida Power & Light Co. 2.20 8/03/2018 549
550 General Mills, Inc.(i) 2.20 7/16/2018 549
550 Hyundai Capital America(i) 2.28 7/09/2018 550
550 JM Smucker Co.(i) 2.23 7/03/2018 550
530 Koch Resources, LLC(i) 1.88 7/02/2018 530
550 Leggett & Platt(i) 2.23 7/12/2018 550
550 Manhattan Asset Fdg.(i) 2.08 7/13/2018 550
550 Marriott International(i) 2.33 7/03/2018 550
530 McCormick & Co., Inc.(i) 2.25 7/10/2018 530
550 Nbcuniversal Enterprise, Inc.(i) 2.29 7/19/2018 549
550 Newell Rubbermaid, Inc(i) 2.40 7/03/2018 550
550 Nutrien Ltd.(i) 2.30 7/05/2018 550
550 OGE Energy Corp.(i) 2.27 7/02/2018 550
560 Southern Co. Gas Capital(i) 2.30 7/05/2018 560
550 Tyson Foods, Inc.(i) 2.22 7/11/2018 550
--------
Total Commercial Paper (cost: $13,143) 13,143
--------
================================================================================
4 | USAA FLEXIBLE INCOME FUND
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (49.9%)
26,096,786 State Street Institutional Treasury Money Market Fund
Premier Class, 1.74%(j) (cost: $26,097) $ 26,097
--------
Total Money Market Instruments (cost: $39,240) 39,240
--------
SHORT-TERM INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED (0.5%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (0.5%)
29,293 Federated Government Obligations Fund Institutional
Class, 1.79%(j) 29
36,850 Fidelity Government Portfolio Class I, 1.79%(j) 37
151,004 Goldman Sachs Financial Square Government Fund Institutional
Class, 1.84%(j) 151
25,001 Invesco Government & Agency Portfolio Institutional
Class, 1.83%(j) 25
29,914 Western Asset Institutional Government Reserves Institutional
Class, 1.80%(j) 30
--------
Total Short-Term Investments Purchased with Cash Collateral
from Securities Loaned (cost: $272) 272
--------
TOTAL INVESTMENTS (COST: $49,753) $ 43,722
========
----------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
----------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
----------------------------------------------------------------------------------------------------------
Equity Securities:
Common Stocks $ 3,886 $ - $ - $ 3,886
Bonds:
Convertible Securities - - 324 324
Money Market Instruments:
Commercial Paper - 13,143 - 13,143
Government & U.S. Treasury Money
Market Funds 26,097 - - 26,097
Short-Term Investments Purchased with Cash
Collateral from Securities Loaned:
Government & U.S. Treasury Money
Market Funds 272 - - 272
----------------------------------------------------------------------------------------------------------
TOTAL $30,255 $13,143 $324 $43,722
----------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
================================================================================
PORTFOLIO OF INVESTMENTS | 5
================================================================================
----------------------------------------------------------------------------------------------------------
RECONCILIATION OF LEVEL 3 INVESTMENTS
----------------------------------------------------------------------------------------------------------
CONVERTIBLE
($ IN 000s) SECURITIES COMMON STOCK
----------------------------------------------------------------------------------------------------------
Balance as of December 31, 2017 $ 2,482 $1
Purchases 144 -
Sales - -
Transfers into Level 3 - -
Transfers out of Level 3 - -
Net realized gain (loss) on investments - -
Change in net unrealized appreciation/(depreciation) of investments (2,302) (1)
----------------------------------------------------------------------------------------------------------
Balance as of June 30, 2018 $ 324 $-
----------------------------------------------------------------------------------------------------------
For the period of January 1, 2018, through June 30, 2018, there were no
transfers of securities between levels. The Fund's policy is to recognize any
transfers in and transfers out as of the beginning of the reporting period in
which the event or circumstance that caused the transfer occurred.
----------------------------------------------------------------------------------------------------------
QUANTITATIVE INFORMATION ABOUT LEVEL 3 FAIR VALUE MEASUREMENTS**
----------------------------------------------------------------------------------------------------------
FAIR VALUE SIGNIFICANT
AT JUNE 30, 2018 VALUATION UNOBSERVABLE
ASSETS ($ IN 000's) TECHNIQUE(s) INPUT(s) RANGE
----------------------------------------------------------------------------------------------------------
BONDS:
Convertible Securities $324 Market Average $48.26
Comparables Value Per
Recoverable
Ounce(a)
Comparable 42%
Discount
Adjustment(b)
----------------------------------------------------------------------------------------------------------
(a) Represents amounts used when the reporting entity has determined that market
participants would use such multiples when pricing the security.
(b) Represents amounts used when the reporting entity has determined that market
participants would take into account these discounts when pricing the
security.
** Quantitative Information table includes certain Level 3 securities using
valuation models.
Increases in the earnings before interest, taxes, depreciation, and amortization
(EBITDA), revenue multiples, transaction prices, 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.
================================================================================
6 | USAA FLEXIBLE INCOME FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
June 30, 2018 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
Market values of securities are determined by procedures and practices
discussed in Note 1A to the financial statements.
The Portfolio of Investments category percentages shown represent the
percentages of the investments to net assets, and, in total, may not equal
100%. A category percentage of 0.0% represents less than 0.1% of net
assets. Investments in foreign securities were 8.2% of net assets at June
30, 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 June 30, 2018.
(b) Non-income-producing security.
(c) Security was fair valued at June 30, 2018, by USAA Asset Management
Company in accordance with valuation procedures approved by USAA
Mutual Funds Trust's Board of Trustees. The total value of all such
securities was $324,000, which represented 0.6% of the Fund's net
assets.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 7
================================================================================
(d) Security deemed illiquid by USAA Asset Management Company, under
liquidity guidelines approved by USAA Mutual Funds Trust's Board of
Trustees. The aggregate market value of these securities at
June 30, 2018, was $324,000, which represented 0.6% of the Fund's net
assets.
(e) Security was classified as Level 3.
(f) Restricted security that is not registered under the Securities Act of
1933.
(g) Payment-in-kind (PIK) - security in which the issuer has or will have
the option to make all or a portion of the interest or dividend payments
in additional securities in lieu of cash.
(h) All of the coupon is PIK.
(i) Restricted security that is not registered under the Securities Act of
1933. A resale of this security in the United States may occur in an
exempt transaction to a qualified institutional buyer as defined by
Rule 144A, and as such has been deemed liquid by USAA Asset Management
Company under liquidity guidelines approved by USAA Mutual Funds
Trust's Board of Trustees, unless otherwise noted as illiquid.
(j) Rate represents the money market fund annualized seven-day yield at
June 30, 2018.
See accompanying notes to financial statements.
================================================================================
8 | USAA FLEXIBLE INCOME FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
June 30, 2018 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (including
securities on loan of $416) (cost of $49,753) $ 43,722
Receivables:
Capital shares sold 1
USAA Asset Management Company (Note 7) 1
Dividends and interest 141
Securities sold 10,015
Other 20
--------
Total assets 53,900
--------
LIABILITIES
Payables:
Upon return of securities loaned 272
Securities purchased 73
Capital shares redeemed:
Affiliated investments (Note 8) 1,000
Unaffiliated investments 59
Bank overdraft 145
Accrued management fees 23
Accrued transfer agent's fees 3
Other accrued expenses and payables 29
--------
Total liabilities 1,604
--------
Net assets applicable to capital shares outstanding $ 52,296
========
NET ASSETS CONSIST OF:
Paid-in capital $ 75,855
Accumulated undistributed net investment income 552
Accumulated net realized loss on investments and futures transactions (18,080)
Net unrealized depreciation of investments (6,031)
--------
Net assets applicable to capital shares outstanding $ 52,296
========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $34,115/4,109 capital shares
outstanding, no par value) $ 8.30
========
Institutional Shares (net assets of $13,939/1,674 capital shares
outstanding, no par value) $ 8.33
========
Adviser Shares (net assets of $4,242/511 capital shares
outstanding, no par value) $ 8.30
========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 9
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended June 30, 2018 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $2) $ 353
Interest 921
Non-cash interest 143
Securities lending (net) 141
--------
Total income 1,558
--------
EXPENSES
Management fees 164
Administration and servicing fees:
Fund Shares 28
Institutional Shares 12
Adviser Shares 3
Transfer agent's fees:
Fund Shares 35
Institutional Shares 12
Distribution and service fees (Note 7):
Adviser Shares 6
Custody and accounting fees:
Fund Shares 10
Institutional Shares 2
Adviser Shares 1
Postage:
Fund Shares 2
Shareholder reporting fees:
Fund Shares 5
Trustees' fees 16
Registration fees:
Fund Shares 15
Institutional Shares 14
Adviser Shares 14
Professional fees 12
Other 8
--------
Total expenses 359
================================================================================
10 | USAA FLEXIBLE INCOME FUND
================================================================================
Expenses reimbursed:
Fund Shares $ (40)
Institutional Shares (18)
Adviser Shares (12)
--------
Net expenses 289
--------
NET INVESTMENT INCOME 1,269
--------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS, FOREIGN CURRENCY AND FUTURES CONTRACTS
Net realized gain (loss) on:
Unaffiliated investments (3,647)
Affiliated investments (Note 9) (1,300)
Foreign currency transactions 1
Futures transactions (1,458)
Change in net unrealized appreciation/(depreciation) of:
Investments (1,328)
Futures contracts 142
--------
Net realized and unrealized loss (7,590)
--------
Decrease in net assets resulting from operations $ (6,321)
========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 11
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended June 30, 2018 (unaudited), and year ended
December 31, 2017
----------------------------------------------------------------------------------------------------
6/30/2018 12/31/2017
----------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 1,269 $ 2,532
Net realized loss on investments (4,947) (594)
Net realized gain on foreign currency transactions 1 -
Net realized loss on futures transactions (1,458) (1,176)
Change in net unrealized appreciation/(depreciation) of:
Investments (1,328) 5,113
Futures contracts 142 (405)
---------------------------
Increase (decrease) in net assets resulting from operations (6,321) 5,470
---------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares (297) (1,935)
Institutional Shares (197) (1,038)
Adviser Shares (30) (182)
---------------------------
Distributions to shareholders (524) (3,155)
---------------------------
NET DECREASE IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS (NOTE 6)
Fund Shares (4,817) (7,213)
Institutional Shares (11,079) 4,818
Adviser Shares (29) (9)
---------------------------
Total net decrease in net assets
from capital share transactions (15,925) (2,404)
---------------------------
Net decrease in net assets (22,770) (89)
NET ASSETS
Beginning of period 75,066 75,155
---------------------------
End of period $ 52,296 $75,066
===========================
Accumulated undistributed (overdistribution of)
net investment income:
End of period $ 552 $ (193)
===========================
See accompanying notes to financial statements.
================================================================================
12 | USAA FLEXIBLE INCOME FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
June 30, 2018 (unaudited)
--------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company Act
of 1940, as amended (the 1940 Act), is an open-end management investment
company organized as a Delaware statutory trust consisting of 50 separate funds.
The USAA Flexible Income Fund (the Fund) qualifies as a registered investment
company under Accounting Standards Codification Topic 946. The information
presented in this semiannual report pertains only to the Fund, which is
classified as diversified under the 1940 Act. The Fund's investment objective is
to seek total return through a combination of income and capital appreciation.
On June 14, 2018, the Trust's Board of Trustees (the Board) approved a Plan of
Liquidation and Dissolution for the Fund pursuant to which the Fund will be
liquidated on or about August 17, 2018. In approving the liquidation, the Board
determined that the liquidation of the Fund is in the best interest of the Fund
and its shareholders. Effective the close of business on June 15, 2018, the Fund
was closed to new investors.
The Fund consists of three classes of shares: Flexible Income Fund Shares (Fund
Shares), Flexible Income Fund Institutional Shares (Institutional Shares), and
Flexible 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 13
================================================================================
exclusive voting rights on matters related solely to that class and separate
voting rights on matters that relate to all classes. The Institutional Shares
are available for investment through a USAA discretionary managed account
program and certain advisory programs sponsored by financial intermediaries,
such as brokerage firms, investment advisors, financial planners, third-party
administrators, and insurance companies. Institutional Shares also are available
to institutional investors, which include retirement plans, endowments,
foundations, and bank trusts, as well as other persons or legal entities that
the Fund may approve from time to time, or for purchase by a USAA fund
participating in a fund-of-funds investment strategy (USAA fund-of-funds). The
Adviser Shares permit investors to purchase shares through financial
intermediaries, including banks, broker-dealers, insurance companies, investment
advisers, plan sponsors, and financial professionals that provide various
administrative and distribution services.
A. SECURITY VALUATION - The Trust's Board of Trustees (the Board) has
established the Valuation and Liquidity Committee (the Committee), and
subject to Board oversight, the Committee administers and oversees the
Fund's valuation policies and procedures, which are approved by the Board.
Among other things, these policies and procedures allow the Fund to utilize
independent pricing services, quotations from securities dealers, and a
wide variety of sources and information to establish and adjust the fair
value of securities as events occur and circumstances warrant.
The Committee reports to the Board on a quarterly basis and makes
recommendations to the Board as to pricing methodologies and services used
by the Fund and presents additional information to the Board regarding
application of the pricing and fair valuation policies and procedures
during the preceding quarter.
The Committee meets as often as necessary to make pricing and fair value
determinations. In addition, the Committee holds regular monthly meetings
to review prior actions taken by the Committee and USAA Asset Management
Company (the Manager), an affiliate of the Fund. Among other things, these
monthly meetings include a review and analysis of backtesting reports,
pricing service quotation comparisons, illiquid securities and fair value
determinations, pricing movements, and daily stale price monitoring.
================================================================================
14 | USAA FLEXIBLE 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 | 15
================================================================================
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
================================================================================
16 | USAA FLEXIBLE 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.
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 | 17
================================================================================
The inputs or methodologies used for valuing securities are not necessarily
an indication of the risks associated with investing in those securities.
The valuation of securities falling in the Level 3 category are primarily
supported by last quoted price. However, these securities are included in
the Level 3 category due to limited market transparency and/or a lack of
corroboration to support the quoted prices.
The methods used may include valuation models that rely on significant
assumptions and/or unobservable inputs to determine the fair value
measurement for the securities. A market-based approach may be employed
using related or comparable securities, recent transactions, market
multiples, book values and other relevant information or an income-based
approach may be employed whereby estimated future cash flows are discounted
to determine the fair value. In some cases discounts may be applied due to
market liquidity limitations.
Refer to the Portfolio of Investments for a reconciliation of investments
in which significant unobservable inputs (Level 3) were used in determining
value.
C. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - The Fund may buy, sell, and
enter into certain types of derivatives, including, but not limited to,
futures contracts, options, options on futures contracts, and forward
currency contracts, under circumstances in which such instruments are
expected by the portfolio manager to aid in achieving the Fund's investment
objective. The Fund also may use derivatives in circumstances where the
portfolio manager believes they offer an economical means of gaining
exposure to a particular asset class or securities market or to keep cash
on hand to meet shareholder redemptions or other needs while maintaining
exposure to the market. With exchange-listed futures contracts and options,
counterparty credit risk to the Fund is limited to the exchange's
clearinghouse which, as counterparty to all exchange-traded futures
contracts and options, guarantees the transactions against default from the
actual counterparty to the transaction. The Fund's derivative agreements
held at June 30, 2018, did not include master netting provisions.
================================================================================
18 | USAA FLEXIBLE INCOME FUND
================================================================================
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.
THE EFFECT OF DERIVATIVE INSTRUMENTS ON THE STATEMENT OF OPERATIONS FOR THE
SIX-MONTH PERIOD ENDED JUNE 30, 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) on $(1,222) $107
Futures transactions /
Change in net unrealized
appreciation/(depreciation)
of Futures contracts
---------------------------------------------------------------------------------------------------
Foreign exchange contracts Net realized gain (loss) on (236) 35
Futures transactions /
Change in net unrealized
appreciation/(depreciation)
of Futures contracts
---------------------------------------------------------------------------------------------------
Total $(1,458) $142
---------------------------------------------------------------------------------------------------
================================================================================
NOTES TO FINANCIAL STATEMENTS | 19
================================================================================
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 June 30, 2018, the Fund did not incur any
income tax, interest, or penalties, and has recorded no liability for net
unrecognized tax benefits relating to uncertain income tax positions. On an
ongoing basis, the Manager will monitor the Fund's tax basis to determine if
adjustments to this conclusion are necessary. The statute of limitations on
the Fund's tax return filings generally remain open for the three preceding
fiscal reporting year ends and remain subject to examination by the Internal
Revenue Service and state taxing authorities.
E. FOREIGN TAXATION - Foreign income and capital gains on some foreign
securities may be subject to foreign taxes, which are reflected as a
reduction to such income and realized gains. The Fund records a liability
based on unrealized gains to provide for potential foreign taxes payable
upon the sale of these securities. Foreign taxes have been provided for in
accordance with the Fund's understanding of the applicable countries'
prevailing tax rules and rates.
F. INVESTMENTS IN SECURITIES - Securities transactions are accounted for as of
the date the securities are purchased or sold (trade date). Gains or losses
from sales of investment securities are computed on the identified cost
basis. Dividend income, less foreign taxes, if any, is recorded on the ex-
dividend date. If the ex-dividend date has passed, certain dividends from
foreign securities are recorded upon notification. Interest income is
recorded daily on the accrual basis. Premiums and discounts are amortized
over the life of the respective securities, using the effective yield
method for long-term securities and the straight-line method for short-term
securities.
G. SECURITIES PURCHASED ON A DELAYED-DELIVERY OR WHEN-ISSUED BASIS - Delivery
and payment for securities that have been purchased by the Fund on a
delayed-delivery or when-issued basis can take place a month or more after
the trade date. During the period prior to settlement, these
================================================================================
20 | USAA FLEXIBLE INCOME FUND
================================================================================
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. 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 21
================================================================================
assets and liabilities, other than investments in securities, resulting from
changes in the exchange rate.
I. INDEMNIFICATIONS - Under the Trust's organizational documents, its officers
and trustees are indemnified against certain liabilities arising out of the
performance of their duties to the Trust. In addition, in the normal course
of business, the Trust enters into contracts that contain a variety of
representations and warranties that provide general indemnifications. The
Trust's maximum exposure under these arrangements is unknown, as this would
involve future claims that may be made against the Trust that have not yet
occurred. However, the Trust expects the risk of loss to be remote.
J. USE OF ESTIMATES - The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts in the
financial statements.
(2) LINE OF CREDIT
The Fund participates, along with other funds of the Trust and USAA ETF Trust
(together, the Trusts), in a joint, short-term, revolving, committed loan
agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate of
the Manager. The purpose of the agreement is to provide temporary or emergency
cash needs, including redemption requests that might otherwise require the
untimely disposition of securities. Subject to availability (including usage of
the facility by other funds of the Trusts), the Fund may borrow from CAPCO an
amount up to 5% of the Fund's total assets at an interest rate based on the
London Interbank Offered Rate (LIBOR), plus 100.0 basis points.
The Trusts are also assessed facility fees by CAPCO in the amount of 13.0 basis
points of the amount of the committed loan agreement. Prior to September 30,
2017, the maximum annual facility fee was 12.0 basis points of the amount of the
committed loan agreement. The facility fees are allocated among the funds of the
Trusts based on their respective average net assets for the period.
The Trusts may request an optional increase of the committed loan agreement from
$500 million up to $750 million. If the Trusts increase the
================================================================================
22 | USAA FLEXIBLE INCOME FUND
================================================================================
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 June 30, 2018, the Fund paid CAPCO facility fees
of less than $500, which represents 0.1% of the total fees paid to CAPCO by the
funds of the Trusts. The Fund had no borrowings under this agreement during the
six-month period ended June 30, 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 December 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 December 31, 2017, the Fund had net capital loss carryforwards of
$11,878,000, for federal income tax purposes as shown in the table below. It is
unlikely that the Board will authorize a distribution of capital gains realized
in the future until the capital loss carryforwards have been used.
CAPITAL LOSS CARRYFORWARDS
--------------------------------
TAX CHARACTER
--------------------------------
(NO EXPIRATION) BALANCE
--------------- -----------
Short-Term $ 3,019,000
Long-Term 8,859,000
-----------
Total $11,878,000
===========
As of June 30, 2018, the cost of securities, including short-term securities,
for federal income tax purposes, was approximately the same as the cost reported
in the financial statements.
Gross unrealized appreciation and depreciation of investments as of June 30,
2018, were $447,000 and $6,478,000, respectively, resulting in net unrealized
depreciation of $6,031,000.
================================================================================
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 June 30, 2018, were
$1,579,000 and $52,607,000, 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, net of income retained by
Citibank. 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. Loans are
terminable upon demand and the borrower must return the loaned securities within
the lesser of one standard settlement period or five business days. 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 June 30, 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
------------------------------------------------------------------------------------------------------
$416,000(1) $- $272,000
------------------------------------------------------------------------------------------------------
(1)Includes $211,000 of securities on loan that were sold prior to
June 30, 2018.
================================================================================
24 | USAA FLEXIBLE INCOME FUND
================================================================================
(6) CAPITAL SHARE TRANSACTIONS
At June 30, 2018, there were an unlimited number of shares of capital stock at
no par value authorized for the Fund.
Capital share transactions for the Institutional Shares resulted from purchases
and sales by the affiliated USAA fund-of-funds as well as other persons or legal
entities that the Fund may approve from time to time. Capital share
transactions for all classes were as follows, in thousands:
SIX-MONTH PERIOD ENDED YEAR ENDED
JUNE 30, 2018 DECEMBER 31, 2017
-----------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------
FUND SHARES:
Shares sold 258 $ 2,289 1,192 $ 11,073
Shares issued from
reinvested dividends 28 241 163 1,511
Shares redeemed (834) (7,347) (2,130) (19,797)
---------------------------------------------------
Net decrease from
capital share transactions (548) $ (4,817) (775) $ (7,213)
===================================================
INSTITUTIONAL SHARES:
Shares sold 53 $ 465 758 $ 7,054
Shares issued from
reinvested dividends 22 196 112 1,038
Shares redeemed (1,361) (11,740) (354) (3,274)
---------------------------------------------------
Net increase (decrease) from
capital share transactions (1,286) $(11,079) 516 $ 4,818
===================================================
ADVISER SHARES:
Shares sold -** $ -** 1 $ 11
Shares issued from
reinvested dividends -** -** 1 5
Shares redeemed (3) (29) (3)* (25)*
---------------------------------------------------
Net decrease from
capital share transactions (3) $ (29) (1) $ (9)
===================================================
*Net of redemption fees, if any.
**Represents less than 500 shares or $500.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 25
================================================================================
(7) TRANSACTIONS WITH MANAGER
MANAGEMENT FEES - The Manager provides investment management services to the
Fund pursuant to an Advisory Agreement. Under this agreement, the Manager is
responsible for managing the business and affairs of the Fund and for directly
managing the day-to-day investment of the Fund's assets, subject to the
authority of and supervision by the Board. The Manager also is authorized to
select (with approval of the Board and without shareholder approval) one or more
subadvisers to manage the day-to-day investment of a portion of the Fund's
assets. For the six-month period ended June 30, 2018, the Fund had no
subadviser(s).
The Fund's management fees are accrued daily and paid monthly at an annualized
rate of 0.50% of the Fund's average net assets. For the six-month period ended
June 30, 2018, the Fund incurred total management fees, paid or payable to the
Manager, of $164,000.
ADMINISTRATION AND SERVICING FEES - The Manager provides certain administration
and servicing functions for the Fund. For such services, the Manager receives a
fee accrued daily and paid monthly at an annualized rate of 0.15% 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 June 30, 2018, the Fund
Shares, Institutional Shares, and Adviser Shares incurred administration and
servicing fees, paid or payable to the Manager, of $28,000, $12,000, 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 June 30, 2018, the Fund reimbursed the Manager $1,000 for these compliance
and legal services. These expenses are included in the professional fees on the
Fund's Statement of Operations.
EXPENSE LIMITATION - The Manager agreed, through April 30, 2019, to limit the
total annual operating expenses of the Fund Shares, Institutional Shares, and
Adviser Shares to 0.90%, 0.80%, and 1.15%, respectively, of their average net
assets, excluding extraordinary expenses and before reductions of any expenses
paid indirectly, and to reimburse the Fund Shares, Institutional Shares, and the
Adviser Shares for all expenses in excess of those amounts.
================================================================================
26 | USAA FLEXIBLE INCOME FUND
================================================================================
This expense limitation arrangement may not be changed or terminated through
April 30, 2019, without approval of the Board, and may be changed or terminated
by the Manager at any time after that date. For the six-month period ended June
30, 2018, the Fund incurred reimbursable expenses from the Manager for the Fund
Shares, Institutional Shares, and Adviser Shares of $40,000, $18,000, and
$12,000, respectively, of which $1,000 was receivable from the Manager.
TRANSFER AGENT'S FEES - USAA Transfer Agency Company, d/b/a USAA Shareholder
Account Services (SAS), an affiliate of the Manager, provides transfer agent
services to the Fund Shares and Adviser Shares based on an annual charge of
$25.50 per shareholder account plus out-of-pocket expenses. SAS pays a portion
of these fees to certain intermediaries for 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 June 30, 2018, the Fund
Shares, Institutional Shares, and Adviser Shares incurred transfer agent's fees,
paid or payable to SAS, of $35,000, $12,000, and less than $500, respectively.
DISTRIBUTION AND SERVICE (12b-1) FEES - The Fund has adopted a plan pursuant to
Rule 12b-1 under the 1940 Act with respect to the Adviser Shares. Under the
plan, the Adviser Shares pay fees to USAA Investment Management Company (IMCO),
the distributor, for distribution and shareholder services. IMCO pays all or a
portion of such fees to intermediaries that make the Adviser Shares available
for investment by their customers. The fee is accrued daily and paid monthly at
an annual rate of 0.25% of the Adviser Shares' average 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 June 30, 2018,
the Adviser Shares incurred distribution and service (12b-1) fees of $6,000.
UNDERWRITING SERVICES - IMCO provides exclusive underwriting and distribution of
the Fund's shares on a continuing best-efforts basis and receives no fee or
other compensation for these services, but may receive 12b-1 fees as described
above, with respect to Adviser Shares.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 27
================================================================================
(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 June 30, 2018, the Fund
recorded a payable for capital shares redeemed of $1,000,000 for the USAA
fund-of-funds' redemptions of Institutional Shares. As of June 30, 2018, the
USAA fund-of-funds owned the following percentages of the total outstanding
shares of the Fund:
AFFILIATED USAA FUND OWNERSHIP %
--------------------------------------------------------------------------------
Cornerstone Conservative 15.5
Target Retirement Income 0.0*
Target Retirement 2020 0.5
Target Retirement 2030 5.6
Target Retirement 2040 3.3
Target Retirement 2050 1.5
Target Retirement 2060 0.2
* Represents less than 0.1%
The Manager is indirectly wholly owned by United Services Automobile Association
(USAA), a large, diversified financial services institution. At June 30, 2018,
USAA and its affiliates owned 575,000 Fund Shares and 500,000 Adviser Shares,
which represents 14.0% of the Fund Shares and 97.8% of the Adviser Shares
outstanding and 17.1% 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 June 30, 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
================================================================================
28 | USAA FLEXIBLE INCOME FUND
================================================================================
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
------------------------------------------------------------------------------------
Flexible Income Fund Cornerstone
Aggressive Fund $ 183,000 $ (106,000)
Flexible Income Fund Cornerstone Moderately
Aggressive Fund 1,222,000 (946,000)
Flexible Income Fund Cornerstone Moderately
Conservative Fund 61,000 (35,000)
Flexible Income Fund Cornerstone Moderate
Fund 366,000 (213,000)
(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.
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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 29
================================================================================
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) UPCOMING 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 statements
and other disclosures.
================================================================================
30 | USAA FLEXIBLE INCOME FUND
================================================================================
FINANCIAL HIGHLIGHTS
FUND SHARES
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED PERIOD ENDED
JUNE 30, YEAR ENDED DECEMBER 31, DECEMBER 31,
--------------------------------------------------------------------------------------------
2018 2017 2016 2015 2014 2013***
--------------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 9.22 $ 8.95 $ 8.31 $ 9.59 $ 9.99 $ 10.00
-----------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .17 .28 .27 .41 .52(a) .22(a)
Net realized and
unrealized gain (loss) (1.02) .36 .63 (1.21) (.14)(a) (.02)(a)
-----------------------------------------------------------------------------------------
Total from investment
operations (.85) .64 .90 (.80) .38(a) .20(a)
-----------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.07) (.37) (.26) (.39) (.49) (.18)
Realized capital gains - - - (.09) (.29) (.03)
-----------------------------------------------------------------------------------------
Total distributions (.07) (.37) (.26) (.48) (.78) (.21)
-----------------------------------------------------------------------------------------
Net asset value at
end of period $ 8.30 $ 9.22 $ 8.95 $ 8.31 $ 9.59 $ 9.99
=========================================================================================
Total return (%)* (9.27) 7.24 10.86 (8.66) 3.69 2.02
Net assets at end
of period (000) $34,115 $42,954 $48,625 $55,762 $66,235 $31,636
Ratios to average
net assets:**
Expenses (%)(h) .90(b) .90 .97(d) .97(e) .92 1.00(b),(c)
Expenses, excluding
reimbursements (%)(h) 1.11(b) 1.17 1.13 .97 .92 1.00(b),(c)
Net investment income (%) 3.85(b) 3.21 2.83 4.53 5.03 4.10(b)
Portfolio turnover (%) 3 25 17 36(f) 90(g) 39
* 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 June 30, 2018, average net assets
were $38,259,000.
*** Fund Shares commenced operations on July 12, 2013.
(a) Calculated using average shares.
(b) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
FINANCIAL HIGHLIGHTS | 31
================================================================================
(c) Reflects total annual operating expenses of the Fund Shares before
reductions of any expenses paid indirectly. The Fund Shares' expenses paid
indirectly decreased the expense ratio by less than 0.01%.
(d) Effective May 1, 2016, the Manager voluntarily agreed to limit the annual
expenses of the Fund shares to 0.90% of the Fund Shares' average net assets.
(e) Prior to May 1, 2015, the Manager had voluntarily agreed to limit the annual
expenses of the Fund Shares to 1.00% of the Fund Shares' average net assets.
(f) Reflects overall decrease in purchases and sales of securities.
(g) Reflects overall increase in trading due to prior period's portfolio
turnover ratio not being indicative of 12 months of operations.
(h) Does not include acquired fund fees, if any.
================================================================================
32 | USAA FLEXIBLE INCOME FUND
================================================================================
INSTITUTIONAL SHARES (UNAUDITED)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED PERIOD ENDED
JUNE 30, YEAR ENDED DECEMBER 31, DECEMBER 31,
--------------------------------------------------------------------------------------------
2018 2017 2016 2015 2014 2013***
--------------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 9.25 $ 8.97 $ 8.32 $ 9.59 $ 9.99 $ 10.00
-----------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .18(a) .27 .28(a) .43(a) .52 .24(a)
Net realized and
unrealized gain (loss) (1.03)(a) .39 .64(a) (1.21)(a) (.13) (.03)(a)
-----------------------------------------------------------------------------------------
Total from investment
operations (.85)(a) .66 .92(a) (.78)(a) .39 .21(a)
-----------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.07) (.38) (.27) (.40) (.50) (.19)
Realized capital gains - - - (.09) (.29) (.03)
-----------------------------------------------------------------------------------------
Total distributions (.07) (.38) (.27) (.49) (.79) (.22)
-----------------------------------------------------------------------------------------
Net asset value at
end of period $ 8.33 $ 9.25 $ 8.97 $ 8.32 $ 9.59 $ 9.99
=========================================================================================
Total return (%)* (9.23) 7.41 11.15 (8.46) 3.79 2.09
Net assets at end
of period (000) $13,939 $27,369 $21,919 $22,942 $98,348 $97,101
Ratios to average
net assets:**
Expenses (%)(f) .80(b) .80 .80 .80 .80 .80(b),(c)
Expenses, excluding
reimbursements (%)(f) .96(b) 1.05 1.04 .86 .85 .88(b),(c)
Net investment income (%) 3.96(b) 3.27 3.01 4.57 5.08 4.65(b)
Portfolio turnover (%) 3 25 17 36(e) 90(d) 39
* 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 June 30, 2018, average net assets
were $23,376,000.
*** Institutional Shares commenced operations on July 12, 2013.
(a) Calculated using average shares. For the six-month period ended
June 30, 2018, average shares were 2,588,000.
(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 ratio by less than 0.01%.
(d) Reflects overall increase in trading due to prior period's portfolio
turnover ratio not being indicative of 12 months of operations.
(e) Reflects decreased trading activity due to asset allocation strategies.
(f) Does not include acquired fund fees, if any,
================================================================================
FINANCIAL HIGHLIGHTS | 33
================================================================================
ADVISER SHARES (UNAUDITED)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each
period is as follows:
SIX-MONTH
PERIOD ENDED PERIOD ENDED
JUNE 30, YEAR ENDED DECEMBER 31, DECEMBER 31,
--------------------------------------------------------------------------------------------
2018 2017 2016 2015 2014 2013***
--------------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 9.22 $ 8.95 $ 8.31 $ 9.59 $ 9.99 $10.00
----------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .16 .26 .26 .39 .47 .20(a)
Net realized and
unrealized gain (loss) (1.02) .36 .62 (1.21) (.12) (.01)(a)
----------------------------------------------------------------------------------------
Total from investment
operations (.86) .62 .88 (.82) .35 .19(a)
----------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.06) (.35) (.24) (.37) (.46) (.17)
Realized capital gains - - - (.09) (.29) (.03)
----------------------------------------------------------------------------------------
Total distributions (.06) (.35) (.24) (.46) (.75) (.20)
----------------------------------------------------------------------------------------
Redemption fees added
to beneficial interests - .00(g) .00(g) - - -
----------------------------------------------------------------------------------------
Net asset value at
end of period $ 8.30 $ 9.22 $ 8.95 $ 8.31 $ 9.59 $ 9.99
========================================================================================
Total return (%)* (9.37) 7.00 10.68 (8.86) 3.35 1.90
Net assets at end
of period (000) $4,242 $4,743 $4,611 $4,293 $4,989 $4,996
Ratios to average
net assets:**
Expenses (%)(h) 1.15(b) 1.15 1.15 1.19(f) 1.25 1.25(b),(c)
Expenses, excluding
reimbursements (%)(h) 1.67(b) 1.56 1.58 1.33 1.55 1.54(b),(c)
Net investment income (%) 3.59(b) 2.97 2.71 4.32 4.62 3.76(b)
Portfolio turnover (%) 3 25 17 36(e) 90(d) 39
* 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 June 30, 2018, average net assets
were $4,480,000.
*** Adviser Shares commenced operations on July 12, 2013.
(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 Adviser Shares before
reductions of any expenses paid indirectly. The Adviser Shares' expenses
paid indirectly decreased the expense ratio by less than 0.01%
(d) Reflects overall increase in trading due to prior period's portfolio
turnover ratio not being indicative of 12 months of operations.
================================================================================
34 | USAA FLEXIBLE INCOME FUND
================================================================================
(e) Reflects overall decrease in purchases and sales of securities.
(f) Prior to May 1, 2015, the Manager had voluntarily agreed to limit the annual
expenses of the Adviser Shares to 1.25% of the Adviser Shares' average net
assets.
(g) Represents less than $0.01 per share.
(h) Does not include acquired fund fees, if any.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 35
================================================================================
EXPENSE EXAMPLE
June 30, 2018 (unaudited)
--------------------------------------------------------------------------------
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: direct costs, such
as wire fees, redemption fees, and low balance fees; and indirect costs,
including management fees, transfer agency fees, distribution and service
(12b-1) fees, and other Fund operating expenses. This example is intended to
help you understand your indirect costs, also referred to as "ongoing costs" (in
dollars), of investing in the Fund and to compare these costs with the ongoing
costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire six-month period of January 1, 2018, through June
30, 2018.
ACTUAL EXPENSES
The line labeled "actual" under each share class in the table provides
information about actual account values and actual expenses. You may use the
information in this line, together with the amount you invested at the beginning
of the period, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number for your share
class in the "actual" line under the heading "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The line labeled "hypothetical" under each share class in the table provides
information about hypothetical account values and hypothetical expenses based on
the Fund's actual expense ratios for each class and an assumed rate of return of
5% per year before expenses, which is not the Fund's actual return. The
hypothetical account values and expenses may not be used to
================================================================================
36 | USAA FLEXIBLE INCOME FUND
================================================================================
estimate the actual ending account balance or expenses you paid for the period.
You may use this information to compare the ongoing costs of investing in the
Fund and other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any direct costs, such as wire fees,
redemption fees, or low balance fees. Therefore, the line labeled "hypothetical"
is useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if these direct
costs were included, your costs would have been higher.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE JANUARY 1, 2018-
JANUARY 1, 2018 JUNE 30, 2018 JUNE 30, 2018
------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $ 907.30 $4.26
Hypothetical
(5% return before expenses) 1,000.00 1,020.33 4.51
INSTITUTIONAL SHARES
Actual 1,000.00 907.70 3.78
Hypothetical
(5% return before expenses) 1,000.00 1,020.83 4.01
ADVISER SHARES
Actual 1,000.00 906.30 5.44
Hypothetical
(5% return before expenses) 1,000.00 1,019.09 5.76
*Expenses are equal to the annualized expense ratio of 0.90% for Fund Shares,
0.80% for Institutional Shares, and 1.15% for Adviser Shares, which are net of
any reimbursements and expenses paid indirectly, multiplied by the average
account value over the period, multiplied by 181 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 (9.27)% for Fund Shares, (9.23)% for Institutional
Shares, and (9.37)% for Adviser Shares for the six-month period of January 1,
2018, through June 30, 2018.
================================================================================
EXPENSE EXAMPLE | 37
================================================================================
ADVISORY AGREEMENT(S)
June 30, 2018 (unaudited)
--------------------------------------------------------------------------------
At an in-person meeting of the Board of Trustees (the Board) held on April 18,
2018, the Board, including the Trustees who are not "interested persons" (as
that term is defined in the Investment Company Act of 1940, as amended) of the
Trust (the Independent Trustees), approved for an annual period the continuance
of the Advisory Agreement between the Trust and the Manager with respect to the
Fund.
In advance of the meeting, the Trustees received and considered a variety of
information relating to the Advisory Agreement and the Manager, and were given
the opportunity to ask questions and request additional information from
management. The information provided to the Board included, among other things:
(i) a separate report prepared by an independent third party, which provided a
statistical analysis comparing the Fund's investment performance, expenses, and
fees to comparable investment companies; (ii) information concerning the
services rendered to the Fund, as well as information regarding the Manager's
revenues and costs of providing services to the Fund and compensation paid to
affiliates of the Manager; and (iii) information about the Manager's operations
and personnel. Prior to voting, the Independent Trustees reviewed the proposed
continuance of the Advisory Agreement with management and with experienced
counsel retained by the Independent Trustees (Independent Counsel) and received
materials from such Independent Counsel discussing the legal standards for their
consideration of the proposed continuation of the Advisory Agreement with
respect to the Fund. The Independent Trustees also reviewed the proposed
continuation of the Advisory Agreement with respect to the Fund in private
sessions with Independent Counsel at which no representatives of management were
present.
At each regularly scheduled meeting of the Board and its committees, the Board
receives and reviews, among other things, information concerning the Fund's
performance and related services provided by the Manager. At the meeting at
which the renewal of the Advisory Agreement is considered,
================================================================================
38 | USAA FLEXIBLE INCOME FUND
================================================================================
particular focus is given to information concerning Fund performance, fees and
total expenses as compared to comparable investment companies, and the Manager's
profitability with respect to the Fund. However, the Board noted that the
evaluation process with respect to the Manager is an ongoing one. In this
regard, the Board's and its committees' consideration of the Advisory Agreement
included information previously received at such meetings.
ADVISORY AGREEMENT
After full consideration of a variety of factors, the Board, including the
Independent Trustees, voted to approve the Advisory Agreement. In approving the
Advisory Agreement, the Trustees did not identify any single factor as
controlling, and each Trustee may have attributed different weights to various
factors. Throughout their deliberations, the Independent Trustees were
represented and assisted by Independent Counsel.
NATURE, EXTENT, AND QUALITY OF SERVICES - In considering the nature, extent, and
quality of the services provided by the Manager under the Advisory Agreement,
the Board reviewed information provided by the Manager relating to its
operations and personnel. The Board also took into account its knowledge of the
Manager's management and the quality of the performance of the Manager's duties
through Board meetings, discussions, and reports during the preceding year. The
Board considered the fees paid to the Manager and the services provided to the
Fund by the Manager under the Advisory Agreement, as well as other services
provided by the Manager and its affiliates under other agreements, and the
personnel who provide these services. In addition to the investment advisory
services provided to the Fund, the Manager and its affiliates provide
administrative services, shareholder services, oversight of Fund accounting,
marketing services, assistance in meeting legal and regulatory requirements, and
other services necessary for the operation of the Fund and the Trust. The Board
also considered the significant risks assumed by the Manager in connection with
the services provided to the Fund, including investment, operational,
enterprise, litigation, regulatory and compliance risks.
The Board considered the Manager's management style and the performance of the
Manager's duties under the Advisory Agreement. The Board considered
================================================================================
ADVISORY AGREEMENT(s) | 39
================================================================================
the level and depth of knowledge of the Manager, including the professional
experience and qualifications of its senior and investment personnel, as well as
current staffing levels. The allocation of the Fund's brokerage, including the
Manager's process for monitoring "best execution," also was considered. The
Manager's role in coordinating the activities of the Fund's other service
providers also was considered. The Board also considered the Manager's risk
management processes. The Board considered the Manager's financial condition and
that it had the financial wherewithal to continue to provide the same scope and
high quality of services under the Advisory Agreement. In reviewing the Advisory
Agreement, the Board focused on the experience, resources, and strengths of the
Manager and its affiliates in managing the Fund, as well as other funds in the
Trust.
The Board also reviewed the compliance and administrative services provided to
the Fund by the Manager and its affiliates, including the Manager's oversight of
the Fund's day-to-day operations and oversight of Fund accounting. The Trustees,
guided also by information obtained from their experiences as trustees of the
Trust, also focused on the quality of the Manager's compliance and
administrative staff.
EXPENSES AND PERFORMANCE - In connection with its consideration of the Advisory
Agreement, the Board evaluated the Fund's advisory fees and total expense ratio
as compared to other open-end investment companies deemed to be comparable to
the Fund as determined by the independent third party in its report. The Fund's
expenses were compared to (i) a group of investment companies chosen by the
independent third party to be comparable to the Fund based upon certain factors,
including fund type, comparability of investment objective and classification,
sales load type (in this case, retail investment companies with front-end loads
and no sales loads), asset size, and expense components (the expense group) and
(ii) a larger group of investment companies that includes all front-end load and
no-load retail open-end investment companies with the same investment
classification/objective as the Fund regardless of asset size, excluding
outliers (the expense universe).
Among other data, the Board noted that the Fund's management fee rate - which
includes advisory and administrative services and the effects of any fee waivers
or reimbursements - was below the median of its expense group and
================================================================================
40 | USAA FLEXIBLE INCOME FUND
================================================================================
its expense universe. The data indicated that the Fund's total expenses, after
reimbursements, were above the median of its expense group and expense universe.
The Board took into account the various services provided to the Fund by the
Manager and its affiliates, including the high quality of services received by
the Fund from the Manager. The Board also noted the level and method of
computing the management fee.
In considering the Fund's performance, the Board noted that it reviews at its
regularly scheduled meetings information about the Fund's performance results.
The Trustees also reviewed various comparative data provided to them in
connection with their consideration of the renewal of the Advisory Agreement,
including, among other information, a comparison of the Fund's average annual
total return with its Lipper index and with that of other mutual funds deemed to
be in its peer group by the independent third party in its report (the
performance universe). The Fund's performance universe consisted of the Fund and
all retail and institutional open-end investment companies with the same
classification/objective as the Fund regardless of asset size or primary channel
of distribution. This comparison indicated that, among other data, the Fund's
performance was above the average of its performance universe and its Lipper
index for the one-year period ended December 31, 2017, and was below the average
of its performance universe and its Lipper index for the three-year period ended
December 31, 2017. The Board also noted that the Fund's percentile performance
ranking was in the top 25% of its performance universe for the one-year period
ended December 31, 2017, and was in the bottom 50% of its performance universe
for the three-year period ended December 31, 2017. The Board also took into
account potential actions management was considering taking with respect to the
Fund.
COMPENSATION AND PROFITABILITY - The Board took into consideration the level and
method of computing the management fee. The information considered by the Board
included operating profit margin information for the Manager's business as a
whole. The Board also received and considered profitability information related
to the management revenues from the Fund. This information included a review of
the methodology used in the allocation of certain costs to the Fund. The
Trustees reviewed the profitability of the Manager's relationship with the Fund
before tax expenses. In reviewing the
================================================================================
ADVISORY AGREEMENT(s) | 41
================================================================================
overall profitability of the management fee to the Manager, the Board also
considered the fact that the Manager and its affiliates provide shareholder
servicing and administrative services to the Fund for which they receive
compensation. The Board also considered the possible direct and indirect
benefits to the Manager from its relationship with the Trust, including that the
Manager may derive reputational and other benefits from its association with the
Fund. The Trustees recognized that the Manager should be entitled to earn a
reasonable level of profits in exchange for the level of services it provides to
the Fund and the entrepreneurial and other risks that it assumes as Manager.
ECONOMIES OF SCALE - The Board considered whether there should be changes in the
management fee rate or structure in order to enable the Fund to participate in
any economies of scale. The Board took into account management's discussion of
the current advisory fee structure. The Board also considered the effect of
Fund's growth and size on its performance and fees, noting that the Fund may
realize other economies of scale if assets increase proportionately more than
some expenses. The Board determined that the current investment management fee
structure was reasonable.
CONCLUSIONS - The Board reached the following conclusions regarding the Fund's
Advisory Agreement with the Manager, among others: (i) the Manager has
demonstrated that it possesses the capability and resources to perform the
duties required of it under the Advisory Agreement; (ii) the Manager maintains
an appropriate compliance program; (iii) the performance of the Fund is
reasonable in relation to the performance of funds with similar investment
objectives and to relevant indices; (iv) the Fund's advisory expenses are
reasonable in relation to those of similar funds and to the services to be
provided by the Manager; and (v) the Manager's and its affiliates' level of
profitability from their relationship with the Fund is reasonable in light of
the nature and high quality of services provided by the Manager and the type of
fund. Based on its conclusions, the Board determined that continuation of the
Advisory Agreement would be in the best interests of the Fund and its
shareholders.
================================================================================
42 | USAA FLEXIBLE 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
--------------------------------------------------------------------------------
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
--------------
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================================================================================
97757-0818 (C)2018, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA GLOBAL MANAGED VOLATILITY FUND]
==============================================================
SEMIANNUAL REPORT
USAA GLOBAL MANAGED VOLATILITY FUND
FUND SHARES (UGMVX) o INSTITUTIONAL SHARES (UGOFX)
JUNE 30, 2018
==============================================================
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
INVESTMENT OVERVIEW 1
FINANCIAL INFORMATION
Portfolio of Investments 2
Notes to Portfolio of Investments 18
Financial Statements 20
Notes to Financial Statements 24
Financial Highlights 42
EXPENSE EXAMPLE 44
ADVISORY AGREEMENT(S) 46
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE
RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY
USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN
PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS
ABOUT THE FUND.
IRA DISTRIBUTION WITHHOLDING DISCLOSURE
We generally must withhold federal income tax at a rate of 10% of the taxable
portion of your distribution and, if you live in a state that requires state
income tax withholding, at your state's tax rate. However, you may elect not to
have withholding apply or to have income tax withheld at a higher rate. Any
withholding election that you make will apply to any subsequent distribution
unless and until you change or revoke the election. If you wish to make a
withholding election, or change or revoke a prior withholding election, call
(800) 531-USAA (8722) or (210) 531-8722.
If you do not have a withholding election in place by the date of a
distribution, federal income tax will be withheld from the taxable portion of
your distribution at a rate of 10%. If you must pay estimated taxes, you may be
subject to estimated tax penalties if your estimated tax payments are not
sufficient and sufficient tax is not withheld from your distribution.
For more specific information, please consult your tax adviser.
(C)2018, USAA. All rights reserved.
================================================================================
================================================================================
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
o TOP 10 HOLDINGS - 6/30/18 o
(% of Net Assets)
iShares Edge MSCI Min Vol EAFE ETF ....................................... 14.9%
Schwab Fundamental International Large Company Index ETF ................. 5.6%
iShares Edge MSCI Min Vol Emerging Markets ETF ........................... 5.4%
Invesco FTSE RAFI Developed Markets ex-US ETF ............................ 4.6%
U.S. Treasury Note, 1.88%, 4/30/2022 ..................................... 4.0%
iShares Edge MSCI USA Size Factor ETF .................................... 3.4%
Schwab Fundamental U.S. Large Co. Index ETF .............................. 2.8%
iShares Core MSCI EAFE ETF ............................................... 2.8%
Schwab Fundamental International Small Company Index ETF ................. 2.6%
iShares Edge MSCI USA Quality Factor ETF ................................. 2.6%
o ASSET ALLOCATION* - 6/30/18 o
(% of Net Assets)
[PIE CHART OF ASSET ALLOCATION]
INTERNATIONAL EXCHANGE-TRADED FUNDS 46.8%
COMMON STOCKS 33.7%
EXCHANGE-TRADED FUNDS 12.7%
U.S. TREASURY SECURITIES 4.6%
MONEY MARKET INSTRUMENTS 2.0%
[END PIE CHART]
*Does not include purchased options, written options, futures, and short-term
investments purchased with cash collateral from securities loaned.
Percentages are of net assets of the Fund and may not equal 100%.
Refer to the Portfolio of Investments for a complete list of securities.
================================================================================
INVESTMENT OVERVIEW | 1
================================================================================
PORTFOLIO OF INVESTMENTS
June 30, 2018 (unaudited)
------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (93.2%)
COMMON STOCKS (33.7%)
CONSUMER DISCRETIONARY (4.2%)
-----------------------------
ADVERTISING (0.3%)
21,717 Interpublic Group of Companies, Inc. $ 509
24,910 Omnicom Group, Inc. 1,900
--------
2,409
--------
APPAREL RETAIL (0.5%)
17,870 Gap, Inc. 579
21,940 Ross Stores, Inc. 1,859
20,240 TJX Companies, Inc. 1,927
--------
4,365
--------
APPAREL, ACCESSORIES & LUXURY GOODS (0.3%)
13,880 Michael Kors Holdings Ltd.(a) 925
9,340 Ralph Lauren Corp. 1,174
--------
2,099
--------
AUTOMOBILE MANUFACTURERS (0.1%)
41,010 Ford Motor Co. 454
--------
AUTOMOTIVE RETAIL (0.1%)
20,530 AutoNation, Inc.(a) 997
--------
CABLE & SATELLITE (0.3%)
27,050 Comcast Corp., "A" 887
5,390 Liberty Broadband Corp., "C"(a) 408
22,270 Liberty Media Corp-Liberty SiriusXM(a) 1,010
57,390 Sirius XM Holdings, Inc. 389
--------
2,694
--------
CASINOS & GAMING (0.1%)
11,200 Las Vegas Sands Corp. 855
--------
COMPUTER & ELECTRONICS RETAIL (0.1%)
6,059 Best Buy Co., Inc. 452
--------
CONSUMER ELECTRONICS (0.1%)
6,770 Garmin Ltd. 413
--------
================================================================================
2 | USAA GLOBAL MANAGED VOLATILITY FUND
================================================================================
------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------
DEPARTMENT STORES (0.3%)
15,960 Kohl's Corp. $ 1,163
16,090 Macy's, Inc. 602
6,560 Nordstrom, Inc. 340
--------
2,105
--------
DISTRIBUTORS (0.1%)
4,720 Genuine Parts Co. 433
--------
FOOTWEAR (0.1%)
13,780 NIKE, Inc., "B" 1,098
--------
GENERAL MERCHANDISE STORES (0.3%)
13,340 Dollar General Corp. 1,316
18,407 Target Corp. 1,401
--------
2,717
--------
HOME IMPROVEMENT RETAIL (0.2%)
3,450 Home Depot, Inc. 673
6,000 Lowe's Companies, Inc. 574
--------
1,247
--------
HOTELS, RESORTS & CRUISE LINES (0.4%)
31,093 Carnival Corp. 1,782
6,360 Hilton Worldwide Holdings, Inc. 503
13,640 Norwegian Cruise Line Holdings Ltd.(a) 645
3,540 Royal Caribbean Cruises Ltd. 367
4,030 Wyndham Destinations, Inc. 178
4,030 Wyndham Hotels & Resorts, Inc. 237
--------
3,712
--------
INTERNET & DIRECT MARKETING RETAIL (0.3%)
790 Amazon.com, Inc.(a) 1,343
220 Booking Holdings, Inc.(a) 446
1,070 Netflix, Inc.(a) 419
31,830 Qurate Retail, Inc.(a) 675
--------
2,883
--------
LEISURE PRODUCTS (0.1%)
7,940 Hasbro, Inc. 733
--------
MOVIES & ENTERTAINMENT (0.3%)
8,950 Twenty-First Century Fox, Inc., "B" 441
19,420 Walt Disney Co. 2,035
--------
2,476
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 3
================================================================================
------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------
RESTAURANTS (0.2%)
8,604 Darden Restaurants, Inc. $ 921
19,860 Starbucks Corp. 970
--------
1,891
--------
SPECIALTY STORES (0.0%)
4,930 Tractor Supply Co. 377
--------
Total Consumer Discretionary 34,410
--------
CONSUMER STAPLES (3.4%)
-----------------------
AGRICULTURAL PRODUCTS (0.2%)
9,330 Archer-Daniels-Midland Co. 428
14,754 Ingredion, Inc. 1,633
--------
2,061
--------
BREWERS (0.0%)
7,020 Molson Coors Brewing Co., "B" 478
--------
DISTILLERS & VINTNERS (0.1%)
9,702 Brown-Forman Corp., "B" 476
2,070 Constellation Brands, Inc., "A" 453
--------
929
--------
FOOD DISTRIBUTORS (0.1%)
12,250 Sysco Corp. 836
--------
FOOD RETAIL (0.1%)
24,400 Kroger Co. 694
--------
HEALTH CARE SERVICES (0.1%)
7,520 CVS Health Corp. 484
--------
HOUSEHOLD PRODUCTS (1.1%)
38,820 Church & Dwight Co., Inc. 2,064
11,850 Clorox Co. 1,603
14,720 Kimberly-Clark Corp. 1,550
55,378 Procter & Gamble Co. 4,323
--------
9,540
--------
HYPERMARKETS & SUPER CENTERS (0.1%)
2,360 Costco Wholesale Corp. 493
--------
PACKAGED FOODS & MEATS (0.9%)
68,460 Conagra Brands, Inc. 2,446
18,340 General Mills, Inc. 812
10,620 JM Smucker Co. 1,142
13,030 Kellogg Co. 910
28,949 Tyson Foods, Inc., "A" 1,993
--------
7,303
--------
================================================================================
4 | USAA GLOBAL MANAGED VOLATILITY FUND
================================================================================
------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------
PERSONAL PRODUCTS (0.1%)
4,060 Estee Lauder Companies, Inc., "A" $ 579
--------
SOFT DRINKS (0.4%)
28,790 PepsiCo, Inc. 3,134
--------
TOBACCO (0.2%)
29,040 Altria Group, Inc. 1,649
--------
Total Consumer Staples 28,180
--------
ENERGY (2.1%)
-------------
INTEGRATED OIL & GAS (0.5%)
16,634 Chevron Corp. 2,103
21,380 Exxon Mobil Corp. 1,769
5,010 Occidental Petroleum Corp. 419
--------
4,291
--------
OIL & GAS EXPLORATION & PRODUCTION (0.7%)
39,090 Antero Resources Corp.(a) 835
10,560 Apache Corp. 494
4,710 Cimarex Energy Co. 479
28,040 ConocoPhillips 1,952
4,660 Continental Resources, Inc.(a) 302
2,940 Diamondback Energy, Inc. 387
15,410 Marathon Oil Corp. 321
20,590 Newfield Exploration Co.(a) 623
25,110 Range Resources Corp. 420
--------
5,813
--------
OIL & GAS REFINING & MARKETING (0.7%)
21,270 HollyFrontier Corp. 1,456
22,010 Marathon Petroleum Corp. 1,544
23,390 Valero Energy Corp. 2,592
--------
5,592
--------
OIL & GAS STORAGE & TRANSPORTATION (0.2%)
12,740 ONEOK, Inc. 890
19,290 Plains GP Holdings, LP, "A" 461
22,060 Williams Companies, Inc. 598
--------
1,949
--------
Total Energy 17,645
--------
FINANCIALS (4.6%)
-----------------
ASSET MANAGEMENT & CUSTODY BANKS (0.4%)
3,110 Affiliated Managers Group, Inc. 462
870 BlackRock, Inc. 434
================================================================================
PORTFOLIO OF INVESTMENTS | 5
================================================================================
------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------
15,200 Franklin Resources, Inc. $ 487
16,310 SEI Investments Co. 1,020
4,760 T. Rowe Price Group, Inc. 553
--------
2,956
--------
CONSUMER FINANCE (0.4%)
47,680 Ally Financial, Inc. 1,252
5,490 American Express Co. 538
5,450 Capital One Financial Corp. 501
9,120 Discover Financial Services 642
14,250 Synchrony Financial 476
--------
3,409
--------
DIVERSIFIED BANKS (0.3%)
24,810 Bank of America Corp. 700
14,450 Citigroup, Inc. 967
10,450 Wells Fargo & Co. 579
--------
2,246
--------
FINANCIAL EXCHANGES & DATA (0.3%)
2,140 CME Group, Inc. 351
3,970 Moody's Corp. 677
3,100 MSCI, Inc. 513
3,440 S&P Global, Inc. 701
--------
2,242
--------
INVESTMENT BANKING & BROKERAGE (0.0%)
7,300 Charles Schwab Corp. 373
--------
LIFE & HEALTH INSURANCE (0.6%)
50,422 Aflac, Inc. 2,169
14,020 Athene Holding Ltd., "A"(a) 614
7,360 Principal Financial Group, Inc. 390
3,820 Prudential Financial, Inc. 357
20,890 Torchmark Corp. 1,701
--------
5,231
--------
MULTI-LINE INSURANCE (0.4%)
18,730 American Financial Group, Inc. 2,010
31,959 Loews Corp. 1,543
--------
3,553
--------
PROPERTY & CASUALTY INSURANCE (0.6%)
21,387 Allstate Corp. 1,952
21,420 Progressive Corp. 1,267
15,557 Travelers Companies, Inc. 1,903
--------
5,122
--------
================================================================================
6 | USAA GLOBAL MANAGED VOLATILITY FUND
================================================================================
------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------
REAL ESTATE SERVICES (0.1%)
3,360 Jones Lang LaSalle, Inc. $ 558
--------
REGIONAL BANKS (0.8%)
26,450 BB&T Corp. 1,334
6,170 Comerica, Inc. 561
44,120 Fifth Third Bancorp 1,266
4,210 First Republic Bank 408
29,410 Huntington Bancshares, Inc. 434
49,670 Regions Financial Corp. 883
9,900 SunTrust Banks, Inc. 654
1,790 SVB Financial Group(a) 517
6,090 Zions Bancorporation 321
--------
6,378
--------
REINSURANCE (0.1%)
8,514 Reinsurance Group of America, Inc. 1,137
--------
REITs - MORTGAGE (0.6%)
110,112 AGNC Investment Corp. 2,047
268,844 Annaly Capital Management, Inc. 2,766
--------
4,813
--------
Total Financials 38,018
--------
HEALTH CARE (4.0%)
------------------
BIOTECHNOLOGY (0.4%)
2,632 Amgen, Inc. 486
2,580 Biogen, Inc.(a) 749
3,850 Celgene Corp.(a) 306
13,385 Gilead Sciences, Inc. 948
1,140 Regeneron Pharmaceuticals, Inc.(a) 393
3,300 United Therapeutics Corp.(a) 373
--------
3,255
--------
HEALTH CARE DISTRIBUTORS (0.1%)
11,240 Cardinal Health, Inc. 549
3,220 McKesson Corp. 430
--------
979
--------
HEALTH CARE EQUIPMENT (0.5%)
11,200 Abbott Laboratories 683
6,350 Danaher Corp. 627
870 Intuitive Surgical, Inc.(a) 416
8,940 Medtronic plc 765
5,630 ResMed, Inc. 583
================================================================================
PORTFOLIO OF INVESTMENTS | 7
================================================================================
------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------
2,560 Stryker Corp. $ 432
6,670 Varian Medical Systems, Inc.(a) 759
--------
4,265
--------
HEALTH CARE FACILITIES (0.3%)
13,986 HCA Healthcare, Inc. 1,435
11,040 Universal Health Services, Inc., "B" 1,230
--------
2,665
--------
HEALTH CARE SERVICES (0.5%)
7,971 Laboratory Corp. of America Holdings(a) 1,431
23,719 Quest Diagnostics, Inc. 2,608
--------
4,039
--------
HEALTH CARE SUPPLIES (0.1%)
1,570 Align Technology, Inc.(a) 537
--------
LIFE SCIENCES TOOLS & SERVICES (0.2%)
9,470 Agilent Technologies, Inc. 586
1,560 Illumina, Inc.(a) 436
2,880 Thermo Fisher Scientific, Inc. 596
1,670 Waters Corp.(a) 323
--------
1,941
--------
MANAGED HEALTH CARE (0.8%)
6,552 Anthem, Inc. 1,560
9,510 Centene Corp.(a) 1,172
10,877 Cigna Corp. 1,848
7,010 UnitedHealth Group, Inc. 1,720
--------
6,300
--------
PHARMACEUTICALS (1.1%)
11,990 Bristol-Myers Squibb Co. 663
12,160 Eli Lilly & Co. 1,038
2,340 Jazz Pharmaceuticals plc(a) 403
26,130 Johnson & Johnson 3,171
10,670 Mylan N.V.(a) 386
4,400 Perrigo Co. plc 321
68,420 Pfizer, Inc. 2,482
8,360 Zoetis, Inc. 712
--------
9,176
--------
Total Health Care 33,157
--------
INDUSTRIALS (2.4%)
------------------
AEROSPACE & DEFENSE (0.8%)
1,610 Boeing Co. 540
4,724 General Dynamics Corp. 881
================================================================================
8 | USAA GLOBAL MANAGED VOLATILITY FUND
================================================================================
------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------
3,172 Huntington Ingalls Industries, Inc. $ 688
4,840 Lockheed Martin Corp. 1,430
9,010 Raytheon Co. 1,740
4,330 Rockwell Collins, Inc. 583
6,460 United Technologies Corp. 808
--------
6,670
--------
AGRICULTURE & FARM MACHINERY (0.0%)
6,370 AGCO Corp. 387
--------
AIR FREIGHT & LOGISTICS (0.0%)
4,530 CH Robinson Worldwide, Inc. 379
--------
AIRLINES (0.1%)
9,730 Delta Air Lines, Inc. 482
7,000 Southwest Airlines Co. 356
4,440 United Continental Holdings, Inc.(a) 310
--------
1,148
--------
BUILDING PRODUCTS (0.1%)
6,210 Owens Corning 394
--------
CONSTRUCTION MACHINERY & HEAVY TRUCKS (0.2%)
4,440 Caterpillar, Inc. 602
3,360 Cummins, Inc. 447
7,390 PACCAR, Inc. 458
--------
1,507
--------
ELECTRICAL COMPONENTS & EQUIPMENT (0.1%)
2,650 Acuity Brands, Inc. 307
7,150 Eaton Corp. plc 534
--------
841
--------
ENVIRONMENTAL & FACILITIES SERVICES (0.4%)
18,625 Republic Services, Inc. 1,273
24,797 Waste Management, Inc. 2,017
--------
3,290
--------
INDUSTRIAL CONGLOMERATES (0.1%)
5,910 Honeywell International, Inc. 851
--------
INDUSTRIAL MACHINERY (0.2%)
5,980 Dover Corp. 438
5,080 Ingersoll-Rand plc 456
11,360 Pentair plc 478
2,350 Snap-on, Inc. 377
--------
1,749
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 9
================================================================================
------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------
RAILROADS (0.1%)
3,190 Union Pacific Corp. $ 452
--------
RESEARCH & CONSULTING SERVICES (0.1%)
4,810 Verisk Analytics, Inc.(a) 518
--------
TRADING COMPANIES & DISTRIBUTORS (0.1%)
4,620 United Rentals, Inc.(a) 682
1,030 WW Grainger, Inc. 318
--------
1,000
--------
TRUCKING (0.1%)
1,890 AMERCO 673
2,800 Old Dominion Freight Line, Inc. 417
--------
1,090
--------
Total Industrials 20,276
--------
INFORMATION TECHNOLOGY (8.0%)
-----------------------------
APPLICATION SOFTWARE (0.6%)
2,400 Adobe Systems, Inc.(a) 585
21,800 Citrix Systems, Inc.(a) 2,285
7,740 Intuit, Inc. 1,581
3,730 salesforce.com, Inc.(a) 509
3,780 Splunk, Inc.(a) 375
--------
5,335
--------
COMMUNICATIONS EQUIPMENT (0.5%)
1,350 Arista Networks, Inc.(a) 348
18,470 Cisco Systems, Inc. 795
12,100 F5 Networks, Inc.(a) 2,087
26,550 Juniper Networks, Inc. 728
2,090 Palo Alto Networks, Inc.(a) 429
--------
4,387
--------
DATA PROCESSING & OUTSOURCED SERVICES (2.5%)
4,120 Alliance Data Systems Corp. 961
8,490 Automatic Data Processing, Inc. 1,139
22,080 Broadridge Financial Solutions, Inc. 2,541
43,500 First Data Corp., "A"(a) 910
35,180 Fiserv, Inc.(a) 2,606
4,660 FleetCor Technologies, Inc.(a) 982
16,250 Jack Henry & Associates, Inc. 2,118
11,500 Mastercard, Inc., "A" 2,260
27,720 Paychex, Inc. 1,895
36,520 Sabre Corp. 900
6,400 Square, Inc., "A"(a) 394
================================================================================
10 | USAA GLOBAL MANAGED VOLATILITY FUND
================================================================================
------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------
12,268 Total System Services, Inc. $ 1,037
10,930 Visa, Inc., "A" 1,448
29,210 Western Union Co 594
6,930 Worldpay, Inc., "A"(a) 567
--------
20,352
--------
ELECTRONIC EQUIPMENT & INSTRUMENTS (0.1%)
8,440 FLIR Systems, Inc. 439
--------
ELECTRONIC MANUFACTURING SERVICES (0.1%)
23,146 Flex Ltd.(a) 327
8,100 TE Connectivity Ltd. 729
--------
1,056
--------
HOME ENTERTAINMENT SOFTWARE (0.0%)
2,510 Electronic Arts, Inc.(a) 354
--------
INTERNET SOFTWARE & SERVICES (0.5%)
4,850 Akamai Technologies, Inc.(a) 355
42,301 eBay, Inc.(a) 1,534
16,730 VeriSign, Inc.(a) 2,299
--------
4,188
--------
IT CONSULTING & OTHER SERVICES (1.4%)
21,390 Accenture plc, "A" 3,499
35,720 Cognizant Technology Solutions Corp., "A" 2,821
24,100 DXC Technology Co. 1,943
13,100 International Business Machines Corp. 1,830
25,320 Leidos Holdings, Inc. 1,494
7,835 Perspecta, Inc. 161
--------
11,748
--------
SEMICONDUCTOR EQUIPMENT (0.1%)
2,730 Lam Research Corp. 472
--------
SEMICONDUCTORS (0.5%)
34,340 Intel Corp. 1,707
9,490 Micron Technology, Inc.(a) 498
1,690 NVIDIA Corp. 400
4,820 Skyworks Solutions, Inc. 466
8,250 Texas Instruments, Inc. 909
8,687 Xilinx, Inc. 567
--------
4,547
--------
SYSTEMS SOFTWARE (1.0%)
78,000 CA, Inc. 2,781
5,690 Fortinet, Inc.(a) 355
================================================================================
PORTFOLIO OF INVESTMENTS | 11
================================================================================
------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------
21,580 Microsoft Corp. $ 2,128
32,764 Oracle Corp. 1,443
5,290 Red Hat, Inc.(a) 711
2,620 ServiceNow, Inc.(a) 452
2,090 VMware, Inc., "A"(a) 307
--------
8,177
--------
TECHNOLOGY DISTRIBUTORS (0.3%)
17,790 Arrow Electronics, Inc.(a) 1,339
10,330 CDW Corp. 835
--------
2,174
--------
TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (0.4%)
46,700 Hewlett Packard Enterprise Co. 682
14,633 NetApp, Inc. 1,149
6,280 Seagate Technology plc 355
9,090 Western Digital Corp. 704
--------
2,890
--------
Total Information Technology 66,119
--------
MATERIALS (0.6%)
----------------
COMMODITY CHEMICALS (0.1%)
6,540 LyondellBasell Industries N.V., "A" 718
--------
DIVERSIFIED CHEMICALS (0.1%)
10,293 Eastman Chemical Co. 1,029
--------
INDUSTRIAL GASES (0.1%)
2,920 Praxair, Inc. 462
--------
PAPER PACKAGING (0.1%)
3,750 Avery Dennison Corp. 383
6,550 WestRock Co. 373
--------
756
--------
SPECIALTY CHEMICALS (0.1%)
2,960 Celanese Corp., "A" 329
9,210 PPG Industries, Inc. 955
--------
1,284
--------
STEEL (0.1%)
5,130 Nucor Corp. 321
9,360 Steel Dynamics, Inc. 430
--------
751
--------
Total Materials 5,000
--------
================================================================================
12 | USAA GLOBAL MANAGED VOLATILITY FUND
================================================================================
------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------
REAL ESTATE (1.8%)
------------------
REITs - DIVERSIFIED (0.3%)
31,353 Liberty Property Trust $ 1,390
120,410 VEREIT, Inc. 896
--------
2,286
--------
REITs - HEALTH CARE (0.2%)
31,134 Ventas, Inc. 1,773
--------
REITs - INDUSTRIAL (0.1%)
15,381 Prologis, Inc. 1,010
--------
REITs - OFFICE (0.0%)
4,300 SL Green Realty Corp. 432
--------
REITs - RESIDENTIAL (0.8%)
13,120 AvalonBay Communities, Inc. 2,255
28,030 Equity Residential 1,785
4,407 Essex Property Trust, Inc. 1,054
18,270 Mid-America Apartment Communities, Inc. 1,839
--------
6,933
--------
REITs - RETAIL (0.2%)
22,610 Brixmor Property Group, Inc. 394
14,830 Regency Centers Corp. 921
--------
1,315
--------
REITs - SPECIALIZED (0.2%)
4,180 Public Storage 948
14,640 Weyerhaeuser Co. 534
--------
1,482
--------
Total Real Estate 15,231
--------
TELECOMMUNICATION SERVICES (0.6%)
---------------------------------
ALTERNATIVE CARRIERS (0.1%)
11,020 Zayo Group Holdings, Inc.(a) 402
--------
INTEGRATED TELECOMMUNICATION SERVICES (0.5%)
69,028 AT&T, Inc. 2,216
41,340 Verizon Communications, Inc. 2,080
--------
4,296
--------
WIRELESS TELECOMMUNICATION SERVICES (0.0%)
6,200 T-Mobile US, Inc.(a) 371
--------
Total Telecommunication Services 5,069
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------
UTILITIES (2.0%)
----------------
ELECTRIC UTILITIES (0.9%)
33,790 American Electric Power Co., Inc. $ 2,340
7,330 Entergy Corp. 592
15,970 Eversource Energy 936
23,190 Exelon Corp. 988
3,730 NextEra Energy, Inc. 623
21,805 Pinnacle West Capital Corp. 1,757
13,760 PPL Corp. 393
--------
7,629
--------
MULTI-UTILITIES (1.1%)
21,670 Ameren Corp. 1,319
47,070 CMS Energy Corp. 2,225
34,947 Consolidated Edison, Inc. 2,725
11,390 Public Service Enterprise Group, Inc. 617
25,740 WEC Energy Group, Inc. 1,664
--------
8,550
--------
Total Utilities 16,179
--------
Total Common Stocks (cost: $266,203) 279,284
--------
EXCHANGE-TRADED FUNDS (12.7%)
100,000 Goldman Sachs ActiveBeta U.S. Large Cap Equity ETF 5,475
104,500 Invesco FTSE RAFI U.S. 1000 ETF(b) 11,767
55,600 iShares Edge MSCI USA Momentum Factor ETF(b) 6,099
253,500 iShares Edge MSCI USA Quality Factor ETF 21,154
335,000 iShares Edge MSCI USA Size Factor ETF 28,123
114,100 iShares Edge MSCI USA Value Factor ETF 9,426
626,000 Schwab Fundamental U.S. Large Co. Index ETF(b) 23,375
--------
Total Exchange-Traded Funds (cost: $84,605) 105,419
--------
INTERNATIONAL EXCHANGE-TRADED FUNDS (46.8%)
72,200 Goldman Sachs ActiveBeta Emerging Markets Equity ETF 2,396
120,000 Goldman Sachs ActiveBeta International Equity ETF 3,526
895,968 Invesco FTSE RAFI Developed Markets ex-US ETF(b) 38,518
1,017,200 Invesco FTSE RAFI Emerging Markets ETF 21,025
364,100 iShares Core MSCI EAFE ETF 23,073
235,800 iShares Core MSCI Emerging Markets ETF 12,382
1,733,200 iShares Edge MSCI Min Vol EAFE ETF 123,300
769,300 iShares Edge MSCI Min Vol Emerging Markets ETF 44,496
26,500 iShares MSCI Japan ETF 1,535
51,700 JPMorgan Diversified Return Emerging Markets Equity ETF 2,791
564,200 Schwab Fundamental Emerging Markets Large Company Index ETF 15,617
================================================================================
14 | USAA GLOBAL MANAGED VOLATILITY FUND
================================================================================
------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------
1,572,900 Schwab Fundamental International Large Company Index ETF $ 46,463
622,200 Schwab Fundamental International Small Company Index ETF 21,696
43,300 USAA MSCI Emerging Markets Value Momentum Blend Index ETF(c) 2,029
53,100 USAA MSCI International Value Momentum Blend Index ETF(c) 2,567
469,300 Vanguard FTSE Developed Markets ETF 20,133
153,200 Vanguard FTSE Emerging Markets ETF 6,465
--------
Total International Exchange-Traded Funds (cost: $356,736) 388,012
--------
Total Equity Securities (cost: $707,544) 772,715
--------
------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT
(000)
------------------------------------------------------------------------------------------------------------
BONDS (4.6%)
U.S. TREASURY SECURITIES (4.6%)
BONDS (0.6%)(d)
$ 5,000 3.00%, 05/15/2047(e) 5,016
--------
NOTES (4.0%)(d)
34,000 1.88%, 04/30/2022(f) 32,997
--------
Total U.S. Treasury Securities (cost: $39,308) 38,013
--------
Total Bonds (cost: $39,308) 38,013
--------
------------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES
------------------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS (2.0%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (2.0%)
16,054,228 State Street Institutional Treasury Money Market Fund Premier
Class, 1.74%(e),(g) (cost: $16,054) 16,054
--------
SHORT-TERM INVESTMENTS PURCHASED WITH
CASH COLLATERAL FROM SECURITIES LOANED (0.7%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (0.7%)
12,425 Federated Government Obligations Fund Institutional Class, 1.79%(g) 13
2,071 Fidelity Government Portfolio Class I, 1.79%(g) 2
4,089,254 Goldman Sachs Financial Square Government Fund
Institutional Class, 1.84%(g) 4,089
839,850 HSBC US Government Money Market Fund
Institutional Class, 1.83%(g) 840
899,050 Invesco Government & Agency Portfolio
Institutional Class, 1.83%(g) 899
================================================================================
PORTFOLIO OF INVESTMENTS | 15
================================================================================
------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------
52,275 Western Asset Institutional Government Reserves
Institutional Class, 1.80%(g) $ 52
--------
Total Short-Term Investments Purchased with Cash Collateral from
Securities Loaned (cost: $5,895) 5,895
--------
TOTAL INVESTMENTS (COST: $768,801) $832,677
========
------------------------------------------------------------------------------------------------------------
NOTIONAL MARKET
NUMBER OF EXERCISE EXPIRATION AMOUNT VALUE
CONTRACTS DESCRIPTION PRICE DATE (000) (000)
------------------------------------------------------------------------------------------------------------
PURCHASED OPTIONS (0.1%)
45 Put - S&P 500 Index $2,450 9/21/2018 USD 20,932 $ 86
77 Put - S&P 500 Index 2,400 9/21/2018 USD 12,233 116
28 Put - S&P 500 Index 2,400 12/21/2018 USD 7,611 106
103 Put - S&P 500 Index 2,500 12/21/2018 USD 27,999 534
68 Put - S&P 500 Index 2,450 12/21/2018 USD 18,485 292
------
TOTAL PURCHASED OPTIONS (COST: $1,338) $1,134
======
WRITTEN OPTIONS (0.0%)
(38) Put - S&P 500 Index $2,275 9/21/2018 USD (10,330) $ (35)
(50) Put - S&P 500 Index 2,200 9/21/2018 USD (13,592) (35)
------
TOTAL WRITTEN OPTIONS (COST: $454) $ (70)
======
-----------------------------------------------------------------------------------------------------------
UNREALIZED
NOTIONAL CONTRACT APPRECIATION/
NUMBER OF EXPIRATION AMOUNT VALUE (DEPRECIATION)
CONTRACTS DESCRIPTION DATE (000) (000) (000)
-----------------------------------------------------------------------------------------------------------
FUTURES (6.4%)
LONG FUTURES
EQUITY CONTRACTS
108 E-mini S&P 500 9/21/2018 USD 14,878 $ 14,697 $ (181)
367 Euro Stoxx 50 9/21/2018 EUR 12,761 14,533 (369)
150 TOPIX Index 9/13/2018 JPY 2,662,415 23,445 (602)
-------- -------
TOTAL LONG FUTURES $ 52,675 $(1,152)
-------- -------
TOTAL FUTURES $ 52,675 $(1,152)
======== =======
================================================================================
16 | USAA GLOBAL MANAGED VOLATILITY FUND
================================================================================
-----------------------------------------------------------------------------------------------------------
($ in 000s) VALUATION HIERARCHY
-----------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
-----------------------------------------------------------------------------------------------------------
Equity Securities:
Common Stocks $279,284 $- $- $279,284
Exchange-Traded Funds 105,419 - - 105,419
International Exchange-Traded Funds 388,012 - - 388,012
Bonds:
U.S. Treasury Securities 38,013 - - 38,013
Money Market Instruments:
Government & U.S. Treasury Money
Market Funds 16,054 - - 16,054
Short-Term Investments Purchased with
Cash Collateral from Securities Loaned:
Government & U.S. Treasury Money
Market Funds 5,895 - - 5,895
Options:
Put Options Purchased 1,134 - - 1,134
-----------------------------------------------------------------------------------------------------------
Total $833,811 $- $- $833,811
-----------------------------------------------------------------------------------------------------------
LIABILITIES LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
-----------------------------------------------------------------------------------------------------------
Options:
Put Options Written $ (70) $- $- $ (70)
Futures(1) (1,152) - - (1,152)
-----------------------------------------------------------------------------------------------------------
Total $ (1,222) $- $- $ (1,222)
-----------------------------------------------------------------------------------------------------------
(1)Futures are valued at the unrealized appreciation/(depreciation) on the
investment.
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
For the period of January 1, 2018, through June 30, 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 | 17
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
June 30, 2018 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
Market values of securities are determined by procedures and practices
discussed in Note 1A to the financial statements.
The Portfolio of Investments category percentages shown represent the
percentages of the investments to net assets, and, in total, may not equal
100%. A category percentage of 0.0% represents less than 0.1% of net assets.
Investments in foreign securities were 46.8% of net assets at June 30, 2018.
The Fund may rely on certain Securities and Exchange Commission (SEC)
exemptive orders or rules that permit funds meeting various conditions to
invest in an exchange-traded fund (ETF) in amounts exceeding limits set forth
in the Investment Company Act of 1940, as amended, that would otherwise be
applicable.
o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS
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) Non-income-producing security.
(b) The security, or a portion thereof, was out on loan as of June 30, 2018.
================================================================================
18 | USAA GLOBAL MANAGED VOLATILITY FUND
================================================================================
(c) Investment in affiliated exchange-traded fund.
(d) Rates for U.S. Treasury notes or bonds represent the stated coupon
payment rate at time of issuance.
(e) The security, or a portion thereof, is segregated to cover the value of
open futures contracts at June 30, 2018.
(f) Securities with a value of $2,911,000 are segregated as collateral for
initial margin requirements on open futures contracts.
(g) Rate represents the money market fund annualized seven-day yield at
June 30, 2018.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 19
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
June 30, 2018 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (including securities
on loan of $5,785) (cost of $763,640) $828,081
Investments in affiliated underlying funds, at market value (cost: $5,161) 4,596
Purchased options, at market value (cost of $1,338) 1,134
Cash 5
Cash denominated in foreign currencies (identified cost of $1,448) 1,435
Receivables:
Capital shares sold 1
USAA Asset Management Company (Note 7) 11
Dividends and interest 889
Other 5
--------
Total assets 836,157
--------
LIABILITIES
Payables:
Upon return of securities loaned 5,895
Written options, at market value (premiums received of $454) 70
Variation margin on futures contracts 1,151
Accrued management fees 414
Accrued transfer agent's fees 1
Other accrued expenses and payables 75
--------
Total liabilities 7,606
--------
Net assets applicable to capital shares outstanding $828,551
========
NET ASSETS CONSIST OF:
Paid-in capital $736,193
Accumulated undistributed net investment income 6,406
Accumulated net realized gain on investments, options, and
futures transactions 23,061
Net unrealized appreciation of investments, options, and futures contracts 62,904
Net unrealized depreciation of foreign currency translations (13)
--------
Net assets applicable to capital shares outstanding $828,551
========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $11,482/1,083 capital shares outstanding,
no par value) $ 10.61
========
Institutional Shares (net assets of $817,069/76,173 capital shares
outstanding, no par value) $ 10.73
========
See accompanying notes to financial statement.
================================================================================
20 | USAA GLOBAL MANAGED VOLATILITY FUND
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended June 30, 2018 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends from unaffiliated investments $ 8,867
Dividends from affiliated investments 39
Interest 389
Securities lending (net) 46
--------
Total income 9,341
--------
EXPENSES
Management fees 2,511
Administration and servicing fees:
Fund Shares 9
Institutional Shares 206
Transfer agent's fees:
Fund Shares 7
Institutional Shares 206
Custody and accounting fees:
Fund Shares 2
Institutional Shares 75
Postage:
Fund Shares 1
Shareholder reporting fees:
Fund Shares 3
Trustees' fees 16
Registration fees:
Fund Shares 14
Institutional Shares 15
Professional fees 62
Other 8
--------
Total expenses 3,135
Expenses reimbursed:
Fund Shares (20)
Institutional Shares (180)
--------
Net expenses 2,935
--------
NET INVESTMENT INCOME 6,406
--------
================================================================================
FINANCIAL STATEMENTS | 21
================================================================================
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
FOREIGN CURRENCY, OPTIONS, AND FUTURES CONTRACTS
Net realized gain (loss) on:
Investments $ 10,498
Foreign currency transactions 139
Options (736)
Futures transactions 316
Change in net unrealized appreciation/(depreciation) of:
Unaffiliated investments (24,202)
Affiliated investments (Note 9) (593)
Foreign currency translations (21)
Options 581
Futures contracts (1,115)
--------
Net realized and unrealized loss (15,133)
--------
Decrease in net assets resulting from operations $ (8,727)
========
See accompanying notes to financial statements.
================================================================================
22 | USAA GLOBAL MANAGED VOLATILITY FUND
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended June 30, 2018 (unaudited), and year ended
December 31, 2017
-------------------------------------------------------------------------------------------
6/30/2018 12/31/2017
-------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 6,406 $ 11,877
Net realized gain on investments 10,498 21,723
Net realized gain on foreign currency transactions 139 9
Net realized loss on options (736) (3,243)
Net realized gain on futures transactions 316 3,598
Change in net unrealized appreciation/(depreciation) of:
Investments (24,795) 90,512
Foreign currency translations (21) 10
Options 581 (242)
Futures contracts (1,115) (37)
---------------------
Increase (decrease) in net assets resulting from operations (8,727) 124,207
---------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares - (146)
Institutional Shares - (12,441)
---------------------
Total distributions of net investment income - (12,587)
---------------------
Net realized gains:
Fund Shares - (50)
Institutional Shares - (3,698)
---------------------
Total distributions of net realized gains - (3,748)
---------------------
Distributions to shareholders - (16,335)
---------------------
NET INCREASE IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS (NOTE 6)
Fund Shares 343 (5,110)
Institutional Shares 1,462 423,103
---------------------
Total net increase in net assets from capital
share transactions 1,805 417,993
---------------------
Net increase (decrease) in net assets (6,922) 525,865
NET ASSETS
Beginning of period 835,473 309,608
---------------------
End of period $828,551 $835,473
=====================
Accumulated undistributed net investment income:
End of period $ 6,406 $ -
=====================
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 23
================================================================================
NOTES TO FINANCIAL STATEMENTS
June 30, 2018 (unaudited)
--------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company Act
of 1940, as amended (the 1940 Act), is an open-end management investment company
organized as a Delaware statutory trust consisting of 50 separate funds. The
USAA Global Managed Volatility 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 attain long-term capital appreciation while attempting to reduce
volatility during unfavorable market conditions.
The Fund consists of two classes of shares: Global Managed Volatility Fund
Shares (Fund Shares) and Global Managed Volatility 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
================================================================================
24 | USAA GLOBAL MANAGED VOLATILITY FUND
================================================================================
from time to time, or for purchase by a USAA fund participating in a fund-of-
funds investment strategy (USAA fund-of-funds).
A. SECURITY VALUATION - The Trust's Board of Trustees (the Board) has
established the Valuation and Liquidity Committee (the Committee), and
subject to Board oversight, the Committee administers and oversees the Fund's
valuation policies and procedures, which are approved by the Board. Among
other things, these policies and procedures allow the Fund to utilize
independent pricing services, quotations from securities dealers, and a wide
variety of sources and information to establish and adjust the fair value of
securities as events occur and circumstances warrant.
The Committee reports to the Board on a quarterly basis and makes
recommendations to the Board as to pricing methodologies and services used by
the Fund and presents additional information to the Board regarding
application of the pricing and fair valuation policies and procedures during
the preceding quarter.
The Committee meets as often as necessary to make pricing and fair value
determinations. In addition, the Committee holds regular monthly meetings to
review prior actions taken by the Committee and USAA Asset Management Company
(the Manager), an affiliate of the Fund. Among other things, these monthly
meetings include a review and analysis of backtesting reports, pricing
service quotation comparisons, illiquid securities and fair value
determinations, pricing movements, and daily stale price monitoring.
The value of each security is determined (as of the close of trading on the
New York Stock Exchange (NYSE) on each business day the NYSE is open) as set
forth below:
1. Equity securities, including exchange-traded funds (ETFs), except as
otherwise noted, traded primarily on a domestic securities exchange or the
over-the-counter markets, are valued at the last sales price or official
closing price on the exchange or primary market on which they trade.
Securities traded primarily on foreign securities exchanges or markets are
valued at the last quoted sale price, or the most recently determined
official closing price calculated according to local market convention,
available at the time the Fund is valued. If no last sale or
================================================================================
NOTES TO FINANCIAL STATEMENTS | 25
================================================================================
official closing price is reported or available, the average of the bid
and ask prices generally is used. Actively traded equity securities listed
on a domestic exchange generally are categorized in Level 1 of the fair
value hierarchy. Certain preferred and equity securities traded in
inactive markets generally are categorized in Level 2 of the fair value
hierarchy.
2. Equity securities trading in various foreign markets may take place on
days when the NYSE is closed. Further, when the NYSE is open, the foreign
markets may be closed. Therefore, the calculation of the Fund's net asset
value (NAV) may not take place at the same time the prices of certain
foreign securities held by the Fund are determined. In many cases, events
affecting the values of foreign securities that occur between the time of
their last quoted sale or official closing price and the close of normal
trading on the NYSE on a day the Fund's NAV is calculated will not need to
be reflected in the value of the Fund's foreign securities. However, the
Manager will monitor for events that would materially affect the value of
the Fund's foreign securities and the Committee will consider such
available information that it deems relevant and will determine a fair
value for the affected foreign securities in accordance with valuation
procedures. In addition, information from an external vendor or other
sources may be used to adjust the foreign market closing prices of foreign
equity securities to reflect what the Committee believes to be the fair
value of the securities as of the close of the NYSE. Fair valuation of
affected foreign equity securities may occur frequently based on an
assessment that events which occur on a fairly regular basis (such as U.S.
market movements) are significant. Such securities are categorized in
Level 2 of the fair value hierarchy.
3. Investments in open-end investment companies, commingled, or other funds,
other than ETFs, are valued at their NAV at the end of each business day
and are categorized in Level 1 of the fair value hierarchy.
4. Short-term debt securities with original or remaining maturities of 60
days or less may be valued at amortized cost, provided that amortized cost
represents the fair value of such securities.
================================================================================
26 | USAA GLOBAL MANAGED VOLATILITY FUND
================================================================================
5. Debt securities with maturities greater than 60 days are valued each
business day by a pricing service (the Service) approved by the Board.
The Service uses an evaluated mean between quoted bid and ask prices or
the last sales price to value a security when, in the Service's judgment,
these prices are readily available and are representative of the
security's market value. For many securities, such prices are not readily
available. The Service generally prices those securities based on methods
which include consideration of yields or prices of securities of
comparable quality, coupon, maturity, and type; indications as to values
from dealers in securities; and general market conditions. Generally,
debt securities are categorized in Level 2 of the fair value hierarchy;
however, to the extent the valuations include significant unobservable
inputs, the securities would be categorized in Level 3.
6. Repurchase agreements are valued at cost.
7. 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 27
================================================================================
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. 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
================================================================================
28 | USAA GLOBAL MANAGED VOLATILITY FUND
================================================================================
redemptions or other needs while maintaining exposure to the market. With
exchange-listed futures contracts and options, counterparty credit risk to
the Fund is limited to the exchange's clearinghouse which, as counterparty to
all exchange-traded futures contracts and options, guarantees the
transactions against default from the actual counterparty to the transaction.
The Fund's derivative agreements held at June 30, 2018, did not include
master netting provisions.
FUTURES CONTRACTS - The Fund is subject to equity price risk, interest rate
risk, and foreign currency exchange rate risk in the normal course of
pursuing its investment objectives. The Fund may use futures contracts to
gain exposure to, or hedge against, changes in the value of equities,
interest rates, or foreign currencies. A futures contract represents a
commitment for the future purchase or sale of an asset at a specified price
on a specified date. Upon entering into such contracts, the Fund is required
to deposit with the broker in either cash or securities an initial margin in
an amount equal to a certain percentage of the contract amount. Subsequent
payments (variation margin) are made or received by the Fund each day,
depending on the daily fluctuations in the value of the contract, and are
recorded for financial statement purposes as unrealized gains or losses. When
the contract is closed, the Fund records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and
the value at the time it was closed. Upon entering into such contracts, the
Fund bears the risk of interest or exchange rates or securities prices moving
unexpectedly in an unfavorable direction, in which case, the Fund may not
achieve the anticipated benefits of the futures contracts.
OPTIONS TRANSACTIONS - The Fund is subject to equity price risk in the normal
course of pursuing its investment objectives. The Fund may use options on
underlying instruments, namely, equity securities, ETFs, and equity indexes,
to gain exposure to, or hedge against, changes in the value of equity
securities, ETFs, or equity indexes. A call option gives the purchaser the
right to buy, and the writer the obligation to sell, the underlying
instrument at a specified price during a specified period. Conversely, a put
option gives the purchaser the right to sell, and the writer the obligation
to buy, the underlying instrument at a specified price during a specified
period. The purchaser of the option pays a premium to the writer of the
option.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 29
================================================================================
Premiums paid for purchased options are included in the Fund's Statement of
Assets and Liabilities as an investment. If a purchased option expires
unexercised, the premium paid is recognized as a realized loss. If a
purchased call option on a security is exercised, the cost of the security
acquired includes the exercise price and the premium paid. If a purchased put
option on a security is exercised, the realized gain or loss on the security
sold is determined from the exercise price, the original cost of the
security, and the premium paid. The risk associated with purchasing a call or
put option is limited to the premium paid.
Premiums received from writing options are included in the Fund's Statement
of Assets and Liabilities as a liability. If a written option expires
unexercised, the premium received is recognized as a realized gain. If a
written call option on a security is exercised, the realized gain or loss on
the security sold is determined from the exercise price, the original cost of
the security, and the premium received. If a written put option on a security
is exercised, the cost of the security acquired is the exercise price paid
less the premium received. The Fund, as a writer of an option, bears the
market risk of an unfavorable change in the price of the security underlying
the written option.
In an attempt to reduce the Fund's volatility over time, the Fund may
implement a strategy that involves purchasing and selling options on indexes
or ETFs that represent the Fund's exposure against a highly correlated stock
portfolio. The combination of the diversified stock portfolio with index or
ETF options is designed to provide the Fund with consistent returns over a
wide range of equity market environments. This strategy may not fully protect
the Fund against declines in the portfolio's value, and the Fund could
experience a loss. Options on ETFs are similar to options on individual
securities in that the holder of the ETF call (or put) has the right to
receive (or sell) shares of the underlying ETF at the strike price on or
before exercise date. Options on securities indexes are different from
options on individual securities in that the holder of the index option has
the right to receive an amount of cash equal to the difference between the
exercise price and the settlement value of the underlying index as defined by
the exchange. If an index option is
================================================================================
30 | USAA GLOBAL MANAGED VOLATILITY FUND
================================================================================
exercised, the realized gain or loss is determined by the exercise price, the
settlement value, and the premium amount paid or received.
FAIR VALUES OF DERIVATIVE INSTRUMENTS AS OF JUNE 30, 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 Purchased $1,134 Written options; $1,222**
options Net unrealized
depreciation of
investments, options,
and futures contracts
------------------------------------------------------------------------------------------------------
Total $1,134 $1,222
------------------------------------------------------------------------------------------------------
* For open derivative instruments as of June 30, 2018, see the Portfolio of
Investments.
** Includes cumulative appreciation/(depreciation) of futures as reported on
the Portfolio of Investments. Only the variation margin from the last
business day of the reporting period is reported within the Statement of
Assets and Liabilities.
THE EFFECT OF DERIVATIVE INSTRUMENTS ON THE STATEMENT OF OPERATIONS FOR THE
SIX-MONTH PERIOD ENDED JUNE 30, 2018 (IN THOUSANDS)
CHANGE IN
UNREALIZED
DERIVATIVES NOT APPRECIATION/
ACCOUNTED FOR AS STATEMENT OF REALIZED GAIN(LOSS) (DEPRECIATION)
HEDGING INSTRUMENTS OPERATIONS LOCATION ON DERIVATIVES ON DERIVATIVES
-----------------------------------------------------------------------------------------------------
Equity contracts Net realized gain (loss) $420 $534
on Options and Futures
transactions / Change
in net unrealized
appreciation/
(depreciation) of
Options and Futures
contracts
-----------------------------------------------------------------------------------------------------
Total $420 $534
-----------------------------------------------------------------------------------------------------
D. FEDERAL TAXES - The Fund's policy is to comply with the requirements of the
Internal Revenue Code of 1986, as amended, applicable to regulated investment
companies and to distribute substantially all of its taxable
================================================================================
NOTES TO FINANCIAL STATEMENTS | 31
================================================================================
income and net capital gains, if any, to its shareholders. Therefore, no
federal income tax provision is required.
For the six-month period ended June 30, 2018, the Fund did not incur any
income tax, interest, or penalties, and has recorded no liability for net
unrecognized tax benefits relating to uncertain income tax positions. On an
ongoing basis, the Manager will monitor the Fund's tax basis to determine if
adjustments to this conclusion are necessary. The statute of limitations on
the Fund's tax return filings generally remain open for the three preceding
fiscal reporting year ends and remain subject to examination by the Internal
Revenue Service and state taxing authorities.
E. FOREIGN TAXATION - Foreign income and capital gains on some foreign
securities may be subject to foreign taxes, which are reflected as a
reduction to such income and realized gains. The Fund records a liability
based on unrealized gains to provide for potential foreign taxes payable upon
the sale of these securities. Foreign taxes have been provided for in
accordance with the Fund's understanding of the applicable countries'
prevailing tax rules and rates.
F. INVESTMENTS IN SECURITIES - Securities transactions are accounted for as of
the date the securities are purchased or sold (trade date). Gains or losses
from sales of investment securities are computed on the identified cost
basis. Dividend income, less foreign taxes, if any, is recorded on the ex-
dividend date. If the ex-dividend date has passed, certain dividends from
foreign securities are recorded upon notification. Interest income is
recorded daily on the accrual basis. Premiums and discounts on short-term
securities are amortized on a straight-line basis over the life of the
respective securities.
G. FOREIGN CURRENCY TRANSLATIONS - The Fund's assets may be invested in the
securities of foreign issuers and may be traded in foreign currency. Since
the Fund's accounting records are maintained in U.S. dollars, foreign
currency amounts are translated into U.S. dollars on the following bases:
1. Purchases and sales of securities, income, and expenses at the exchange
rate obtained from an independent pricing service on the respective dates
of such transactions.
================================================================================
32 | USAA GLOBAL MANAGED VOLATILITY FUND
================================================================================
2. Market value of securities, other assets, and liabilities at the exchange
rate obtained from an independent pricing service on a daily basis.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations
are included with the net realized and unrealized gain or loss from
investments.
Separately, net realized foreign currency gains/losses may arise from sales
of foreign currency, currency gains/losses realized between the trade and
settlement dates on security transactions, and from the difference between
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts received. At the
end of the Fund's fiscal year, net realized foreign currency gains/losses are
reclassified from accumulated net realized gains/losses to accumulated
undistributed net investment income on the Statement of Assets and
Liabilities, as such amounts are treated as ordinary income/loss for federal
income tax purposes. Net unrealized foreign currency exchange gains/losses
arise from changes in the value of assets and liabilities, other than
investments in securities, resulting from changes in the exchange rate.
H. SECURITIES PURCHASED ON A DELAYED-DELIVERY OR WHEN-ISSUED BASIS - Delivery
and payment for securities that have been purchased by the Fund on a
delayed-delivery or when-issued basis can take place a month or more after
the trade date. During the period prior to settlement, these securities do
not earn interest, are subject to market fluctuation, and may increase or
decrease in value prior to their delivery. The Fund maintains segregated
assets with a market value equal to or greater than the amount of its
purchase commitments. The purchase of securities on a delayed-delivery or
when-issued basis may increase the volatility of the Fund's NAV to the extent
that the Fund makes such purchases while remaining substantially fully
invested.
I. INDEMNIFICATIONS - Under the Trust's organizational documents, its officers
and trustees are indemnified against certain liabilities arising out of the
================================================================================
NOTES TO FINANCIAL STATEMENTS | 33
================================================================================
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.
================================================================================
34 | USAA GLOBAL MANAGED VOLATILITY FUND
================================================================================
For the six-month period ended June 30, 2018, the Fund paid CAPCO facility fees
of $3,000, which represents 1.0% of the total fees paid to CAPCO by the funds of
the Trusts. The Fund had no borrowings under this agreement during the six-month
period ended June 30, 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 December 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 December 31, 2017, the Fund had no capital loss carryforwards, for federal
income tax purposes.
As of June 30, 2018, the cost of securities, including short-term securities,
for federal income tax purposes, was approximately the same as the cost reported
in the financial statements.
Gross unrealized appreciation and depreciation of investments as of June 30,
2018, were $72,353,000 and $8,477,000, respectively, resulting in net unrealized
appreciation of $63,876,000.
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities, excluding
short-term securities, for the six-month period ended June 30, 2018, were
$186,505,000 and $188,784,000, 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, net of income retained by
================================================================================
NOTES TO FINANCIAL STATEMENTS | 35
================================================================================
Citibank. 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. Loans are terminable
upon demand and the borrower must return the loaned securities within the lesser
of one standard settlement period or five business days. 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 June 30, 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
------------------------------------------------------------------------------------
$5,785,000 $- $5,895,000
------------------------------------------------------------------------------------
(6) CAPITAL SHARE TRANSACTIONS
At June 30, 2018, there were an unlimited number of shares of capital stock at
no par value authorized for the Fund.
Capital share transactions for the Institutional Shares resulted from purchases
and sales by the affiliated USAA fund-of-funds as well as other persons or
================================================================================
36 | USAA GLOBAL MANAGED VOLATILITY FUND
================================================================================
legal entities that the Fund may approve from time to time. Capital share
transactions for all classes were as follows, in thousands:
SIX-MONTH PERIOD ENDED YEAR ENDED
JUNE 30, 2018 DECEMBER 31, 2017
---------------------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------
FUND SHARES:
Shares sold 224 $ 2,428 295 $ 2,983
Shares issued from reinvested
dividends - - 18 196
Shares redeemed (193) (2,085) (808) (8,289)
---------------------------------------------
Net increase (decrease) from capital
share transactions 31 $343 (495) $ (5,110)
=============================================
INSTITUTIONAL SHARES:
Shares sold 140 $ 1,538 42,694 $412,711
Shares issued from reinvested
dividends - - 1,492 16,139
Shares redeemed (7) (76) (548) (5,747)
---------------------------------------------
Net increase from capital
share transactions 133 $ 1,462 43,638 $423,103
=============================================
(7) TRANSACTIONS WITH MANAGER
MANAGEMENT FEES - The Manager provides investment management services to the
Fund pursuant to an Advisory Agreement. Under this agreement, the Manager is
responsible for managing the business and affairs of the Fund, and for directly
managing the day-to-day investment of the Fund's assets, subject to the
authority of and supervision by the Board. The Manager 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 June 30, 2018, the Fund had no
subadviser(s).
The Fund's management fees are accrued daily and paid monthly at an annualized
rate of 0.60% of the Fund's average net assets. For the six-month period ended
June 30, 2018, the Fund incurred total management fees, paid or payable to the
Manager, of $2,511,000.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 37
================================================================================
In addition, the Fund invests in affiliated USAA exchange-traded fund(s)(ETFs).
The Fund's management fee is reimbursed by the Manager to the extent of the
indirect management fee incurred through the Fund's proportional investment in
the affiliated ETF(s). For the six month period ended June 30, 2018, the Fund's
management fee was reimbursed by the Manager in an amount of $5,000, of which
$1,000 was receivable from the Manager.
ADMINISTRATION AND SERVICING FEES - The Manager provides certain administration
and servicing functions for the Fund. For such services, the Manager receives a
fee accrued daily and paid monthly at an annualized rate of 0.15% of average net
assets of the Fund Shares, and 0.05% of average net assets of the Institutional
Shares. For the six-month period ended June 30, 2018, the Fund Shares and
Institutional Shares incurred administration and servicing fees, paid or payable
to the Manager, of $9,000 and $206,000, 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 June 30, 2018, the Fund reimbursed the Manager $7,000 for these compliance
and legal services. These expenses are included in the professional fees on the
Fund's Statement of Operations.
EXPENSE LIMITATION - The Manager agreed, through April 30, 2019, to limit the
total annual operating expenses of the Fund Shares and the Institutional Shares
to 0.90% and 0.70%, respectively, of their 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 April
30, 2019 without approval of the Board, and may be changed or terminated by the
Manager at any time after that date. For the six-month period ended June 30,
2018, the Fund incurred reimbursable expenses for the Fund Shares and the
Institutional Shares of $20,000 and $180,000 respectively, of which $11,000 was
receivable from the Manager, which includes affiliated ETF(s) management fee
reimbursement expenses and receivable.
================================================================================
38 | USAA GLOBAL MANAGED VOLATILITY FUND
================================================================================
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 0.05% of the
Institutional Shares' average net assets plus out-of-pocket expenses. For the
six-month period ended June 30, 2018, the Fund Shares and Institutional Shares
incurred transfer agent's fees, paid or payable to SAS, of $7,000 and $206,000,
respectively.
UNDERWRITING SERVICES - USAA Investment Management Company provides exclusive
underwriting and distribution of the Fund's shares on a continuing best-efforts
basis and receives no fee or other compensation for these services.
(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 June 30, 2018, the USAA
fund-of-funds owned the following percentages of the total outstanding shares of
the Fund:
AFFILIATED USAA FUND OWNERSHIP %
----------------------------------------------------------------------------------
Target Retirement Income 3.5
Target Retirement 2020 9.6
Target Retirement 2030 26.7
Target Retirement 2040 35.4
Target Retirement 2050 21.3
Target Retirement 2060 2.1
Certain trustees and officers of the Funds are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Funds.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 39
================================================================================
(9) TRANSACTIONS WITH AFFILIATED FUNDS
A. SHARE OWNERSHIP - The Fund does not invest in USAA Funds for the purpose of
exercising management or control; however, investments by the Fund may
represent a significant portion of the USAA Funds' net assets. At June 30,
2018, the Fund owned the following percentages of the total outstanding
shares of each of USAA Funds:
AFFILIATED USAA FUND OWNERSHIP %
------------------------------------------------------------------------------------------------
MSCI Emerging Markets Value Momentum Blend Index ETF 1.3
MSCI International Value Momentum Blend Index ETF 0.9
B. TRANSACTIONS WITH AFFILIATED FUNDS - The following tables provide details
related to each Fund's investment in the underlying USAA Funds as of June 30,
2018:
CHANGE
IN NET
($ IN 000s) REALIZED CAPITAL UNREALIZED
AFFILIATED PURCHASE SALES DIVIDEND GAIN GAIN APPRECIATION/ MARKET VALUE
USAA FUND COST(A) PROCEEDS INCOME (LOSS) DISTRIBUTIONS DEPRECIATION 12/31/17 06/30/18
-------------------------------------------------------------------------------------------------------------------
MSCI
Emerging
Markets
Value
Momentum
Blend
Index ETF $1,908 $- $ 7 $- $- $(305) $426 $2,029
MSCI
International
Value
Momentum
Blend
Index ETF 2,438 - 32 - - (288) 417 2,567
-------------------------------------------------------------------------------------------------------------------
TOTAL $4,346 $- $39 $- $- $(593) $843 $4,596
-------------------------------------------------------------------------------------------------------------------
(a) Includes reinvestment of distributions from dividend income and realized
gains.
(10) SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
During the six-month period ended June 30, 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
================================================================================
40 | USAA GLOBAL MANAGED VOLATILITY FUND
================================================================================
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
-----------------------------------------------------------------------------------------
Target Managed Allocation Global Managed Volatility $2,998,000 $636,000
(11) 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 | 41
================================================================================
FINANCIAL HIGHLIGHTS
FUND SHARES (UNAUDITED)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED PERIOD ENDED
JUNE 30, YEAR ENDED DECEMBER 31, DECEMBER 31,
--------------------------------------------------------------------------
2018 2017 2016 2015 2014 2013***
-----------------------------------------------------------------------
Net asset value at
beginning of period $ 10.73 $ 9.03 $ 8.59 $ 8.97 $ 11.14 $ 10.46
----------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .14 .13(a) .13(a) .10(a) .17(a) .07(a)
Net realized and
unrealized gain (loss) (.26) 1.76(a) .42(a) (.40)(a) (.37)(a) .62(a)
----------------------------------------------------------------------
Total from investment
operations (.12) 1.89(a) .55(a) (.30)(a) (.20)(a) .69(a)
----------------------------------------------------------------------
Less distributions from:
Net investment income - (.14) (.11) (.08) (.84) (.01)
Realized capital gains - (.05) - - (1.13) -
----------------------------------------------------------------------
Total distributions - (.19) (.11) (.08) (1.97) (.01)
----------------------------------------------------------------------
Net asset value at
end of period $ 10.61 $ 10.73 $ 9.03 $ 8.59 $ 8.97 $ 11.14
======================================================================
Total return (%)* (1.12) 20.95 6.39 (3.28) (2.02) 6.61
Net assets at end
of period (000) $11,482 $11,284 $13,964 $15,911 $23,300 $10,771
Ratios to average net assets:**
Expenses (%)(i) .90(c) .90 .89 .90(h) 1.07(d) 1.10(b),(c)
Expenses, excluding
reimbursements (%)(i) 1.25(c) 1.09 1.13 1.15 1.25 1.34(b),(c)
Net investment income (%) 1.34(c) 1.30 1.48 1.14 1.60 1.29(c)
Portfolio turnover (%) 22 48(g) 9 16(f) 147(e) 92
* 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 June 30, 2018, average net assets were
$11,677,000.
*** Fund Shares commenced operations on July 12, 2013.
(a) Calculated using average shares.
(b) Reflects total annual operating expenses of the Fund Shares before
reductions of any expenses paid indirectly. The Fund Shares' expenses paid
indirectly decreased the expense ratio by less than 0.01%.
(c) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(d) Effective November 24, 2014, the Manager had voluntarily agreed to limit
the annual expenses of the Fund Shares to 1.10% of the Fund Shares' average
net assets.
(e) Reflects increased trading activity due to large shareholder redemptions.
(f) Reflects a return to normal trading levels after a prior year transition.
(g) Reflects increase trading activity due to large shareholder inflows.
(h) Prior to May 1, 2015, the Manager had voluntarily agreed to limit the annual
expenses of the Fund Shares to 0.90% of the Fund Shares' average net assets.
(i) Does not include acquired fund fees, if any.
================================================================================
42 | USAA GLOBAL MANAGED VOLATILITY FUND
================================================================================
INSTITUTIONAL SHARES (UNAUDITED)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------
2018 2017 2016 2015 2014 2013
-------------------------------------------------------------------------------
Net asset value at
beginning of period $ 10.84 $ 9.12 $ 8.69 $ 9.08 $ 11.16 $ 9.96
-------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .08 .18(a) .16(a) .14(a) .20(a) .21
Net realized and
unrealized gain (loss) (.19) 1.76(a) .40(a) (.44)(a) (.33)(a) 1.00
-------------------------------------------------------------------------------
Total from investment
operations (.11) 1.94(a) .56(a) (.30)(a) (.13)(a) 1.21
-------------------------------------------------------------------------------
Less distributions from:
Net investment income - (.17) (.13) (.09) (.82) (.01)
Realized capital gains - (.05) - - (1.13) -
-------------------------------------------------------------------------------
Total distributions - (.22) (.13) (.09) (1.95) (.01)
-------------------------------------------------------------------------------
Net asset value at
end of period $ 10.73 $ 10.84 $ 9.12 $ 8.69 $ 9.08 $ 11.16
===============================================================================
Total return (%)* (1.01) 21.24 6.46 (3.27) (1.39) 12.17
Net assets at
end of period (000) $817,069 $824,189 $295,644 $189,078 $57,938 $342,962
Ratios to average net assets:**
Expenses (%) (i) .70(h) .72(f) .78 .80 .87(c) .82(b)
Expenses, excluding
reimbursements (%)(i) .74(h) .76 .81 .88 .87 .82(b)
Net investment income (%) 1.53(h) 1.79 1.85 1.61 1.76 1.72
Portfolio turnover (%) 22 48(g) 9 16(e) 147(d) 92
* 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 June 30, 2018, average net assets were
$832,618,000.
*** Effective July 12, 2013, the existing share class was designated "Global
Managed Volatility Fund Institutional Shares (Institutional Shares)".
(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 ratio by less than 0.01%.
(c) Effective November 24, 2014, the Manager voluntarily agreed to limit the
annual expenses of the Institutional Shares to 0.80% of the Institutional
Shares' average net assets.
(d) Reflects increased trading activity due to large shareholder redemptions.
(e) Reflects a return to normal trading levels after a prior year transition.
(f) Prior to May 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. Reflects a return to normal trading levels after a prior
year transition.
(g) Reflects increased trading activity due to large shareholder inflows.
(h) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(i) Does not include acquired fund fees, if any.
================================================================================
FINANCIAL HIGHLIGHTS | 43
================================================================================
EXPENSE EXAMPLE
June 30, 2018 (unaudited)
--------------------------------------------------------------------------------
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: direct costs, such
as wire fees, redemption fees, and low balance fees; and indirect costs,
including management fees, transfer agency fees, and other Fund operating
expenses. This example is intended to help you understand your indirect costs,
also referred to as "ongoing costs" (in dollars), of investing in the Fund and
to compare these costs with the ongoing costs of investing in other mutual
funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire six-month period of January 1, 2018, through June
30, 2018.
ACTUAL EXPENSES
The line labeled "actual" under each share class in the table provides
information about actual account values and actual expenses. You may use the
information in this line, together with the amount you invested at the beginning
of the period, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number for your share
class in the "actual" line under the heading "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The line labeled "hypothetical" under each share class in the table provides
information about hypothetical account values and hypothetical expenses based on
the Fund's actual expense ratios for each class and an assumed rate of return of
5% per year before expenses, which is not the Fund's actual return. The
hypothetical account values and expenses may not be used to
================================================================================
44 | USAA GLOBAL MANAGED VOLATILITY 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 JANUARY 1, 2018 -
JANUARY 1, 2018 JUNE 30, 2018 JUNE 30, 2018
---------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $ 988.80 $4.44
Hypothetical
(5% return before expenses) 1,000.00 1,020.33 4.51
INSTITUTIONAL SHARES
Actual 1,000.00 989.90 3.45
Hypothetical
(5% return before expenses) 1,000.00 1,021.32 3.51
*Expenses are equal to the annualized expense ratio of 0.90% for Fund Shares and
0.70% for Institutional Shares, which are net of any reimbursements and
expenses paid indirectly, multiplied by the average account value over the
period, multiplied by 181 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 (1.12)% for Fund Shares and (1.01)% for Institutional Shares for the
six-month period of January 1, 2018, through June 30, 2018.
================================================================================
EXPENSE EXAMPLE | 45
================================================================================
ADVISORY AGREEMENT(S)
June 30, 2018 (unaudited)
--------------------------------------------------------------------------------
At an in-person meeting of the Board of Trustees (the Board) held on April 18,
2018, the Board, including the Trustees who are not "interested persons" (as
that term is defined in the Investment Company Act of 1940, as amended) of the
Trust (the Independent Trustees), approved for an annual period the continuance
of the Advisory Agreement between the Trust and the Manager with respect to the
Fund.
In advance of the meeting, the Trustees received and considered a variety of
information relating to the Advisory Agreement and the Manager, and were given
the opportunity to ask questions and request additional information from
management. The information provided to the Board included, among other things:
(i) a separate report prepared by an independent third party, which provided a
statistical analysis comparing the Fund's investment performance, expenses, and
fees to comparable investment companies; (ii) information concerning the
services rendered to the Fund, as well as information regarding the Manager's
revenues and costs of providing services to the Fund and compensation paid to
affiliates of the Manager; and (iii) information about the Manager's operations
and personnel. Prior to voting, the Independent Trustees reviewed the proposed
continuance of the Advisory Agreement with management and with experienced
counsel retained by the Independent Trustees (Independent Counsel) and received
materials from such Independent Counsel discussing the legal standards for their
consideration of the proposed continuation of the Advisory Agreement with
respect to the Fund. The Independent Trustees also reviewed the proposed
continuation of the Advisory Agreement with respect to the Fund in private
sessions with Independent Counsel at which no representatives of management were
present.
At each regularly scheduled meeting of the Board and its committees, the Board
receives and reviews, among other things, information concerning the Fund's
performance and related services provided by the Manager. At the meeting at
which the renewal of the Advisory Agreement is considered,
================================================================================
46 | USAA GLOBAL MANAGED VOLATILITY FUND
================================================================================
particular focus is given to information concerning Fund performance, fees and
total expenses as compared to comparable investment companies, and the Manager's
profitability with respect to the Fund. However, the Board noted that the
evaluation process with respect to the Manager is an ongoing one. In this
regard, the Board's and its committees' consideration of the Advisory Agreement
included information previously received at such meetings.
ADVISORY AGREEMENT
After full consideration of a variety of factors, the Board, including the
Independent Trustees, voted to approve the Advisory Agreement. In approving the
Advisory Agreement, the Trustees did not identify any single factor as
controlling, and each Trustee may have attributed different weights to various
factors. Throughout their deliberations, the Independent Trustees were
represented and assisted by Independent Counsel.
NATURE, EXTENT, AND QUALITY OF SERVICES - In considering the nature, extent, and
quality of the services provided by the Manager under the Advisory Agreement,
the Board reviewed information provided by the Manager relating to its
operations and personnel. The Board also took into account its knowledge of the
Manager's management and the quality of the performance of the Manager's duties
through Board meetings, discussions, and reports during the preceding year. The
Board considered the fees paid to the Manager and the services provided to the
Fund by the Manager under the Advisory Agreement, as well as other services
provided by the Manager and its affiliates under other agreements, and the
personnel who provide these services. In addition to the investment advisory
services provided to the Fund, the Manager and its affiliates provide
administrative services, shareholder services, oversight of Fund accounting,
marketing services, assistance in meeting legal and regulatory requirements, and
other services necessary for the operation of the Fund and the Trust.
The Board also considered the significant risks assumed by the Manager in
connection with the services provided to the Fund, including investment,
operational, enterprise, litigation, regulatory and compliance risks.
The Board considered the Manager's management style and the performance of the
Manager's duties under the Advisory Agreement. The Board
================================================================================
ADVISORY AGREEMENT(S) | 47
================================================================================
considered the level and depth of knowledge of the Manager, including the
professional experience and qualifications of its senior and investment
personnel, as well as current staffing levels. The Board discussed the Manager's
effectiveness in monitoring the performance of each Subadviser and its
timeliness in responding to performance issues. The allocation of the Fund's
brokerage, including the Manager's process for monitoring "best execution," also
was considered. The Manager's role in coordinating the activities of the Fund's
other service providers was also considered. The Board also considered the
Manager's risk management processes. The Board considered the Manager's
financial condition and that it had the financial wherewithal to continue to
provide the same scope and high quality of services under the Advisory
Agreement. In reviewing the Advisory Agreement, the Board focused on the
experience, resources, and strengths of the Manager and its affiliates in
managing the Fund, as well as the other funds in the Trust.
The Board also reviewed the compliance and administrative services provided to
the Fund by the Manager and its affiliates, including the Manager's oversight of
the Fund's day-to-day operations and oversight of Fund accounting. The Trustees,
guided also by information obtained from their experiences as trustees of the
Trust, also focused on the quality of the Manager's compliance and
administrative staff.
EXPENSES AND PERFORMANCE - In connection with its consideration of the Advisory
Agreement, the Board evaluated the Fund's advisory fees and total expense ratio
as compared to other open-end investment companies deemed to be comparable to
the Fund as determined by the independent third party in its report. The Fund's
expenses were compared to (i) a group of investment companies chosen by the
independent third party to be comparable to the Fund based upon certain factors,
including fund type, comparability of investment objective and classification,
sales load type (in this case, retail investment companies with front-end loads
and no sales loads), asset size, and expense components (the expense group) and
(ii) a larger group of investment companies that includes all front-end load and
no-load retail open-end investment companies with the same investment
classification/objective as the Fund regardless of asset size, excluding
outliers (the expense universe). Among
================================================================================
48 | USAA GLOBAL MANAGED VOLATILITY FUND
================================================================================
other data, the Board noted that the Fund's management fee rate - which includes
advisory and administrative services as well as any fee waivers and
reimbursements - was below the median of its expense group and its expense
universe. The data indicated that the Fund's total expenses, including
underlying expenses and after any reimbursements, were below the median of its
expense group and its expense universe. The Board took into account the various
services provided to the Fund by the Manager and its affiliates, including the
high quality of services received by the Fund from the Manager. The Board also
noted the level and method of computing the management fee.
In considering the Fund's performance, the Board noted that it reviews at its
regularly scheduled meetings information about the Fund's performance results.
The Trustees also reviewed various comparative data provided to them in
connection with their consideration of the renewal of the Advisory Agreement,
including, among other information, a comparison of the Fund's average annual
total returns with its Lipper index and with that of other mutual funds deemed
to be in its peer group by the independent third party in its report (the
"performance universe"). The Fund's performance universe consisted of the Fund
and all retail and institutional open-end investment companies with the same
classification/objective as the Fund regardless of asset size or primary channel
of distribution. This comparison indicated that, among other data, the Fund's
performance was above the average of its performance universe and its Lipper
index for the one- and three- year periods ended December 31, 2017. The Board
also noted that the Fund's percentile performance ranking was in the top 10% of
its performance universe for the one- and three-year periods ended December 31,
2017.
COMPENSATION AND PROFITABILITY - The Board took into consideration the level and
method of computing the management fee. The information considered by the Board
included operating profit margin information for the Manager's business as a
whole. The Board also received and considered profitability information related
to the management revenues from the Fund. This information included a review of
the methodology used in the allocation of certain costs to the Fund. In
considering the profitability data with respect to the Fund, the Trustees noted
that the Manager reimbursed a portion of its management fees to the Fund. The
Trustees reviewed the profitability of the
================================================================================
ADVISORY AGREEMENT(S) | 49
================================================================================
Manager's relationship with the Fund before tax expenses. In reviewing the
overall profitability of the management fee to the Manager, the Board also
considered the fact that the Manager and its affiliates provide shareholder
servicing and administrative services to the Fund for which they receive
compensation. The Board also considered the possible direct and indirect
benefits to the Manager from its relationship with the Trust, including that the
Manager may derive reputational and other benefits from its association with the
Fund. The Trustees recognized that the Manager should be entitled to earn a
reasonable level of profits in exchange for the level of services it provides to
the Fund and the entrepreneurial and other risks that it assumes as Manager.
ECONOMIES OF SCALE - The Board considered whether there should be changes in the
management fee rate or structure in order to enable the Fund to participate in
any economies of scale. The Board also considered the fee waiver and expense
reimbursement arrangements by the Manager. The Board took into account
management's discussion of the Fund's current advisory fee structure. The Board
also considered the effect of the Fund's growth and size on its performance and
fees, noting that if the Fund's assets increase over time, the Fund may realize
other economies of scale if assets increase proportionally more than some
expenses. The Board determined that the current investment management fee
structure was reasonable.
CONCLUSIONS - The Board reached the following conclusions regarding the Fund's
Advisory Agreement with the Manager, among others: (i) the Manager has
demonstrated that it possesses the capability and resources to perform the
duties required of it under the Advisory Agreement; (ii) the Manager maintains
an appropriate compliance program; (iii) the performance of the Fund is
reasonable in relation to the performance of funds with similar investment
objectives and to relevant indices; (iv) the Fund's advisory expenses are
reasonable in relation to those of similar funds and to the services to be
provided by the Manager; and (v) the Manager's and its affiliates' level of
profitability from their relationship with the Fund is reasonable in light of
the nature and high quality of services provided by the Manager and the type of
fund. Based on its conclusions, the Board determined that continuation of the
Advisory Agreement would be in the best interests of the Fund and its
shareholders.
================================================================================
50 | USAA GLOBAL MANAGED VOLATILITY 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
--------------------------------------------------------------------------------
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
--------------
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LOGO OF USAA
USAA(R)
[GRAPHIC OF USAA NASDAQ-100 INDEX FUND]
==============================================================
SEMIANNUAL REPORT
USAA NASDAQ-100 INDEX FUND
FUND SHARES (USNQX) o R6 SHARES (URNQX)
JUNE 30, 2018
==============================================================
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
INVESTMENT OVERVIEW 1
FINANCIAL INFORMATION
Portfolio of Investments 2
Notes to Portfolio of Investments 9
Financial Statements 10
Notes to Financial Statements 14
Financial Highlights 28
EXPENSE EXAMPLE 30
ADVISORY AGREEMENT(S) 32
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE
RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY
USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN
PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS
ABOUT THE FUND.
IRA DISTRIBUTION WITHHOLDING DISCLOSURE
We generally must withhold federal income tax at a rate of 10% of the taxable
portion of your distribution and, if you live in a state that requires state
income tax withholding, at your state's tax rate. However, you may elect not to
have withholding apply or to have income tax withheld at a higher rate. Any
withholding election that you make will apply to any subsequent distribution
unless and until you change or revoke the election. If you wish to make a
withholding election or change or revoke a prior withholding election, call
(800) 531-USAA (8722) or (210) 531-8722.
If you do not have a withholding election in place by the date of a
distribution, federal income tax will be withheld from the taxable portion of
your distribution at a rate of 10%. If you must pay estimated taxes, you may be
subject to estimated tax penalties if your estimated tax payments are not
sufficient and sufficient tax is not withheld from your distribution.
For more specific information, please consult your tax adviser.
(C)2018, USAA. All rights reserved.
================================================================================
================================================================================
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
o TOP 10 HOLDINGS* - 6/30/18 o
(% of Net Assets)
Apple, Inc. ............................................................. 11.0%
Amazon.com, Inc. ........................................................ 10.0%
Microsoft Corp. ......................................................... 9.1%
Facebook, Inc., "A" ..................................................... 5.6%
Alphabet, Inc., "C" ..................................................... 4.7%
Alphabet, Inc., "A" ..................................................... 4.1%
Intel Corp. ............................................................. 2.8%
Cisco Systems, Inc. ..................................................... 2.4%
Netflix, Inc. ........................................................... 2.1%
Comcast Corp., "A" ...................................................... 1.8%
o SECTOR ALLOCATION* - 6/30/18 o
(% of Net Assets)
[PIE CHART OF SECTOR ALLOCATION]
INFORMATION TECHNOLOGY 58.6%
CONSUMER DISCRETIONARY 22.2%
HEALTH CARE 8.9%
CONSUMER STAPLES 3.9%
INDUSTRIALS 1.9%
TELECOMMUNICATION SERVICES 0.8%
[END PIE CHART]
*Does not include futures, money market instruments, or short-term investments
purchased with cash collateral from securities loaned.
Percentages are of the net assets of the Fund, and may not equal 100%.
Refer to the Portfolio of Investments for a complete list of securities.
================================================================================
INVESTMENT OVERVIEW | 1
================================================================================
PORTFOLIO OF INVESTMENTS
June 30, 2018 (unaudited)
-------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (96.3%)
COMMON STOCKS (96.3%)
CONSUMER DISCRETIONARY (22.2%)
------------------------------
APPAREL RETAIL (0.4%)
86,750 Ross Stores, Inc. $ 7,352
----------
AUTOMOBILE MANUFACTURERS (0.7%)
38,905 Tesla, Inc.(a),(b) 13,342
----------
AUTOMOTIVE RETAIL (0.3%)
18,768 O'Reilly Automotive, Inc.(a) 5,134
----------
CABLE & SATELLITE (3.4%)
54,411 Charter Communications, Inc., "A"(a) 15,954
1,052,221 Comcast Corp., "A" 34,523
52,462 DISH Network Corp., "A"(a) 1,763
49,639 Liberty Global plc, "A"(a) 1,367
130,645 Liberty Global plc, "C"(a) 3,477
1,026,252 Sirius XM Holdings, Inc.(b) 6,948
----------
64,032
----------
CASINOS & GAMING (0.2%)
24,881 Wynn Resorts Ltd. 4,164
----------
GENERAL MERCHANDISE STORES (0.3%)
54,478 Dollar Tree, Inc.(a) 4,631
----------
HOTELS, RESORTS & CRUISE LINES (0.5%)
80,964 Marriott International, Inc., "A" 10,250
----------
INTERNET & DIRECT MARKETING RETAIL (14.2%)
111,181 Amazon.com, Inc.(a),(c) 188,985
11,038 Booking Holdings, Inc.(a) 22,375
106,751 Ctrip.com International Ltd. ADR(a) 5,085
31,471 Expedia Group, Inc. 3,783
211,406 JD.com, Inc. ADR(a) 8,234
99,602 Netflix, Inc.(a) 38,987
100,898 Qurate Retail, Inc.(a) 2,141
----------
269,590
----------
================================================================================
2 | USAA NASDAQ-100 INDEX FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------------
LEISURE PRODUCTS (0.1%)
28,626 Hasbro, Inc. $ 2,642
----------
MOVIES & ENTERTAINMENT (1.1%)
241,516 Twenty-First Century Fox, Inc., "A" 12,001
182,970 Twenty-First Century Fox, Inc., "B" 9,015
----------
21,016
----------
RESTAURANTS (0.8%)
316,199 Starbucks Corp. 15,446
----------
SPECIALTY STORES (0.2%)
13,875 Ulta Salon Cosmetics & Fragrance, Inc.(a) 3,239
----------
Total Consumer Discretionary 420,838
----------
CONSUMER STAPLES (3.9%)
-----------------------
DRUG RETAIL (0.7%)
227,219 Walgreens Boots Alliance, Inc. 13,637
----------
HYPERMARKETS & SUPER CENTERS (1.1%)
100,546 Costco Wholesale Corp. 21,012
----------
PACKAGED FOODS & MEATS (1.7%)
279,350 Kraft Heinz Co. 17,549
337,982 Mondelez International, Inc., "A" 13,857
----------
31,406
----------
SOFT DRINKS (0.4%)
128,930 Monster Beverage Corp.(a) 7,388
----------
Total Consumer Staples 73,443
----------
HEALTH CARE (8.9%)
------------------
BIOTECHNOLOGY (5.8%)
50,980 Alexion Pharmaceuticals, Inc.(a) 6,329
151,613 Amgen, Inc. 27,986
48,347 Biogen, Inc.(a) 14,032
40,488 BioMarin Pharmaceutical, Inc.(a) 3,814
166,077 Celgene Corp.(a) 13,190
297,995 Gilead Sciences, Inc. 21,110
48,567 Incyte Corp.(a) 3,254
24,275 Regeneron Pharmaceuticals, Inc.(a) 8,375
15,646 Shire plc ADR 2,641
58,387 Vertex Pharmaceuticals, Inc.(a) 9,924
----------
110,655
----------
HEALTH CARE DISTRIBUTORS (0.1%)
35,293 Henry Schein, Inc.(a) 2,564
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 3
================================================================================
-------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT (1.0%)
62,563 Hologic, Inc.(a) $ 2,487
19,904 IDEXX Laboratories, Inc.(a) 4,338
25,960 Intuitive Surgical, Inc.(a) 12,421
----------
19,246
----------
HEALTH CARE SERVICES (0.5%)
128,708 Express Scripts Holding Co.(a) 9,938
----------
HEALTH CARE SUPPLIES (0.5%)
18,365 Align Technology, Inc.(a) 6,283
52,022 Dentsply Sirona, Inc. 2,277
----------
8,560
----------
HEALTH CARE TECHNOLOGY (0.3%)
76,031 Cerner Corp.(a) 4,546
----------
LIFE SCIENCES TOOLS & SERVICES (0.5%)
33,682 Illumina, Inc.(a) 9,407
----------
PHARMACEUTICALS (0.2%)
118,109 Mylan N.V.(a) 4,268
----------
Total Health Care 169,184
----------
INDUSTRIALS (1.9%)
------------------
AIRLINES (0.2%)
107,267 American Airlines Group, Inc. 4,072
----------
CONSTRUCTION MACHINERY & HEAVY TRUCKS (0.3%)
80,613 PACCAR, Inc. 4,995
----------
DIVERSIFIED SUPPORT SERVICES (0.2%)
24,453 Cintas Corp. 4,525
----------
RAILROADS (0.7%)
200,571 CSX Corp. 12,792
----------
RESEARCH & CONSULTING SERVICES (0.2%)
37,867 Verisk Analytics, Inc.(a) 4,076
----------
TRADING COMPANIES & DISTRIBUTORS (0.2%)
65,919 Fastenal Co. 3,173
----------
TRUCKING (0.1%)
25,147 JB Hunt Transport Services, Inc. 3,057
----------
Total Industrials 36,690
----------
INFORMATION TECHNOLOGY (58.6%)
------------------------------
APPLICATION SOFTWARE (3.1%)
112,840 Adobe Systems, Inc.(a) 27,512
50,205 Autodesk, Inc.(a) 6,581
================================================================================
4 | USAA NASDAQ-100 INDEX FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------------
64,594 Cadence Design Systems, Inc.(a) $ 2,798
31,065 Citrix Systems, Inc.(a) 3,257
58,792 Intuit, Inc. 12,011
34,142 Synopsys, Inc.(a) 2,922
33,498 Workday, Inc., "A"(a) 4,057
----------
59,138
----------
COMMUNICATIONS EQUIPMENT (2.4%)
1,077,575 Cisco Systems, Inc. 46,368
----------
DATA PROCESSING & OUTSOURCED SERVICES (2.6%)
100,937 Automatic Data Processing, Inc. 13,540
93,814 Fiserv, Inc.(a) 6,951
82,319 Paychex, Inc. 5,626
272,068 PayPal Holdings, Inc.(a) 22,655
----------
48,772
----------
HOME ENTERTAINMENT SOFTWARE (1.4%)
174,416 Activision Blizzard, Inc. 13,312
70,305 Electronic Arts, Inc.(a) 9,914
26,208 Take-Two Interactive Software, Inc.(a) 3,102
----------
26,328
----------
INTERNET SOFTWARE & SERVICES (16.0%)
68,432 Alphabet, Inc., "A"(a),(c) 77,273
79,956 Alphabet, Inc., "C"(a) 89,203
64,326 Baidu, Inc. ADR(a) 15,631
227,752 eBay, Inc.(a) 8,258
549,596 Facebook, Inc., "A"(a) 106,797
10,118 MercadoLibre, Inc. 3,025
17,490 NetEase, Inc. ADR 4,419
----------
304,606
----------
IT CONSULTING & OTHER SERVICES (0.5%)
134,246 Cognizant Technology Solutions Corp., "A" 10,604
----------
SEMICONDUCTOR EQUIPMENT (1.3%)
230,969 Applied Materials, Inc. 10,668
17,127 ASML Holding N.V. 3,391
35,716 KLA-Tencor Corp. 3,662
37,586 Lam Research Corp. 6,497
----------
24,218
----------
SEMICONDUCTORS (10.1%)
84,975 Analog Devices, Inc. 8,151
94,115 Broadcom, Inc. 22,836
1,067,745 Intel Corp. 53,078
================================================================================
PORTFOLIO OF INVESTMENTS | 5
================================================================================
-------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------------
64,133 Maxim Integrated Products, Inc. $ 3,762
53,849 Microchip Technology, Inc. 4,898
265,736 Micron Technology, Inc.(a) 13,935
139,082 NVIDIA Corp. 32,948
339,710 QUALCOMM, Inc.(c) 19,064
41,714 Skyworks Solutions, Inc. 4,032
224,293 Texas Instruments, Inc. 24,728
58,107 Xilinx, Inc. 3,792
----------
191,224
----------
SYSTEMS SOFTWARE (9.7%)
95,454 CA, Inc. 3,403
36,439 Check Point Software Technologies Ltd.(a) 3,559
1,760,461 Microsoft Corp.(c) 173,599
142,412 Symantec Corp. 2,941
----------
183,502
----------
TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (11.5%)
1,126,212 Apple, Inc.(c) 208,473
65,774 Seagate Technology plc 3,714
68,566 Western Digital Corp. 5,308
----------
217,495
----------
Total Information Technology 1,112,255
----------
TELECOMMUNICATION SERVICES (0.8%)
---------------------------------
WIRELESS TELECOMMUNICATION SERVICES (0.8%)
194,041 T-Mobile US, Inc.(a) 11,594
108,779 Vodafone Group plc ADR 2,644
----------
Total Telecommunication Services 14,238
----------
Total Common Stocks (cost: $935,383) 1,826,648
----------
Total Equity Securities (cost: $935,383) 1,826,648
----------
MONEY MARKET INSTRUMENTS (3.6%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (3.4%)
65,271,588 State Street Institutional Treasury Money Market Fund Premier
Class, 1.74%(d) (cost: $65,271) 65,271
----------
================================================================================
6 | USAA NASDAQ-100 INDEX FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
(000) SECURITY (000)
-------------------------------------------------------------------------------------------------------------
U.S. TREASURY SECURITIES (0.2%)
BILLS (0.2%)(e)
$ 3,860 2.33%, 07/19/2018(f) (cost: $3,857) $ 3,857
----------
Total Money Market Instruments (cost: $69,128) 69,128
----------
-------------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES
-------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS PURCHASED WITH CASH
COLLATERAL FROM SECURITIES LOANED (1.1%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (1.1%)
776,255 Federated Government Obligations Fund Institutional Class, 1.79%(d) 776
923,902 Fidelity Government Portfolio Class I, 1.79%(d) 924
2,747,928 Goldman Sachs Financial Square Government Fund Institutional Class, 1.84%(d) 2,748
10,805,180 Invesco Government & Agency Portfolio Institutional Class, 1.83%(d) 10,805
2,875,272 Morgan Stanley Institutional Liquidity Funds Government Portfolio
Institutional Class, 1.82%(d) 2,876
2,720,158 Western Asset Institutional Government Reserves Institutional Class, 1.80%(d) 2,720
----------
Total Short-Term Investments Purchased with Cash Collateral from
Securities Loaned (cost: $20,849) 20,849
----------
TOTAL INVESTMENTS (COST: $1,025,360) $1,916,625
==========
-------------------------------------------------------------------------------------------------------------
UNREALIZED
CONTRACT APPRECIATION/
NUMBER OF EXPIRATION NOTIONAL VALUE (DEPRECIATION)
CONTRACTS DESCRIPTION DATE AMOUNT (000) (000) (000)
-------------------------------------------------------------------------------------------------------------
FUTURES (3.7%)
LONG FUTURES
EQUITY CONTRACTS
496 Nasdaq 100 E-Mini 9/21/2018 USD 71,380 $70,102 $(1,278)
------- -------
TOTAL LONG FUTURES $70,102 $(1,278)
------- -------
TOTAL FUTURES $70,102 $(1,278)
======= =======
================================================================================
PORTFOLIO OF INVESTMENTS | 7
================================================================================
-------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
-------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
-------------------------------------------------------------------------------------------------------------
Equity Securities:
Common Stocks $1,826,648 $ - $- $1,826,648
Money Market Instruments:
Government & U.S. Treasury
Money Market Funds 65,271 - - 65,271
U.S. Treasury Securities - 3,857 - 3,857
Short-Term Investments Purchased
with Cash Collateral from
Securities Loaned:
Government & U.S. Treasury
Money Market Funds 20,849 - - 20,849
-------------------------------------------------------------------------------------------------------------
Total $1,912,768 $3,857 $- $1,916,625
-------------------------------------------------------------------------------------------------------------
LIABILITIES LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
-------------------------------------------------------------------------------------------------------------
Futures(1) $ (1,278) $ - $- $ (1,278)
-------------------------------------------------------------------------------------------------------------
Total $ (1,278) $ - $- $ (1,278)
-------------------------------------------------------------------------------------------------------------
(1) Futures are valued at the unrealized appreciation/(depreciation) on the
investment.
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
For the period of January 1, 2018, through June 30, 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 NASDAQ-100 INDEX FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
June 30, 2018 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
Market values of securities are determined by procedures and practices
discussed in Note 1A to the financial statements.
The Portfolio of Investments category percentages shown represent the
percentages of the investments to net assets, and, in total, may not equal
100%. A category percentage of 0.0% represents less than 0.1% of net assets.
o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS
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) Non-income-producing security.
(b) The security, or a portion thereof, was out on loan as of June 30,
2018.
(c) The security, or a portion thereof, is segregated to cover the value of
open futures contracts at June 30, 2018.
(d) Rate represents the money market fund annualized seven-day yield at
June 30, 2018.
(e) Rate represents an annualized yield at time of purchase, not coupon
rate.
(f) Securities with a value of $3,857,000 are segregated as collateral for
initial margin requirements on open futures contracts.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 9
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
June 30, 2018 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (including securities on
loan of $20,074) (cost of $1,025,360) $1,916,625
Cash 1,951
Receivables:
Capital shares sold 1,480
Dividends and interest 437
Other 32
----------
Total assets 1,920,525
----------
LIABILITIES
Payables:
Upon return of securities loaned 20,849
Capital shares redeemed 1,000
Variation margin on futures contracts 1,277
Accrued management fees 315
Accrued transfer agent's fees 80
Other accrued expenses and payables 33
----------
Total liabilities 23,554
----------
Net assets applicable to capital shares outstanding $1,896,971
==========
NET ASSETS CONSIST OF:
Paid-in capital $ 998,898
Accumulated undistributed net investment income 12,950
Accumulated net realized loss on investments and futures transactions (4,864)
Net unrealized appreciation of investments and futures contracts 889,987
----------
Net assets applicable to capital shares outstanding $1,896,971
==========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $1,884,252/95,411 capital shares
outstanding, no par value) $ 19.75
==========
R6 Shares (net assets of $12,719/644 capital shares
outstanding, no par value) $ 19.76
==========
See accompanying notes to financial statements.
================================================================================
10 | USAA NASDAQ-100 INDEX FUND
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended June 30, 2018 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $4) $ 9,107
Interest 351
Securities lending (net) 183
--------
Total income 9,641
--------
EXPENSES
Management fees 1,784
Administration and servicing fees:
Fund Shares 1,331
R6 Shares 2
Transfer agent's fees:
Fund Shares 800
Custody and accounting fees:
Fund Shares 101
Postage:
Fund Shares 42
Shareholder reporting fees:
Fund Shares 17
Trustees' fees 16
Registration fees:
Fund Shares 42
R6 Shares 15
Professional fees 68
Other 113
--------
Total expenses 4,331
Expenses reimbursed:
R6 Shares (11)
--------
Net expenses 4,320
--------
NET INVESTMENT INCOME 5,321
--------
================================================================================
FINANCIAL STATEMENTS | 11
================================================================================
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FUTURES CONTRACTS
Net realized gain (loss) on:
Investments $ (187)
Futures transactions 5,072
Change in net unrealized appreciation/(depreciation) of:
Investments 162,733
Futures contracts (1,533)
--------
Net realized and unrealized gain 166,085
--------
Increase in net assets resulting from operations $171,406
========
See accompanying notes to financial statements.
================================================================================
12 | USAA NASDAQ-100 INDEX FUND
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended June 30, 2018 (unaudited), and year ended
December 31, 2017
-------------------------------------------------------------------------------------------------------------
6/30/2018 12/31/2017
-------------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 5,321 $ 8,335
Net realized gain (loss) on investments (187) 12,333
Net realized gain on futures transactions 5,072 9,379
Change in net unrealized appreciation/(depreciation) of:
Investments 162,733 339,109
Futures contracts (1,533) 334
------------------------------
Increase in net assets resulting from operations 171,406 369,490
------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares - (7,464)
R6 Shares* - (33)
------------------------------
Total distributions of net investment income - (7,497)
------------------------------
Net realized gains:
Fund Shares - (23,897)
R6 Shares* - (88)
------------------------------
Total distributions of net realized gains - (23,985)
------------------------------
Distributions to shareholders - (31,482)
------------------------------
NET INCREASE IN NET ASSETS FROM
CAPITAL SHARE TRANSACTIONS (NOTE 6)
Fund Shares 90,042 208,096
R6 Shares* 6,084 5,016
------------------------------
Total net increase in net assets from capital
share transactions 96,126 213,112
------------------------------
Net increase in net assets 267,532 551,120
NET ASSETS
Beginning of period 1,629,439 1,078,319
------------------------------
End of period $1,896,971 $1,629,439
==============================
Accumulated undistributed net investment income:
End of period $ 12,950 $ 7,629
==============================
*R6 Shares commenced operations on March 1, 2017.
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 13
================================================================================
NOTES TO FINANCIAL STATEMENTS
June 30, 2018 (unaudited)
--------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company Act
of 1940, as amended (the 1940 Act), is an open-end management investment company
organized as a Delaware statutory trust consisting of 50 separate funds. The
USAA Nasdaq-100 Index 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 non-diversified under the 1940 Act. The Fund seeks to match,
before fees and expenses, the performance of the stocks composing the Nasdaq-100
Index. The Nasdaq-100 Index represents 100 of the largest nonfinancial stocks
traded on The Nasdaq Stock Market. USAA Asset Management Company (the Manager),
an affiliate of the Fund, has retained Northern Trust Investments, Inc. (NTI) to
serve as subadviser for the Fund. NTI is responsible for investing the Fund's
assets. Under normal market conditions, NTI attempts to achieve the Fund's
objective by investing at least 80% of the Fund's assets in the common stocks of
companies composing the Nasdaq-100 Index.
As a non-diversified fund, the Fund may invest a greater percentage of its
assets in a single issuer. Because a relatively high percentage of the Fund's
total assets may be invested in the securities of a single issuer or a limited
number of issuers, the securities of the Fund may be more sensitive to changes
in the market value of a single issuer, a limited number of issuers, or large
companies generally. Such a focused investment strategy may increase the
volatility of the Fund's investment results because this Fund may be more
susceptible to risk associated with a single economic, political, or regulatory
event than a diversified fund.
================================================================================
14 | USAA NASDAQ-100 INDEX FUND
================================================================================
The Fund consists of two classes of shares: Nasdaq-100 Index Fund Shares (Fund
Shares) and Nasdaq-100 Index 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 both classes.
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 and Liquidity Committee (the Committee), and
subject to Board oversight, the Committee administers and oversees the
Fund's valuation policies and procedures, which are approved by the Board.
Among other things, these policies and procedures allow the Fund to utilize
independent pricing services, quotations from securities dealers, and a wide
variety of sources and information to establish and adjust the fair value of
securities as events occur and circumstances warrant.
The Committee reports to the Board on a quarterly basis and makes
recommendations to the Board as to pricing methodologies and services used
by the Fund and presents additional information to the Board regarding
application of the pricing and fair valuation policies and procedures during
the preceding quarter.
The Committee meets as often as necessary to make pricing and fair value
determinations. In addition, the Committee holds regular monthly meetings to
review prior actions taken by the Committee and the Manager. Among other
things, these monthly meetings include a review and analysis of backtesting
reports, pricing service quotation
================================================================================
NOTES TO FINANCIAL STATEMENTS | 15
================================================================================
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. Short-term debt securities with original or remaining maturities of
60 days or less may be valued at amortized cost, provided that amortized
cost represents the fair value of such securities.
3. 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
================================================================================
16 | USAA NASDAQ-100 INDEX FUND
================================================================================
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.
4. Repurchase agreements are valued at cost.
5. Investments in open-end investment companies, commingled, or other
funds, other than ETFs, are valued at their net asset value (NAV) at the
end of each business day and are categorized in Level 1 of the fair
value hierarchy.
6. Futures are valued at the settlement price at the close of market on
the principal exchange on which they are traded or, in the absence of
any transactions that day, the settlement price on the prior trading
date if it is within the spread between the closing bid and ask price
closest to the last reported sale price.
7. In the event that price quotations or valuations are not readily
available, are not reflective of market value, or a significant event
has been recognized in relation to a security or class of securities,
the securities are valued in good faith by the Committee in accordance
with valuation procedures approved by the Board. The effect of fair
value pricing is that securities may not be priced on the basis of
quotations from the primary market in which they are traded and the
actual price realized from the sale of a security may differ materially
from the fair value price. Valuing these securities at fair value is
intended to cause the Fund's NAV to be more reliable than it otherwise
would be.
Fair value methods used by the Manager include, but are not limited to,
obtaining market quotations from secondary pricing services,
broker-dealers, other pricing services, or widely used quotation
systems. General factors considered in determining the fair value of
securities include fundamental analytical data, the nature and duration
of any restrictions on disposition of the securities, evaluation of
credit quality, and an evaluation of the forces that influenced the
market in which the securities are purchased and sold.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 17
================================================================================
B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would
be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The
three-level valuation hierarchy disclosed in the Portfolio of Investments is
based upon the transparency of inputs to the valuation of an asset or
liability as of the measurement date. The three levels are defined as
follows:
Level 1 - inputs to the valuation methodology are quoted prices
(unadjusted) in active markets for identical securities.
Level 2 - inputs to the valuation methodology are other significant
observable inputs, including quoted prices for similar securities, inputs
that are observable for the securities, either directly or indirectly, and
market-corroborated inputs such as market indexes.
Level 3 - inputs to the valuation methodology are unobservable and
significant to the fair value measurement, including the Manager's own
assumptions in determining the fair value.
The inputs or methodologies used for valuing securities are not necessarily
an indication of the risks associated with investing in those securities.
C. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - The Fund may buy, sell,
and enter into certain types of derivatives, including, but not limited to,
futures contracts, options, and options on futures contracts, under
circumstances in which such instruments are expected by the portfolio
manager to aid in achieving the Fund's investment objective. The Fund also
may use derivatives in circumstances where the portfolio manager believes
they offer an economical means of gaining exposure to a particular asset
class or securities market or to keep cash on hand to meet shareholder
redemptions or other needs while maintaining exposure to the market. With
exchange-listed futures contracts and options, counterparty credit risk to
the Fund is limited to the exchange's clearinghouse which, as counterparty
to all exchange-traded futures contracts and options, guarantees the
transactions against default from the actual counterparty to the
transaction. The Fund's derivative
================================================================================
18 | USAA NASDAQ-100 INDEX FUND
================================================================================
agreements held at June 30, 2018, did not include master netting provisions.
FUTURES CONTRACTS - The Fund is subject to cash flow and tracking error risk
in the normal course of pursuing its investment objectives. The Fund may use
stock index futures contracts in an attempt to reduce any performance
discrepancies between the Fund and the Nasdaq-100 Index. 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 JUNE 30, 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 $1,278**
appreciation of
investments and
futures contracts
----------------------------------------------------------------------------------------------------
*For open derivative instruments as of June 30, 2018, see the Portfolio of
Investments.
**Includes cumulative appreciation/(depreciation) of futures as reported on
the Portfolio of Investments. Only the variation margin from the last
business day of the reporting period is reported within the Statement of
Assets and Liabilities.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 19
================================================================================
THE EFFECT OF DERIVATIVE INSTRUMENTS ON THE STATEMENT OF OPERATIONS FOR THE
SIX-MONTH PERIOD ENDED JUNE 30, 2018 (IN THOUSANDS)
CHANGE IN
UNREALIZED
DERIVATIVES NOT REALIZED APPRECIATION/
ACCOUNTED FOR AS STATEMENT OF GAIN (LOSS) (DEPRECIATION)
HEDGING INSTRUMENTS OPERATIONS LOCATION ON DERIVATIVES ON DERIVATIVES
------------------------------------------------------------------------------------------
Equity contracts Net realized gain on $5,072 $(1,533)
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 June 30, 2018, the Fund did not incur any
income tax, interest, or penalties, and has recorded no liability for net
unrecognized tax benefits relating to uncertain income tax positions. On an
ongoing basis, the Manager will monitor the Fund's tax basis to determine if
adjustments to this conclusion are necessary. The statute of limitations on
the Fund's tax return filings generally remain open for the three preceding
fiscal reporting year ends and remain subject to examination by the Internal
Revenue Service and state taxing authorities.
E. FOREIGN TAXATION - Foreign income and capital gains on some foreign
securities may be subject to foreign taxes, which are reflected as a
reduction to such income and realized gains. The Fund records a liability
based on unrealized gains to provide for potential foreign taxes payable
upon the sale of these securities. Foreign taxes have been provided for in
accordance with the Fund's understanding of the applicable countries'
prevailing tax rules and rates.
F. INVESTMENTS IN SECURITIES - Securities transactions are accounted for as
of the date the securities are purchased or sold (trade date). Gains or
losses from sales of investment securities are computed on the identified
cost
================================================================================
20 | USAA NASDAQ-100 INDEX FUND
================================================================================
basis. Dividend income, less foreign taxes, if any, is recorded on the ex-
dividend date. If the ex-dividend date has passed, certain dividends from
foreign securities are recorded upon notification. Interest income is
recorded daily on the accrual basis. Premiums and discounts on short-term
securities are amortized on a straight-line basis over the life of the
respective securities.
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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 21
================================================================================
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 June 30, 2018, the Fund paid CAPCO facility fees
of $7,000, which represents 2.3% of the total fees paid to CAPCO by the funds of
the Trusts. The Fund had no borrowings under this agreement during the six-month
period ended June 30, 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 December 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 December 31, 2017, the Fund had no capital loss carryforwards, for federal
income tax purposes. Net capital losses incurred after October 31, and within
the taxable year are deemed to arise on the first business day of the Fund's
next taxable year. For the year ended December 31, 2017, the Fund deferred to
January 1, 2018, post October capital losses of $2,430,000.
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities, excluding
short-term securities, for the six-month period ended June 30, 2018, were
$81,520,000 and $17,791,000, respectively.
As of June 30, 2018, the cost of securities, including short-term securities,
for federal income tax purposes, was approximately the same as the cost reported
in the financial statements.
================================================================================
22 | USAA NASDAQ-100 INDEX FUND
================================================================================
Gross unrealized appreciation and depreciation of investments as of June 30
2018, were $911,539,000 and $20,274,000, respectively, resulting in net
unrealized appreciation of $891,265,000.
(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, net of income retained by
Citibank. 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. Loans are terminable
upon demand and the borrower must return the loaned securities within the lesser
of one standard settlement period or five business days. 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 June 30, 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
----------------------------------------------------------------------------------
$20,074,000 $- $20,849,000
----------------------------------------------------------------------------------
================================================================================
NOTES TO FINANCIAL STATEMENTS | 23
================================================================================
(6) CAPITAL SHARE TRANSACTIONS
At June 30, 2018, there were an unlimited number of shares of capital stock at
no par value authorized for the Fund.
Capital share transactions for all classes were as follows, in thousands:
SIX-MONTH PERIOD ENDED YEAR ENDED
JUNE 30, 2018 DECEMBER 31, 2017
------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------
FUND SHARES:
Shares sold 14,693 $ 280,066 30,389 $ 492,063
Shares issued from
reinvested dividends - - 1,726 31,023
Shares redeemed (10,025) (190,024) (19,557) (314,990)
----------------------------------------------------
Net increase from capital
share transactions 4,668 $ 90,042 12,558 $ 208,096
====================================================
R6 SHARES
(COMMENCED ON MARCH 1, 2017):
Shares sold 352 $ 6,776 328 $ 5,017
Shares issued from
reinvested dividends - - -* -*
Shares redeemed (36) (692) -* (1)
----------------------------------------------------
Net increase from capital
share transactions 316 $ 6,084 328 $ 5,016
====================================================
*Represents less than 500 shares or $500.
(7) TRANSACTIONS WITH MANAGER
MANAGEMENT FEES - The Manager provides investment management services to the
Fund pursuant to an Advisory Agreement. Under this agreement, the Manager is
responsible for managing the business and affairs of the Fund. 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
================================================================================
24 | USAA NASDAQ-100 INDEX FUND
================================================================================
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 Fund's management fees are accrued daily and paid monthly at an annualized
rate of 0.20% of the Fund's average net assets. For the six-month period ended
June 30, 2018, the Fund incurred management fees, paid or payable to the
Manager, of $1,784,000.
SUBADVISORY ARRANGEMENT(S) - The Manager entered into an Investment Subadvisory
Agreement with NTI under which NTI directs the investment and reinvestment of
the Fund's assets (as allocated from time to time by the Manager). This
arrangement provides for monthly fees that are paid by the Manager.
The Manager (not the Fund) pays NTI a subadvisory fee equal to the greater of a
minimum annual fee of $50,000 or a fee at an annual rate equal to 0.06% of the
Fund's average net assets on amounts up to $100 million; 0.04% of net assets for
amounts over $100 million and up to $250 million; and 0.03% of net assets for
amounts over $250 million. For the six-month period ended June 30, 2018, the
Manager incurred subadvisory fees with respect to the Fund, paid or payable to
NTI, of $290,000.
ADMINISTRATION AND SERVICING FEES - The Manager provides certain administration
and servicing functions for the Fund. For such services, the Manager receives a
fee accrued daily and paid monthly at an annualized rate of 0.15% of average net
assets of the Fund Shares and 0.05% of average net assets of the R6 Shares. For
the six-month period ended June 30, 2018, the Fund Shares and R6 Shares incurred
administration and servicing fees, paid or payable to the Manager, of $1,331,000
and $2,000.
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 June 30, 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 25
================================================================================
EXPENSE LIMITATION - The Manager agreed, through April 30, 2019, to limit the
total annual operating expenses of the R6 Shares to 0.40% of its average annual
net assets, excluding extraordinary expenses and before reductions of any
expenses paid indirectly, and would reimburse the Fund for all expenses in
excess of that amount. This expense limitation arrangement may not be changed or
terminated through April 30, 2019, without approval of the Board, and may be
changed or terminated by the Manager at any time after that date. For the
six-month period ended June 30, 2018, the Fund incurred reimbursable expenses
from the Manager for the R6 Shares of $11,000, of which less than $500 was
receivable from the Manager.
TRANSFER AGENT'S FEES - USAA Transfer Agency Company, d/b/a USAA Shareholder
Account Services (SAS), an affiliate of the Manager, provides transfer agent
services to the Fund Shares based on an annual charge of $23 per shareholder
account plus out-of-pocket expenses. SAS pays a portion of these fees to certain
intermediaries for the administration and servicing of accounts that are held
with such intermediaries. Transfer agent's fees for R6 Shares are paid monthly
based on a fee accrued daily at an annualized rate of 0.01% of the R6 Shares'
average net assets, plus out-of-pocket expenses. For the six-month period ended
June 30, 2018, the Fund Shares and R6 Shares incurred transfer agent's fees,
paid or payable to SAS, of $800,000 and less than $500, respectively.
UNDERWRITING SERVICES - USAA Investment Management Company provides exclusive
underwriting and distribution of the Fund's shares on a continuing best-efforts
basis and receives no fee or other compensation for these services.
(8) TRANSACTIONS WITH AFFILIATES
The Manager is indirectly wholly owned by United Services Automobile Association
(USAA), a large, diversified financial services institution. At June 30, 2018,
USAA and its affiliates owned 327,000 R6 Shares, which represents 50.7% of the
R6 Shares outstanding and 0.3% of the Fund's total outstanding shares.
Certain trustees and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Fund.
================================================================================
26 | USAA NASDAQ-100 INDEX 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 | 27
================================================================================
FINANCIAL HIGHLIGHTS
FUND SHARES (UNAUDITED)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------
2018 2017 2016 2015 2014 2013
-------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 17.89 $ 13.79 $ 12.99 $ 12.23 $ 10.32 $ 7.61
-------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income .05 .07 .09 .08(a) .09 .06
Net realized and
unrealized gain 1.81 4.38 .78 1.04(a) 1.85 2.68
-------------------------------------------------------------------------------------
Total from investment
operations 1.86 4.45 .87 1.12(a) 1.94 2.74
-------------------------------------------------------------------------------------
Less distributions from:
Net investment income - (.08) (.07) (.08) (.03) (.03)
Realized capital gains - (.27) - (.28) - -
-------------------------------------------------------------------------------------
Total distributions - (.35) (.07) (.36) (.03) (.03)
-------------------------------------------------------------------------------------
Net asset value at
end of period $ 19.75 $ 17.89 $ 13.79 $ 12.99 $ 12.23 $ 10.32
=====================================================================================
Total return (%)* 10.40 32.29 6.68 9.09 18.75 36.00
Net assets at
end of period (000) $1,884,252 $1,623,579 $1,078,319 $935,004 $706,604 $460,689
Ratios to average
net assets:**
Expenses (%)(e) .48(d) .51 .53 .57 .59 .64(b),(c)
Expenses, excluding
reimbursements (%)(e) .48(d) .51 .53 .57 .59 .64(b)
Net investment income (%) .60(d) .60 .77 .62 1.04 .77
Portfolio turnover (%) 1 5 4 10 6 11
* Assumes reinvestment of all net investment income and realized capital
gain distributions, if any, during the period. Includes adjustments in
accordance with U.S. generally accepted accounting principles and could
differ from the Lipper reported return. Total returns for periods of less
than one year are not annualized.
** For the six-month period ended June 30, 2018, average net assets were
$1,791,349,000.
(a) Calculated using average shares.
(b) Reflects total annual operating expenses of the Fund Shares before
reductions of any expenses paid indirectly. The Fund Shares' expenses paid
indirectly decreased the expense ratios by less than 0.01%.
(c) Prior to May 1, 2013, the Manager had voluntarily agreed to limit the
annual expenses of the Fund Shares to 0.78% of the Fund Shares' average net
assets.
(d) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(e) Does not include acquired fund fees, if any.
================================================================================
28 | USAA NASDAQ-100 INDEX FUND
================================================================================
R6 SHARES (UNAUDITED)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED PERIOD ENDED
JUNE 30, DECEMBER 31,
------------------------------------------
2018 2017***
------------------------------------------
Net asset value at beginning of period $ 17.89 $15.31
---------------------------------------
Income from investment operations:
Net investment income .06 .08
Net realized and unrealized gain 1.81 2.87
---------------------------------------
Total from investment operations 1.87 2.95
---------------------------------------
Less distributions from:
Net investment income - (.10)
Realized capital gains - (.27)
---------------------------------------
Total distributions - (.37)
---------------------------------------
Net asset value at end of period $ 19.76 $17.89
=======================================
Total return (%)* 10.45 19.27
Net assets at end of period (000) $ 12,719 $5,860
Ratios to average net assets:**
Expenses (%)(a),(b) .40 .40
Expenses, excluding reimbursements (%)(a),(b) .62 1.01
Net investment income (%)(a) .66 .66
Portfolio turnover (%) 1 5
* Assumes reinvestment of all net investment income and realized
capital gain distributions, if any, during the period. Includes
adjustments in accordance with U.S. generally accepted accounting
principles and could differ from the Lipper reported return. Total
returns for periods of less than one year are not annualized.
** For the six-month period ended June 30, 2018, average net assets
were $9,683,000.
*** R6 Shares commenced operations on March 1, 2017.
(a) Annualized. The ratio is not necessarily indicative of 12 months
of operations.
(b) Does not include acquired fund fees, if any.
================================================================================
FINANCIAL HIGHLIGHTS | 29
================================================================================
EXPENSE EXAMPLE
June 30, 2018 (unaudited)
--------------------------------------------------------------------------------
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: direct costs, such
as wire fees, redemption fees, and low balance fees; and indirect costs,
including management fees, transfer agency fees, and other Fund operating
expenses. This example is intended to help you understand your indirect costs,
also referred to as "ongoing costs" (in dollars), of investing in the Fund and
to compare these costs with the ongoing costs of investing in other mutual
funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire six-month period of January 1, 2018, through June
30, 2018.
ACTUAL EXPENSES
The line labeled "actual" under each share class in the table provides
information about actual account values and actual expenses. You may use the
information in this line, together with the amount you invested at the beginning
of the period, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number 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.
================================================================================
30 | USAA NASDAQ-100 INDEX FUND
================================================================================
The hypothetical account values and expenses may not be used to estimate the
actual ending account balance or expenses you paid for the period. You may use
this information to compare the ongoing costs of investing in the Fund and other
funds. To do so, compare this 5% hypothetical example with the 5% hypothetical
examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any direct costs, such as wire fees,
redemption fees, or low balance fees. Therefore, the line labeled "hypothetical"
is useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if these direct
costs were included, your costs would have been higher.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE JANUARY 1, 2018 -
JANUARY 1, 2018 JUNE 30, 2018 JUNE 30, 2018
--------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $1,104.00 $2.50
Hypothetical
(5% return before expenses) 1,000.00 1,022.41 2.41
R6 SHARES
Actual 1,000.00 1,104.50 2.09
Hypothetical
(5% return before expenses) 1,000.00 1,022.81 2.01
*Expenses are equal to the annualized expense ratio of 0.48% for Fund Shares
and 0.40% for R6 Shares, which are net of any reimbursements and expenses paid
indirectly, multiplied by the average account value over the period, multiplied
by 181 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 10.40% for Fund
Shares and 10.45% for R6 Shares for the six-month period of January 1, 2018,
through June 30, 2018.
================================================================================
EXPENSE EXAMPLE | 31
================================================================================
ADVISORY AGREEMENT(S)
June 30, 2018 (unaudited)
--------------------------------------------------------------------------------
At an in-person meeting of the Board of Trustees (the Board) held on April 18,
2018, the Board, including the Trustees who are not "interested persons" (as
that term is defined in the Investment Company Act of 1940, as amended) of the
Trust (the Independent Trustees), approved for an annual period the continuance
of the Advisory Agreement between the Trust and the Manager with respect to the
Fund and the Subadvisory Agreement between the Manager and Northern Trust
Investments, Inc. (the Subadviser) with respect to the Fund.
In advance of the meeting, the Trustees received and considered a variety of
information relating to the Advisory Agreement and Subadvisory Agreement and
the Manager and the Subadviser, and were given the opportunity to ask questions
and request additional information from management. The information provided to
the Board included, among other things: (i) a separate report prepared by an
independent third party, which provided a statistical analysis comparing the
Fund's investment performance, expenses, and fees to comparable investment
companies; (ii) information concerning the services rendered to the Fund, as
well as information regarding the Manager's revenues and costs of providing
services to the Fund and compensation paid to affiliates of the Manager; and
(iii) information about the Manager's and Subadviser's operations and
personnel. Prior to voting, the Independent Trustees reviewed the proposed
continuance of the Advisory Agreement and the Subadvisory Agreement with
management and with experienced counsel retained by the Independent Trustees
(Independent Counsel) and received materials from such Independent Counsel
discussing the legal standards for their consideration of the proposed
continuation of the Advisory Agreement and the Subadvisory Agreement with
respect to the Fund. The Independent Trustees also reviewed the proposed
continuation of the Advisory Agreement and the Subadvisory Agreement with
respect to the
================================================================================
32 | USAA NASDAQ-100 INDEX FUND
================================================================================
Fund in private sessions with Independent Counsel at which no representatives
of management were present.
The Board considered the Advisory Agreement and the Subadvisory Agreement
separately in the course of its review. In doing so, the Board noted the
respective roles of the Manager and the Subadviser in providing services to the
Fund.
At each regularly scheduled meeting of the Board and its committees, the Board
receives and reviews, among other things, information concerning the Fund's
performance and related services provided by the Manager and by the Subadviser.
At the meeting at which the renewal of the Advisory Agreement and Subadvisory
Agreement is considered, particular focus is given to information concerning
Fund performance, fees and total expenses as compared to comparable investment
companies, and the Manager's profitability with respect to the Fund. However,
the Board noted that the evaluation process with respect to the Manager and the
Subadviser is an ongoing one. In this regard, the Board's and its committees'
consideration of the Advisory Agreement and Subadvisory Agreement included
certain information previously received at such meetings.
ADVISORY AGREEMENT
After full consideration of a variety of factors, the Board, including the
Independent Trustees, voted to approve the Advisory Agreement. In approving the
Advisory Agreement, the Trustees did not identify any single factor as
controlling, and each Trustee may have attributed different weights to various
factors. Throughout their deliberations, the Independent Trustees were
represented and assisted by Independent Counsel.
NATURE, EXTENT, AND QUALITY OF SERVICES - In considering the nature, extent,
and quality of the services provided by the Manager under the Advisory
Agreement, the Board reviewed information provided by the Manager relating to
its operations and personnel. The Board also took into account its knowledge of
the Manager's management and the quality of the performance of the Manager's
duties through Board meetings, discussions, and reports during the preceding
year. The Board considered the fees paid to the Manager and the services
provided to the Fund by the Manager under
================================================================================
ADVISORY AGREEMENT(S) | 33
================================================================================
the Advisory Agreement, as well as other services provided by the Manager and
its affiliates under other agreements, and the personnel who provide these
services. In addition to the investment advisory services provided to the Fund,
the Manager and its affiliates provide administrative services, shareholder
services, oversight of Fund accounting, marketing services, assistance in
meeting legal and regulatory requirements, and other services necessary for the
operation of the Fund and the Trust.
The Board also considered the significant risks assumed by the Manager in
connection with the services provided to the Fund, including investment,
operational, enterprise, litigation, regulatory and compliance risks.
The Board considered the Manager's management style and the performance of the
Manager's duties under the Advisory Agreement. The Board considered the level
and depth of knowledge of the Manager, including the professional experience
and qualifications of senior personnel, as well as current staffing levels. The
Board discussed the Manager's effectiveness in monitoring the performance of
the Subadviser and its timeliness in responding to performance issues. The
allocation of the Fund's brokerage, including the Manager's process for
monitoring "best execution," was also considered. The Manager's role in
coordinating the activities of the Fund's other service providers also was
considered. The Board also considered the Manager's risk management processes.
The Board considered the Manager's financial condition and that it had the
financial wherewithal to continue to provide the same scope and high quality of
services under the Advisory Agreement. In reviewing the Advisory Agreement, the
Board focused on the experience, resources, and strengths of the Manager and
its affiliates in managing the Fund, as well as the other funds in the Trust.
The Board also reviewed the compliance and administrative services provided to
the Fund by the Manager and its affiliates, including the Manager's oversight
of the Fund's day-to-day operations and oversight of Fund accounting. The
Trustees, guided also by information obtained from their experiences as
trustees of the Trust, also focused on the quality of the Manager's compliance
and administrative staff.
================================================================================
34 | USAA NASDAQ-100 INDEX FUND
================================================================================
EXPENSES AND PERFORMANCE - In connection with its consideration of the Advisory
Agreement, the Board evaluated the Fund's advisory fees and total expense ratio
as compared to other open-end investment companies deemed to be comparable to
the Fund as determined by the independent third party in its report. The Fund's
expenses were compared to (i) a group of investment companies chosen by the
independent third party to be comparable to the Fund based upon certain
factors, including fund type, comparability of investment objectives and
classifications, sales load type (in this case, retail investment companies
with front-end loads and no sales loads), asset size, and expense components
(the "expense group") and (ii) a larger group of investment companies that
includes all front-end and no-load retail open-end investment companies with
similar investment classifications/objectives as the Fund regardless of asset
size, excluding outliers (the "expense universe"). Among other data, the Board
noted that the Fund's management fee rate - which includes advisory and
administrative services - was below the median of its expense group and its
expense universe. The data indicated that the Fund's total expenses were at or
below the median of its expense group and its expense universe. The Board took
into account the various services provided to the Fund by the Manager and its
affiliates, including the nature and high quality of the services provided by
the Manager. The Board also considered the level of correlation between the
Nasdaq-100 Index and the Fund and the relatively low tracking error between the
Fund and the index and noted that it reviews such information on a quarterly
basis. The Board also noted the level and method of computing the management
fee. The Trustees also took into account that the subadvisory fees under the
Subadvisory Agreement are paid by the Manager. The Board also considered and
discussed information about the Subadviser's fees, including the amount of
management fees retained by the Manager after payment of the subadvisory fee.
In considering the Fund's performance, the Board noted that it reviews at its
regularly scheduled meetings information about the Fund's performance results.
The Trustees also reviewed various comparative data provided to them in
connection with their consideration of the renewal of the Advisory Agreement,
including, among other information, a comparison of the
================================================================================
ADVISORY AGREEMENT(S) | 35
================================================================================
Fund's average annual total return with its Lipper index and with that of other
mutual funds deemed to be in its peer group by the independent third party in
its report (the "performance universe"). The Fund's performance universe
consisted of the Fund and all retail and institutional open-end investment
companies with similar classifications/objectives as the Fund regardless of
asset size or primary channel of distribution. This comparison indicated that,
among other data, the Fund's performance was above the average of its
performance universe and its Lipper index for the one-, three-, five-, and
ten-year periods ended December 31, 2017. The Board also noted that the Fund's
percentile performance ranking was in the top 25% of its performance universe
for the one-year period ended December 31, 2017 and was in the top 5% of its
performance universe for the three-, five-, and ten-year periods ended
December 31, 2017.
COMPENSATION AND PROFITABILITY - The Board took into consideration the level
and method of computing the management fee. The information considered by the
Board included operating profit margin information for the Manager's business
as a whole. The Board also received and considered profitability information
related to the management revenues from the Fund. This information included a
review of the methodology used in the allocation of certain costs to the Fund.
In considering the profitability data with respect to the Fund, the Trustees
noted that the Manager pays the Fund's subadvisory fees. The Trustees reviewed
the profitability of the Manager's relationship with the Fund before tax
expenses. In reviewing the overall profitability of the management fee to the
Manager, the Board also considered the fact that affiliates provide shareholder
servicing and administrative services to the Fund for which they receive
compensation. The Board also considered the possible direct and indirect
benefits to the Manager from its relationship with the Trust, including that
the Manager may derive reputational and other benefits from its association
with the Fund. The Trustees recognized that the Manager should be able to earn
a reasonable level of profits in exchange for the level of services it provides
to the Fund and the entrepreneurial risk that it assumes as Manager.
ECONOMIES OF SCALE - The Board considered whether there should be changes in
the management fee rate or structure in order to enable the Fund to
================================================================================
36 | USAA NASDAQ-100 INDEX FUND
================================================================================
participate in any economies of scale. The Board took into account management's
discussion of the Fund's current advisory fee structure. The Board also noted
that if the Fund's assets increase over time, the Fund may realize other
economies of scale if assets increase proportionally more than some expenses.
The Board also considered the fact that the Manager pays the Fund's subadvisory
fees. The Board determined that the current investment management fee structure
was reasonable.
CONCLUSIONS - The Board reached the following conclusions regarding the Fund's
Advisory Agreement with the Manager, among others: (i) the Manager has
demonstrated that it possesses the capability and resources to perform the
duties required of it under the Advisory Agreement; (ii) the Manager maintains
an appropriate compliance program; (iii) the performance of the Fund is
reasonable in relation to the performance of funds with similar investment
objectives and to relevant indices; (iv) the Fund's advisory expenses are
reasonable in relation to those of similar funds and to the services to be
provided by the Manager; and (v) the Manager's and its affiliates' level of
profitability from its relationship with the Fund, if any, is reasonable in
light of the nature and high quality of services provided by the Manager and
the type of fund. Based on its conclusions, the Board determined that
continuation of the Advisory Agreement would be in the best interests of the
Fund and its shareholders.
SUBADVISORY AGREEMENT
In approving the Fund's Subadvisory Agreement, the Board considered various
factors, among them: (i) the nature, extent, and quality of services provided
to the Fund, including the personnel providing services; (ii) the Subadviser's
compensation and any other benefits derived from the subadvisory relationship;
(iii) comparisons, to the extent applicable, of subadvisory fees and
performance to comparable investment companies; and (iv) the terms of the
Subadvisory Agreement. The Board's analysis of these factors is set forth
below. After full consideration of a variety of factors, the Board, including
the Independent Trustees, voted to approve the Subadvisory Agreement. In
approving the Subadvisory Agreement, the Trustees did not identify any single
factor as controlling, and each Trustee may have attributed different weights
to various factors.
================================================================================
ADVISORY AGREEMENT(S) | 37
================================================================================
Throughout their deliberations, the Independent Trustees were represented and
assisted by Independent Counsel.
NATURE, EXTENT, AND QUALITY OF SERVICES PROVIDED; INVESTMENT PERSONNEL - The
Trustees considered information provided to them regarding the services
provided by the Subadviser, including information presented periodically
throughout the previous year. The Board considered the Subadviser's level of
knowledge and investment style. The Board reviewed the experience and
credentials of the investment personnel who are responsible for managing the
investment of portfolio securities with respect to the Fund and the
Subadviser's level of staffing. The Trustees considered, based on the materials
provided to them by the Subadviser, whether the method of compensating
portfolio managers is reasonable and includes mechanisms to prevent a manager
with underperformance from taking undue risks. The Trustees also noted the
Subadviser's brokerage practices. The Board also considered the Subadviser's
regulatory and compliance history. The Board also took into account the
Subadviser's risk management processes. The Board noted that the Manager's
monitoring processes of the Subadviser include, among others: (i) regular
telephonic meetings to discuss, among other matters, investment strategies and
to review portfolio performance; (ii) monthly portfolio compliance checklists
and quarterly compliance certifications to the Board; and (iii) due diligence
visits to the Subadviser.
SUBADVISER COMPENSATION - The Board also took into consideration the financial
condition of the Subadviser. In considering the cost of services to be provided
by the Subadviser and the profitability to the Subadviser of its relationship
with the Fund, the Trustees noted that the fees under the Subadvisory Agreement
were paid by the Manager. The Trustees also relied on the ability of the
Manager to negotiate the Subadvisory Agreement and the fees thereunder at arm's
length. For the above reasons, the Board determined that the profitability of
the Subadviser from its relationship with the Fund was not a material factor in
its deliberations with respect to the consideration of the approval of the
Subadvisory Agreement. For similar reasons, the Board concluded that the
potential for economies of scale in the Subadviser's management of the Fund was
not a material factor in considering the Subadvisory Agreement, although the
Board noted that the Subadvisory Agreement contains breakpoints in its fee
schedule.
================================================================================
38 | USAA NASDAQ-100 INDEX FUND
================================================================================
SUBADVISORY FEES AND FUND PERFORMANCE - The Board compared the subadvisory fees
for the Fund with the fees that the Subadviser charges to comparable clients,
as applicable. The Board considered that the Fund pays a management fee to the
Manager and that, in turn, the Manager pays a subadvisory fee to the
Subadviser. As noted above, the Board considered, among other data, the Fund's
performance during the one-, three-, five-, and ten-year periods ended December
31, 2017, as compared to the Fund's respective peer group and noted that the
Board reviews at its regularly scheduled meetings information about the Fund's
performance results. The Board noted the Manager's experience and resources in
monitoring the performance, investment style, and risk-adjusted performance of
the Subadviser.
CONCLUSIONS - The Board reached the following conclusions regarding the
Subadvisory Agreement, among others: (i) the Subadviser is qualified to manage
the Fund's assets in accordance with its investment objectives and policies;
(ii) the Subadviser maintains an appropriate compliance program; (iii) the
performance of the Fund is reasonable in relation to the performance of funds
with similar investment objectives and to relevant indices; and (iv) the Fund's
advisory expenses are reasonable in relation to those of similar funds and to
the services to be provided by the Manager and the Subadviser. Based on its
conclusions, the Board determined that approval of the Subadvisory Agreement
with respect to the Fund would be in the best interests of the Fund and its
shareholders.
================================================================================
ADVISORY AGREEMENT(S) | 39
================================================================================
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Jefferson C. Boyce
Dawn M. Hawley
Paul L. McNamara
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
--------------------------------------------------------------------------------
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
--------------
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================================================================================
37758-0818 (C)2018, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA REAL RETURN FUND]
============================================================
SEMIANNUAL REPORT
USAA REAL RETURN FUND
FUND SHARES (USRRX) o INSTITUTIONAL SHARES (UIRRX)
JUNE 30, 2018
============================================================
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
INVESTMENT OVERVIEW 1
FINANCIAL INFORMATION
Portfolio of Investments 2
Notes to Portfolio of Investments 5
Financial Statements 7
Notes to Financial Statements 10
Financial Highlights 24
EXPENSE EXAMPLE 28
ADVISORY AGREEMENT(S) 30
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE
RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY
USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN
PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS
ABOUT THE FUND.
IRA DISTRIBUTION WITHHOLDING DISCLOSURE
We generally must withhold federal income tax at a rate of 10% of the taxable
portion of your distribution and, if you live in a state that requires state
income tax withholding, at your state's tax rate. However, you may elect not to
have withholding apply or to have income tax withheld at a higher rate. Any
withholding election that you make will apply to any subsequent distribution
unless and until you change or revoke the election. If you wish to make a
withholding election or change or revoke a prior withholding election, call
(800) 531-USAA (8722) or (210) 531-8722.
If you do not have a withholding election in place by the date of a
distribution, federal income tax will be withheld from the taxable portion of
your distribution at a rate of 10%. If you must pay estimated taxes, you may be
subject to estimated tax penalties if your estimated tax payments are not
sufficient and sufficient tax is not withheld from your distribution.
For more specific information, please consult your tax adviser.
(C)2018, USAA. All rights reserved.
================================================================================
================================================================================
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
o TOP 10 HOLDINGS* - 6/30/18 o
(% of Net Assets)
iShares Core Dividend Growth ETF 11.4%
iShares Core U.S. REIT ETF 8.4%
Invesco Optimum Yield Diversified
Commodity Strategy No K-1 ETF 7.0%
United States Commodity Index Fund 5.8%
U.S. Treasury Inflation-Indexed
Note, 0.63%, 7/15/2021 5.5%
U.S. Treasury Inflation-Indexed
Note, 0.13%, 1/15/2023 5.4%
iShares Core MSCI Emerging Markets ETF 4.2%
iShares TIPS Bond ETF 4.0%
ProShares S&P 500 Dividend
Aristocrats ETF "A" 4.0%
U.S. Treasury Inflation-Indexed
Note, 1.3%, 7/15/2020 3.6%
*Does not include money market instruments and short-term investments purchased
with cash collateral from securities loaned.
Refer to the Portfolio of Investments for a complete list of securities.
================================================================================
INVESTMENT OVERVIEW | 1
================================================================================
PORTFOLIO OF INVESTMENTS
June 30, 2018 (unaudited)
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
BONDS (48.1%)
EXCHANGE-TRADED FUNDS (8.0%)
9,740 iShares iBoxx High Yield Corporate Bond ETF(a) $ 829
17,100 iShares iBoxx $ Investment Grade Corporate Bond ETF 1,959
24,330 iShares TIPS Bond ETF 2,746
-------
Total Exchange-Traded Funds (cost: $5,643) 5,534
-------
----------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT
(000)
----------------------------------------------------------------------------------------------------------
U.S. TREASURY SECURITIES (40.1%)
INFLATION-INDEXED NOTES (40.1%)
$ 2,206 0.13%, 1/15/2022 2,168
1,737 0.13%, 7/15/2022 1,709
3,815 0.13%, 1/15/2023 3,731
1,539 0.13%, 7/15/2024 1,496
1,076 0.38%, 7/15/2023 1,067
3,805 0.63%, 7/15/2021 3,820
1,096 0.63%, 1/15/2024 1,095
185 0.63%, 2/15/2043 176
2,202 1.13%, 1/15/2021 2,231
2,487 1.25%, 7/15/2020 2,527
1,553 1.38%, 1/15/2020 1,571
1,037 1.88%, 7/15/2019 1,054
1,275 2.13%, 2/15/2040 1,605
915 2.13%, 2/15/2041 1,160
1,998 2.50%, 1/15/2029 2,350
-------
Total U.S. Treasury Securities (cost: $27,560) 27,760
-------
Total Bonds (cost: $33,203) 33,294
-------
================================================================================
2 | USAA REAL RETURN FUND
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
U.S. EQUITY SECURITIES (16.0%)
EXCHANGE-TRADED FUNDS (16.0%)
8,000 Invesco KBW Bank ETF $ 429
230,500 iShares Core Dividend Growth ETF(a) 7,902
44,000 ProShares S&P 500 Dividend Aristocrats ETF "A" 2,743
-------
Total Exchange-Traded Funds (cost: $8,435) 11,074
-------
Total U.S. Equity Securities (cost: $8,435) 11,074
-------
PRECIOUS METALS AND COMMODITY-RELATED SECURITIES (15.7%)
EXCHANGE-TRADED FUNDS (15.7%)
45,200 First Trust Global Tactical Commodity Strategy Fund 935
261,800 Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF 4,833
22,000 SPDR S&P Oil & Gas Exploration & Production ETF(a) 947
91,300 United States Commodity Index Fund(b) 3,992
5,800 VanEck Vectors Oil Services ETF(a) 152
-------
Total Exchange-Traded Funds (cost: $9,898) 10,859
-------
Total Precious Metals and Commodity-Related Securities (cost: $9,898) 10,859
-------
INTERNATIONAL EQUITY SECURITIES (11.1%)
EXCHANGE-TRADED FUNDS (11.1%)
45,000 Invesco FTSE RAFI Emerging Markets ETF 930
55,200 iShares Core MSCI Emerging Markets ETF 2,899
24,600 iShares Edge MSCI Min Vol Emerging Markets ETF 1,423
8,300 SPDR S&P Emerging Markets SmallCap ETF 394
10,704 WisdomTree Emerging Markets High Dividend Fund 459
11,600 WisdomTree Emerging Markets Local Debt Fund 399
9,100 WisdomTree Emerging Markets SmallCap Dividend Fund 434
29,700 WisdomTree India Earnings Fund 747
-------
Total Exchange-Traded Funds (cost: $6,590) 7,685
-------
Total International Equity Securities (cost: $6,590) 7,685
-------
GLOBAL REAL ESTATE EQUITY SECURITIES (8.4%)
EXCHANGE-TRADED FUNDS (8.4%)
118,500 iShares Core U.S. REIT ETF(a) (cost: $5,886) 5,824
-------
Total Global Real Estate Equity Securities (cost: $5,886) 5,824
-------
MONEY MARKET INSTRUMENTS (0.4%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (0.4%)
298,945 State Street Institutional Treasury Money Market Fund
Premier Class, 1.74%(c) (cost: $299) 299
-------
================================================================================
PORTFOLIO OF INVESTMENTS | 3
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS PURCHASED WITH CASH
COLLATERAL FROM SECURITIES LOANED (3.6%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (3.6%)
72,800 Fidelity Government Portfolio Class I, 1.79%(c) $ 73
506,860 Goldman Sachs Financial Square Government Fund Institutional Class, 1.84%(c) 507
1,606,719 Invesco Government & Agency Portfolio Institutional Class, 1.83%(c) 1,607
270,471 Western Asset Institutional Government Reserves Institutional Class, 1.80%(c) 270
-------
Total Short-Term Investments Purchased with Cash Collateral from
Securities Loaned (cost: $2,457) 2,457
-------
TOTAL INVESTMENTS (COST: $66,768) $71,492
=======
----------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
----------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
----------------------------------------------------------------------------------------------------------
Bonds:
Exchange-Traded Funds $ 5,534 $- $- $ 5,534
U.S. Treasury Securities 27,760 - - 27,760
U.S. Equity Securities:
Exchange-Traded Funds 11,074 - - 11,074
Precious Metals and Commodity-Related
Securities:
Exchange-Traded Funds 10,859 - - 10,859
International Equity Securities:
Exchange-Traded Funds 7,685 - - 7,685
Global Real Estate Equity Securities:
Exchange-Traded Funds 5,824 - - 5,824
Money Market Instruments:
Government & U.S. Treasury
Money Market Funds 299 - - 299
Short-Term Investments Purchased with
Cash Collateral from Securities Loaned:
Government & U.S. Treasury Money
Market Funds 2,457 - - 2,457
----------------------------------------------------------------------------------------------------------
Total $71,492 $- $- $71,492
----------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
For the period of January 1, 2018, through June 30, 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.
================================================================================
4 | USAA REAL RETURN FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
June 30, 2018 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
Market values of securities are determined by procedures and practices
discussed in Note 1A to the financial statements.
The Portfolio of Investments category percentages shown represent the
percentages of the investments to net assets, and, in total, may not equal
100%. A category percentage of 0.0% represents less than 0.1% of net assets.
Investments in foreign securities were 11.1% of net assets at June 30, 2018.
The Fund may rely on certain Securities and Exchange Commission (SEC)
exemptive orders or rules that permit funds meeting various conditions to
invest in an exchange-traded fund (ETF) in amounts exceeding limits set
forth in the Investment Company Act of 1940, as amended, that would
otherwise be applicable.
o CATEGORIES AND DEFINITIONS
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 | 5
================================================================================
o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS
REIT 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.
TIPS U.S. Treasury Inflation-Protected Securities
o SPECIFIC NOTES
(a) The security, or a portion thereof, was out on loan as of June 30, 2018.
(b) Non-income-producing security.
(c) Rate represents the money market fund annualized seven-day yield at June
30, 2018.
See accompanying notes to financial statements.
================================================================================
6 | USAA REAL RETURN FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
June 30, 2018 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value
(including securities on loan of $2,403) (cost of $66,768) $ 71,492
Receivables:
Capital shares sold 4
USAA Asset Management Company (Note 7) 2
Dividends and interest 210
Other 5
--------
Total assets 71,713
--------
LIABILITIES
Payables:
Upon return of securities loaned 2,457
Capital shares redeemed 7
Accrued management fees 29
Accrued transfer agent's fees 3
Other accrued expenses and payables 41
--------
Total liabilities 2,537
--------
Net assets applicable to capital shares outstanding $ 69,176
========
NET ASSETS CONSIST OF:
Paid-in capital $109,712
Accumulated undistributed net investment income 713
Accumulated net realized loss on investments (45,973)
Net unrealized appreciation of investments 4,724
--------
Net assets applicable to capital shares outstanding $ 69,176
========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $21,420/2,037 capital shares
outstanding, no par value) $ 10.51
========
Institutional Shares (net assets of $47,756/4,537 capital shares
outstanding, no par value) $ 10.53
========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 7
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended June 30, 2018 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends $ 393
Interest 486
Securities lending (net) 27
-------
Total income 906
-------
EXPENSES
Management fees 173
Administration and servicing fees:
Fund Shares 16
Institutional Shares 24
Transfer agent's fees:
Fund Shares 29
Institutional Shares 24
Custody and accounting fees:
Fund Shares 11
Institutional Shares 23
Postage:
Fund Shares 2
Shareholder reporting fees:
Fund Shares 5
Trustees' fees 19
Registration fees:
Fund Shares 5
Institutional Shares 4
Professional fees 15
Other 10
-------
Total expenses 360
Expenses reimbursed:
Fund Shares (28)
Institutional Shares (10)
-------
Net expenses 322
-------
NET INVESTMENT INCOME 584
-------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain 33
Change in net unrealized appreciation/(depreciation) (1,010)
-------
Net realized and unrealized loss (977)
-------
Decrease in net assets resulting from operations $ (393)
=======
See accompanying notes to financial statements.
================================================================================
8 | USAA REAL RETURN FUND
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended June 30, 2018 (unaudited), and year ended December 31,
2017
-----------------------------------------------------------------------------------------------------
6/30/2018 12/31/2017
-----------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 584 $ 920
Net realized gain on investments 33 1,635
Change in net unrealized
appreciation/(depreciation) of investments (1,010) 3,080
--------------------------
Increase (decrease) in net assets resulting from operations (393) 5,635
--------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares - (239)
Institutional Shares - (552)
--------------------------
Distributions to shareholders - (791)
--------------------------
NET DECREASE IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS (NOTE 6)
Fund Shares (1,030) (3,536)
Institutional Shares (4) (751)
--------------------------
Total net decrease in net assets from
capital share transactions (1,034) (4,287)
--------------------------
Net increase (decrease) in net assets (1,427) 557
NET ASSETS
Beginning of period 70,603 70,046
--------------------------
End of period $69,176 $70,603
==========================
Accumulated undistributed net investment income:
End of period $ 713 $ 129
==========================
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 9
================================================================================
NOTES TO FINANCIAL STATEMENTS
June 30, 2018 (unaudited)
--------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company Act
of 1940, as amended (the 1940 Act), is an open-end management investment company
organized as a Delaware statutory trust consisting of 50 separate funds. The
USAA Real Return 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
non-diversified under the 1940 Act. The Fund's investment objective is to seek a
total return that exceeds the rate of inflation over an economic cycle.
On June 14, 2018, the Trust's Board of Trustees (the Board) approved a Plan of
Liquidation and Dissolution for the Fund pursuant to which the Fund will be
liquidated on or about August 17, 2018. In approving the liquidation, the Board
determined that the liquidation of the Fund is in the best interest of the Fund
and its shareholders. Effective the close of business on June 15, 2018, the Fund
was closed to new investors.
As a non-diversified fund, the Fund may invest a greater percentage of its
assets in a single issuer, such as a single stock or bond. Because a relatively
high percentage of the Fund's total assets may be invested in the securities of
a single issuer or a limited number of issuers, the securities of the Fund may
be more sensitive to changes in the market value of a single issuer, a limited
number of issuers, or large companies generally. Such a focused investment
strategy may increase the volatility of the Fund's investment results because
the Fund may be more susceptible to risk associated with a single economic,
political, or regulatory event than a diversified fund.
The Fund consists of two classes of shares: Real Return Fund Shares (Fund
Shares) and Real Return Fund Institutional Shares (Institutional Shares).
================================================================================
10 | USAA REAL RETURN FUND
================================================================================
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).
A. SECURITY VALUATION - The Board has established the Valuation and Liquidity
Committee (the Committee), and subject to Board oversight, the Committee
administers and oversees the Fund's valuation policies and procedures, which
are approved by the Board. Among other things, these policies and procedures
allow the Fund to utilize independent pricing services, quotations from
securities dealers, and a wide variety of sources and information to
establish and adjust the fair value of securities as events occur and
circumstances warrant.
The Committee reports to the Board on a quarterly basis and makes
recommendations to the Board as to pricing methodologies and services used
by the Fund and presents additional information to the Board regarding
application of the pricing and fair valuation policies and procedures during
the preceding quarter.
The Committee meets as often as necessary to make pricing and fair value
determinations. In addition, the Committee holds regular monthly meetings to
review prior actions taken by the Committee and USAA Asset Management
Company (the Manager), an affiliate of the Fund. Among other things, these
monthly meetings include a review and
================================================================================
NOTES TO FINANCIAL STATEMENTS | 11
================================================================================
analysis of backtesting reports, pricing service quotation comparisons,
illiquid securities and fair value determinations, pricing movements, and
daily stale price monitoring.
The value of each security is determined (as of the close of trading on the
New York Stock Exchange (NYSE) on each business day the NYSE is open) as set
forth below:
1. Equity securities, including exchange-traded funds (ETFs), except as
otherwise noted, traded primarily on a domestic securities exchange or
the over-the-counter markets, are valued at the last sales price or
official closing price on the exchange or primary market on which they
trade. Securities traded primarily on foreign securities exchanges or
markets are valued at the last quoted sale price, or the most recently
determined official closing price calculated according to local market
convention, available at the time the Fund is valued. If no last sale
or official closing price is reported or available, the average of the
bid and ask prices generally is used. Actively traded equity securities
listed on a domestic exchange generally are categorized in Level 1 of
the fair value hierarchy. Certain preferred and equity securities
traded in inactive markets generally are categorized in Level 2 of the
fair value hierarchy.
2. Equity securities trading in various foreign markets may take place on
days when the NYSE is closed. Further, when the NYSE is open, the
foreign markets may be closed. Therefore, the calculation of the Fund's
net asset value (NAV) may not take place at the same time the prices of
certain foreign securities held by the Fund are determined. In many
cases, events affecting the values of foreign securities that occur
between the time of their last quoted sale or official closing price
and the close of normal trading on the NYSE on a day the Fund's NAV is
calculated will not need to be reflected in the value of the Fund's
foreign securities. However, the Manager will monitor for events that
would materially affect the value of the Fund's foreign securities and
the Committee will consider such available information that it deems
relevant and will determine a fair value for the affected foreign
securities in accordance with valuation procedures. In addition,
information from an external vendor or
================================================================================
12 | USAA REAL RETURN FUND
================================================================================
other sources may be used to adjust the foreign market closing prices
of foreign equity securities to reflect what the Committee believes to
be the fair value of the securities as of the close of the NYSE. Fair
valuation of affected foreign equity securities may occur frequently
based on an assessment that events which occur on a fairly regular
basis (such as U.S. market movements) are significant. Such securities
are categorized in Level 2 of the fair value hierarchy.
3. Investments in open-end investment companies, commingled, or other
funds, other than ETFs, are valued at their NAV at the end of each
business day and are categorized in Level 1 of the fair value hierarchy.
4. Short-term debt securities with original or remaining maturities of 60
days or less may be valued at amortized cost, provided that amortized
cost represents the fair value of such securities.
5. Debt securities with maturities greater than 60 days are valued each
business day by a pricing service (the Service) approved by the Board.
The Service uses an evaluated mean between quoted bid and ask prices or
the last sales price to value a security when, in the Service's
judgment, these prices are readily available and are representative of
the security's market value. For many securities, such prices are not
readily available. The Service generally prices those securities based
on methods which include consideration of yields or prices of
securities of comparable quality, coupon, maturity, and type;
indications as to values from dealers in securities; and general market
conditions. Generally, debt securities are categorized in Level 2 of
the fair value hierarchy; however, to the extent the valuations include
significant unobservable inputs, the securities would be categorized in
Level 3.
6. Repurchase agreements are valued at cost.
7. Futures are valued at the settlement price at the close of market on
the principal exchange on which they are traded or, in the absence of
any transactions that day, the settlement price on the prior trading
date if it is within the spread between the closing bid and ask price
closest to the last reported sale price.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 13
================================================================================
8. Options are valued by a pricing service at the National Best Bid/Offer
(NBBO) composite price, which is derived from the best available bid
and ask price in all participating options exchanges determined to most
closely reflect market value of the options at the time of computation
of the Fund's NAV.
9. Forward foreign currency contracts are valued on a daily basis using
forward foreign currency exchange rates obtained from an independent
pricing service and are categorized in Level 2 of the fair value
hierarchy.
10. In the event that price quotations or valuations are not readily
available, are not reflective of market value, or a significant event
has been recognized in relation to a security or class of securities,
the securities are valued in good faith by the Committee in accordance
with valuation procedures approved by the Board. The effect of fair
value pricing is that securities may not be priced on the basis of
quotations from the primary market in which they are traded and the
actual price realized from the sale of a security may differ materially
from the fair value price. Valuing these securities at fair value is
intended to cause the Fund's NAV to be more reliable than it otherwise
would be.
Fair value methods used by the Manager include, but are not limited to,
obtaining market quotations from secondary pricing services,
broker-dealers, other pricing services, or widely used quotation
systems. General factors considered in determining the fair value of
securities include fundamental analytical data, the nature and duration
of any restrictions on disposition of the securities, evaluation of
credit quality, and an evaluation of the forces that influenced the
market in which the securities are purchased and sold.
B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The
three-level valuation hierarchy disclosed in the Portfolio of Investments 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.
================================================================================
14 | USAA REAL RETURN FUND
================================================================================
Level 2 - inputs to the valuation methodology are other significant
observable inputs, including quoted prices for similar securities, inputs
that are observable for the securities, either directly or indirectly, and
market-corroborated inputs such as market indexes.
Level 3 - inputs to the valuation methodology are unobservable and
significant to the fair value measurement, including the Manager's own
assumptions in determining the fair value.
The inputs or methodologies used for valuing securities are not necessarily
an indication of the risks associated with investing in those securities.
C. 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 June 30, 2018, the Fund did not incur any
income tax, interest, or penalties, and has recorded no liability for net
unrecognized tax benefits relating to uncertain income tax positions. On an
ongoing basis, the Manager will monitor the Fund's tax basis to determine if
adjustments to this conclusion are necessary. The statute of limitations on
the Fund's tax return filings generally remain open for the three preceding
fiscal reporting year ends and remain subject to examination by the Internal
Revenue Service and state taxing authorities.
D. INVESTMENTS IN SECURITIES - Securities transactions are accounted for as of
the date the securities are purchased or sold (trade date). Gains or losses
from sales of investment securities are computed on the identified cost
basis. Dividend income, less foreign taxes, if any, is recorded on the ex-
dividend date. If the ex-dividend date has passed, certain dividends from
foreign securities are recorded upon notification. Interest income is
recorded daily on the accrual basis. Premiums and discounts on short-term
securities are amortized on a straight-line basis over the life of the
respective securities.
E. SECURITIES PURCHASED ON A DELAYED-DELIVERY OR WHEN-ISSUED BASIS - Delivery
and payment for securities that have been purchased by the Fund on a
================================================================================
NOTES TO FINANCIAL STATEMENTS | 15
================================================================================
delayed-delivery or when-issued basis can take place a month or more after
the trade date. During the period prior to settlement, these securities do
not earn interest, are subject to market fluctuation, and may increase or
decrease in value prior to their delivery. The Fund maintains segregated
assets with a market value equal to or greater than the amount of its
purchase commitments. The purchase of securities on a delayed-delivery or
when-issued basis may increase the volatility of the Fund's NAV to the
extent that the Fund makes such purchases while remaining substantially
fully invested.
F. INDEMNIFICATIONS - Under the Trust's organizational documents, its officers
and trustees are indemnified against certain liabilities arising out of the
performance of their duties to the Trust. In addition, in the normal course
of business, the Trust enters into contracts that contain a variety of
representations and warranties that provide general indemnifications. The
Trust's maximum exposure under these arrangements is unknown, as this would
involve future claims that may be made against the Trust that have not yet
occurred. However, the Trust expects the risk of loss to be remote.
G. USE OF ESTIMATES - The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts in the
financial statements.
(2) LINE OF CREDIT
The Fund participates, along with other funds of the Trust and USAA ETF Trust
(together, the Trusts), in a joint, short-term, revolving, committed loan
agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate of
the Manager. The purpose of the agreement is to provide temporary or emergency
cash needs, including redemption requests that might otherwise require the
untimely disposition of securities. Subject to availability (including usage of
the facility by other funds of the Trusts), the Fund may borrow from CAPCO an
amount up to 5% of the Fund's total assets at an interest rate based on the
London Interbank Offered Rate (LIBOR), plus 100.0 basis points.
================================================================================
16 | USAA REAL RETURN 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 June 30, 2018, the Fund paid CAPCO facility fees
of less than $500, which represents 0.1% of the total fees paid to CAPCO by the
funds of the Trusts. The Fund had no borrowings under this agreement during the
six-month period ended June 30, 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 December 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 December 31, 2017, the Fund had net capital loss carryforwards of
$46,531,000*, for federal income tax purposes as shown in the table below. It is
unlikely that the Board will authorize a distribution of capital gains realized
in the future until the capital loss carryforwards have been used.
CAPITAL LOSS CARRYFORWARDS
-------------------------------
TAX CHARACTER
-------------------------------
(NO EXPIRATION) BALANCE
--------------- -----------
Short-Term $ 9,938,000
Long-Term 36,593,000
-----------
Total $46,531,000*
===========
*Capital losses may be limited under current law.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 17
================================================================================
As of June 30, 2018, the cost of securities, including short-term securities,
for federal income tax purposes, was approximately the same as the cost reported
in the financial statements.
Gross unrealized appreciation and depreciation of investments as of June 30,
2018, were $5,546,000 and $822,000, respectively, resulting in net unrealized
appreciation of $4,724,000.
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities, excluding
short-term securities, for the six-month period ended June 30, 2018, were
$1,047,000 and $1,645,000, 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, net of income retained by Citibank.
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. Loans are terminable upon demand
and the borrower must return the loaned securities within the lesser of one
standard settlement period or five business days. 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.
================================================================================
18 | USAA REAL RETURN FUND
================================================================================
At June 30, 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
--------------------------------------------------------------------------------
$2,403,000 $- $2,457,000
(6) CAPITAL SHARE TRANSACTIONS
At June 30, 2018, there were an unlimited number of shares of capital stock at
no par value authorized for the Fund.
Capital share transactions for the Institutional Shares resulted from purchases
and sales by the affiliated USAA fund-of-funds as well as other persons or legal
entities that the Fund may approve from time to time. Capital share
transactions for all classes were as follows, in thousands:
SIX-MONTH PERIOD ENDED YEAR ENDED
JUNE 30, 2018 DECEMBER 31, 2017
----------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------
FUND SHARES:
Shares sold 105 $ 1,106 161 $ 1,633
Shares issued from reinvested
dividends - - 22 235
Shares redeemed (203) (2,136) (531) (5,404)
--------------------------------------------------
Net decrease from capital share
transactions (98) $(1,030) (348) $(3,536)
==================================================
INSTITUTIONAL SHARES:
Shares sold 16 $ 167 781 $ 7,813
Shares issued from reinvested
dividends - - 53 553
Shares redeemed (16) (171) (910) (9,117)
--------------------------------------------------
Net decrease from capital share
transactions (-)* $ (4) (76) $ (751)
==================================================
*Represents less than 500 shares.
(7) TRANSACTIONS WITH MANAGER
MANAGEMENT FEES - The Manager provides investment management services to the
Fund pursuant to an Advisory Agreement. Under this agreement, the
================================================================================
NOTES TO FINANCIAL STATEMENTS | 19
================================================================================
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 June 30, 2018, the Fund had no
subadviser(s).
The Fund's management fees are accrued daily and paid monthly at an annualized
rate of 0.50% of the Fund's average net assets. For the six-month period ended
June 30, 2018, the Fund incurred management fees, paid or payable to the
Manager, of $173,000.
ADMINISTRATION AND SERVICING FEES - The Manager provides certain administration
and servicing functions for the Fund. For such services, the Manager receives a
fee accrued daily and paid monthly at an annualized rate of 0.15% and 0.10% of
average net assets of the Funds Shares and Institutional Shares, respectively.
For the six-month period ended June 30, 2018, the Fund Shares and Institutional
Shares incurred administration and servicing fees, paid or payable to the
Manager, of $16,000 and $24,000, 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 June 30, 2018, the Fund reimbursed the Manager $1,000 for these compliance
and legal services. These expenses are included in the professional fees on the
Fund's Statement of Operations.
EXPENSE LIMITATION - The Manager agreed, through April 30, 2019, to limit the
total annual operating expenses of the Fund Shares and the Institutional Shares
to 1.00% and 0.90%, respectively, of their average net assets, excluding
extraordinary expenses and before reductions of any expenses paid indirectly,
and will reimburse the Fund Shares and Institutional Shares for all expenses in
excess of those amounts. This expense limitation arrangement may not be changed
or terminated through April 30, 2019, without approval of the Board, and may be
changed or terminated by the Manager at any time after that date. For the
six-month period ended June 30, 2018, the Fund
================================================================================
20 | USAA REAL RETURN FUND
================================================================================
incurred reimbursable expenses from the Manager for the Fund Shares and the
Institutional Shares of $28,000 and $10,000, respectively, of which $2,000 was
receivable from the Manager.
TRANSFER AGENT'S FEES - USAA Transfer Agency Company, d/b/a USAA Shareholder
Account Services (SAS), an affiliate of the Manager, provides transfer agent
services to the Fund Shares based on an annual charge of $23 per shareholder
account plus out-of-pocket expenses. SAS pays a portion of 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 June 30, 2018, the Fund Shares and Institutional Shares
incurred transfer agent's fees, paid or payable to SAS, of $29,000 and $24,000,
respectively.
UNDERWRITING SERVICES - USAA Investment Management Company provides exclusive
underwriting and distribution of the Fund's shares on a continuing best-efforts
basis and receives no fee or other compensation for these services.
(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 June 30, 2018, the USAA
fund-of-funds owned the following percentages of the total outstanding shares of
the Fund:
AFFILIATED USAA FUND OWNERSHIP %
--------------------------------------------------------------------------------
Target Retirement Income 7.9
Target Retirement 2020 14.2
Target Retirement 2030 21.3
Target Retirement 2040 15.2
Target Retirement 2050 9.6
Target Retirement 2060 0.7
The Manager is indirectly wholly owned by United Services Automobile Association
(USAA), a large, diversified financial services institution.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 21
================================================================================
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.
================================================================================
22 | USAA REAL RETURN FUND
================================================================================
(10) UPCOMING 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 statements
and other disclosures.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 23
================================================================================
FINANCIAL HIGHLIGHTS
FUND SHARES (UNAUDITED)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------------
2018 2017 2016 2015 2014 2013
---------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 10.58 $ 9.87 $ 9.14 $ 9.99 $ 10.22 $ 10.52
---------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .09 .16 .12(a) .07 .20 .22
Net realized and
unrealized gain (loss) (.16) .66 .62(a) (.84) (.17) (.27)
---------------------------------------------------------------------------------------
Total from investment
operations (.07) .82 .74(a) (.77) .03 (.05)
---------------------------------------------------------------------------------------
Less distributions from:
Net investment income - (.11) - (.08) (.20) (.22)
Realized capital gains - - - - (.06) (.03)
Tax return of capital - - (.01) - - -
---------------------------------------------------------------------------------------
Total distributions - (.11) (.01) (.08) (.26) (.25)
---------------------------------------------------------------------------------------
Net asset value at
end of period $ 10.51 $ 10.58 $ 9.87 $ 9.14 $ 9.99 $ 10.22
=======================================================================================
Total return (%)* (.66) 8.35 8.13 (7.75) .27 (.44)
Net assets at end of
period (000) $21,420 $22,583 $24,501 $69,435 $78,826 $77,567
Ratios to average
net assets:**
Expenses (%)(h) 1.00(g) 1.00 1.00(d) 1.02 .94(c) .85(b)
Expenses, excluding
reimbursements (%)(h) 1.26(g) 1.44 1.39 1.02 .99 1.22(b)
Net investment income (%) 1.61(g) 1.24 1.27 1.10 1.84 2.24
Portfolio turnover (%) 2 14(f) 165(e) 35 24 41
* 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 June 30, 2018, average net assets were
$21,879,000.
(a) Calculated using average shares.
================================================================================
24 | USAA REAL RETURN FUND
================================================================================
(b) Reflects total annual operating expenses of the Fund Shares before
reductions of any expenses paid indirectly. The Fund Shares' expenses paid
indirectly decreased the expense ratios by less than 0.01%.
(c) Prior to May 1, 2014, the Manager had voluntarily agreed to limit the annual
expenses of the Fund Shares to 0.85% of the Fund Shares' average net assets.
(d) Effective January 1, 2016, the Manager voluntarily agreed to limit the
annual expenses of the Fund Shares to 1.00% of the Fund Shares' average net
assets.
(e) Reflects increased trading activity due to large shareholder redemptions.
(f) Reflects a return to normal trading levels after a prior year transition or
allocation shift.
(g) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(h) Does not include acquired fund fees, if any.
================================================================================
FINANCIAL HIGHLIGHTS | 25
================================================================================
INSTITUTIONAL SHARES (UNAUDITED)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------------
2018 2017 2016 2015 2014 2013
---------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 10.58 $ 9.87 $ 9.15 $ 10.00 $ 10.23 $ 10.53
---------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .09 .14 .08(a) .10 .22 .25
Net realized and
unrealized gain (loss) (.14) .69 .65(a) (.85) (.17) (.28)
---------------------------------------------------------------------------------------
Total from investment
operations (.05) .83 .73(a) (.75) .05 (.03)
---------------------------------------------------------------------------------------
Less distributions from:
Net investment income - (.12) - (.10) (.22) (.24)
Realized capital gains - - - - (.06) (.03)
Tax return of capital - - (.01) - - -
---------------------------------------------------------------------------------------
Total distributions - (.12) (.01) (.10) (.28) (.27)
---------------------------------------------------------------------------------------
Net asset value at
end of period $ 10.53 $ 10.58 $ 9.87 $ 9.15 $ 10.00 $ 10.23
=======================================================================================
Total return (%)* (.47) 8.45 8.01 (7.56) .46 (.24)
Net assets at end of
period (000) $47,756 $48,020 $45,545 $275,332 $381,975 $334,673
Ratios to average
net assets:**
Expenses (%)(h) .90(g) .90 .88(d) .82 .75(c) .65(b)
Expenses, excluding
reimbursements (%)(h) .94(g) 1.03 .95 .82 .80 .81(b)
Net investment income (%) 1.73(g) 1.37 .90 1.33 2.02 2.43
Portfolio turnover (%) 2 14(f) 165(e) 35 24 41
* 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 June 30, 2018, average net assets were
$47,736,000.
(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) Prior to May 1, 2014, the Manager had voluntarily agreed to limit the annual
expenses of the Institutional Shares to 0.65% of the Institutional Shares'
average net assets.
================================================================================
26 | USAA REAL RETURN FUND
================================================================================
(d) Effective January 1, 2016, the Manager voluntarily agreed to limit the
annual expenses of the Institutional Shares to 0.90% of the Institutional
Shares' average net assets.
(e) Reflects increased trading activity due to large shareholder redemptions.
(f) Reflects a return to normal trading levels after a prior year transition or
allocation shift.
(g) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(h) Does not include acquired fund fees, if any.
================================================================================
FINANCIAL HIGHLIGHTS | 27
================================================================================
EXPENSE EXAMPLE
June 30, 2018 (unaudited)
--------------------------------------------------------------------------------
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: direct costs, such
as wire fees, redemption fees, and low balance fees; and indirect costs,
including management fees, transfer agency fees, and other Fund operating
expenses. This example is intended to help you understand your indirect costs,
also referred to as "ongoing costs" (in dollars), of investing in the Fund and
to compare these costs with the ongoing costs of investing in other mutual
funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire six-month period of January 1, 2018, through June
30, 2018.
ACTUAL EXPENSES
The line labeled "actual" under each share class in the table provides
information about actual account values and actual expenses. You may use the
information in this line, together with the amount you invested at the beginning
of the period, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number for your share
class in the "actual" line under the heading "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The line labeled "hypothetical" under each share class in the table provides
information about hypothetical account values and hypothetical expenses based on
the Fund's actual expense ratios for each class and an assumed rate of return of
5% per year before expenses, which is not the Fund's actual return. The
hypothetical account values and expenses may not be used to
================================================================================
28 | USAA REAL RETURN 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 JANUARY 1, 2018 -
JANUARY 1, 2018 JUNE 30, 2018 JUNE 30, 2018
---------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $ 993.40 $4.94
Hypothetical
(5% return before expenses) 1,000.00 1,019.84 5.01
INSTITUTIONAL SHARES
Actual 1,000.00 995.30 4.45
Hypothetical
(5% return before expenses) 1,000.00 1,020.33 4.51
*Expenses are equal to the annualized expense ratio of 1.00% for Fund Shares and
0.90% for Institutional Shares, which are net of any reimbursements and
expenses paid indirectly, multiplied by the average account value over the
period, multiplied by 181 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 (0.66)% for Fund Shares and (0.47)% for Institutional Shares for the
six-month period of January 1, 2018, through June 30, 2018.
================================================================================
EXPENSE EXAMPLE | 29
================================================================================
ADVISORY AGREEMENT(S)
June 30, 2018 (unaudited)
--------------------------------------------------------------------------------
At an in-person meeting of the Board of Trustees (the Board) held on April 18,
2018, the Board, including the Trustees who are not "interested persons" (as
that term is defined in the Investment Company Act of 1940, as amended) of the
Trust (the Independent Trustees), approved for an annual period the continuance
of the Advisory Agreement between the Trust and the Manager with respect to the
Fund.
In advance of the meeting, the Trustees received and considered a variety of
information relating to the Advisory Agreement and the Manager, and were given
the opportunity to ask questions and request additional information from
management. The information provided to the Board included, among other things:
(i) a separate report prepared by an independent third party, which provided a
statistical analysis comparing the Fund's investment performance, expenses, and
fees to comparable investment companies; (ii) information concerning the
services rendered to the Fund, as well as information regarding the Manager's
revenues and costs of providing services to the Fund and compensation paid to
affiliates of the Manager; and (iii) information about the Manager's operations
and personnel. Prior to voting, the Independent Trustees reviewed the proposed
continuance of the Advisory Agreement with management and with experienced
counsel retained by the Independent Trustees (Independent Counsel) and received
materials from such Independent Counsel discussing the legal standards for
their consideration of the proposed continuance of the Advisory Agreement with
respect to the Fund. The Independent Trustees also reviewed the proposed
continuance of the Advisory Agreement with respect to the Fund in private
sessions with Independent Counsel at which no representatives of management
were present.
At each regularly scheduled meeting of the Board and its committees, the Board
receives and reviews, among other things, information concerning the Fund's
performance and related services provided by the Manager. At the
================================================================================
30 | USAA REAL RETURN FUND
================================================================================
meeting at which the renewal of the Advisory Agreement is considered,
particular focus is given to information concerning Fund performance, fees and
total expenses as compared to comparable investment companies, and the
Manager's profitability with respect to the Fund. However, the Board noted that
the evaluation process with respect to the Manager is an ongoing one. In this
regard, the Board's and its committees' consideration of the Advisory Agreement
included certain information previously received at such meetings.
ADVISORY AGREEMENT
After full consideration of a variety of factors, the Board, including the
Independent Trustees, voted to approve the Advisory Agreement. In approving the
Advisory Agreement, the Trustees did not identify any single factor as
controlling, and each Trustee may have attributed different weights to various
factors. Throughout their deliberations, the Independent Trustees were
represented and assisted by Independent Counsel.
NATURE, EXTENT, AND QUALITY OF SERVICES - In considering the nature, extent,
and quality of the services provided by the Manager under the Advisory
Agreement, the Board reviewed information provided by the Manager relating to
its operations and personnel. The Board also took into account its knowledge of
the Manager's management and the quality of the performance of the Manager's
duties through Board meetings, discussions, and reports during the preceding
year. The Board considered the fees paid to the Manager and the services
provided to the Fund by the Manager under the Advisory Agreement, as well as
other services provided by the Manager and its affiliates under other
agreements, and the personnel who provide these services. In addition to the
investment advisory services provided to the Fund, the Manager and its
affiliates provide administrative services, shareholder services, oversight of
Fund accounting, marketing services, assistance in meeting legal and regulatory
requirements, and other services necessary for the operation of the Fund and
the Trust.
The Board also considered the significant risks assumed by the Manager in
connection with the services provided to the Fund, including investment,
operational, enterprise, litigation, regulatory and compliance risks.
================================================================================
ADVISORY AGREEMENT(S) | 31
================================================================================
The Board considered the Manager's management style and the performance of the
Manager's duties under the Advisory Agreement. The Board considered the level
and depth of knowledge of the Manager, including the professional experience
and qualifications of its senior and investment personnel, as well as current
staffing levels. The allocation of the Fund's brokerage, including the
Manager's process for monitoring "best execution" was also considered. The
Manager's role in coordinating the activities of the Fund's other service
providers also was considered. The Board also considered the Manager's risk
management processes. The Board considered the Manager's financial condition
and that it had the financial wherewithal to continue to provide the same scope
and a high quality of services under the Advisory Agreement. In reviewing the
Advisory Agreement, the Board focused on the experience, resources, and
strengths of the Manager and its affiliates in managing the Fund, as well as
the other funds in the Trust.
The Board also reviewed the compliance and administrative services provided to
the Fund by the Manager and its affiliates, including oversight of the Fund's
day-to-day operations and oversight of Fund accounting. The Trustees, guided
also by information obtained from their experiences as trustees of the Trust,
also focused on the quality of the Manager's compliance and administrative
staff.
EXPENSES AND PERFORMANCE - In connection with its consideration of the Advisory
Agreement, the Board evaluated the Fund's advisory fees and total expense ratio
as compared to other open-end investment companies deemed to be comparable to
the Fund as determined by the independent third party in its report. The Fund's
expenses were compared to (i) a group of investment companies chosen by the
independent third party to be comparable to the Fund based upon certain
factors, including fund type, comparability of investment objective and
classification, sales load type (in this case, retail investment companies with
no sales loads), asset size, and expense components (the "expense group") and
(ii) a larger group of investment companies that includes all no-load retail
open-end investment companies with the same investment classification/objective
as the Fund regardless of asset size, excluding outliers (the "expense
universe").
Among other data, the Board noted that the Fund's management fee rate--which
includes advisory and administrative services and the effects of any fee
================================================================================
32 | USAA REAL RETURN FUND
================================================================================
waivers or reimbursements--was below the median of its expense group and its
expense universe. The data indicated that the Fund's total expenses, after
reimbursements, were below the median of its expense group and its expense
universe. The Board took into account the various services provided to the Fund
by the Manager and its affiliates, including the high quality of services
received by the Fund from the Manager. The Board also noted the level and
method of computing the management fee.
In considering the Fund's performance, the Board noted that it reviews at its
regularly scheduled meetings information about the Fund's performance results.
The Trustees also reviewed various comparative data provided to them in
connection with their consideration of the renewal of the Advisory Agreement,
including, among other information, a comparison of the Fund's average annual
total returns with its Lipper index and with that of other mutual funds deemed
to be in its peer group by the independent third party in its report (the
"performance universe"). The Fund's performance universe consisted of the Fund
and all retail and institutional open-end investment companies with the same
classification/objective as the Fund regardless of asset size or primary
channel of distribution. This comparison indicated that, among other data, the
Fund's performance was below the average of its performance universe and its
Lipper index for the one-, three- and five-year periods ended December 31,
2017. The Board also noted that the Fund's percentile performance ranking was
in the bottom 50% of its performance universe for the one-, three- and
five-year periods ended December 31, 2017. The Board also took into account
potential actions management was considering taking with respect to the Fund.
COMPENSATION AND PROFITABILITY - The Board took into consideration the level
and method of computing the management fee. The information considered by the
Board included operating profit information for the Manager's business as a
whole. The Board also received and considered profitability information related
to the management revenues from the Fund. This information included a review of
the methodology used in the allocation of certain costs to the Fund. In
considering the profitability data with respect to the Fund, the Trustees noted
that the Manager reimbursed a portion of its management fees to the Fund. The
Trustees reviewed the profitability of the Manager's relationship with the Fund
before tax expenses. In reviewing the overall
================================================================================
ADVISORY AGREEMENT(S) | 33
================================================================================
profitability of the management fee to the Manager, the Board also considered
the fact that the Manager and its affiliates provide shareholder servicing and
administrative services to the Fund for which they receive compensation. The
Board also considered the possible direct and indirect benefits to the Manager
from its relationship with the Trust, including that the Manager may derive
reputational and other benefits from its association with the Fund. The
Trustees recognized that the Manager should be entitled to earn a reasonable
level of profits in exchange for the level of services it provides to the Fund
and the entrepreneurial and other risks that it assumes as Manager.
ECONOMIES OF SCALE - The Board considered whether there should be changes in
the management fee rate or structure in order to enable the Fund to participate
in any economies of scale. The Board took into account management's discussions
of the Fund's current advisory fee structure. The Board also considered the fee
waiver and expense reimbursement arrangements by the Manager. The Board also
considered the effect of the Fund's growth and size on its performance and
fees, noting that if the Fund's assets increase over time, the Fund may realize
other economies of scale if assets increase proportionally more than some
expenses. The Board determined that the current investment management fee
structure was reasonable.
CONCLUSIONS - The Board reached the following conclusions regarding the Fund's
current Advisory Agreement with the Manager, among others: (i) the Manager has
demonstrated that it possesses the capability and resources to perform the
duties required of it under the Advisory Agreement; (ii) the Manager maintains
an appropriate compliance program; (iii) the Fund's performance is being
addressed; (iv) the Fund's current advisory expenses are reasonable in relation
to the services to be provided by the Manager; and (v) the Manager and its
affiliates' anticipated level of profitability from their relationship with the
Fund is reasonable in light of the nature and high quality of services provided
by the Manager and the type of fund. Based on its conclusions, the Board
determined that the continuation of the Advisory Agreement would be in the best
interests of the Fund and its shareholders.
================================================================================
34 | USAA REAL RETURN 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
--------------------------------------------------------------------------------
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
--------------
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================================================================================
94423-0818 (C)2018, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA S&P 500 INDEX FUND]
============================================================
SEMIANNUAL REPORT
USAA S&P 500 INDEX FUND
MEMBER SHARES (USSPX) o REWARD SHARES (USPRX)
JUNE 30, 2018
============================================================
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
INVESTMENT OVERVIEW 1
FINANCIAL INFORMATION
Portfolio of Investments 2
Notes to Portfolio of Investments 23
Financial Statements 25
Notes to Financial Statements 28
Financial Highlights 42
EXPENSE EXAMPLE 44
ADVISORY AGREEMENT(S) 46
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE
RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY
USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN
PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS
ABOUT THE FUND.
IRA DISTRIBUTION WITHHOLDING DISCLOSURE
We generally must withhold federal income tax at a rate of 10% of the taxable
portion of your distribution and, if you live in a state that requires state
income tax withholding, at your state's tax rate. However, you may elect not to
have withholding apply or to have income tax withheld at a higher rate. Any
withholding election that you make will apply to any subsequent distribution
unless and until you change or revoke the election. If you wish to make a
withholding election or change or revoke a prior withholding election, call
(800) 531-USAA (8722) or (210) 531-8722.
If you do not have a withholding election in place by the date of distribution,
federal income tax will be withheld from the taxable portion of your
distribution at a rate of 10%. If you must pay estimated taxes, you may be
subject to estimated tax penalties if your estimated tax payments are not
sufficient and sufficient tax is not withheld from your distribution.
For more specific information, please consult your tax adviser.
(C)2018, USAA. All rights reserved.
================================================================================
================================================================================
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
o TOP 10 HOLDINGS* - 6/30/18 o
(% of Net Assets)
Apple, Inc. .............................................................. 3.9%
Microsoft Corp. .......................................................... 3.2%
Amazon.com, Inc. ......................................................... 2.9%
Facebook, Inc. "A" ....................................................... 2.0%
Berkshire Hathaway, Inc. "B" ............................................. 1.5%
JPMorgan Chase & Co. ..................................................... 1.5%
Exxon Mobil Corp. ........................................................ 1.5%
Alphabet, Inc. "C" ....................................................... 1.5%
Alphabet, Inc. "A" ....................................................... 1.4%
Johnson & Johnson ........................................................ 1.4%
o SECTOR ALLOCATION* - 6/30/18 o
[PIE CHART OF SECTOR ALLOCATION]
INFORMATION TECHNOLOGY 25.5%
FINANCIALS 13.6%
HEALTH CARE 13.5%
CONSUMER DISCRETIONARY 12.7%
INDUSTRIALS 9.4%
CONSUMER STAPLES 7.0%
ENERGY 6.2%
UTILITIES 2.9%
REAL ESTATE 2.8%
MATERIALS 2.6%
TELECOMMUNICATION SERVICES 2.0%
[END PIE CHART]
*Does not include futures, money market instruments, or short-term investments
purchased with cash collateral from securities loaned.
Percentage are of net assets of the fund, and may not equal 100%.
Refer to the Portfolio of Investments for a complete list of securities.
================================================================================
INVESTMENT OVERVIEW | 1
================================================================================
PORTFOLIO OF INVESTMENTS
June 30, 2018 (unaudited)
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
COMMON STOCKS (98.2%)
CONSUMER DISCRETIONARY (12.7%)
------------------------------
ADVERTISING (0.1%)
115,707 Interpublic Group of Companies, Inc. $ 2,712
69,671 Omnicom Group, Inc. 5,314
----------
8,026
----------
APPAREL & ACCESSORIES & LUXURY GOODS (0.4%)
108,413 Hanesbrands, Inc. 2,387
45,745 Michael Kors Holdings Ltd.(a) 3,046
23,303 PVH Corp. 3,489
16,677 Ralph Lauren Corp. 2,097
88,357 Tapestry, Inc. 4,127
55,945 Under Armour, Inc. "A"(a),(b) 1,258
55,116 Under Armour, Inc. "C"(a) 1,162
99,335 V.F. Corp. 8,098
----------
25,664
----------
APPAREL RETAIL (0.5%)
36,521 Foot Locker, Inc. 1,923
65,551 Gap, Inc. 2,123
74,345 L Brands, Inc. 2,742
114,143 Ross Stores, Inc. 9,673
189,733 TJX Companies, Inc. 18,059
----------
34,520
----------
AUTO PARTS & EQUIPMENT (0.1%)
80,068 Aptiv plc 7,336
59,700 BorgWarner, Inc. 2,577
----------
9,913
----------
AUTOMOBILE MANUFACTURERS (0.4%)
1,186,324 Ford Motor Co. 13,133
384,169 General Motors Co. 15,136
----------
28,269
----------
AUTOMOTIVE RETAIL (0.3%)
22,308 Advance Auto Parts, Inc. 3,027
8,077 AutoZone, Inc.(a) 5,419
================================================================================
2 | USAA S&P 500 INDEX FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
54,507 CarMax, Inc.(a) $ 3,972
24,825 O'Reilly Automotive, Inc.(a) 6,792
----------
19,210
----------
BROADCASTING (0.1%)
104,199 CBS Corp. "B" 5,858
47,336 Discovery, Inc. "A"(a),(b) 1,302
102,623 Discovery, Inc. "C"(a) 2,617
----------
9,777
----------
CABLE & SATELLITE (0.9%)
56,133 Charter Communications, Inc. "A"(a) 16,459
1,391,100 Comcast Corp. "A" 45,642
68,736 DISH Network Corp. "A"(a) 2,310
----------
64,411
----------
CASINOS & GAMING (0.1%)
151,058 MGM Resorts International 4,385
25,526 Wynn Resorts Ltd. 4,272
----------
8,657
----------
COMPUTER & ELECTRONIC RETAIL (0.1%)
74,348 Best Buy Co., Inc. 5,545
----------
CONSUMER ELECTRONICS (0.0%)
33,326 Garmin Ltd. 2,033
----------
DEPARTMENT STORES (0.1%)
50,715 Kohl's Corp. 3,697
92,382 Macy's, Inc. 3,458
35,189 Nordstrom, Inc. 1,822
----------
8,977
----------
DISTRIBUTORS (0.1%)
44,399 Genuine Parts Co. 4,076
93,801 LKQ Corp.(a) 2,992
----------
7,068
----------
FOOTWEAR (0.4%)
388,666 NIKE, Inc. "B" 30,969
----------
GENERAL MERCHANDISE STORES (0.4%)
76,788 Dollar General Corp. 7,571
72,538 Dollar Tree, Inc.(a) 6,166
161,539 Target Corp. 12,296
----------
26,033
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 3
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
HOME FURNISHINGS (0.1%)
39,706 Leggett & Platt, Inc. $ 1,773
19,146 Mohawk Industries, Inc.(a) 4,102
----------
5,875
----------
HOME IMPROVEMENT RETAIL (1.3%)
349,327 Home Depot, Inc. 68,154
249,012 Lowe's Companies, Inc. 23,798
----------
91,952
----------
HOMEBUILDING (0.2%)
103,401 D.R. Horton, Inc. 4,239
84,205 Lennar Corp. "A" 4,421
79,516 PulteGroup, Inc. 2,286
----------
10,946
----------
HOTELS, RESORTS & CRUISE LINES (0.5%)
122,315 Carnival Corp. 7,010
84,243 Hilton Worldwide Holdings, Inc. 6,669
89,890 Marriott International, Inc. "A" 11,380
61,978 Norwegian Cruise Line Holdings Ltd.(a) 2,928
51,614 Royal Caribbean Cruises Ltd. 5,347
----------
33,334
----------
HOUSEHOLD APPLIANCES (0.0%)
19,440 Whirlpool Corp. 2,843
----------
HOUSEWARES & SPECIALTIES (0.1%)
146,404 Newell Brands, Inc. 3,776
----------
INTERNET & DIRECT MARKETING RETAIL (4.2%)
121,995 Amazon.com, Inc.(a) 207,367
14,591 Booking Holdings, Inc.(a) 29,577
37,005 Expedia Group, Inc. 4,448
131,699 Netflix, Inc.(a) 51,551
32,757 TripAdvisor, Inc.(a) 1,825
----------
294,768
----------
LEISURE PRODUCTS (0.1%)
34,213 Hasbro, Inc. 3,158
103,669 Mattel, Inc.(b) 1,702
----------
4,860
----------
MOTORCYCLE MANUFACTURERS (0.0%)
50,666 Harley-Davidson, Inc. 2,132
----------
MOVIES & ENTERTAINMENT (1.0%)
320,585 Twenty-First Century Fox, Inc. "A" 15,930
132,458 Twenty-First Century Fox, Inc. "B" 6,526
================================================================================
4 | USAA S&P 500 INDEX FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
106,354 Viacom, Inc. "B" $ 3,208
450,373 Walt Disney Co. 47,203
----------
72,867
----------
PUBLISHING (0.0%)
115,267 News Corp. "A" 1,786
36,078 News Corp. "B" 572
----------
2,358
----------
RESTAURANTS (1.0%)
7,379 Chipotle Mexican Grill, Inc.(a) 3,183
37,229 Darden Restaurants, Inc. 3,986
237,901 McDonald's Corp. 37,277
418,213 Starbucks Corp. 20,429
98,175 Yum! Brands, Inc. 7,679
----------
72,554
----------
SPECIALIZED CONSUMER SERVICES (0.0%)
63,034 H&R Block, Inc. 1,436
----------
SPECIALTY STORES (0.2%)
30,832 Tiffany & Co. 4,057
37,724 Tractor Supply Co. 2,886
17,471 Ulta Beauty, Inc.(a) 4,079
----------
11,022
----------
TIRES & RUBBER (0.0%)
72,677 Goodyear Tire & Rubber Co. 1,693
----------
Total Consumer Discretionary 901,488
----------
CONSUMER STAPLES (7.0%)
-----------------------
AGRICULTURAL PRODUCTS (0.1%)
168,987 Archer-Daniels-Midland Co. 7,745
----------
BREWERS (0.0%)
55,689 Molson Coors Brewing Co. "B" 3,789
----------
DISTILLERS & VINTNERS (0.2%)
78,906 Brown-Forman Corp. "B" 3,867
50,951 Constellation Brands, Inc. "A" 11,152
----------
15,019
----------
DRUG RETAIL (0.2%)
258,645 Walgreens Boots Alliance, Inc. 15,523
----------
FOOD DISTRIBUTORS (0.1%)
144,847 Sysco Corp. 9,892
----------
FOOD RETAIL (0.1%)
246,503 Kroger Co. 7,013
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 5
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
HEALTH CARE SERVICES (0.3%)
308,065 CVS Health Corp. $ 19,824
----------
HOUSEHOLD PRODUCTS (1.4%)
73,636 Church & Dwight Co., Inc. 3,914
39,061 Clorox Co. 5,283
264,068 Colgate-Palmolive Co. 17,114
105,882 Kimberly-Clark Corp. 11,154
762,030 Procter & Gamble Co.(c) 59,484
----------
96,949
----------
HYPERMARKETS & SUPER CENTERS (0.9%)
132,968 Costco Wholesale Corp. 27,787
437,953 Walmart, Inc.(c) 37,511
----------
65,298
----------
PACKAGED FOOD & MEAT (1.0%)
57,818 Campbell Soup Co.(b) 2,344
118,275 Conagra Brands, Inc. 4,226
180,091 General Mills, Inc. 7,971
42,551 Hershey Co. 3,960
81,225 Hormel Foods Corp.(b) 3,022
34,260 J.M. Smucker Co. 3,682
75,316 Kellogg Co. 5,262
181,886 Kraft Heinz Co. 11,426
36,540 McCormick & Co., Inc. 4,242
446,280 Mondelez International, Inc. "A" 18,298
90,986 Tyson Foods, Inc. "A" 6,264
----------
70,697
----------
PERSONAL PRODUCTS (0.2%)
142,164 Coty, Inc. "A" 2,005
67,735 Estee Lauder Companies, Inc. "A" 9,665
----------
11,670
----------
SOFT DRINKS (1.5%)
1,160,584 Coca-Cola Co. 50,903
124,753 Monster Beverage Corp.(a) 7,148
430,022 PepsiCo, Inc. 46,817
----------
104,868
----------
TOBACCO (1.0%)
573,393 Altria Group, Inc. 32,563
470,824 Philip Morris International, Inc. 38,014
----------
70,577
----------
Total Consumer Staples 498,864
----------
================================================================================
6 | USAA S&P 500 INDEX FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
ENERGY (6.2%)
-------------
INTEGRATED OIL & GAS (2.8%)
579,075 Chevron Corp. $ 73,213
1,282,820 Exxon Mobil Corp. 106,128
232,307 Occidental Petroleum Corp. 19,439
----------
198,780
----------
OIL & GAS DRILLING (0.0%)
33,001 Helmerich & Payne, Inc. 2,104
----------
OIL & GAS EQUIPMENT & SERVICES (0.7%)
127,540 Baker Hughes, a GE Co. 4,213
265,515 Halliburton Co. 11,964
116,828 National Oilwell Varco, Inc. 5,070
419,065 Schlumberger Ltd. 28,090
131,995 TechnipFMC plc 4,190
----------
53,527
----------
OIL & GAS EXPLORATION & PRODUCTION (1.6%)
155,487 Anadarko Petroleum Corp. 11,389
114,733 Apache Corp. 5,364
139,249 Cabot Oil & Gas Corp. 3,314
28,718 Cimarex Energy Co. 2,922
44,977 Concho Resources, Inc.(a) 6,223
354,392 ConocoPhillips 24,673
159,133 Devon Energy Corp. 6,995
175,720 EOG Resources, Inc. 21,865
76,727 EQT Corp. 4,234
78,936 Hess Corp. 5,280
260,826 Marathon Oil Corp. 5,441
59,982 Newfield Exploration Co.(a) 1,814
145,639 Noble Energy, Inc. 5,138
51,411 Pioneer Natural Resources Co. 9,729
----------
114,381
----------
OIL & GAS REFINING & MARKETING (0.7%)
41,965 Andeavor 5,505
53,676 HollyFrontier Corp 3,673
140,122 Marathon Petroleum Corp. 9,831
126,725 Phillips 66 14,232
130,684 Valero Energy Corp. 14,484
----------
47,725
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 7
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
OIL & GAS STORAGE & TRANSPORTATION (0.4%)
572,452 Kinder Morgan, Inc. $ 10,115
124,104 ONEOK, Inc. 8,666
249,983 Williams Companies, Inc. 6,777
----------
25,558
----------
Total Energy 442,075
----------
FINANCIALS (13.6%)
------------------
ASSET MANAGEMENT & CUSTODY BANKS (1.1%)
16,468 Affiliated Managers Group, Inc. 2,449
44,171 Ameriprise Financial, Inc. 6,179
306,457 Bank of New York Mellon Corp. 16,527
37,344 BlackRock, Inc. 18,636
95,385 Franklin Resources, Inc. 3,057
122,819 Invesco Ltd. 3,262
63,759 Northern Trust Corp.(d) 6,560
110,958 State Street Corp. 10,329
73,020 T. Rowe Price Group, Inc. 8,477
----------
75,476
----------
CONSUMER FINANCE (0.7%)
216,202 American Express Co. 21,188
147,794 Capital One Financial Corp. 13,582
105,693 Discover Financial Services 7,442
215,661 Synchrony Financial 7,199
----------
49,411
----------
DIVERSIFIED BANKS (4.7%)
2,856,410 Bank of America Corp.(c) 80,522
772,478 Citigroup, Inc. 51,694
1,031,278 JP Morgan Chase & Co.(c) 107,459
473,492 U.S. Bancorp 23,684
1,328,439 Wells Fargo & Co. 73,649
----------
337,008
----------
FINANCIAL EXCHANGES & DATA (0.9%)
33,933 CBOE Holdings, Inc. 3,531
103,286 CME Group, Inc. 16,931
175,710 Intercontinental Exchange, Inc. 12,924
50,759 Moody's Corp. 8,658
27,138 MSCI Inc 4,489
35,051 NASDAQ, Inc. 3,199
76,125 S&P Global, Inc. 15,521
----------
65,253
----------
================================================================================
8 | USAA S&P 500 INDEX FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
INSURANCE BROKERS (0.5%)
74,254 Aon plc $ 10,185
54,963 Arthur J. Gallagher & Co. 3,588
154,332 Marsh & McLennan Companies, Inc. 12,651
39,933 Willis Towers Watson plc 6,054
----------
32,478
----------
INVESTMENT BANKING & BROKERAGE (1.0%)
364,055 Charles Schwab Corp. 18,603
80,402 E*trade Financial Corp.(a) 4,917
106,186 Goldman Sachs Group, Inc. 23,422
413,151 Morgan Stanley 19,583
39,165 Raymond James Financial, Inc. 3,500
----------
70,025
----------
LIFE & HEALTH INSURANCE (0.7%)
235,074 AFLAC, Inc. 10,113
36,279 Brighthouse Financial, Inc.(a) 1,454
65,875 Lincoln National Corp. 4,101
307,980 MetLife, Inc. 13,428
81,319 Principal Financial Group, Inc. 4,306
127,348 Prudential Financial, Inc. 11,908
31,878 Torchmark Corp. 2,595
66,790 Unum Group 2,470
----------
50,375
----------
MULTI-LINE INSURANCE (0.3%)
271,236 American International Group, Inc. 14,381
15,859 Assurant, Inc. 1,641
107,938 Hartford Financial Services Group, Inc. 5,519
79,350 Loews Corp. 3,831
----------
25,372
----------
MULTI-SECTOR HOLDINGS (1.6%)
582,860 Berkshire Hathaway, Inc. "B"(a) 108,791
90,071 Jefferies Financial Group Inc. 2,048
----------
110,839
----------
PROPERTY & CASUALTY INSURANCE (0.8%)
106,930 Allstate Corp. 9,759
141,174 Chubb Ltd. 17,932
44,961 Cincinnati Financial Corp. 3,006
177,262 Progressive Corp. 10,485
81,884 Travelers Companies, Inc. 10,018
77,521 XL Group Ltd. 4,337
----------
55,537
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 9
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
REGIONAL BANKS (1.3%)
236,536 BB&T Corp. $ 11,931
147,094 Citizens Financial Group, Inc. 5,722
52,068 Comerica, Inc. 4,734
209,395 Fifth Third Bancorp 6,010
332,803 Huntington Bancshares, Inc. 4,912
320,113 KeyCorp 6,255
44,132 M&T Bank Corp. 7,509
104,417 People's United Financial, Inc. 1,889
142,279 PNC Financial Services Group, Inc. 19,222
338,824 Regions Financial Corp. 6,024
141,334 SunTrust Banks, Inc. 9,331
15,961 SVB Financial Group(a) 4,609
59,372 Zions Bancorp 3,128
----------
91,276
----------
REINSURANCE (0.0%)
12,372 Everest Re Group Ltd. 2,851
----------
Total Financials 965,901
----------
HEALTH CARE (13.5%)
-------------------
BIOTECHNOLOGY (2.5%)
459,131 AbbVie, Inc. 42,539
67,737 Alexion Pharmaceuticals, Inc.(a) 8,410
201,676 Amgen, Inc. 37,227
63,830 Biogen, Inc.(a) 18,526
214,246 Celgene Corp.(a) 17,015
393,837 Gilead Sciences, Inc.(c) 27,899
53,056 Incyte Corp.(a) 3,555
23,298 Regeneron Pharmaceuticals, Inc.(a) 8,038
77,283 Vertex Pharmaceuticals, Inc.(a) 13,135
----------
176,344
----------
HEALTH CARE DISTRIBUTORS (0.3%)
49,060 AmerisourceBergen Corp. 4,183
95,098 Cardinal Health, Inc. 4,644
46,396 Henry Schein, Inc.(a) 3,370
61,285 McKesson Corp. 8,176
----------
20,373
----------
HEALTH CARE EQUIPMENT (2.8%)
531,209 Abbott Laboratories 32,398
12,691 ABIOMED Inc 5,191
149,947 Baxter International, Inc. 11,072
81,018 Becton, Dickinson & Co. 19,409
================================================================================
10 | USAA S&P 500 INDEX FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
418,354 Boston Scientific Corp.(a) $ 13,680
186,366 Danaher Corp. 18,391
64,044 Edwards Lifesciences Corp.(a) 9,323
83,791 Hologic, Inc.(a) 3,331
26,260 IDEXX Laboratories, Inc.(a) 5,723
34,348 Intuitive Surgical, Inc.(a) 16,435
410,276 Medtronic plc 35,124
43,140 ResMed, Inc. 4,468
97,223 Stryker Corp. 16,417
27,535 Varian Medical Systems, Inc.(a) 3,131
61,308 Zimmer Biomet Holdings, Inc. 6,832
----------
200,925
----------
HEALTH CARE FACILITIES (0.1%)
84,466 HCA Healthcare, Inc. 8,666
26,202 Universal Health Services, Inc. "B'' 2,920
----------
11,586
----------
HEALTH CARE SERVICES (0.4%)
42,494 DaVita, Inc.(a) 2,951
36,300 Envision Healthcare Corp.(a) 1,597
170,129 Express Scripts Holding Co.(a) 13,136
30,818 Laboratory Corp. of America Holdings(a) 5,533
40,826 Quest Diagnostics, Inc. 4,488
----------
27,705
----------
HEALTH CARE SUPPLIES (0.2%)
21,727 Align Technology, Inc.(a) 7,434
14,739 Cooper Companies, Inc. 3,470
69,192 Dentsply Sirona, Inc. 3,028
----------
13,932
----------
HEALTH CARE TECHNOLOGY (0.1%)
95,549 Cerner Corp.(a) 5,713
----------
LIFE SCIENCES TOOLS & SERVICES (0.8%)
97,364 Agilent Technologies, Inc. 6,021
44,355 Illumina, Inc.(a) 12,388
49,026 IQVIA Holdings, Inc.(a) 4,894
7,709 Mettler-Toledo International, Inc.(a) 4,460
33,454 PerkinElmer, Inc. 2,450
121,858 Thermo Fisher Scientific, Inc. 25,242
23,771 Waters Corp.(a) 4,602
----------
60,057
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 11
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
MANAGED HEALTH CARE (2.0%)
99,196 Aetna, Inc. $ 18,203
77,158 Anthem, Inc. 18,366
62,235 Centene Corp.(a) 7,668
73,842 Cigna Corp. 12,549
41,870 Humana, Inc. 12,462
291,136 UnitedHealth Group, Inc. 71,427
----------
140,675
----------
PHARMACEUTICALS (4.3%)
102,738 Allergan plc 17,128
495,206 Bristol-Myers Squibb Co. 27,405
289,376 Eli Lilly & Co. 24,692
812,435 Johnson & Johnson 98,581
815,099 Merck & Co., Inc. 49,477
155,338 Mylan N.V.(a) 5,614
48,555 Nektar Therapeutics(a) 2,371
39,438 Perrigo Co. Plc 2,875
1,771,648 Pfizer, Inc.(c) 64,275
147,007 Zoetis, Inc. 12,524
----------
304,942
----------
Total Health Care 962,252
----------
INDUSTRIALS (9.4%)
------------------
AEROSPACE & DEFENSE (2.6%)
128,813 Arconic, Inc. 2,191
165,887 Boeing Co. 55,657
83,824 General Dynamics Corp. 15,626
35,878 Harris Corp. 5,186
13,671 Huntington Ingalls Industries, Inc. 2,964
23,559 L3 Technologies, Inc. 4,531
75,271 Lockheed Martin Corp. 22,237
52,848 Northrop Grumman Corp. 16,261
86,999 Raytheon Co. 16,806
49,434 Rockwell Collins, Inc. 6,658
77,708 Textron, Inc. 5,122
14,945 TransDigm Group, Inc. 5,158
225,364 United Technologies Corp. 28,177
----------
186,574
----------
AGRICULTURE & FARM MACHINERY (0.2%)
98,344 Deere & Co. 13,748
----------
================================================================================
12 | USAA S&P 500 INDEX FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
AIR FREIGHT & LOGISTICS (0.7%)
42,301 C.H. Robinson Worldwide, Inc. $ 3,539
53,508 Expeditors International of Washington, Inc. 3,911
74,393 FedEx Corp. 16,892
208,731 United Parcel Service, Inc. "B" 22,173
----------
46,515
----------
AIRLINES (0.4%)
37,046 Alaska Air Group, Inc. 2,237
127,052 American Airlines Group, Inc. 4,823
196,218 Delta Air Lines, Inc. 9,721
160,957 Southwest Airlines Co. 8,190
71,281 United Continental Holdings, Inc.(a) 4,970
----------
29,941
----------
BUILDING PRODUCTS (0.3%)
43,889 A.O. Smith Corp. 2,596
28,600 Allegion plc 2,213
44,139 Fortune Brands Home & Security, Inc. 2,370
279,439 Johnson Controls International plc 9,347
94,690 Masco Corp. 3,543
----------
20,069
----------
CONSTRUCTION & ENGINEERING (0.1%)
42,100 Fluor Corp. 2,054
36,355 Jacobs Engineering Group, Inc. 2,308
46,549 Quanta Services, Inc.(a) 1,555
----------
5,917
----------
CONSTRUCTION MACHINERY & HEAVY TRUCKS (0.5%)
181,213 Caterpillar, Inc. 24,585
46,969 Cummins, Inc. 6,247
106,302 PACCAR, Inc. 6,586
----------
37,418
----------
DIVERSIFIED SUPPORT SERVICES (0.1%)
26,090 Cintas Corp. 4,828
61,221 Copart, Inc. 3,463
----------
8,291
----------
ELECTRICAL COMPONENTS & EQUIPMENT (0.5%)
69,996 AMETEK, Inc. 5,051
132,659 Eaton Corp. plc 9,915
190,237 Emerson Electric Co. 13,153
37,982 Rockwell Automation, Inc. 6,314
----------
34,433
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
ENVIRONMENTAL & FACILITIES SERVICES (0.2%)
67,967 Republic Services, Inc. $ 4,646
25,602 Stericycle, Inc.(a) 1,672
120,264 Waste Management, Inc. 9,782
----------
16,100
----------
HUMAN RESOURCE & EMPLOYMENT SERVICES (0.0%)
37,702 Robert Half International, Inc. 2,454
----------
INDUSTRIAL CONGLOMERATES (1.6%)
179,669 3M Co. 35,345
2,631,363 General Electric Co. 35,813
226,215 Honeywell International, Inc. 32,586
31,388 Roper Technologies, Inc. 8,660
----------
112,404
----------
INDUSTRIAL MACHINERY (0.7%)
46,615 Dover Corp. 3,412
39,332 Flowserve Corp. 1,589
92,468 Fortive Corp. 7,130
92,149 Illinois Tool Works, Inc. 12,766
75,229 Ingersoll-Rand plc 6,750
40,109 Parker-Hannifin Corp. 6,251
49,843 Pentair plc 2,098
17,125 Snap-on, Inc. 2,753
46,899 Stanley Black & Decker, Inc. 6,229
54,454 Xylem, Inc. 3,669
----------
52,647
----------
RAILROADS (0.9%)
265,217 CSX Corp. 16,916
31,177 Kansas City Southern 3,303
85,688 Norfolk Southern Corp. 12,928
234,930 Union Pacific Corp. 33,285
----------
66,432
----------
RESEARCH & CONSULTING SERVICES (0.3%)
36,168 Equifax, Inc. 4,525
107,523 IHS Markit Ltd.(a) 5,547
101,578 Nielsen Holdings plc 3,142
46,856 Verisk Analytics, Inc.(a) 5,043
----------
18,257
----------
TRADING COMPANIES & DISTRIBUTORS (0.2%)
87,021 Fastenal Co. 4,188
25,496 United Rentals, Inc.(a) 3,764
================================================================================
14 | USAA S&P 500 INDEX FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
15,405 W.W. Grainger, Inc. $ 4,751
----------
12,703
----------
TRUCKING (0.1%)
25,778 J.B. Hunt Transport Services, Inc. 3,133
----------
Total Industrials 667,036
----------
INFORMATION TECHNOLOGY (25.5%)
------------------------------
APPLICATION SOFTWARE (1.5%)
149,232 Adobe Systems, Inc.(a) 36,384
25,307 ANSYS, Inc.(a) 4,408
66,465 Autodesk, Inc.(a) 8,713
84,996 Cadence Design Systems, Inc.(a) 3,681
38,942 Citrix Systems, Inc.(a) 4,083
73,894 Intuit, Inc. 15,097
213,772 salesforce.com, Inc.(a) 29,159
44,880 Synopsys, Inc.(a) 3,840
----------
105,365
----------
COMMUNICATIONS EQUIPMENT (1.0%)
1,424,595 Cisco Systems, Inc. 61,300
18,676 F5 Networks, Inc.(a) 3,221
107,417 Juniper Networks, Inc. 2,945
48,773 Motorola Solutions, Inc. 5,676
----------
73,142
----------
DATA PROCESSING & OUTSOURCED SERVICES (3.2%)
14,630 Alliance Data Systems Corp. 3,412
133,791 Automatic Data Processing, Inc. 17,947
35,764 Broadridge Financial Solutions Inc 4,116
100,801 Fidelity National Information Services, Inc. 10,688
124,626 Fiserv, Inc.(a) 9,234
27,153 Fleetcor Techs. Inc 5,720
48,755 Global Payments, Inc. 5,436
277,632 Mastercard, Inc. "A" 54,560
97,720 Paychex, Inc. 6,679
338,127 PayPal Holdings, Inc.(a) 28,156
49,864 Total System Services, Inc. 4,214
540,802 Visa, Inc. "A"(b) 71,629
138,283 Western Union Co. 2,811
----------
224,602
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 15
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
ELECTRONIC COMPONENTS (0.2%)
91,132 Amphenol Corp. "A" $ 7,942
251,731 Corning, Inc. 6,925
----------
14,867
----------
ELECTRONIC EQUIPMENT & INSTRUMENTS (0.0%)
41,722 FLIR Systems, Inc. 2,168
----------
ELECTRONIC MANUFACTURING SERVICES (0.2%)
11,421 IPG Photonics Corp.(a) 2,520
105,851 TE Connectivity Ltd. 9,533
----------
12,053
----------
HOME ENTERTAINMENT SOFTWARE (0.5%)
230,760 Activision Blizzard, Inc. 17,612
92,629 Electronic Arts, Inc.(a) 13,062
34,519 Take-Two Interactive Software, Inc.(a) 4,086
----------
34,760
----------
INTERNET SOFTWARE & SERVICES (5.2%)
51,465 Akamai Technologies, Inc.(a) 3,769
90,466 Alphabet, Inc. "A"(a) 102,153
91,961 Alphabet, Inc. "C"(a) 102,596
280,282 eBay, Inc.(a) 10,163
726,607 Facebook, Inc. "A"(a) 141,194
198,452 Twitter Inc 8,667
28,967 VeriSign, Inc.(a) 3,981
----------
372,523
----------
IT CONSULTING & OTHER SERVICES (1.3%)
194,640 Accenture plc "A" 31,841
177,528 Cognizant Technology Solutions Corp. "A" 14,023
86,169 DXC Technology Co. 6,946
27,534 Gartner, Inc.(a) 3,660
258,477 International Business Machines Corp. 36,109
----------
92,579
----------
SEMICONDUCTOR EQUIPMENT (0.4%)
305,176 Applied Materials, Inc. 14,096
47,184 KLA-Tencor Corp. 4,838
49,704 Lam Research Corp. 8,591
----------
27,525
----------
SEMICONDUCTORS (3.6%)
249,484 Advanced Micro Devices, Inc.(a) 3,740
112,537 Analog Devices, Inc. 10,794
121,668 Broadcom, Inc. 29,521
================================================================================
16 | USAA S&P 500 INDEX FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
1,412,048 Intel Corp. $ 70,193
71,695 Microchip Technology, Inc. 6,521
351,276 Micron Technology, Inc.(a) 18,421
183,833 NVIDIA Corp. 43,550
38,315 Qorvo, Inc.(a) 3,072
448,914 QUALCOMM, Inc. 25,193
55,054 Skyworks Solutions, Inc. 5,321
296,719 Texas Instruments, Inc. 32,713
76,871 Xilinx, Inc. 5,017
----------
254,056
----------
SYSTEMS SOFTWARE (4.0%)
94,483 CA, Inc. 3,368
2,327,322 Microsoft Corp.(c) 229,497
902,754 Oracle Corp. 39,775
54,051 Red Hat, Inc.(a) 7,263
186,653 Symantec Corp. 3,855
----------
283,758
----------
TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS (4.4%)
1,488,818 Apple, Inc.(c) 275,595
462,104 Hewlett Packard Enterprise Co. 6,751
498,333 HP, Inc. 11,307
80,848 NetApp, Inc. 6,349
87,707 Seagate Technology plc 4,953
91,007 Western Digital Corp. 7,045
64,577 Xerox Corp. 1,550
----------
313,550
----------
Total Information Technology 1,810,948
----------
MATERIALS (2.6%)
----------------
COMMODITY CHEMICALS (0.2%)
97,701 LyondellBasell Industries N.V. "A" 10,732
----------
CONSTRUCTION MATERIALS (0.1%)
18,944 Martin Marietta Materials, Inc. 4,231
40,074 Vulcan Materials Co. 5,172
----------
9,403
----------
COPPER (0.1%)
406,888 Freeport-McMoRan, Inc.(a) 7,023
----------
DIVERSIFIED CHEMICALS (0.7%)
703,330 DowDuPont, Inc. 46,364
43,058 Eastman Chemical Co. 4,304
----------
50,668
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
FERTILIZERS & AGRICULTURAL CHEMICALS (0.1%)
70,227 CF Industries Holdings, Inc. $ 3,118
40,425 FMC Corp. 3,606
105,680 Mosaic Co. 2,965
----------
9,689
----------
GOLD (0.1%)
161,312 Newmont Mining Corp. 6,083
----------
INDUSTRIAL GASES (0.3%)
66,706 Air Products & Chemicals, Inc. 10,388
87,277 Praxair, Inc. 13,803
----------
24,191
----------
METAL & GLASS CONTAINERS (0.1%)
105,945 Ball Corp. 3,766
----------
PAPER PACKAGING (0.3%)
26,613 Avery Dennison Corp. 2,717
126,002 International Paper Co. 6,562
28,460 Packaging Corp. of America 3,182
48,133 Sealed Air Corp. 2,043
78,389 WestRock Co. 4,470
----------
18,974
----------
SPECIALTY CHEMICALS (0.5%)
33,320 Albemarle Corp. 3,143
78,442 Ecolab, Inc. 11,008
23,772 International Flavors & Fragrances, Inc. 2,947
75,840 PPG Industries, Inc. 7,867
24,959 Sherwin-Williams Co. 10,172
----------
35,137
----------
STEEL (0.1%)
97,272 Nucor Corp. 6,079
----------
Total Materials 181,745
----------
REAL ESTATE (2.8%)
------------------
REAL ESTATE SERVICES (0.1%)
90,947 CBRE Group, Inc. "A"(a) 4,342
----------
REITs - HEALTH CARE (0.2%)
141,418 HCP, Inc. 3,651
109,017 Ventas, Inc. 6,209
113,754 Welltower, Inc. 7,131
----------
16,991
----------
================================================================================
18 | USAA S&P 500 INDEX FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
REITs - HOTEL & RESORT (0.1%)
225,619 Host Hotels & Resorts, Inc. $ 4,754
----------
REITs - INDUSTRIAL (0.2%)
107,487 Duke Realty Corp. 3,120
162,405 ProLogis, Inc. 10,669
----------
13,789
----------
REITs - OFFICE (0.2%)
31,251 Alexandria Real Estate Equities, Inc. 3,943
46,692 Boston Properties, Inc. 5,856
27,310 SL Green Realty Corp. 2,746
52,006 Vornado Realty Trust 3,844
----------
16,389
----------
REITs - RESIDENTIAL (0.4%)
47,304 Apartment Investment & Management Co. "A" 2,001
41,749 AvalonBay Communities, Inc. 7,176
111,157 Equity Residential 7,080
20,296 Essex Property Trust, Inc. 4,852
34,196 Mid-America Apartment Communities, Inc. 3,442
81,287 UDR, Inc. 3,052
----------
27,603
----------
REITs - RETAIL (0.5%)
22,128 Federal Realty Investment Trust 2,800
190,652 GGP, Inc. 3,895
128,612 Kimco Realty Corp. 2,185
32,545 Macerich Co. 1,850
85,866 Realty Income Corp. 4,619
44,617 Regency Centers Corp. 2,770
93,898 Simon Property Group, Inc. 15,980
----------
34,099
----------
REITs - SPECIALIZED (1.1%)
133,729 American Tower Corp. 19,280
126,078 Crown Castle International Corp. 13,594
62,133 Digital Realty Trust, Inc. 6,933
24,154 Equinix, Inc. 10,383
37,909 Extra Space Storage, Inc. 3,784
84,733 Iron Mountain, Inc. 2,966
45,215 Public Storage 10,257
35,156 SBA Communications Corp.(a) 5,805
230,692 Weyerhaeuser Co. 8,411
----------
81,413
----------
Total Real Estate 199,380
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES (2.0%)
---------------------------------
ALTERNATIVE CARRIERS (0.1%)
298,448 CenturyLink, Inc. $ 5,563
----------
INTEGRATED TELECOMMUNICATION SERVICES (1.9%)
2,198,057 AT&T, Inc.(c) 70,580
1,251,253 Verizon Communications, Inc.(c) 62,950
----------
133,530
----------
Total Telecommunication Services 139,093
----------
UTILITIES (2.9%)
----------------
ELECTRIC UTILITIES (1.8%)
69,430 Alliant Energy Corp. 2,938
148,525 American Electric Power Co., Inc. 10,285
213,140 Duke Energy Corp. 16,855
98,242 Edison International 6,216
54,667 Entergy Corp. 4,417
81,833 Evergy Inc. 4,595
95,411 Eversource Energy 5,592
293,690 Exelon Corp. 12,511
134,932 FirstEnergy Corp. 4,845
142,985 NextEra Energy, Inc. 23,883
155,448 PG&E Corp. 6,616
33,657 Pinnacle West Capital Corp. 2,711
213,375 PPL Corp. 6,092
307,070 Southern Co. 14,221
153,445 Xcel Energy, Inc. 7,009
----------
128,786
----------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS (0.1%)
199,744 AES Corp. 2,679
91,240 NRG Energy, Inc. 2,801
----------
5,480
----------
MULTI-UTILITIES (0.9%)
73,046 Ameren Corp. 4,445
130,532 CenterPoint Energy, Inc. 3,617
84,868 CMS Energy Corp. 4,013
93,791 Consolidated Edison, Inc. 7,314
198,153 Dominion Energy, Inc. 13,510
56,011 DTE Energy Co. 5,804
101,465 NiSource, Inc. 2,667
152,563 Public Service Enterprise Group, Inc. 8,260
42,785 SCANA Corp. 1,648
================================================================================
20 | USAA S&P 500 INDEX FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
80,313 Sempra Energy $ 9,325
95,458 WEC Energy Group, Inc. 6,171
----------
66,774
----------
WATER UTILITIES (0.1%)
53,797 American Water Works Co., Inc. 4,593
----------
Total Utilities 205,633
----------
Total Common Stocks (Cost: $3,149,299) 6,974,415
----------
MONEY MARKET INSTRUMENTS (1.6%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (1.4%)
104,834,061 Northern Institutional Funds - U.S. Government Portfolio, 1.73%(e),(f) 104,834
----------
--------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT
(000)
--------------------------------------------------------------------------------------------------------
U.S. TREASURY BILLS (0.2%)
$ 12,955 1.61%, 7/19/18(g),(h) 12,944
----------
Total Money Market Instruments (Cost: $117,779) 117,778
----------
--------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES
--------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS PURCHASED WITH CASH
COLLATERAL FROM SECURITIES LOANED (0.1%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (0.1%)
252,325 Goldman Sachs Financial Square Government Fund Institutional
Class, 1.84%(e) 252
4,518,393 Invesco Government & Agency Portfolio Institutional Class, 1.83%(e) 4,519
1,329,944 Western Asset Institutional Government Reserves Institutional
Class A, 1.80%(e) 1,330
----------
Total Short-Term Investments Purchased With Cash Collateral From
Securities Loaned (Cost: $6,101) 6,101
----------
TOTAL INVESTMENTS (COST: $3,273,179) $7,098,294
==========
================================================================================
PORTFOLIO OF INVESTMENTS | 21
================================================================================
--------------------------------------------------------------------------------------------------------
UNREALIZED
NOTIONAL CONTRACT APPRECIATION/
NUMBER OF EXPIRATION AMOUNT VALUE (DEPRECIATION)
CONTRACTS DATE (000) (000) (000)
--------------------------------------------------------------------------------------------------------
FUTURES (1.8%)
LONG FUTURES
EQUITY CONTRACTS
928 E-mini S&P 500 Index
Futures 9/21/2018 128,738 USD $126,282 $ (2,456)
-------- ----------
TOTAL FUTURES $126,282 $ (2,456)
======== ==========
--------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
--------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
--------------------------------------------------------------------------------------------------------
Equity Securities:
Common stocks $6,974,415 $ - $- $6,974,415
Money Market Instruments:
Government & U.S. Treasury
Money Market Funds 104,834 - - 104,834
U.S. Treasury Bills - 12,944 - 12,944
Short-Term Investments Purchased With
Cash Collateral From Securities Loaned:
Government & U.S. Treasury
Money Market Funds 6,101 - - 6,101
--------------------------------------------------------------------------------------------------------
Total $7,085,350 $12,944 $- $7,098,294
--------------------------------------------------------------------------------------------------------
LIABILITIES LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
--------------------------------------------------------------------------------------------------------
Futures(1) $ (2,456) $ - $- $ (2,456)
--------------------------------------------------------------------------------------------------------
Total $ (2,456) $ - $- $ (2,456)
--------------------------------------------------------------------------------------------------------
(1)Futures are valued at the unrealized appreciation/(depreciation) on the
investment.
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
For the period of January 1, 2018, through June 30, 2018, there were no
transfers between levels. The Fund's policy is to recognize any transfers into
and out of the levels as of the beginning of the period In which the event or
circumstance that caused the transfer occurred.
================================================================================
22 | USAA S&P 500 INDEX FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
June 30, 2018 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
Market values of securities are determined by procedures and practices
discussed in Note 1A to the financial statements.
The Portfolio of Investments category percentages shown represent the
percentages of the investments to net assets, and, in total, may not equal
100%. A category percentage of 0.0% represents less than 0.1% of net assets.
o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS
REITs Real estate investment trust - Dividend distributions from REITs may
be recorded as income and later characterized by the REIT at the end
of the fiscal year as capital gains or a return of capital. Thus, the
fund will estimate the components of distributions from these
securities and revise when actual distributions are known.
o SPECIFIC NOTES
(a) Non-income-producing security.
(b) The security, or a portion thereof, was out on loan as of June 30, 2018.
(c) Security, or a portion thereof, is segregated to cover the value of open
futures contracts at June 30, 2018.
(d) Northern Trust Corp. is the parent to Northern Trust Investments, Inc.
(NTI), which is the subadviser of the Fund.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 23
================================================================================
(e) Rate represents the money market fund annualized seven-day yield at
June 30, 2018.
(f) NTI is both the subadviser of the Fund and the adviser of the Northern
Institutional Funds - U.S. Government Portfolio.
(g) Rate represents an annualized yield at time of purchase, not a coupon
rate.
(h) Security with a value of $12,944,000 is segregated as collateral for
initial margin requirements on open futures contracts.
See accompanying notes to financial statements.
================================================================================
24 | USAA S&P 500 INDEX FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
June 30, 2018 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (including
securities on loan of $9,080) (cost of $3,273,179) $7,098,294
Receivables:
Capital shares sold:
Affiliated transactions (Note 8) 400
Unaffiliated transactions 2,703
USAA Asset Management Company (Note 7) 120
Dividends and interest 5,905
Securities sold 7,286
Other 19
Variation margin on futures contracts 95
----------
Total assets 7,114,822
----------
LIABILITIES
Payables:
Upon return of securities loaned 6,101
Securities purchased 3,462
Capital shares redeemed 2,325
Accrued management fees 572
Accrued administration and servicing fees 17
Accrued transfer agent's fees 89
Other accrued expenses and payables 133
----------
Total liabilities 12,699
----------
Net assets applicable to capital shares outstanding $7,102,123
==========
NET ASSETS CONSIST OF:
Paid-in capital $3,259,163
Accumulated undistributed net investment income 1,205
Accumulated net realized gain on investments and futures transactions 19,096
Net unrealized appreciation of investments and futures contracts 3,822,659
----------
Net assets applicable to capital shares outstanding $7,102,123
==========
Net asset value, redemption price, and offering price per share:
Member Shares (net assets of $3,270,943/84,706 capital shares
outstanding, no par value) $ 38.62
==========
Reward Shares (net assets of $3,831,179/99,183 capital shares
outstanding, no par value) $ 38.63
==========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 25
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended June 30, 2018 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends $ 66,938
Interest 511
Other (Note 7) 1
Securities lending (net) 96
--------
Total income 67,546
--------
EXPENSES
Management fees 3,464
Administration and servicing fees:
Member Shares 962
Reward Shares 1,117
Transfer agent's fees:
Member Shares 1,393
Reward Shares 159
Custody and accounting fees:
Member Shares 15
Reward Shares 16
Postage:
Member Shares 78
Reward Shares 8
Shareholder reporting fees:
Member Shares 37
Reward Shares 8
Trustees' fees 16
Registration fees:
Member Shares 60
Reward Shares 79
Professional fees 105
Other 79
--------
Total expenses 7,596
Expenses reimbursed:
Member Shares (192)
Reward Shares (532)
--------
Net expenses 6,872
--------
NET INVESTMENT INCOME 60,674
--------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FUTURES CONTRACTS
Net realized gain on:
Investments 31,811
Futures transactions 3,451
Change in net unrealized appreciation/(depreciation) of:
Investments 83,158
Futures contracts (3,092)
--------
Net realized and unrealized gain 115,328
--------
Increase in net assets resulting from operations $176,002
========
See accompanying notes to financial statements.
================================================================================
26 | USAA S&P 500 INDEX FUND
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended June 30, 2018 (unaudited), and year ended
December 31, 2017
--------------------------------------------------------------------------------------------------------
6/30/2018 12/31/2017
--------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 60,674 $ 112,603
Net realized gain (loss) on investments 31,811 (1,403)
Net realized gain on futures transactions 3,451 14,449
Change in net unrealized appreciation/(depreciation) of:
Investments 83,158 1,123,674
Futures contracts (3,092) 863
----------------------------
Increase in net assets resulting from operations 176,002 1,250,186
----------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Member Shares (27,777) (52,602)
Reward Shares (34,235) (58,208)
----------------------------
Total distributions of net investment income (62,012) (110,810)
----------------------------
Net realized gains:
Member Shares - (1,805)
Reward Shares - (1,973)
----------------------------
Total distributions of net realized gains - (3,778)
----------------------------
Distributions to shareholders (62,012) (114,588)
----------------------------
NET INCREASE (DECREASE) IN NET ASSETS FROM
CAPITAL SHARE TRANSACTIONS (NOTE 6)
Member Shares (71,599) (235,826)
Reward Shares 137,646 49,033
----------------------------
Total net increase (decrease) in net assets from
capital share transactions 66,047 (186,793)
----------------------------
Net increase in net assets 180,037 948,805
NET ASSETS
Beginning of period 6,922,086 5,973,281
----------------------------
End of period $7,102,123 $6,922,086
============================
Accumulated undistributed net investment income:
End of period $ 1,205 $ 2,543
============================
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 27
================================================================================
NOTES TO FINANCIAL STATEMENTS
June 30, 2018 (unaudited)
--------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company Act
of 1940, as amended (the 1940 Act), is an open-end management investment company
organized as a Delaware statutory trust consisting of 50 separate funds. The
USAA S&P 500 Index 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 seeks to match, before fees and
expenses, the performance of the stocks composing the S&P 500 Index. The S&P 500
Index emphasizes stocks of large U.S. companies. USAA Asset Management Company
(the Manager), an affiliate of the Fund, has retained Northern Trust
Investments, Inc. (NTI) to serve as subadviser for the Fund. NTI is responsible
for investing the Fund's assets. Under normal market conditions, NTI attempts to
achieve the Fund's objective by investing at least 80% of the Fund's assets in
the common stocks of companies composing the S&P 500 Index.
The Fund consists of two classes of shares: Member Shares and Reward 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 agency 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 both classes. The Reward Shares are currently offered for sale to qualified
shareholders, the USAA discretionary managed account program, and a USAA Fund
participating in a fund-of-funds investment strategy (USAA fund-of-funds).
================================================================================
28 | USAA S&P 500 INDEX FUND
================================================================================
A. SECURITY VALUATION - The Trust's Board of Trustees (the Board) has
established the Valuation and Liquidity Committee (the Committee), and
subject to Board oversight, the Committee administers and oversees the
Fund's valuation policies and procedures, which are approved by the Board.
Among other things, these policies and procedures allow the Fund to utilize
independent pricing services, quotations from securities dealers, and a
wide variety of sources and information to establish and adjust the fair
value of securities as events occur and circumstances warrant.
The Committee reports to the Board on a quarterly basis and makes
recommendations to the Board as to pricing methodologies and services used
by the Fund and presents additional information to the Board regarding
application of the pricing and fair valuation policies and procedures
during the preceding quarter.
The Committee meets as often as necessary to make pricing and fair value
determinations. In addition, the Committee holds regular monthly meetings
to review prior actions taken by the Committee and the Manager. 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 29
================================================================================
equity securities listed on a domestic exchange generally are
categorized in Level 1 of the fair value hierarchy. Certain preferred
and equity securities traded in inactive markets generally are
categorized in Level 2 of the fair value hierarchy.
2. Investments in open-end investment companies, commingled, or other
funds, other than ETFs, are valued at their net asset value (NAV) at the
end of each business day and are categorized in Level 1 of the fair
value hierarchy.
3. 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.
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
================================================================================
30 | USAA S&P 500 INDEX 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 | 31
================================================================================
The inputs or methodologies used for valuing securities are not necessarily
an indication of the risks associated with investing in those securities.
C. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - The Fund may buy, sell, and
enter into certain types of derivatives, including, but not limited to,
futures contracts, options, and options on futures contracts, under
circumstances in which such instruments are expected by the portfolio
manager to aid in achieving the Fund's investment objective. The Fund also
may use derivatives in circumstances where the portfolio manager believes
they offer an economical means of gaining exposure to a particular asset
class or securities market or to keep cash on hand to meet shareholder
redemptions or other needs while maintaining exposure to the market. With
exchange-listed futures contracts and options, counterparty credit risk to
the Fund is limited to the exchange's clearinghouse which, as counterparty
to all exchange-traded futures contracts and options, guarantees the
transactions against default from the actual counterparty to the
transaction. The Fund's derivative agreements held at June 30, 2018, did
not include master netting provisions.
FUTURES CONTRACTS - The Fund is subject to cash flow and tracking error
risk in the normal course of pursuing its investment objectives. The Fund
may use stock index futures contracts in an attempt to reduce any
performance discrepancies between the Fund and the S&P 500 Index. 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
================================================================================
32 | USAA S&P 500 INDEX FUND
================================================================================
which case, the Fund may not achieve the anticipated benefits of the
futures contracts.
FAIR VALUES OF DERIVATIVE INSTRUMENTS AS OF JUNE 30, 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 $2,456**
depreciation of
investments and
futures contracts
---------------------------------------------------------------------------------------------------
* For open derivative instruments as of June 30, 2018, see the Portfolio of
Investments, which also is indicative of activity for the six-month
period ended June 30, 2018.
** Includes cumulative appreciation (depreciation) of futures as reported on
the Portfolio of Investments. Only the variation margin from the last
business day of the reporting period is reported within the Statement of
Assets and Liabilities.
THE EFFECT OF DERIVATIVE INSTRUMENTS ON THE STATEMENT OF OPERATIONS
FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 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 on $3,451 $(3,092)
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 June 30, 2018, the Fund did not incur any
income tax, interest, or penalties, and has recorded no liability for
================================================================================
NOTES TO FINANCIAL STATEMENTS | 33
================================================================================
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 as of
the date the securities are purchased or sold (trade date). Gains or losses
from sales of investment securities are computed on the identified cost
basis. Dividend income, less foreign taxes, if any, is recorded on the
ex-dividend date. If the ex-dividend date has passed, certain dividends
from foreign securities are recorded upon notification. Interest income is
recorded daily on the accrual basis. Premiums and discounts on short-term
securities are amortized on a straight-line basis over the life of the
respective securities.
F. INDEMNIFICATIONS - Under the Trust's organizational documents, its officers
and trustees are indemnified against certain liabilities arising out of the
performance of their duties to the Trust. In addition, in the normal course
of business, the Trust enters into contracts that contain a variety of
representations and warranties that provide general indemnifications. The
Trust's maximum exposure under these arrangements is unknown, as this would
involve future claims that may be made against the Trust that have not yet
occurred. However, the Trust expects the risk of loss to be remote.
G. USE OF ESTIMATES - The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts in the
financial statements.
(2) LINE OF CREDIT
The Fund participates, along with other funds of the Trust and USAA ETF Trust
(together, the Trusts), in a joint, short-term, revolving, committed loan
agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate of
the Manager. The purpose of the agreement is to provide temporary or emergency
cash needs, including redemption requests that might otherwise require the
untimely disposition of securities. Subject to availability (including usage of
the facility by other funds of the Trusts), the Fund may borrow from
================================================================================
34 | USAA S&P 500 INDEX FUND
================================================================================
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 June 30, 2018, the Fund paid CAPCO facility fees
of $27,000, which represents 8.4% of the total fees paid to CAPCO by the funds
of the Trusts. The Fund had no borrowings under this agreement during the
six-month period ended June 30, 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 December 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 December 31, 2017, the Fund had no capital loss carryforwards, for federal
income tax purposes.
As of June 30, 2018, the cost of securities, including short-term securities,
for federal income tax purposes, was approximately the same as the cost reported
in the financial statements.
Gross unrealized appreciation and depreciation of investments as of June 30,
2018, were $3,943,912,000 and $118,797,000, respectively, resulting in net
unrealized appreciation of $3,825,115,000.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 35
================================================================================
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities, excluding
short-term securities, for the six-month period ended June 30, 2018, were
$104,066,000 and $110,628,000, 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, net of income retained by
Citibank. 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. Loans are terminable
upon demand and the borrower must return the loaned securities within the lesser
of one standard settlement period or five business days. 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 June 30, 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
-------------------------------------------------------------------------------
$9,080,000 $3,495,000 $6,101,000
-------------------------------------------------------------------------------
================================================================================
36 | USAA S&P 500 INDEX FUND
================================================================================
(6) CAPITAL SHARE TRANSACTIONS
At June 30, 2018, there were an unlimited number of shares of capital stock
at no par value authorized for the Fund.
Capital share transactions were as follows, in thousands:
SIX-MONTH PERIOD ENDED YEAR ENDED
JUNE 30, 2018 DECEMBER 31, 2017
-------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------
MEMBER SHARES:
Shares sold 7,713 $ 298,531 13,887 $ 481,857
Shares issued from
reinvested dividends 727 27,387 1,518 53,682
Shares redeemed (10,209) (397,517) (22,063) (771,365)
----------------------------------------------------------
Net decrease from capital
share transactions (1,769) $ (71,599) (6,658) $(235,826)
==========================================================
REWARD SHARES:
Shares sold 8,991 $ 350,731 17,379 $ 608,487
Shares issued from
reinvested dividends 871 32,820 1,634 57,877
Shares redeemed (6,345) (245,905) (17,974) (617,331)
----------------------------------------------------------
Net increase from capital
share transactions 3,517 $ 137,646 1,039 $ 49,033
==========================================================
(7) TRANSACTIONS WITH MANAGER
MANAGEMENT FEES - The Manager provides investment management services to the
Fund pursuant to a Management 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%
================================================================================
NOTES TO FINANCIAL STATEMENTS | 37
================================================================================
of the Fund's assets, and the Manager could change the allocations without
shareholder approval.
The Fund's management fees are 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
June 30, 2018, the Fund incurred management fees, paid or payable to the
Manager, of $3,464,000.
SUBADVISORY ARRANGEMENT(S) - The Manager has entered into an Investment
Subadvisory Agreement with NTI, under which NTI directs the investment and
reinvestment of the Fund's assets (as allocated from time to time by the
Manager). This arrangement provides for monthly fees that are paid by the
Manager.
The Manager (not the Fund) pays NTI a subadvisory fee in an annual amount of
0.02% of the Fund's average daily net assets on amounts up to $1.5 billion;
0.01% of the Fund's average daily net assets for the next $1.5 billion; and
0.005% of the Fund's average daily net assets that exceed $3 billion. For the
six-month period ended June 30, 2018, the Manager incurred subadvisory fees with
respect to the Fund, paid or payable to NTI, of $320,000.
NTI has agreed to remit to the Fund all subadvisory fees earned on Fund assets
invested in any of NTI's affiliated money market funds. For the six-month
period ended June 30, 2018, NTI remitted $1,000 to the Fund for the investments
in the Northern Institutional Fund's U.S Government Portfolio.
NTI is a subsidiary of The Northern Trust Company, the Fund's custodian and
accounting agent.
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 0.06% of the Fund's
average net assets for the fiscal year. For the six-month period ended June 30,
2018, the Member Shares and Reward Shares incurred administration and servicing
fees, paid or payable to the Manager, of $962,000 and $1,117,000, respectively.
In addition to the services provided under its Administration and Servicing
Agreement with the Fund, the Manager also provides certain compliance
================================================================================
38 | USAA S&P 500 INDEX FUND
================================================================================
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 June 30, 2018, the Fund reimbursed the Manager $61,000
for these compliance and legal services. These expenses are included in the
professional fees on the Fund's Statement of Operations.
EXPENSE LIMITATION - The Manager agreed through April 30, 2019, to limit the
total annual operating expenses of the Member Shares and the Reward Shares to
0.25% and 0.15%, respectively, of their average net assets, excluding
extraordinary expenses and before reductions of any expenses paid indirectly,
and to reimburse the Fund for all expenses in excess of those amounts. This
expense limitation arrangement may not be changed or terminated through April
30, 2019, without approval of the Board, and may be changed or terminated by the
Manager at any time after that date. For the six-month period ended June 30,
2018, the Fund incurred reimbursable expenses from the Manager for the Member
Shares and the Reward Shares of $192,000 and $532,000, respectively, of which
$120,000 was receivable from the Manager.
In addition, NTI has contractually agreed to reimburse the Fund for all license
fees paid by the Fund to Standard & Poor's, in amounts not exceeding the annual
rate of 0.001% of the average daily net assets of the Fund. For the six-month
period ended June 30, 2018, the Fund incurred reimbursable expenses from NTI for
the Member Shares and the Reward Shares of $19,000 and $21,000, respectively.
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 $20 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 June 30, 2018, the Fund
incurred transfer agent's fees, paid or payable to SAS for the Member Shares and
Reward Shares, of $1,393,000 and $159,000, respectively.
UNDERWRITING SERVICES - USAA Investment Management Company provides exclusive
underwriting and distribution of the Fund's shares on a continuing best-efforts
basis and receives no fee or other compensation for these services.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 39
================================================================================
ACCOUNT MAINTENANCE FEE - SAS assesses a $10 annual account maintenance fee to
the Member Shares to allocate part of the fixed cost of maintaining shareholder
accounts. This fee is charged directly to the shareholders' accounts and does
not impact the Fund. The fee is waived on accounts with balances of $10,000 or
more.
(8) TRANSACTIONS WITH AFFILIATES
The Fund's Reward Shares 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 June
30, 2018, the Fund recorded a receivable for capital shares sold of $400,000 for
the USAA fund-of-funds' purchases of Reward Shares. As of June 30, 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 0.1
Target Retirement 2020 0.1
Target Retirement 2030 0.4
Target Retirement 2040 0.6
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.
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.
================================================================================
40 | USAA S&P 500 INDEX 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 | 41
================================================================================
FINANCIAL HIGHLIGHTS
MEMBER SHARES (UNAUDITED)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------------
2018 2017 2016 2015 2014 2013
-----------------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 38.00 $ 31.81 $ 29.18 $ 29.41 $ 26.39 $ 20.34
-----------------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .33 .59 .58 .56 .49 .44
Net realized and
unrealized gain (loss) .62 6.21 2.80 (.24) 3.01 6.02
-----------------------------------------------------------------------------------------------
Total from investment
operations .95 6.80 3.38 .32 3.50 6.46
-----------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.33) (.59) (.61) (.52) (.48) (.41)
Realized capital gains - (.02) (.14) (.03) - -
-----------------------------------------------------------------------------------------------
Total distributions (.33) (.61) (.75) (.55) (.48) (.41)
-----------------------------------------------------------------------------------------------
Net asset value at
end of period $ 38.62 $ 38.00 $ 31.81 $ 29.18 $ 29.41 $ 26.39
===============================================================================================
Total return (%)* 2.52 21.53 11.70 1.13 13.38 32.03
Net assets at end of
period (000) $3,270,943 $3,285,829 $2,962,450 $2,777,361 $2,761,616 $2,571,828
Ratios to average
net assets:**
Expenses (%)(c) .25(b) .25 .25 .25 .25 .25(a)
Expenses, excluding
reimbursements (%)(c) .26(b) .27 .28 .28 .28 .30(a)
Net investment
income (%) 1.68(b) 1.71 1.95 1.88 1.76 1.85
Portfolio turnover (%) 1 3 4 4 3 3
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period; does not reflect $10 annual
account maintenance fee. 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 June 30, 2018, average net assets were
$3,269,805,000.
(a) Reflects total annual operating expenses of the Member Shares before
reductions of any expenses paid indirectly. The Member Shares' expenses paid
indirectly decreased the expense ratio by less than 0.01%.
(b) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(c) Does not include acquired fund fees, if any.
================================================================================
42 | USAA S&P 500 INDEX FUND
================================================================================
REWARD SHARES (UNAUDITED)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------------
2018 2017 2016 2015 2014 2013
-----------------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 38.01 $ 31.82 $ 29.19 $ 29.42 $ 26.39 $ 20.34
-----------------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .34 .61 .60 .59 .51 .45
Net realized and
unrealized gain (loss) .63 6.22 2.81 (.24) 3.03 6.04
-----------------------------------------------------------------------------------------------
Total from investment
operations .97 6.83 3.41 .35 3.54 6.49
-----------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.35) (.62) (.64) (.55) (.51) (.44)
Realized capital gains - (.02) (.14) (.03) - -
-----------------------------------------------------------------------------------------------
Total distributions (.35) (.64) (.78) (.58) (.51) (.44)
-----------------------------------------------------------------------------------------------
Net asset value at
end of period $ 38.63 $ 38.01 $ 31.82 $ 29.19 $ 29.42 $ 26.39
===============================================================================================
Total return (%)* 2.57 21.64 11.79 1.23 13.53 32.16
Net assets at end of
period (000) $3,831,179 $3,636,257 $3,010,831 $2,613,832 $2,306,656 $1,832,575
Ratios to average
net assets:**
Expenses (%)(c) .15(b) .15 .15 .15 .15 .15(a)
Expenses, excluding
reimbursements (%)(c) .18(b) .18 .18 .18 .18 .20(a)
Net investment
income (%) 1.78(b) 1.81 2.04 1.99 1.86 1.95
Portfolio turnover (%) 1 3 4 4 3 3
* 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 June 30, 2018, average net assets were
$3,795,075,000.
(a) Reflects total annual operating expenses of the Reward Shares before
reductions of any expenses paid indirectly. The Reward Shares' expenses paid
indirectly decreased the expense ratio by less than 0.01%.
(b) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(c) Does not include acquired fund fees, if any.
================================================================================
FINANCIAL HIGHLIGHTS | 43
================================================================================
EXPENSE EXAMPLE
June 30, 2018 (unaudited)
--------------------------------------------------------------------------------
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: direct costs, such
as account maintenance fees, 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 January 1, 2018, through June
30, 2018.
ACTUAL EXPENSES
The line labeled "actual" under each share class in the table provides
information about actual account values and actual expenses. You may use the
information in this line, together with the amount you invested at the beginning
of the period, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number for your share
class in the "actual" line under the heading "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
Actual expenses in the table on the next page do not reflect the effect of the
annual $10.00 account maintenance fee that is assessed on Member Share accounts
with balances of less than $10,000, at a rate of $2.50 per quarter. To include
the effect of this fee on the expenses that you paid, add $5.00 ($2.50 for two
quarters) to your calculated estimated expenses. If you are currently assessed
this fee, your ending account value reflects the quarterly deduction from your
account.
================================================================================
44 | USAA S&P 500 INDEX FUND
================================================================================
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% 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 account
maintenance fees, 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 JANUARY 1, 2018 -
JANUARY 1, 2018 JUNE 30, 2018 JUNE 30, 2018
--------------------------------------------------------------
MEMBER SHARES
Actual $1,000.00 $1,025.20 $1.26
Hypothetical
(5% return before expenses) 1,000.00 1,023.55 1.25
REWARD SHARES
Actual 1,000.00 1,025.70 0.75
Hypothetical
(5% return before expenses) 1,000.00 1,024.05 0.75
*Expenses are equal to the Fund's annualized expense ratio of 0.25% for Member
Shares and 0.15% for Reward Shares, which are net of any reimbursements and
expenses paid indirectly, multiplied by the average account value over the
period, multiplied by 181 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 2.52% for Member Shares and 2.57% for Reward Shares for the six-month period
of January 1, 2018, through June 30, 2018.
================================================================================
EXPENSE EXAMPLE | 45
================================================================================
ADVISORY AGREEMENT(S)
June 30, 2018 (unaudited)
--------------------------------------------------------------------------------
At an in-person meeting of the Board of Trustees (the Board) held on April 18,
2018, the Board, including the Trustees who are not "interested persons" (as
that term is defined in the Investment Company Act of 1940, as amended) of the
Trust (the Independent Trustees), approved for an annual period the continuance
of the Management Agreement between the Trust and the Manager with respect to
the Fund and the Subadvisory Agreement between the Manager and Northern Trust
Investments, Inc. (the Subadviser) with respect to the Fund.
In advance of the meeting, the Trustees received and considered a variety of
information relating to the Management Agreement and Subadvisory Agreement and
the Manager and the Subadviser, and were given the opportunity to ask questions
and request additional information from management. The information provided to
the Board included, among other things: (i) a separate report prepared by an
independent third party, which provided a statistical analysis comparing the
Fund's investment performance, expenses, and fees to comparable investment
companies; (ii) information concerning the services rendered to the Fund, as
well as information regarding the Manager's revenues and costs of providing
services to the Fund and compensation paid to affiliates of the Manager; and
(iii) information about the Manager's and Subadviser's operations and personnel.
Prior to voting, the Independent Trustees reviewed the proposed continuance of
the Management Agreement and the Subadvisory Agreement with management and with
experienced counsel retained by the Independent Trustees (Independent Counsel)
and received materials from such Independent Counsel discussing the legal
standards for their consideration of the proposed continuation of the Management
Agreement and the Subadvisory Agreement with respect to the Fund. The
Independent Trustees also reviewed the proposed continuation of the Management
Agreement and the Subadvisory Agreement with respect to the Fund in private
sessions with
================================================================================
46 | USAA S&P 500 INDEX FUND
================================================================================
Independent Counsel at which no representatives of management were present. The
Board considered the Advisory Agreement and the Subadvisory Agreement separately
in the course of its review. In doing so, the Board noted the respective roles
of the Manager and the Subadviser in providing services to the Fund.
At each regularly scheduled meeting of the Board and its committees, the Board
receives and reviews, among other things, information concerning the Fund's
performance and related services provided by the Manager and by the Subadviser.
At the meeting at which the renewal of the Management Agreement and Subadvisory
Agreement is considered, particular focus is given to information concerning
Fund performance, fees and total expenses as compared to comparable investment
companies, and the Manager's profitability with respect to the Fund. However,
the Board noted that the evaluation process with respect to the Manager and the
Subadviser is an ongoing one. In this regard, the Board's and its committees'
consideration of the Management Agreement and Subadvisory Agreement included
certain information previously received at such meetings.
MANAGEMENT AGREEMENT
After full consideration of a variety of factors, the Board, including the
Independent Trustees, voted to approve the Management Agreement. In approving
the Management Agreement, the Trustees did not identify any single factor as
controlling, and each Trustee may have attributed different weights to various
factors. Throughout their deliberations, the Independent Trustees were
represented and assisted by Independent Counsel.
NATURE, EXTENT, AND QUALITY OF SERVICES - In considering the nature, extent, and
quality of the services provided by the Manager under the Management Agreement,
the Board reviewed information provided by the Manager relating to its
operations and personnel. The Board also took into account its knowledge of the
Manager's management and the quality of the performance of the Manager's duties
through Board meetings, discussions, and reports during the preceding year. The
Board considered the fees paid to the Manager and the services provided to the
Fund by the Manager under the Management Agreement, as well as other services
provided by the
================================================================================
ADVISORY AGREEMENT(S) | 47
================================================================================
Manager and its affiliates under other agreements, and the personnel who provide
these services. In addition to the investment advisory services provided to the
Fund, the Manager and its affiliates provide administrative services,
shareholder services, oversight of Fund accounting, marketing services,
assistance in meeting legal and regulatory requirements, and other services
necessary for the operation of the Fund and the Trust. The Board also considered
the significant risks assumed by the Manager in connection with the services
provided to the Fund, including investment, operational, enterprise, litigation,
regulatory and compliance risks.
The Board considered the Manager's management style and the performance of the
Manager's duties under the Management Agreement. The Board considered the level
and depth of knowledge of the Manager, including the professional experience and
qualifications of senior personnel and investment personnel, as well as current
staffing levels. The Board discussed the Manager's effectiveness in monitoring
the performance of the Subadviser and its timeliness in responding to
performance issues. The allocation of the Fund's brokerage, including the
Manager's process for monitoring "best execution," also was considered. The
Manager's role in coordinating the activities of the Fund's other service
providers also was considered. The Board also considered the Manager's risk
management processes. The Board considered the Manager's financial condition and
that it had the financial wherewithal to continue to provide the same scope and
high quality of services under the Management Agreement. In reviewing the
Management Agreement, the Board focused on the experience, resources, and
strengths of the Manager and its affiliates in managing the Fund, as well as the
other funds in the Trust.
The Board also reviewed the compliance and administrative services provided to
the Fund by the Manager and its affiliates, including the Manager's oversight of
the Fund's day-to-day operations and oversight of Fund accounting. The Trustees,
guided also by information obtained from their experiences as trustees of the
Trust, also focused on the quality of the Manager's compliance and
administrative staff.
EXPENSES AND PERFORMANCE - In connection with its consideration of the
Management Agreement, the Board evaluated the advisory fees and total
================================================================================
48 | USAA S&P 500 INDEX FUND
================================================================================
expense ratios of each of the Member Shares and Reward Shares classes of the
Fund as compared to other open-end investment companies deemed to be comparable
to each class of the Fund as determined by the independent third party in its
report. The expenses of each class of the Fund were compared to (i) a group of
investment companies chosen by the independent third party to be comparable to
the class of the Fund based upon certain factors, including fund type,
comparability of investment objective and classification, sales load type (in
this case, retail investment companies with front-end loads and no sales loads),
asset size, and expense components (the "expense group") and (ii) a larger group
of investment companies that includes all front-end load and no-load retail
open-end investment companies with the same investment classification/objective
as the Fund regardless of asset size, excluding outliers (the "expense
universe"). Among other data, the Board noted that the Fund's management fee
rate - which includes advisory and administrative services as well as any fee
waivers or reimbursements - was above the median of its expense group and its
expense universe for the Member Shares and at the median of its expense group
and below the median of its expense universe for the Reward Shares. The data
indicated that the Fund's total expenses, after reimbursements, were below the
median of its expense group and its expense universe for the Member Shares and
for the Reward Shares. The Trustees also took into account the Manager's current
undertakings to maintain expense limitations for the Fund. The Board took into
account the various services provided to the Fund by the Manager and its
affiliates, including the high quality of services received by the Fund from the
Manager. The Board also noted the high level of correlation between the S&P 500
Index and the Fund and the relatively low tracking error between the Fund and
the S&P 500 Index, and noted that it reviews such information on a quarterly
basis. The Board also noted the level and method of computing the management
fee. The Trustees also took into account that the subadvisory fees under the
Subadvisory Agreement are paid by the Manager. The Board also considered and
discussed information about the Subadviser's fees, including the amount of
management fees retained by the Manager after payment of the subadvisory fee.
================================================================================
ADVISORY AGREEMENT(S) | 49
================================================================================
In considering the Fund's performance, the Board noted that it reviews at its
regularly scheduled meetings information about the Fund's performance results.
The Trustees also reviewed various comparative data provided to them in
connection with their consideration of the renewal of the Management Agreement,
including, among other information, a comparison of the average annual total
returns of each class of the Fund with its Lipper index and with that of other
mutual funds deemed to be in its peer group by the independent third party in
its report (the "performance universe"). The performance universe of each class
of the Fund consisted of the Fund and all retail and institutional open-end
investment companies with the same classification/objective as the Fund
regardless of asset size or primary channel of distribution. This comparison
indicated that, among other data, the performance of the Fund's Member Shares
was above the average of its performance universe and below its Lipper index for
the one-, three-, five- and ten-year periods ended December 31, 2017, and the
performance of the Fund's Reward Shares was above the average of its performance
universe and below its Lipper index for the one-year period ended December 31,
2017, and above the average of its performance universe and its Lipper index for
the three-, five- and ten-year periods ended December 31, 2017. The Board also
noted that the percentile performance ranking of the Fund's Member Shares was in
the top 40% of its performance universe for the one-, three-, five- and ten-year
periods ended December 31, 2017. The Board also noted that the percentile
performance ranking for the Fund's Reward Shares was in the top 30% of its
performance universe for the one-, three- and five-year periods ended December
31, 2017, and was in the top 20% of its performance universe for the ten-year
period ended December 31, 2017.
COMPENSATION AND PROFITABILITY - The Board took into consideration the level and
method of computing the Fund's management fee. The information considered by the
Board included operating profit margin information for the Manager's business as
a whole. The Board also received and considered profitability information
related to the level of management revenues from the Fund. This information
included a review of the methodology used in the allocation of certain costs to
the Fund. In considering the profitability data with respect to the Fund, the
Trustees noted that the Manager reimbursed a portion of its management fees to
the Fund and also pays the
================================================================================
50 | USAA S&P 500 INDEX FUND
================================================================================
Fund's subadvisory fees. The Trustees reviewed the profitability of the
Manager's relationship with the Fund before tax expenses. In reviewing the
overall profitability of the management fee to the Manager, the Board also
considered the fact that affiliates provide shareholder servicing and
administrative services to the Fund for which they receive compensation. The
Board also considered the possible direct and indirect benefits to the Manager
from its relationship with the Trust, including that the Manager may derive
reputational and other benefits from its association with the Fund. The Trustees
recognized that the Manager should be able to earn a reasonable level of profits
in exchange for the level of services it provides to the Fund and the
entrepreneurial risk that it assumes as Manager.
ECONOMIES OF SCALE - The Board considered whether there should be changes in the
management fee rate or structure in order to enable the Fund to participate in
any economies of scale. The Board took into account management's discussion of
the Fund's current advisory fee structure. The Board also considered the fee
waivers and expense reimbursements arrangements by the Manager and noted the
fact that the Manager pays the subadvisory fee. The Board also considered the
effects of each class's growth and size on the class's performance and fees,
noting that if the Fund's assets increase over time, the Fund may realize other
economies of scale if assets increase proportionally more than some expenses.
The Board determined that the current investment management fee structure was
reasonable.
CONCLUSIONS - The Board reached the following conclusions regarding the Fund's
Management Agreement with the Manager, among others: (i) the Manager has
demonstrated that it possesses the capability and resources to perform the
duties required of it under the Management Agreement; (ii) the Manager maintains
an appropriate compliance program; (iii) the performance of the Fund is
reasonable in relation to the performance of funds with similar investment
objectives and to relevant indices; (iv) the Fund's advisory expenses are
reasonable in relation to those of similar funds and to the services to be
provided by the Manager; and (v) the Manager's and its affiliates' level of
profitability, if any, from its relationship with the Fund is reasonable in
light of the nature and high quality of services provided by the Manager and the
type of fund. Based on its conclusions, the
================================================================================
ADVISORY AGREEMENT(S) | 51
================================================================================
Board determined that continuation of the Management Agreement would be in the
best interests of the Fund and its shareholders.
SUBADVISORY AGREEMENT
In approving the Fund's Subadvisory Agreement, the Board considered various
factors, among them: (i) the nature, extent, and quality of services provided to
the Fund, including the personnel providing services; (ii) the Subadviser's
compensation and any other benefits derived from the subadvisory relationship;
(iii) comparisons, to the extent applicable, of subadvisory fees and performance
to comparable investment companies; and (iv) the terms of the Subadvisory
Agreement. The Board's analysis of these factors is set forth below. After full
consideration of a variety of factors, the Board, including the Independent
Trustees, voted to approve the Subadvisory Agreement. In approving the
Subadvisory Agreement, the Trustees did not identify any single factor as
controlling, and each Trustee may have attributed different weights to various
factors. Throughout their deliberations, the Independent Trustees were
represented and assisted by Independent Counsel.
NATURE, EXTENT, AND QUALITY OF SERVICES PROVIDED; INVESTMENT PERSONNEL - The
Trustees considered information provided to them regarding the services provided
by the Subadviser, including information presented periodically throughout the
previous year. The Board noted that the Subadviser and its affiliates also
provide accounting and custody services to the Fund at no additional charge. The
Board considered the Subadviser's level of knowledge and investment style. The
Board reviewed the experience and credentials of the investment personnel who
are responsible for managing the investment of portfolio securities with respect
to the Fund and the Subadviser's level of staffing. The Trustees considered,
based on the materials provided to them, whether the method of compensating
portfolio managers is reasonable and includes mechanisms to prevent a manager
with underperformance from taking undue risks. The Trustees also noted the
Subadviser's brokerage practices. The Board also considered the Subadviser's
regulatory and compliance history. The Board also took into account the
Subadviser's risk management processes. The Board noted that the Manager's
monitoring processes of the Subadviser include, among others: (i) regular
telephonic
================================================================================
52 | USAA S&P 500 INDEX FUND
================================================================================
meetings to discuss, among other matters, investment strategies and to review
portfolio performance; (ii) monthly portfolio compliance checklists and
quarterly compliance certifications to the Board; and (iii) due diligence visits
to the Subadviser.
SUBADVISER COMPENSATION - The Board also took into consideration the financial
condition of the Subadviser. In considering the cost of services to be provided
by the Subadviser and the profitability to the Subadviser of its relationship
with the Fund, the Trustees noted the undertakings of the Manager to maintain
expense limitations for the Fund and also noted that the fees under the
Subadvisory Agreement were paid by the Manager and that the Subadviser had
agreed to reimburse the Fund for license fees paid to Standard & Poor's. The
Trustees also relied on the ability of the Manager to negotiate the Subadvisory
Agreement and the fees thereunder at arm's length. For the above reasons, the
Board determined that the profitability of the Subadviser from its relationship
with the Fund was not a material factor in its deliberations with respect to the
consideration of the approval of the Subadvisory Agreement. For similar reasons,
the Board concluded that the potential for economies of scale in the
Subadviser's management of the Fund was not a material factor in considering the
Subadvisory Agreement, although the Board noted that the Subadvisory Agreement
contains breakpoints in its fee schedule.
SUBADVISORY FEES AND FUND PERFORMANCE - The Board compared the subadvisory fees
for the Fund with the fees that the Subadviser charges to comparable clients, as
applicable. The Board considered that the Fund pays a management fee to the
Manager and that, in turn, the Manager pays a subadvisory fee to the Subadviser.
As noted above, the Board considered, among other data, the Fund's performance
with respect to each class during the one-, three-, five-, and ten-year periods
ended December 31, 2017, as compared to the Fund's peer group and noted that the
Board reviews at its regularly scheduled meetings information about the Fund's
performance results. The Board noted the Manager's experience and resources in
monitoring the performance, investment style, and risk-adjusted performance of
the Subadviser.
================================================================================
ADVISORY AGREEMENT(S) | 53
================================================================================
CONCLUSIONS - The Board reached the following conclusions regarding the
Subadvisory Agreement, among others: (i) the Subadviser is qualified to manage
the Fund's assets in accordance with its investment objectives and policies;
(ii) the Subadviser maintains an appropriate compliance program; (iii) the
performance of the Fund is reasonable in relation to the performance of funds
with similar investment objectives and to relevant indices; and (iv) the Fund's
advisory expenses are reasonable in relation to those of similar funds and to
the services to be provided by the Manager and the Subadviser. Based on its
conclusions, the Board determined that approval of the Subadvisory Agreement
with respect to the Fund would be in the best interests of the Fund and its
shareholders.
================================================================================
54 | USAA S&P 500 INDEX 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 The Northern Trust Company
ACCOUNTING AGENT 50 S. LaSalle St.
Chicago, Illinois 60603
--------------------------------------------------------------------------------
INDEPENDENT Ernst & Young LLP
REGISTERED PUBLIC 100 West Houston St., Suite 1700
ACCOUNTING FIRM San Antonio, Texas 78205
--------------------------------------------------------------------------------
Copies of the Manager's proxy voting policies and procedures, approved by the
Trust's Board of Trustees for use in voting proxies on behalf of the Fund, are
available without charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722;
(ii) at USAA.COM; and (iii) in summary within the Statement of Additional
Information on the SEC's website at HTTP://WWW.SEC.GOV. Information regarding
how the Fund voted proxies relating to portfolio securities during the most
recent 12-month period ended June 30 is available without charge (i) at
USAA.COM; and (ii) on the SEC's website at HTTP://WWW.SEC.GOV.
The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. These Forms N-Q are
available at no charge (i) by calling (800) 531-USAA (8722) or (210) 531-8722;
(ii) at USAA.COM; and (iii) on the SEC's website at HTTP://WWW.SEC.GOV. These
Forms N-Q also may be reviewed and copied at the SEC's Public Reference Room in
Washington, D.C. Information on the operation of the Public Reference Room may
be obtained by calling (800) 732-0330.
================================================================================
--------------
USAA PRSRT STD
9800 Fredericksburg Road U.S. Postage
San Antonio, TX 78288 PAID
USAA
--------------
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[LOGO OF USAA]
USAA We know what it means to serve.(R)
================================================================================
28651-0818 (C)2018, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA TARGET RETIREMENT FUNDS]
==============================================================
SEMIANNUAL REPORT
USAA TARGET RETIREMENT FUNDS
JUNE 30, 2018
==============================================================
TARGET RETIREMENT INCOME FUND (URINX)
TARGET RETIREMENT 2020 FUND (URTNX)
TARGET RETIREMENT 2030 FUND (URTRX)
TARGET RETIREMENT 2040 FUND (URFRX)
TARGET RETIREMENT 2050 FUND (URFFX)
TARGET RETIREMENT 2060 FUND (URSIX)
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
INVESTMENT OVERVIEW 1
FINANCIAL INFORMATION
Portfolio of Investments 7
Notes to Portfolio of Investments 19
Financial Statements 20
Notes to Financial Statements 28
Financial Highlights 51
EXPENSE EXAMPLE 57
ADVISORY AGREEMENT(S) 60
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE
RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY
USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN
PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS
ABOUT THE FUND.
IRA DISTRIBUTION WITHHOLDING DISCLOSURE
We generally must withhold federal income tax at a rate of 10% of the taxable
portion of your distribution and, if you live in a state that requires state
income tax withholding, at your state's tax rate. However, you may elect not to
have withholding apply or to have income tax withheld at a higher rate. Any
withholding election that you make will apply to any subsequent distribution
unless and until you change or revoke the election. If you wish to make a
withholding election or change or revoke a prior withholding election, call
(800) 531-USAA (8722) or (210) 531-8722.
If you do not have a withholding election in place by the date of a
distribution, federal income tax will be withheld from the taxable portion of
your distribution at a rate of 10%. If you must pay estimated taxes, you may be
subject to estimated tax penalties if your estimated tax payments are not
sufficient and sufficient tax is not withheld from your distribution.
For more specific information, please consult your tax adviser.
(C)2018, USAA. All rights reserved.
================================================================================
================================================================================
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
o TARGET RETIREMENT INCOME FUND o
ASSET ALLOCATION - 6/30/18
(% of Net Assets)
[PIE CHART OF ASSET ALLOCATION]
FIXED-INCOME FUNDS 64.4%
EQUITY & ALTERNATIVE 35.2%
MONEY MARKET INSTRUMENTS 0.4%
[END PIE CHART]
Percentages are of net assets of the Fund and may not equal 100%.
================================================================================
INVESTMENT OVERVIEW | 1
================================================================================
o TARGET RETIREMENT 2020 FUND o
ASSET ALLOCATION - 6/30/18
(% of Net Assets)
[PIE CHART OF ASSET ALLOCATION]
EQUITY & ALTERNATIVE 53.4%
FIXED-INCOME FUNDS 46.4%
MONEY MARKET INSTRUMENTS 0.2%
[END PIE CHART]
Percentages are of net assets of the Fund and may not equal 100%.
================================================================================
2 | USAA TARGET RETIREMENT FUNDS
================================================================================
o TARGET RETIREMENT 2030 FUND o
ASSET ALLOCATION - 6/30/18
(% of Net Assets)
[PIE CHART OF ASSET ALLOCATION]
EQUITY & ALTERNATIVE 72.8%
FIXED-INCOME FUNDS 27.1%
MONEY MARKET INSTRUMENTS 0.1%
[END PIE CHART]
Percentages are of net assets of the Fund and may not equal 100%.
================================================================================
INVESTMENT OVERVIEW | 3
================================================================================
o TARGET RETIREMENT 2040 FUND o
ASSET ALLOCATION - 6/30/18
(% of Net Assets)
[PIE CHART OF ASSET ALLOCATION]
EQUITY & ALTERNATIVE 87.1%
FIXED-INCOME FUNDS 12.8%
MONEY MARKET INSTRUMENTS 0.1%
[END PIE CHART]
Percentages are of net assets of the Fund and may not equal 100%.
================================================================================
4 | USAA TARGET RETIREMENT FUNDS
================================================================================
o TARGET RETIREMENT 2050 FUND o
ASSET ALLOCATION - 6/30/18
(% of Net Assets)
[PIE CHART OF ASSET ALLOCATION]
EQUITY & ALTERNATIVE 92.7%
FIXED-INCOME FUNDS 6.9%
MONEY MARKET INSTRUMENTS 0.3%
[END PIE CHART]
Percentages are of net assets of the Fund and may not equal 100%.
================================================================================
INVESTMENT OVERVIEW | 5
================================================================================
o TARGET RETIREMENT 2060 FUND o
ASSET ALLOCATION - 6/30/18
(% of Net Assets)
[PIE CHART OF ASSET ALLOCATION]
EQUITY & ALTERNATIVE 91.9%
FIXED-INCOME FUNDS 6.3%
MONEY MARKET INSTRUMENTS 1.7%
[END PIE CHART]
Percentages are of net assets of the Fund and may not equal 100%.
================================================================================
6 | USAA TARGET RETIREMENT FUNDS
================================================================================
PORTFOLIOS OF INVESTMENTS
USAA TARGET RETIREMENT INCOME FUND
June 30, 2018 (unaudited)
-------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------------
BONDS (64.4%)
FIXED-INCOME FUNDS (64.4%)
7,897,665 USAA Government Securities Fund $ 75,265
1,422,806 USAA High Income Fund 11,326
5,437,845 USAA Income Fund 68,897
1,324,974 USAA Intermediate-Term Bond Fund 13,674
5,517,880 USAA Short-Term Bond Fund 49,992
--------
Total Fixed-Income Funds (cost: $219,764) 219,154
--------
Total Bonds (cost: $219,764) 219,154
--------
EQUITY SECURITIES (35.2%)
EQUITY & ALTERNATIVE (35.2%)
86,698 USAA Emerging Markets Fund 1,561
52 USAA Flexible Income Fund 1
2,704,968 USAA Global Managed Volatility Fund 29,024
428,121 USAA Growth Fund 13,293
586,115 USAA International Fund 18,926
41,961 USAA MSCI Emerging Markets Value Momentum Blend Index ETF 1,966
106,578 USAA MSCI International Value Momentum Blend Index ETF 5,152
15,185 USAA MSCI USA Small Cap Value Momentum Blend Index ETF 822
149,900 USAA MSCI USA Value Momentum Blend Index ETF 7,715
521,860 USAA Real Return Fund 5,495
93,252 USAA S&P 500 Index Fund 3,602
223,772 USAA Small Cap Stock Fund 4,283
1,241,499 USAA Target Managed Allocation Fund 14,141
46,508 USAA Total Return Strategy Fund 377
626,686 USAA Value Fund 13,273
--------
Total Equity & Alternative (cost: $96,445) 119,631
--------
Total Equity Securities (cost: $96,445) 119,631
--------
MONEY MARKET INSTRUMENTS (0.4%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (0.4%)
1,360,773 State Street Institutional Treasury Money Market Fund Premier Class,
1.74%(a) (cost: $1,361) 1,361
--------
TOTAL INVESTMENTS (COST: $317,570) $340,146
========
================================================================================
PORTFOLIOS OF INVESTMENTS | 7
================================================================================
-----------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
-----------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
-----------------------------------------------------------------------------------------------------------
Bonds:
Fixed-Income Funds $219,154 $- $- $219,154
Equity Securities:
Equity & Alternative 119,631 - - 119,631
Money Market Instruments:
Government & U.S. Treasury
Money Market Funds 1,361 - - 1,361
-----------------------------------------------------------------------------------------------------------
Total $340,146 $- $- $340,146
-----------------------------------------------------------------------------------------------------------
For the period of January 1, 2018, through June 30, 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 TARGET RETIREMENT FUNDS
================================================================================
USAA TARGET RETIREMENT 2020 FUND
June 30, 2018 (unaudited)
-------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (53.4%)
EQUITY & ALTERNATIVE (53.4%)
187,139 USAA Emerging Markets Fund $ 3,370
33,498 USAA Flexible Income Fund 279
7,413,133 USAA Global Managed Volatility Fund 79,543
1,169,296 USAA Growth Fund 36,307
1,579,110 USAA International Fund 50,989
118,303 USAA MSCI Emerging Markets Value Momentum Blend Index ETF 5,543
286,969 USAA MSCI International Value Momentum Blend Index ETF 13,872
41,086 USAA MSCI USA Small Cap Value Momentum Blend Index ETF 2,223
406,919 USAA MSCI USA Value Momentum Blend Index ETF 20,944
935,424 USAA Real Return Fund 9,850
260,973 USAA S&P 500 Index Fund 10,081
528,052 USAA Small Cap Stock Fund 10,107
3,362,031 USAA Target Managed Allocation Fund 38,294
202,108 USAA Total Return Strategy Fund 1,639
1,711,079 USAA Value Fund 36,241
--------
Total Equity & Alternative (cost: $244,939) 319,282
--------
Total Equity Securities (cost: $244,939) 319,282
--------
BONDS (46.4%)
FIXED-INCOME FUNDS (46.4%)
31,835 USAA Core Intermediate-Term Bond ETF 1,545
6,878,269 USAA Government Securities Fund 65,550
2,683,995 USAA High Income Fund 21,365
7,713,865 USAA Income Fund 97,735
3,858,853 USAA Intermediate-Term Bond Fund 39,823
5,633,551 USAA Short-Term Bond Fund 51,040
--------
Total Fixed-Income Funds (cost: $269,281) 277,058
--------
Total Bonds (cost: $269,281) 277,058
--------
MONEY MARKET INSTRUMENTS (0.2%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (0.2%)
1,223,968 State Street Institutional Treasury Money Market Fund Premier
Class, 1.74%(a) (cost: $1,224) 1,224
--------
TOTAL INVESTMENTS (COST: $515,444) $597,564
========
================================================================================
PORTFOLIOS OF INVESTMENTS | 9
================================================================================
-----------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
-----------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
-----------------------------------------------------------------------------------------------------------
Equity Securities:
Equity & Alternative $319,282 $- $- $319,282
Bonds:
Fixed-Income Funds 277,058 - - 277,058
Money Market Instruments:
Government & U.S. Treasury
Money Market Funds 1,224 - - 1,224
-----------------------------------------------------------------------------------------------------------
Total $597,564 $- $- $597,564
-----------------------------------------------------------------------------------------------------------
For the period of January 1, 2018, through June 30, 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 TARGET RETIREMENT FUNDS
================================================================================
USAA TARGET RETIREMENT 2030 FUND
June 30, 2018 (unaudited)
-------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (72.8%)
EQUITY & ALTERNATIVE (72.8%)
666,811 USAA Emerging Markets Fund $ 12,009
353,421 USAA Flexible Income Fund 2,947
20,657,700 USAA Global Managed Volatility Fund 221,657
3,543,174 USAA Growth Fund 110,016
4,753,748 USAA International Fund 153,498
376,058 USAA MSCI Emerging Markets Value Momentum Blend Index ETF 17,621
857,223 USAA MSCI International Value Momentum Blend Index ETF 41,438
120,564 USAA MSCI USA Small Cap Value Momentum Blend Index ETF 6,522
1,224,782 USAA MSCI USA Value Momentum Blend Index ETF 63,040
5,266 USAA Precious Metals and Minerals Fund(b) 69
1,400,640 USAA Real Return Fund 14,749
772,972 USAA S&P 500 Index Fund 29,860
1,560,113 USAA Small Cap Stock Fund 29,861
9,826,451 USAA Target Managed Allocation Fund 111,923
598,099 USAA Total Return Strategy Fund 4,851
5,184,916 USAA Value Fund 109,816
----------
Total Equity & Alternative (cost: $736,410) 929,877
----------
Total Equity Securities (cost: $736,410) 929,877
----------
BONDS (27.1%)
FIXED-INCOME FUNDS (27.1%)
98,632 USAA Core Intermediate-Term Bond ETF 4,787
7,017,081 USAA Government Securities Fund 66,873
4,570,868 USAA High Income Fund 36,384
10,016,411 USAA Income Fund 126,908
7,855,520 USAA Intermediate-Term Bond Fund 81,069
3,281,091 USAA Short-Term Bond Fund 29,727
----------
Total Fixed-Income Funds (cost: $334,332) 345,748
----------
Total Bonds (cost: $334,332) 345,748
----------
MONEY MARKET INSTRUMENTS (0.1%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (0.1%)
1,589,299 State Street Institutional Treasury Money Market Fund Premier Class,
1.74%(a) (cost: $1,589) 1,589
----------
TOTAL INVESTMENTS (COST: $1,072,331) $1,277,214
==========
================================================================================
PORTFOLIOS OF INVESTMENTS | 11
================================================================================
-----------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
-----------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
-----------------------------------------------------------------------------------------------------------
Equity Securities:
Equity & Alternative $ 929,877 $- $- $ 929,877
Bonds:
Fixed-Income Funds 345,748 - - 345,748
Money Market Instruments:
Government & U.S. Treasury
Money Market Funds 1,589 - - 1,589
-----------------------------------------------------------------------------------------------------------
Total $1,277,214 $- $- $1,277,214
-----------------------------------------------------------------------------------------------------------
For the period of January 1, 2018, through June 30, 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 TARGET RETIREMENT FUNDS
================================================================================
USAA TARGET RETIREMENT 2040 FUND
June 30, 2018 (unaudited)
-------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (87.1%)
EQUITY & ALTERNATIVE (87.1%)
934,444 USAA Emerging Markets Fund $ 16,829
209,538 USAA Flexible Income Fund 1,748
27,320,616 USAA Global Managed Volatility Fund 293,150
4,785,108 USAA Growth Fund 148,578
6,408,910 USAA International Fund 206,944
521,783 USAA MSCI Emerging Markets Value Momentum Blend Index ETF 24,449
1,153,582 USAA MSCI International Value Momentum Blend Index ETF 55,764
161,540 USAA MSCI USA Small Cap Value Momentum Blend Index ETF 8,739
1,654,057 USAA MSCI USA Value Momentum Blend Index ETF 85,134
4,906 USAA Precious Metals and Minerals Fund(b) 64
998,409 USAA Real Return Fund 10,513
1,041,950 USAA S&P 500 Index Fund 40,250
2,093,706 USAA Small Cap Stock Fund 40,074
13,153,378 USAA Target Managed Allocation Fund 149,817
492,132 USAA Total Return Strategy Fund 3,991
7,002,788 USAA Value Fund 148,319
----------
Total Equity & Alternative (cost: $966,532) 1,234,363
----------
Total Equity Securities (cost: $966,532) 1,234,363
----------
BONDS (12.8%)
FIXED-INCOME FUNDS (12.8%)
76,293 USAA Core Intermediate-Term Bond ETF 3,703
3,617,439 USAA Government Securities Fund 34,474
3,723,782 USAA High Income Fund 29,641
4,614,489 USAA Income Fund 58,466
5,189,413 USAA Intermediate-Term Bond Fund 53,555
165,736 USAA Short-Term Bond Fund 1,501
----------
Total Fixed-Income Funds (cost: $177,570) 181,340
----------
Total Bonds (cost: $177,570) 181,340
----------
MONEY MARKET INSTRUMENTS (0.1%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (0.1%)
444,734 State Street Institutional Treasury Money Market Fund Premier Class,
1.74%(a) (cost: $445) 445
----------
TOTAL INVESTMENTS (COST: $1,144,547) $1,416,148
==========
================================================================================
PORTFOLIOS OF INVESTMENTS | 13
================================================================================
-----------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
-----------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
-----------------------------------------------------------------------------------------------------------
Equity Securities:
Equity & Alternative $1,234,363 $- $- $1,234,363
Bonds:
Fixed-Income Funds 181,340 - - 181,340
Money Market Instruments:
Government & U.S. Treasury
Money Market Funds 445 - - 445
-----------------------------------------------------------------------------------------------------------
Total $1,416,148 $- $- $1,416,148
-----------------------------------------------------------------------------------------------------------
For the period of January 1, 2018, through June 30, 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.
================================================================================
14 | USAA TARGET RETIREMENT FUNDS
================================================================================
USAA TARGET RETIREMENT 2050 FUND
June 30, 2018 (unaudited)
-------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (92.7%)
EQUITY & ALTERNATIVE (92.7%)
573,580 USAA Emerging Markets Fund $ 10,330
94,183 USAA Flexible Income Fund 786
16,428,321 USAA Global Managed Volatility Fund 176,276
2,918,400 USAA Growth Fund 90,616
3,900,545 USAA International Fund 125,949
318,400 USAA MSCI Emerging Markets Value Momentum Blend Index ETF 14,919
703,556 USAA MSCI International Value Momentum Blend Index ETF 34,010
98,195 USAA MSCI USA Small Cap Value Momentum Blend Index ETF 5,312
1,008,841 USAA MSCI USA Value Momentum Blend Index ETF 51,925
631,374 USAA Real Return Fund 6,648
630,793 USAA S&P 500 Index Fund 24,368
1,269,366 USAA Small Cap Stock Fund 24,296
7,987,779 USAA Target Managed Allocation Fund 90,981
295,244 USAA Total Return Strategy Fund 2,394
4,270,836 USAA Value Fund 90,456
--------
Total Equity & Alternative (cost: $593,756) 749,266
--------
Total Equity Securities (cost: $593,756) 749,266
--------
BONDS (6.9%)
FIXED-INCOME FUNDS (6.9%)
19,425 USAA Core Intermediate-Term Bond ETF 943
1,410,896 USAA Government Securities Fund 13,446
606,111 USAA High Income Fund 4,825
1,661,286 USAA Income Fund 21,048
1,509,590 USAA Intermediate-Term Bond Fund 15,579
--------
Total Fixed-Income Funds (cost: $56,432) 55,841
--------
Total Bonds (cost: $56,432) 55,841
--------
MONEY MARKET INSTRUMENTS (0.3%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (0.3%)
2,781,144 State Street Institutional Treasury Money Market Fund Premier Class,
1.74%(a) (cost: $2,781) 2,781
--------
TOTAL INVESTMENTS (COST: $652,969) $807,888
========
================================================================================
PORTFOLIOS OF INVESTMENTS | 15
================================================================================
-----------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
-----------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
-----------------------------------------------------------------------------------------------------------
Equity Securities:
Equity & Alternative $749,266 $- $- $749,266
Bonds:
Fixed-Income Funds 55,841 - - 55,841
Money Market Instruments:
Government & U.S. Treasury
Money Market Funds 2,781 - - 2,781
-----------------------------------------------------------------------------------------------------------
Total $807,888 $- $- $807,888
-----------------------------------------------------------------------------------------------------------
For the period of January 1, 2018, through June 30, 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.
================================================================================
16 | USAA TARGET RETIREMENT FUNDS
================================================================================
USAA TARGET RETIREMENT 2060 FUND
June 30, 2018 (unaudited)
-------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (91.9%)
EQUITY & ALTERNATIVE (91.9%)
78,514 USAA Emerging Markets Fund $ 1,414
9,849 USAA Flexible Income Fund 82
1,647,918 USAA Global Managed Volatility Fund 17,682
336,823 USAA Growth Fund 10,458
456,157 USAA International Fund 14,729
36,420 USAA MSCI Emerging Markets Value Momentum Blend Index ETF 1,707
79,768 USAA MSCI International Value Momentum Blend Index ETF 3,856
10,851 USAA MSCI USA Small Cap Value Momentum Blend Index ETF 587
114,935 USAA MSCI USA Value Momentum Blend Index ETF 5,916
47,091 USAA Real Return Fund 496
75,437 USAA S&P 500 Index Fund 2,914
142,194 USAA Small Cap Stock Fund 2,722
874,339 USAA Target Managed Allocation Fund 9,959
19,263 USAA Total Return Strategy Fund 156
488,646 USAA Value Fund 10,350
-------
Total Equity & Alternative (cost: $75,250) 83,028
-------
Total Equity Securities (cost: $75,250) 83,028
-------
BONDS (6.3%)
FIXED-INCOME FUNDS (6.3%)
199,839 USAA Government Securities Fund 1,905
77,767 USAA High Income Fund 619
164,959 USAA Income Fund 2,090
106,612 USAA Intermediate-Term Bond Fund 1,100
16 USAA Short-Term Bond Fund -
-------
Total Fixed-Income Funds (cost: $5,783) 5,714
-------
Total Bonds (cost: $5,783) 5,714
-------
MONEY MARKET INSTRUMENTS (1.7%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (1.7%)
1,509,347 State Street Institutional Treasury Money Market Fund Premier Class,
1.74%(a) (cost: $1,509) 1,509
-------
TOTAL INVESTMENTS (COST: $82,542) $90,251
=======
================================================================================
PORTFOLIOS OF INVESTMENTS | 17
================================================================================
-----------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
-----------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
-----------------------------------------------------------------------------------------------------------
Equity Securities:
Equity & Alternative $83,028 $- $- $83,028
Bonds:
Fixed-Income Funds 5,714 - - 5,714
Money Market Instruments:
Government & U.S. Treasury
Money Market Funds 1,509 - - 1,509
-----------------------------------------------------------------------------------------------------------
Total $90,251 $- $- $90,251
-----------------------------------------------------------------------------------------------------------
For the period of January 1, 2018, through June 30, 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.
================================================================================
18 | USAA TARGET RETIREMENT FUNDS
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
June 30, 2018 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
The Portfolio of Investments category percentages shown represent the
percentages of the investments to net assets, in total, may not equal 100%.
A category percentage of 0.0% represents less than 0.1% of net assets. At
June 30, 2018, the Funds' investments in foreign securities were as listed
below:
TARGET TARGET TARGET TARGET TARGET TARGET
INCOME 2020 2030 2040 2050 2060
-------------------------------------------------------------------------------
Investments in
foreign securities 8.1% 12.3% 17.6% 21.5% 22.9% 24.0%
The underlying USAA Funds in which the Funds invest are managed by USAA
Asset Management Company, an affiliate of the Funds. The Funds invest in
the Reward Shares of the USAA S&P 500 Index Fund, the Institutional Shares
of the other USAA Mutual Funds Trust and the series of the USAA ETF Trust.
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.
Market values of securities are determined by procedures and practices
discussed in Note 1A to the financial statements.
o SPECIFIC NOTES
(a) Rate represents the money market fund annualized seven-day yield at
June 30, 2018.
(b) Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIOS OF INVESTMENTS | 19
================================================================================
STATEMENTS OF ASSETS AND LIABILITIES
(IN THOUSANDS)
June 30, 2018 (unaudited)
USAA TARGET RETIREMENT
---------------------------------------------------------------------------------------------------
INCOME FUND
---------------------------------------------------------------------------------------------------
ASSETS
Investments in affiliated underlying funds, at market value (cost of $316,209,
$514,220, $1,070,742, $1,144,102, $650,188, and $81,033, respectively) $338,785
Investments in other securities, at market value (cost of $1,361, $1,224,
$1,589, $445, $2,781, and $1,509, respectively) 1,361
Receivables:
Capital shares sold 220
Dividends from affiliated underlying funds 303
Interest 1
--------
Total assets 340,670
--------
LIABILITIES
Payables:
Securities purchased 303
Capital shares redeemed 74
Other accrued expenses and payables 35
--------
Total liabilities 412
--------
Net assets applicable to capital shares outstanding $340,258
========
NET ASSETS CONSIST OF:
Paid-in capital $313,229
Accumulated undistributed net investment income 312
Accumulated net realized gain on investments 4,141
Net unrealized appreciation of investments 22,576
--------
Net assets applicable to capital shares outstanding $340,258
========
Capital shares outstanding, no par value 29,669
========
Net asset value, redemption price, and offering price per share $ 11.47
========
See accompanying notes to financial statements.
================================================================================
20 | USAA TARGET RETIREMENT FUNDS
================================================================================
--------------------------------------------------------------------------------
USAA TARGET RETIREMENT
--------------------------------------------------------------------------------
2020 FUND 2030 FUND 2040 FUND 2050 FUND 2060 FUND
--------------------------------------------------------------------------------
$596,340 $1,275,625 $1,415,703 $805,107 $88,742
1,224 1,589 445 2,781 1,509
119 583 763 649 145
367 451 234 70 7
1 3 3 4 1
--------------------------------------------------------------------------------
598,051 1,278,251 1,417,148 808,611 90,404
--------------------------------------------------------------------------------
367 451 234 70 6
180 637 286 198 54
38 38 47 45 35
--------------------------------------------------------------------------------
585 1,126 567 313 95
--------------------------------------------------------------------------------
$597,466 $1,277,125 $1,416,581 $808,298 $90,309
================================================================================
$498,625 $1,029,105 $1,080,738 $616,664 $80,847
4,633 6,792 4,779 1,872 172
12,088 36,345 59,463 34,843 1,581
82,120 204,883 271,601 154,919 7,709
--------------------------------------------------------------------------------
$597,466 $1,277,125 $1,416,581 $808,298 $90,309
================================================================================
46,941 93,315 100,523 56,556 7,177
================================================================================
$ 12.73 $ 13.69 $ 14.09 $ 14.29 $ 12.58
================================================================================
================================================================================
FINANCIAL STATEMENTS | 21
================================================================================
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
Six-month period ended June 30, 2018 (unaudited)
USAA TARGET RETIREMENT
---------------------------------------------------------------------------------------------
INCOME FUND
---------------------------------------------------------------------------------------------
INVESTMENT INCOME
Income distributions from affiliated underlying funds $ 3,334
Interest 6
--------
Total income 3,340
--------
EXPENSES
Custody and accounting fees 21
Postage 7
Shareholder reporting fees 4
Trustees' fees 16
Registration fees 23
Professional fees 29
Other 6
--------
Total expenses 106
--------
Expenses reimbursed -
--------
Net expenses 106
--------
NET INVESTMENT INCOME 3,234
--------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on sales of affiliated underlying funds 4,317
Change in net unrealized appreciation/(depreciation) of affiliated
underlying funds (11,017)
--------
Net realized and unrealized loss (6,700)
--------
Decrease in net assets resulting from operations $ (3,466)
========
See accompanying notes to financial statements.
================================================================================
22 | USAA TARGET RETIREMENT FUNDS
================================================================================
USAA TARGET RETIREMENT
--------------------------------------------------------------------------------
2020 FUND 2030 FUND 2040 FUND 2050 FUND 2060 FUND
--------------------------------------------------------------------------------
$ 4,701 $ 6,904 $ 4,856 $ 1,954 $ 206
7 42 33 26 6
--------------------------------------------------------------------------------
4,708 6,946 4,889 1,980 212
--------------------------------------------------------------------------------
23 26 22 20 19
11 29 37 26 5
5 14 18 13 2
16 16 16 16 16
23 28 28 26 22
31 33 41 34 34
7 8 8 7 5
--------------------------------------------------------------------------------
116 154 170 142 103
--------------------------------------------------------------------------------
- - - - (60)
--------------------------------------------------------------------------------
116 154 170 142 43
--------------------------------------------------------------------------------
4,592 6,792 4,719 1,838 169
--------------------------------------------------------------------------------
9,589 19,698 32,620 18,601 554
(20,631) (40,838) (52,981) (29,457) (1,968)
--------------------------------------------------------------------------------
(11,042) (21,140) (20,361) (10,856) (1,414)
--------------------------------------------------------------------------------
$ (6,450) $(14,348) $(15,642) $ (9,018) $(1,245)
================================================================================
================================================================================
FINANCIAL STATEMENTS | 23
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended June 30, 2018 (unaudited), and year ended
December 31, 2017
USAA TARGET RETIREMENT
------------------------
INCOME FUND
------------------------
6/30/2018 12/31/2017
---------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 3,234 $ 8,081
Net realized gain on sales of affiliated underlying funds 4,317 12,411
Net realized gain on capital gain distributions from affiliated
underlying funds - 1,384
Change in net unrealized appreciation/(depreciation) of
affiliated underlying funds (11,017) 5,466
------------------------
Increase (decrease) in net assets resulting from operations (3,466) 27,342
------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (2,952) (8,090)
Net realized gains - (11,952)
------------------------
Distributions to shareholders (2,952) (20,042)
------------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 31,576 54,800
Reinvested dividends 2,922 19,835
Cost of shares redeemed (37,688) (49,925)
------------------------
Increase (decrease) in net assets from capital share transactions (3,190) 24,710
------------------------
Net increase (decrease) in net assets (9,608) 32,010
NET ASSETS
Beginning of period 349,866 317,856
------------------------
End of period $340,258 $349,866
========================
Accumulated undistributed net investment income
End of period $ 312 $ 30
========================
CHANGE IN SHARES OUTSTANDING
Shares sold 2,720 4,619
Shares issued for dividends reinvested 255 1,687
Shares redeemed 3,243) (4,229)
------------------------
Increase (decrease) in shares outstanding (268) 2,077
========================
See accompanying notes to financial statements.
================================================================================
24 | USAA TARGET RETIREMENT FUNDS
================================================================================
USAA TARGET RETIREMENT
--------------------------------------------------------------------------------
2020 FUND 2030 FUND
--------------------------------------------------------------------------------
6/30/2018 12/31/2017 6/30/2018 12/31/2017
--------------------------------------------------------------------------------
$ 4,592 $ 13,868 $ 6,792 $ 27,298
9,589 32,563 19,698 74,400
- 4,377 - 12,725
(20,631) 20,277 (40,838) 62,783
--------------------------------------------------------------------------------
(6,450) 71,085 (14,348) 177,206
--------------------------------------------------------------------------------
- (14,288) - (28,820)
- (30,007) - (68,805)
--------------------------------------------------------------------------------
- (44,295) - (97,625)
--------------------------------------------------------------------------------
35,085 68,773 82,633 137,399
- 44,176 - 97,463
(48,752) (92,952) (77,553) (126,490)
--------------------------------------------------------------------------------
(13,667) 19,997 5,080 108,372
--------------------------------------------------------------------------------
(20,117) 46,787 (9,268) 187,953
617,583 570,796 1,286,393 1,098,440
--------------------------------------------------------------------------------
$597,466 $617,583 $1,277,125 $1,286,393
================================================================================
$ 4,633 $ 41 $ 6,792 $ -
================================================================================
2,725 5,269 5,955 9,893
- 3,398 - 6,975
(3,794) (7,137) (5,588) (9,123)
--------------------------------------------------------------------------------
(1,069) 1,530 367 7,745
================================================================================
================================================================================
FINANCIAL STATEMENTS | 25
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS) (CONTINUED)
Six-month period ended June 30, 2018 (unaudited), and year ended
December 31, 2017
USAA TARGET RETIREMENT
------------------------
2040 FUND
------------------------
6/30/2018 12/31/2017
---------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 4,719 $ 28,180
Net realized gain on sales of affiliated underlying funds 32,620 71,288
Net realized gain on capital gain distributions from affiliated
underlying funds - 17,621
Change in net unrealized appreciation/(depreciation) of affiliated
underlying funds (52,981) 103,689
------------------------
Increase (decrease) in net assets resulting from operations (15,642) 220,778
------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income - (28,314)
Net realized gains - (59,958)
------------------------
Distributions to shareholders - (88,272)
------------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 84,067 146,881
Reinvested dividends - 88,240
Cost of shares redeemed (75,912) (139,485)
------------------------
Increase in net assets from capital share transactions 8,155 95,636
------------------------
Net increase (decrease) in net assets (7,487) 228,142
NET ASSETS
Beginning of period 1,424,068 1,195,926
------------------------
End of period $1,416,581 $1,424,068
========================
Accumulated undistributed net investment income
End of period $ 4,779 $ 60
========================
CHANGE IN SHARES OUTSTANDING
Shares sold 5,868 10,552
Shares issued for dividends reinvested - 6,151
Shares redeemed (5,296) (10,046)
------------------------
Increase in shares outstanding 572 6,657
========================
See accompanying notes to financial statements.
================================================================================
26 | USAA TARGET RETIREMENT FUNDS
================================================================================
USAA TARGET RETIREMENT
--------------------------------------------------------------------------------
2050 FUND 2060 FUND
--------------------------------------------------------------------------------
6/30/2018 12/31/2017 6/30/2018 12/31/2017
--------------------------------------------------------------------------------
$ 1,838 $ 14,669 $ 169 $ 1,323
18,601 34,743 554 1,360
- 10,757 - 1,042
(29,457) 69,487 (1,968) 8,193
--------------------------------------------------------------------------------
(9,018) 129,656 (1,245) 11,918
--------------------------------------------------------------------------------
- (15,325) - (1,331)
- (27,494) - (1,527)
--------------------------------------------------------------------------------
- (42,819) - (2,858)
--------------------------------------------------------------------------------
62,375 103,230 20,510 28,124
- 42,808 - 2,856
(49,980) (87,596) (6,555) (15,583)
--------------------------------------------------------------------------------
12,395 58,442 13,955 15,397
--------------------------------------------------------------------------------
3,377 145,279 12,710 24,457
804,921 659,642 77,599 53,142
--------------------------------------------------------------------------------
$808,298 $804,921 $90,309 $77,599
================================================================================
$ 1,872 $ 34 $ 172 $ 3
================================================================================
4,292 7,429 1,597 2,327
- 2,945 - 223
(3,435) (6,298) (512) (1,256)
--------------------------------------------------------------------------------
857 4,076 1,085 1,294
================================================================================
================================================================================
FINANCIAL STATEMENTS | 27
================================================================================
NOTES TO FINANCIAL STATEMENTS
June 30, 2018 (unaudited)
--------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company Act
of 1940, as amended (the 1940 Act), is an open- end management investment
company organized as a Delaware statutory trust consisting of 50 separate funds.
The USAA Target Retirement Income Fund (Target Income), the USAA Target
Retirement 2020 Fund (Target 2020), the USAA Target Retirement 2030 Fund (Target
2030), the USAA Target Retirement 2040 Fund (Target 2040), the USAA Target
Retirement 2050 Fund (Target 2050), and the USAA Target Retirement 2060 Fund
(Target 2060) (collectively, the Funds) qualify as registered investment
companies under Accounting Standards Codification Topic 946. The information
presented in this semiannual report pertains only to the Funds, which are
classified as diversified under the 1940 Act and is authorized to issue an
unlimited number of shares. Each Fund's investment objective is to provide
capital appreciation and current income consistent with its current investment
allocation.
Each Fund is a "fund of funds" in that it invests in a portfolio of underlying
USAA equity and alternative, fixed-income, and ultra-short mutual funds
(underlying USAA Funds) managed by USAA Asset Management Company (the Manager),
an affiliate of the Funds, according to an asset allocation strategy designed
for investors planning to start withdrawing funds for retirement in or within a
few years of each Fund's specific year (target date) included in its name.
A. SECURITY VALUATION - The Trust's Board of Trustees (the Board) has
established the Valuation and Liquidity Committee (the Committee), and
subject to Board oversight, the Committee administers and oversees the Funds'
valuation policies and procedures, which are approved by the
================================================================================
28 | USAA TARGET RETIREMENT FUNDS
================================================================================
Board. Among other things, these policies and procedures allow the Funds 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 Funds and presents additional information to the Board regarding
application of the pricing and fair valuation policies and procedures during
the preceding quarter.
The Committee meets as often as necessary to make pricing and fair value
determinations. In addition, the Committee holds regular monthly meetings to
review prior actions taken by the Committee and the Manager, an affiliate of
the Funds. Among other things, these monthly meetings include a review and
analysis of backtesting reports, pricing service quotation comparisons,
illiquid securities and fair value determinations, pricing movements, and
daily stale price monitoring.
The value of each security is determined (as of the close of trading on the
New York Stock Exchange (NYSE) on each business day the NYSE is open) as set
forth below:
1. Investments in the underlying USAA Funds and other open-end investment
companies, other than exchange-traded funds (ETFs) are valued at their net
asset value (NAV) at the end of each business day and are categorized in
Level 1 of the fair value hierarchy.
2. Equity securities, including ETFs, except otherwise noted, traded
primarily on a domestic securities exchange or the over-the-counter
markets, are valued at the last sales price or official closing price on
the exchange or primary market on which they trade. Securities traded
primarily on foreign securities exchanges or markets are valued at the
last quoted sale price, or the most recently determined official closing
price calculated according to local market convention, available at the
time a fund is valued. If no last sale or official closing price is
reported or available, the average of the bid and ask prices generally is
used.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 29
================================================================================
3. The underlying USAA Funds have specific valuation procedures. In the event
that price quotations or valuations are not readily available, are not
reflective of market value, or a significant event has been recognized in
relation to a security or class of securities, the securities are valued
in good faith by the Committee in accordance with valuation procedures
approved by the Board. The effect of fair value pricing is that securities
may not be priced on the basis of quotations from the primary market in
which they are traded and the actual price realized from the sale of a
security may differ materially from the fair value price. Valuing these
securities at fair value is intended to cause a fund's NAV to be more
reliable than it otherwise would be.
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.
================================================================================
30 | USAA TARGET RETIREMENT FUNDS
================================================================================
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 Funds' 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 June 30, 2018, the Funds 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 Funds' tax basis to determine if
adjustments to this conclusion are necessary. The statute of limitations on
the Funds' tax return filings generally remain open for the three preceding
fiscal reporting year ends and remain subject to examination by the Internal
Revenue Service and state taxing authorities.
D. INVESTMENTS IN SECURITIES - Securities transactions are accounted for as of
the date the securities are purchased or sold (trade date). Gains or losses
from sales of investment securities are computed on the identified cost
basis. Dividend income and capital gain distributions from the underlying
USAA Funds are recorded on the ex-dividend date. Interest income is recorded
daily on the accrual basis. Premiums and discounts on short-term securities
are amortized on a straight-line basis over the life of the respective
securities.
E. 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.
F. USE OF ESTIMATES - The preparation of financial statements in conformity with
U.S. generally accepted accounting principles requires management
================================================================================
NOTES TO FINANCIAL STATEMENTS | 31
================================================================================
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 June 30, 2018, the facility fees paid (in
thousands) to CAPCO by the Funds and the related percent of those fees to the
total fees paid to CAPCO by all USAA Funds are as follows:
TARGET TARGET TARGET TARGET TARGET TARGET
INCOME 2020 2030 2040 2050 2060
---------------------------------------------------------------------------------
Fees paid $ 1 $ 2 $ 5 $ 6 $ 3 $ -*
% of total fees 0.4% 0.7% 1.6% 1.7% 1.0% 0.1%
*Represents less than $500.
The Funds had no borrowings under this agreement during the six-month period
ended June 30, 2018.
================================================================================
32 | USAA TARGET RETIREMENT FUNDS
================================================================================
(3) DISTRIBUTIONS
The tax basis of distributions and accumulated undistributed net investment
income will be determined as of the Funds' tax year-end of December 31, 2018, in
accordance with applicable federal tax law.
Distributions of net investment income are made quarterly by Target Income and
annually by each of the other Funds or as otherwise required to avoid the
payment of federal taxes. 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 December 31, 2017, the Funds had no capital loss carryforwards for federal
income tax purposes.
As of June 30, 2018, the cost of securities, including short-term securities,
for federal income tax purposes, was approximately the same as the cost reported
in the financial statements.
Gross unrealized appreciation and depreciation of investments as of June 30,
2018, and resulting net unrealized appreciation were as follows (in thousands):
TARGET TARGET TARGET TARGET TARGET TARGET
INCOME 2020 2030 2040 2050 2060
---------------------------------------------------------------------------------
Unrealized
appreciation $26,214 $86,638 $213,809 $281,477 $160,743 $8,370
Unrealized
depreciation 3,638 4,518 8,926 9,876 5,824 661
---------------------------------------------------------------------------------
Net $22,576 $82,120 $204,883 $271,601 $154,919 $7,709
---------------------------------------------------------------------------------
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities, excluding
short-term securities, for the six-month period ended June 30, 2018, was as
follows (in thousands):
TARGET TARGET TARGET TARGET TARGET TARGET
INCOME 2020 2030 2040 2050 2060
---------------------------------------------------------------------------------
Cost of purchases $31,597 $57,976 $155,286 $179,623 $116,217 $24,718
Proceeds from
sales/maturities 35,014 67,449 137,387 160,655 102,251 11,558
================================================================================
NOTES TO FINANCIAL STATEMENTS | 33
================================================================================
(5) SECURITIES LENDING
The Funds, 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, net of income retained by
Citibank. 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 each of the
Funds' securities on loan as of the end of the prior business day. Loans are
terminable upon demand and the borrower must return the loaned securities within
the lesser of one standard settlement period or five business days. 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 Funds' agreement
with Citibank does not include master netting provisions. Non-cash collateral
received by The Funds may not be sold or re-pledged except to satisfy borrower
default. Cash collateral is listed in the Funds' Portfolio of Investments and
Financial Statements while non- cash collateral is not included. At June 30,
2018, the Funds had no securities on loan.
(6) AGREEMENTS WITH MANAGER
ADVISORY AGREEMENT - The Manager carries out the Funds' investment policies and
manages the Funds' portfolios pursuant to an Advisory Agreement. The Manager
does not receive any management fees from the Funds for these services.
ADMINISTRATION AND SERVICING FEES - The Manager provides certain administration
and servicing functions for the Funds. The Manager does not receive any fees
from the Funds for these services.
In addition to the services provided under its Administration and Servicing
Agreement with the Funds, the Manager also provides certain compliance
================================================================================
34 | USAA TARGET RETIREMENT FUNDS
================================================================================
and legal services for the benefit of the Funds. The Board has approved the
billing of these expenses to the Funds. These expenses are included in the
professional fees on the Funds' Statements of Operations and, for the six-month
period ended June 30, 2018, were as follows (in thousands):
TARGET TARGET TARGET TARGET TARGET TARGET
INCOME 2020 2030 2040 2050 2060
---------------------------------------------------------------------------------
Compliance and
legal services $3 $5 $11 $12 $7 $1
EXPENSE LIMITATION - The Manager agreed, through April 30, 2019, to limit the
total annual operating expenses of Target 2060 to 0.10% of its average net
assets, excluding extraordinary expenses and before reductions of any expenses
paid indirectly, and to reimburse Target 2060 for all expenses in excess of that
amount. This expense limitation arrangement may not be changed or terminated
through April 30, 2019, without approval of the Board, and may be changed or
terminated by the Manager at any time after that date. For the six-month period
ended June 30, 2018, Target 2060 incurred reimbursable expenses of $60,000, of
which less than $500 was receivable from the Manager.
TRANSFER AGENCY AGREEMENT - USAA Transfer Agency Company, d/b/a USAA Shareholder
Account Services (SAS), an affiliate of the Manager, provides transfer agent
services to the Funds. SAS does not receive any fees from the Funds for these
services.
UNDERWRITING SERVICES - USAA Investment Management Company provides exclusive
underwriting and distribution of the Funds' shares on a continuing best-efforts
basis and receives no fee or other compensation for these services.
(7) TRANSACTIONS WITH AFFILIATES
The Manager is indirectly wholly owned by United Services Automobile Association
(USAA), a large, diversified financial services institution.
Certain trustees and officers of the Funds are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Funds officers
received any compensation from the Funds.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 35
================================================================================
(8) TRANSACTIONS WITH AFFILIATED FUNDS
A. SHARE OWNERSHIP - The Funds do not invest in the underlying USAA Funds for
the purpose of exercising management or control; however, investments by the
Funds may represent a significant portion of the underlying USAA Funds' net
assets. At June 30, 2018, the Funds owned the following percentages of the
total outstanding shares of each of the underlying USAA Funds:
TARGET TARGET TARGET TARGET TARGET TARGET
AFFILIATED USAA FUND INCOME 2020 2030 2040 2050 2060
----------------------------------------------------------------------------
Core Intermediate-
Term Bond ETF -% 1.0% 3.2% 2.5% 0.6% -%
Emerging Markets 0.2 0.4 1.3 1.8 1.1 0.1
Flexible Income -* 0.5 5.6 3.3 1.5 0.2
Global Managed
Volatility 3.5 9.6 26.7 35.4 21.3 2.1
Government
Securities 12.1 10.5 10.8 5.5 2.2 0.3
Growth 0.5 1.2 3.7 5.1 3.1 0.4
High Income 0.5 1.0 1.7 1.4 0.2 -*
Income 0.9 1.3 1.6 0.8 0.3 -*
Intermediate-Term
Bond 0.3 1.0 2.1 1.4 0.4 -*
International 0.5 1.2 3.7 5.0 3.0 0.4
MSCI Emerging
Markets Value
Momentum Blend
Index ETF 1.3 3.6 11.6 16.1 9.8 1.1
MSCI International
Value Momentum
Blend Index ETF 1.9 5.0 15.0 20.2 12.3 1.4
MSCI USA Small Cap
Value Momentum
Blend Index ETF 1.3 3.6 10.5 14.0 8.5 0.9
MSCI USA Value
Momentum Blend
Index ETF 2.1 5.7 17.1 23.1 14.1 1.6
================================================================================
36 | USAA TARGET RETIREMENT FUNDS
================================================================================
TARGET TARGET TARGET TARGET TARGET TARGET
AFFILIATED USAA FUND INCOME 2020 2030 2040 2050 2060
---------------------------------------------------------------------------------
Precious Metals
and Minerals -% -% -%* -%* -% -%
Real Return 7.9 14.2 21.3 15.2 9.6 0.7
S&P 500 Index 0.1 0.1 0.4 0.6 0.3 -*
Short-Term Bond 1.6 1.6 0.9 -* - -*
Small Cap Stock 0.2 0.6 1.7 2.3 1.4 0.2
Target Managed
Allocation 3.4 9.2 27.0 36.1 21.9 2.4
Total Return
Strategy 0.5 2.3 6.7 5.5 3.3 0.2
Value 0.8 2.3 6.9 9.3 5.7 0.6
* Represents less than 0.1%.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 37
================================================================================
B. TRANSACTIONS WITH AFFILIATED FUNDS - The following tables provide details
related to each Fund's investment in the underlying USAA Funds as of June 30,
2018:
TARGET INCOME:
CHANGE
IN NET
($ IN 000s) REALIZED CAPITAL UNREALIZED
AFFILIATED PURCHASE SALES DIVIDEND GAIN GAIN APPRECIATION/ MARKET VALUE
USAA FUND COST(A) PROCEEDS INCOME (LOSS) DISTRIBUTIONS DEPRECIATION 12/31/2017 06/30/2018
-------------------------------------------------------------------------------------------------------------------
Emerging
Markets $ 2,198 $ 5,815 $ - $1,544 $- $ (1,586) $ 5,220 $ 1,561
Flexible
Income 5 677 5 (28) - (12) 713 1
Global
Managed
Volatility - - - - - (298) 29,322 29,024
Government
Securities 2,227 - 831 - - (1,545) 74,583 75,265
Growth 4,154 1,748 - (29) - 202 10,714 13,293
High Income 341 861 341 (20) - (289) 12,155 11,326
Income 3,416 2,699 1,117 (111) - (2,375) 70,666 68,897
Income Stock 6 1,665 6 940 - (952) 1,671 -(b)
Intermediate-
Term Bond 294 3,610 294 (144) - (404) 17,537 13,674
International - 6,161 - 1,196 - (1,552) 25,443 18,926
MSCI Emerging
Markets Value
Momentum
Blend Index
ETF 838 - 7 - - (200) 1,328 1,966
MSCI
International
Value
Momentum
Blend Index
ETF 4,008 - 64 - - (366) 1,510 5,152
MSCI USA
Small Cap
Value
Momentum
Blend Index
ETF 614 - 1 - - 35 173 822
================================================================================
38 | USAA TARGET RETIREMENT FUNDS
================================================================================
CHANGE
IN NET
($ IN 000s) REALIZED CAPITAL UNREALIZED
AFFILIATED PURCHASE SALES DIVIDEND GAIN GAIN APPRECIATION/ MARKET VALUE
USAA FUND COST(A) PROCEEDS INCOME (LOSS) DISTRIBUTIONS DEPRECIATION 12/31/2017 06/30/2018
-------------------------------------------------------------------------------------------------------------------
MSCI USA
Value
Momentum
Blend
Index ETF $ 5,607 $ - $ 31 $ - $- $ (115) $ 2,223 $ 7,715
Real Return - - - - - (26) 5,521 5,495
S&P 500
Index 1,327 1,704 30 519 - (423) 3,883 3,602
Short-Term
Bond 1,266 1,391 607 (17) - (537) 50,672 49,992
Small Cap Stock 1,611 908 - 27 - 331 3,222 4,283
Target Managed
Allocation - 6,936 - 470 - (519) 21,126 14,141
Total Return
Strategy - - - - - (23) 400 377
Value 3,685 839 - (30) - (363) 10,820 13,273
-------------------------------------------------------------------------------------------------------------------
TOTAL $31,597 $35,014 $3,334 $4,317 $- $(11,017) $348,902 $338,785
-------------------------------------------------------------------------------------------------------------------
(a) Includes reinvestment of distributions from dividend income and realized
gains.
(b) As of the end of the reporting period, the Fund no longer holds the
affiliated fund.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 39
================================================================================
TARGET 2020:
CHANGE
IN NET
($ IN 000s) REALIZED CAPITAL UNREALIZED
AFFILIATED PURCHASE SALES DIVIDEND GAIN GAIN APPRECIATION/ MARKET VALUE
USAA FUND COST(A) PROCEEDS INCOME (LOSS) DISTRIBUTIONS DEPRECIATION 12/31/2017 06/30/2018
---------------------------------------------------------------------------------------------------------------------
Core
Intermediate-
Term Bond
ETF $ - $ - $ 20 $ - $- $ (53) $ 1,598 $ 1,545
Emerging
Markets 3,542 5,715 - 689 - (1,109) 5,963 3,370
Flexible
Income 20 2,522 20 (334) - 142 2,973 279
Global
Managed
Volatility - - - - - (815) 80,358 79,543
Government
Securities 4,296 1,706 711 (86) - (1,234) 64,280 65,550
Growth 3,352 4,055 - 7 - 704 36,299 36,307
High
Income 612 544 612 (14) - (546) 21,857 21,365
Income 3,889 4,252 1,587 (168) - (3,406) 101,672 97,735
Income Stock 18 5,941 18 3,362 - (3,356) 5,917 -(b)
Intermediate-
Term Bond 756 3,080 756 14 - (1,387) 43,520 39,823
International - 13,381 - 3,883 - (4,989) 65,476 50,989
MSCI Emerging
Markets Value
Momentum
Blend Index
ETF 4,691 - 20 - - (650) 1,502 5,543
MSCI
International
Value
Momentum
Blend Index
ETF 10,952 - 174 - - (1,017) 3,937 13,872
MSCI USA
Small Cap
Value
Momentum
Blend Index
ETF 1,587 - 4 - - 95 541 2,223
================================================================================
40 | USAA TARGET RETIREMENT FUNDS
================================================================================
CHANGE
IN NET
($ IN 000s) REALIZED CAPITAL UNREALIZED
AFFILIATED PURCHASE SALES DIVIDEND GAIN GAIN APPRECIATION/ MARKET VALUE
USAA FUND COST(A) PROCEEDS INCOME (LOSS) DISTRIBUTIONS DEPRECIATION 12/31/2017 06/30/2018
-------------------------------------------------------------------------------------------------------------------
MSCI USA
Value
Momentum
Blend
Index ETF $14,644 $ - $ 84 $ - $- $ (347) $ 6,647 $ 20,944
Real Return - - - - - (47) 9,897 9,850
S&P 500
Index 3,658 5,757 79 1,293 - (1,029) 11,916 10,081
Short-Term
Bond 1,290 1,512 616 (16) - (550) 51,828 51,040
Small Cap
Stock 1,621 3,997 - 242 - 811 11,430 10,107
Target
Managed
Allocation 375 12,825 - 812 - (912) 50,844 38,294
Total Return
Strategy - - - - - (101) 1,740 1,639
Value 2,673 2,162 - (95) - (835) 36,660 36,241
-------------------------------------------------------------------------------------------------------------------
TOTAL $57,976 $67,449 $4,701 $9,589 $- $(20,631) $616,855 $596,340
-------------------------------------------------------------------------------------------------------------------
(a) Includes reinvestment of distributions from dividend income and realized
gains.
(b) As of the end of the reporting period, the Fund no longer holds the
affiliated fund.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 41
================================================================================
TARGET 2030:
CHANGE
IN NET
($ IN 000s) REALIZED CAPITAL UNREALIZED
AFFILIATED PURCHASE SALES DIVIDEND GAIN GAIN APPRECIATION/ MARKET VALUE
USAA FUND COST(A) PROCEEDS INCOME (LOSS) DISTRIBUTIONS DEPRECIATION 12/31/2017 06/30/2018
-------------------------------------------------------------------------------------------------------------------
Core
Intermediate-
Term Bond
ETF $ - $ - $ 62 $ - $- $ (163) $ 4,950 $ 4,787
Emerging
Markets 10,853 7,572 - (303) - (1,368) 10,399 12,009
Flexible
Income 39 2,051 39 (287) - (163) 5,409 2,947
Global
Managed
Volatility - - - - - (2,273) 223,930 221,657
Government
Securities 11,010 1,469 662 (80) - (1,115) 58,527 66,873
Growth 2,385 6,355 - 81 - 2,135 111,770 110,016
High Income 1,057 1,959 1,057 (38) - (932) 38,256 36,384
Income 6,214 4,979 2,051 (184) - (4,393) 130,250 126,908
Income Stock 51 18,292 51 9,717 - (9,657) 18,181 -(b)
Intermediate-
Term Bond 4,112 7,026 1,526 (98) - (2,649) 86,730 81,069
International 652 18,413 - 3,903 - (7,948) 175,304 153,498
MSCI
Emerging
Markets
Value
Momentum
Blend Index
ETF 17,331 - 62 - - (2,202) 2,492 17,621
MSCI
International
Value
Momentum
Blend Index
ETF 33,736 - 519 - - (3,055) 10,757 41,438
================================================================================
42 | USAA TARGET RETIREMENT FUNDS
================================================================================
CHANGE
IN NET
($ IN 000s) REALIZED CAPITAL UNREALIZED
AFFILIATED PURCHASE SALES DIVIDEND GAIN GAIN APPRECIATION/ MARKET VALUE
USAA FUND COST(A) PROCEEDS INCOME (LOSS) DISTRIBUTIONS DEPRECIATION 12/31/2017 06/30/2018
-------------------------------------------------------------------------------------------------------------------
MSCI USA
Small Cap
Value
Momentum
Blend Index
ETF $ 4,706 $ - $ 12 $ - $- $ 278 $ 1,538 $ 6,522
MSCI USA
Value
Momentum
Blend
Index ETF 44,330 - 251 - - (966) 19,676 63,040
Precious
Metals
and Minerals - - - - - (2) 71 69
Real Return - - - - - (70) 14,819 14,749
S&P 500 Index 8,198 15,141 252 2,952 - (2,283) 36,134 29,860
Short-Term
Bond 1,030 1,104 360 (22) - (307) 30,130 29,727
Small Cap
Stock 5,364 11,214 - 669 - 2,404 32,638 29,861
Target
Managed
Allocation - 38,468 - 3,592 - (3,361) 150,160 111,923
Total Return
Strategy - - - - - (299) 5,150 4,851
Value 4,218 3,344 - (204) - (2,449) 111,595 109,816
-------------------------------------------------------------------------------------------------------------------
TOTAL $155,286 $137,387 $6,904 $19,698 $- $(40,838) $1,278,866 $1,275,625
-------------------------------------------------------------------------------------------------------------------
(a) Includes reinvestment of distributions from dividend income and realized
gains.
(b) As of the end of the reporting period, the Fund no longer holds the
affiliated fund.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 43
================================================================================
TARGET 2040:
CHANGE
IN NET
($ IN 000s) REALIZED CAPITAL UNREALIZED
AFFILIATED PURCHASE SALES DIVIDEND GAIN GAIN APPRECIATION/ MARKET VALUE
USAA FUND COST(A) PROCEEDS INCOME (LOSS) DISTRIBUTIONS DEPRECIATION 12/31/2017 06/30/2018
-------------------------------------------------------------------------------------------------------------------
Core
Intermediate-
Term Bond
ETF $ - $ - $ 48 $ - $- $ (126) $ 3,829 $ 3,703
Emerging
Markets 13,186 11,132 - (341) - (1,981) 17,097 16,829
Flexible
Income 26 1,697 26 (221) - (62) 3,702 1,748
Global
Managed
Volatility - - - - - (3,005) 296,155 293,150
Government
Securities 11,330 - 272 - - (465) 23,609 34,474
Growth 725 10,889 - 413 - 2,599 155,730 148,578
High Income 908 5,009 908 (70) - (766) 34,578 29,641
Income 958 3,515 958 (62) - (2,119) 63,204 58,466
Income Stock 71 26,119 71 14,092 - (13,989) 25,945 -(b)
Intermediate-
Term Bond 1,059 8,683 1,059 (104) - (1,845) 63,128 53,555
International 315 19,849 - 3,417 - (9,137) 232,198 206,944
MSCI
Emerging
Markets Value
Momentum
Blend Index
ETF 23,489 - 86 - - (3,112) 4,072 24,449
MSCI
International
Value
Momentum
Blend Index
ETF 45,789 - 699 - - (4,139) 14,114 55,764
MSCI USA
Small Cap
Value
Momentum
Blend Index
ETF 6,237 - 16 - - 375 2,127 8,739
================================================================================
44 | USAA TARGET RETIREMENT FUNDS
================================================================================
CHANGE
IN NET
($ IN 000s) REALIZED CAPITAL UNREALIZED
AFFILIATED PURCHASE SALES DIVIDEND GAIN GAIN APPRECIATION/ MARKET VALUE
USAA FUND COST(A) PROCEEDS INCOME (LOSS) DISTRIBUTIONS DEPRECIATION 12/31/2017 06/30/2018
-------------------------------------------------------------------------------------------------------------------
MSCI USA
Value
Momentum
Blend Index
ETF $ 59,876 $ - $ 340 $ - $- $ (1,421) $ 26,679 $ 85,134
Precious Metals
and Minerals - - - - - (2) 66 64
Real Return - - - - - (50) 10,563 10,513
S&P 500 Index 9,703 24,074 355 11,654 - (10,713) 53,680 40,250
Short-Term
Bond 18 - 18 - - (17) 1,500 1,501
Small Cap
Stock 5,208 14,922 - 973 - 3,148 45,667 40,074
Target
Managed
Allocation - 28,631 - 3,066 - (2,593) 177,975 149,817
Total Return
Strategy - - - - - (246) 4,237 3,991
Value 725 6,135 - (197) - (3,315) 157,241 148,319
-------------------------------------------------------------------------------------------------------------------
TOTAL $179,623 $160,655 $4,856 $32,620 $- $(52,981) $1,417,096 $1,415,703
-------------------------------------------------------------------------------------------------------------------
(a) Includes reinvestment of distributions from dividend income and realized
gains.
(b) As of the end of the reporting period, the Fund no longer holds the
affiliated fund.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 45
================================================================================
TARGET 2050:
CHANGE
IN NET
($ IN 000S) REALIZED CAPITAL UNREALIZED
AFFILIATED PURCHASE SALES DIVIDEND GAIN GAIN APPRECIATION/ MARKET VALUE
USAA FUND COST(A) PROCEEDS INCOME (LOSS) DISTRIBUTIONS DEPRECIATION 12/31/2017 06/30/2018
-------------------------------------------------------------------------------------------------------------------
Core
Intermediate-
Term Bond
ETF $ - $ - $ 12 $ - $- $ (32) $ 975 $ 943
Emerging
Markets 7,055 7,032 - 74 - (1,486) 11,719 10,330
Flexible
Income 7 63 7 (8) - (79) 929 786
Global
Managed
Volatility - - - - - (1,807) 178,083 176,276
Government
Securities 7,136 568 81 (21) - (112) 7,011 13,446
Growth 410 6,997 - 277 - 1,568 95,358 90,616
High Income 175 2,799 175 13 - (175) 7,611 4,825
Income 349 3,092 349 (25) - (794) 24,608 21,048
Income Stock 43 16,089 43 8,589 - (8,512) 15,969 -(b)
Intermediate-
Term Bond 369 8,655 369 (115) - (598) 24,578 15,579
International 2,274 14,020 - 1,624 - (5,108) 141,179 125,949
MSCI
Emerging
Markets Value
Momentum
Blend Index
ETF 14,004 - 52 - - (1,892) 2,807 14,919
MSCI
International
Value
Momentum
Blend Index
ETF 28,034 - 426 - - (2,519) 8,495 34,010
MSCI USA
Small Cap
Value
Momentum
Blend Index
ETF 3,790 - 10 - - 227 1,295 5,312
================================================================================
46 | USAA TARGET RETIREMENT FUNDS
================================================================================
CHANGE
IN NET
($ IN 000S) REALIZED CAPITAL UNREALIZED
AFFILIATED PURCHASE SALES DIVIDEND GAIN GAIN APPRECIATION/ MARKET VALUE
USAA FUND COST(A) PROCEEDS INCOME (LOSS) DISTRIBUTIONS DEPRECIATION 12/31/2017 06/30/2018
-------------------------------------------------------------------------------------------------------------------
MSCI USA
Value
Momentum
Blend Index
ETF $ 36,692 $ - $ 207 $ - $- $ (863) $ 16,096 $ 51,925
Real Return - - - - - (32) 6,680 6,648
S&P 500 Index 6,378 15,832 223 6,873 - (6,285) 33,234 24,368
Small Cap
Stock 7,002 13,145 - 816 - 1,721 27,902 24,296
Target
Managed
Allocation 2,089 9,876 - 647 - (519) 98,640 90,981
Total Return
Strategy - - - - - (148) 2,542 2,394
Value 410 4,083 - (143) - (2,014) 96,286 90,456
-------------------------------------------------------------------------------------------------------------------
TOTAL $116,217 $102,251 $1,954 $18,601 $- $(29,457) $801,997 $805,107
-------------------------------------------------------------------------------------------------------------------
(a) Includes reinvestment of distributions from dividend income and realized
gains.
(b) As of the end of the reporting period, the Fund no longer holds the
affiliated fund.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 47
================================================================================
TARGET 2060:
CHANGE
IN NET
($ IN 000S) REALIZED CAPITAL UNREALIZED
AFFILIATED PURCHASE SALES DIVIDEND GAIN GAIN APPRECIATION/ MARKET VALUE
USAA FUND COST(A) PROCEEDS INCOME (LOSS) DISTRIBUTIONS DEPRECIATION 12/31/2017 06/30/2018
-------------------------------------------------------------------------------------------------------------------
Emerging
Markets $ 1,304 $1,102 $ - $ (13) $- $ (173) $ 1,398 $ 1,414
Flexible
Income 1 7 1 (1) - (8) 97 82
Global
Managed
Volatility 1,461 - - - - (203) 16,424 17,682
Government
Securities 792 - 14 - - (21) 1,134 1,905
Growth 1,530 335 - (18) - 161 9,120 10,458
High Income 456 519 16 6 - (20) 696 619
Income 359 290 34 (9) - (65) 2,095 2,090
-(b)
Income Stock 4 1,775 4 335 - (320) 1,756
Intermediate-
Term Bond 354 1,044 29 (29) - (26) 1,845 1,100
International 2,741 1,785 - (15) - (439) 14,227 14,729
MSCI
Emerging
Markets
Value
Momentum
Blend Index
ETF 1,590 - 6 - - (213) 330 1,707
MSCI
International
Value
Momentum
Blend Index
ETF 3,348 - 48 - - (318) 826 3,856
MSCI USA
Small Cap
Value
Momentum
Blend Index
ETF 436 - 1 - - 24 127 587
================================================================================
48 | USAA TARGET RETIREMENT FUNDS
================================================================================
CHANGE
IN NET
($ IN 000S) REALIZED CAPITAL UNREALIZED
AFFILIATED PURCHASE SALES DIVIDEND GAIN GAIN APPRECIATION/ MARKET VALUE
USAA FUND COST(A) PROCEEDS INCOME (LOSS) DISTRIBUTIONS DEPRECIATION 12/31/2017 06/30/2018
-------------------------------------------------------------------------------------------------------------------
MSCI USA
Value
Momentum
Blend Index
ETF $ 4,461 $ - $ 23 $ - $- $ (88) $ 1,543 $ 5,916
Real Return - - - - - (2) 498 496
S&P 500
Index 2,153 2,875 30 280 - (245) 3,601 2,914
Short-Term
Bond - - - - - - -* -*
Small Cap
Stock 568 941 - 51 - 223 2,821 2,722
Target
Managed
Allocation 1,534 755 - (23) - 43 9,160 9,959
Total Return
Strategy - - - - - (10) 166 156
Value 1,626 130 - (10) - (268) 9,132 10,350
-------------------------------------------------------------------------------------------------------------------
TOTAL $24,718 $11,558 $206 $554 $- $(1,968) $76,996 $88,742
-------------------------------------------------------------------------------------------------------------------
(a) Includes reinvestment of distributions from dividend income and realized
gains.
(b) As of the end of the reporting period, the Fund no longer holds the
affiliated fund.
*Represents less than $500.
(9) UPCOMING REGULATORY MATTERS
In October 2016, the U.S. Securities and Exchange Commission (SEC) issued Final
Rule Release No. 33-10231, INVESTMENT COMPANY REPORTING MODERNIZATION. In part,
the rules require the filing of new forms N-PORT and N-CEN, and amend Regulation
S-X to require standardized, enhanced disclosure about derivatives in investment
company financial statements, as well as other amendments. 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 49
================================================================================
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.
================================================================================
50 | USAA TARGET RETIREMENT FUNDS
================================================================================
FINANCIAL HIGHLIGHTS
TARGET INCOME (UNAUDITED)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
PERIOD ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------
2018 2017 2016 2015 2014 2013
------------------------------------------------------------------------------
Net asset value at
beginning of period $ 11.69 $ 11.41 $ 11.09 $ 11.82 $ 11.84 $ 11.50
------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .11 .28 .28 .28 .34 .32
Net realized and
unrealized gain (loss) (.23) .70 .42 (.50) .05 .31
------------------------------------------------------------------------------
Total from investment
operations (.12) .98 .70 (.22) .39 .63
------------------------------------------------------------------------------
Less distributions from:
Net investment income (.10) (.28) (.28) (.28) (.40) (.25)
Realized capital gains - (.42) (.10) (.23) (.01) (.04)
------------------------------------------------------------------------------
Total distributions (.10) (.70) (.38) (.51) (.41) (.29)
------------------------------------------------------------------------------
Net asset value at
end of period $ 11.47 $ 11.69 $ 11.41 $ 11.09 $ 11.82 $ 11.84
==============================================================================
Total return (%)* (1.03) 8.66 6.36 (1.95) 3.36 5.58
Net assets at end of
period (000) $340,258 $349,866 $317,856 $330,809 $367,307 $359,488
Ratios to average
net assets:**
Expenses (%)(a) .06(c) .07 .07 .06 .05 .05(b)
Net investment income (%) 1.88(c) 2.44 2.41 2.36 2.80 2.71
Portfolio turnover (%) 9 41(d) 14 35 11 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 June 30, 2018, average net assets were
$346,370,000.
(a) Does not include acquired fund fees, if any.
(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 ratio by less than 0.01%.
(c) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(d) Overall increase in purchases and sales of securities.
================================================================================
FINANCIAL HIGHLIGHTS | 51
================================================================================
TARGET 2020 (UNAUDITED)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
PERIOD ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------
2018 2017 2016 2015 2014 2013
------------------------------------------------------------------------------
Net asset value at
beginning of period $ 12.86 $ 12.28 $ 11.85 $ 12.56 $ 12.63 $ 12.00
------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .10 .30 .30 .30 .37 .33
Net realized and
unrealized gain (loss) (.23) 1.25 .60 (.60) .07 .77
------------------------------------------------------------------------------
Total from investment
operations (.13) 1.55 .90 (.30) .44 1.10
------------------------------------------------------------------------------
Less distributions from:
Net investment income - (.30) (.38) (.21) (.37) (.34)
Realized capital gains - (.67) (.09) (.20) (.14) (.13)
------------------------------------------------------------------------------
Total distributions - (.97) (.47) (.41) (.51) (.47)
------------------------------------------------------------------------------
Net asset value at
end of period $ 12.73 $ 12.86 $ 12.28 $ 11.85 $ 12.56 $ 12.63
==============================================================================
Total return (%)* (1.01) 12.71 7.57 (2.40) 3.45 9.16
Net assets at end of
period (000) $597,466 $617,583 $570,796 $583,926 $650,362 $632,564
Ratios to average
net assets:**
Expenses (%)(a) .04(c) .04 .04 .04 .03 .04(b)
Net investment income (%) 1.52(c) 2.33 2.33 2.31 2.82 2.73
Portfolio turnover (%) 10 39(d) 11 30 15 20
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended June 30, 2018, average net assets were
$610,320,000.
(a) Does not include acquired fund fees, if any.
(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 ratio by less than 0.01%.
(c) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(d) Overall increase in purchases and sales of securities.
================================================================================
52 | USAA TARGET RETIREMENT FUNDS
================================================================================
TARGET 2030 (UNAUDITED)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
PERIOD ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------
2018 2017 2016 2015 2014 2013
--------------------------------------------------------------------------------
Net asset value at
beginning of period $ 13.84 $ 12.89 $ 12.34 $ 13.05 $ 13.13 $ 12.03
--------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .07 .30 .30 .27 .35 .30
Net realized and
unrealized gain (loss) (.22) 1.77 .77 (.63) .11 1.35
--------------------------------------------------------------------------------
Total from investment
operations (.15) 2.07 1.07 (.36) .46 1.65
--------------------------------------------------------------------------------
Less distributions from:
Net investment income - (.32) (.48) (.08) (.35) (.30)
Realized capital gains - (.80) (.04) (.27) (.19) (.25)
--------------------------------------------------------------------------------
Total distributions - (1.12) (.52) (.35) (.54) (.55)
--------------------------------------------------------------------------------
Net asset value at
end of period $ 13.69 $ 13.84 $ 12.89 $ 12.34 $ 13.05 $ 13.13
================================================================================
Total return (%)* (1.08) 16.12 8.70 (2.81) 3.43 13.71
Net assets at end of
period (000) $1,277,125 $1,286,393 $1,098,440 $1,060,971 $1,135,347 $1,074,149
Ratios to average
net assets:**
Expenses (%)(a) .02(c) .03 .03 .03 .03 .03(b)
Net investment income (%) 1.06(c) 2.29 2.22 2.08 2.63 2.43
Portfolio turnover (%) 11 32 8 32 15 17
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended June 30, 2018, average net assets were
$1,293,965,000.
(a) Does not include acquired fund fees, if any.
(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 ratio by less than 0.01%.
(c) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
FINANCIAL HIGHLIGHTS | 53
================================================================================
TARGET 2040 (UNAUDITED)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
PERIOD ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------
2018 2017 2016 2015 2014 2013
--------------------------------------------------------------------------------
Net asset value at
beginning of period $ 14.25 $ 12.82 $ 12.23 $ 12.89 $ 12.99 $ 11.59
--------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .05 .29 .26 .23 .30 .25
Net realized and
unrealized gain (loss) (.21) 2.07 .83 (.58) .11 1.75
--------------------------------------------------------------------------------
Total from investment
operations (.16) 2.36 1.09 (.35) .41 2.00
--------------------------------------------------------------------------------
Less distributions from:
Net investment income - (.29) (.48) (.00)(a) (.30) (.25)
Realized capital gains - (.64) (.02) (.31) (.21) (.35)
--------------------------------------------------------------------------------
Total distributions - (.93) (.50) (.31) (.51) (.60)
--------------------------------------------------------------------------------
Net asset value at
end of period $ 14.09 $ 14.25 $ 12.82 $ 12.23 $ 12.89 $ 12.99
================================================================================
Total return (%)* (1.12) 18.46 8.97 (2.71) 3.15 17.37
Net assets at end of
period (000) $1,416,581 $1,424,068 $1,195,926 $1,128,269 $1,173,210 $1,101,663
Ratios to average
net assets:**
Expenses (%)(b) .02(d) .03 .03 .03 .03 .03(c)
Net investment income (%) .66(d) 2.15 1.99 1.78 2.33 2.09
Portfolio turnover (%) 11 32 9(e) 35 16 17
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended June 30, 2018, average net assets were
$1,437,711,000.
(a) Represents less than $0.01 per share.
(b) Does not include acquired fund fees, if any.
(c) Reflects total annual operating expenses of the Fund before reductions of
any expenses paid indirectly. The Fund's expenses paid indirectly decreased
the expense ratio by less than 0.01%.
(d) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(e) Overall decrease in purchases and sales of securities.
================================================================================
54 | USAA TARGET RETIREMENT FUNDS
================================================================================
TARGET 2050 (UNAUDITED)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
PERIOD ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------
2018 2017 2016 2015 2014 2013
------------------------------------------------------------------------------
Net asset value at
beginning of period $ 14.45 $ 12.78 $ 12.18 $ 12.81 $ 12.86 $ 11.25
------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .03 .27 .23 .20 .26 .21
Net realized and
unrealized gain (loss) (.19) 2.20 .87 (.52) .13 1.90
------------------------------------------------------------------------------
Total from investment
operations (.16) 2.47 1.10 (.32) .39 2.11
------------------------------------------------------------------------------
Less distributions from:
Net investment income - (.28) (.42) (.00)(a) (.26) (.21)
Realized capital gains - (.52) (.08) (.31) (.18) (.29)
------------------------------------------------------------------------------
Total distributions - (.80) (.50) (.31) (.44) (.50)
------------------------------------------------------------------------------
Net asset value at
end of period $ 14.29 $ 14.45 $ 12.78 $ 12.18 $ 12.81 $ 12.86
==============================================================================
Total return (%)* (1.11) 19.39 9.02 (2.48) 3.02 18.81
Net assets at end of
period (000) $808,298 $804,921 $659,642 $603,281 $607,896 $541,452
Ratios to average
net assets:**
Expenses (%)(b) .03(d) .04 .05 .04 .04 .05(c)
Net investment income (%) .45(d) 2.00 1.87 1.58 2.09 1.83
Portfolio turnover (%) 13 30 6(e) 39 16 19
* 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 June 30, 2018, average net assets were
$817,714,000.
(a) Represents less than $0.01 per share.
(b) Does not include acquired fund fees, if any.
(c) Reflects total annual operating expenses of the Fund before reductions of
any expenses paid indirectly. The Fund's expenses paid indirectly decreased
the expense ratio by less than 0.01%.
(d) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(e) Overall decrease in purchases and sales of securities.
================================================================================
FINANCIAL HIGHLIGHTS | 55
================================================================================
TARGET 2060 (UNAUDITED)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
PERIOD ENDED PERIOD ENDED
JUNE 30, YEAR ENDED DECEMBER 31, DECEMBER 31,
--------------------------------------------------------------------------------
2018 2017 2016 2015 2014 2013***
--------------------------------------------------------------------------------
Net asset value at
beginning of period $ 12.74 $ 11.07 $ 10.48 $ 10.93 $ 10.85 $ 10.00
-----------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .02 .22 .15 .18(a) .25(a) .18(a)
Net realized and
unrealized gain (loss) (.18) 1.93 .77 (.45)(a) .07(a) .79(a)
-----------------------------------------------------------------------------
Total from investment
operations (.16) 2.15 .92 (.27)(a) .32(a) .97(a)
-----------------------------------------------------------------------------
Less distributions from:
Net investment income - (.22) (.30) (.01) (.18) (.12)
Realized capital gains - (.26) (.03) (.17) (.06) -
-----------------------------------------------------------------------------
Total distributions - (.48) (.33) (.18) (.24) (.12)
-----------------------------------------------------------------------------
Net asset value at
end of period $ 12.58 $ 12.74 $ 11.07 $ 10.48 $ 10.93 $ 10.85
=============================================================================
Total return (%)* (1.26) 19.51 8.80 (2.47) 2.91 9.69
Net assets at end of
period (000) $90,309 $77,599 $53,142 $37,963 $25,808 $11,777
Ratios to average
net assets:**
Expenses (%)(b) .10(d) .10 .10 .10 .10 .10(c),(d)
Expenses, excluding
reimbursements (%)(b) .24(d) .29 .41 .51 .78 1.72(c),(d)
Net investment income (%) .39(d) 1.95 1.85 1.64 2.25 3.36(d)
Portfolio turnover (%) 14 37(f) 4(e) 35 16 0
* 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 June 30, 2018, average net assets were
$86,497,000.
*** Fund commenced operations on July 12, 2013.
(a) Calculated using average shares.
(b) Does not include acquired fund fees, if any.
(c) Reflects total annual operating expenses of the Fund before reductions of
any expenses paid indirectly. The Fund's expenses paid indirectly decreased
the expense ratio by less than 0.01%.
(d) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(e) Overall decrease in purchases and sales of securities.
(f) Overall increase in purchases and sales of securities.
================================================================================
56 | USAA TARGET RETIREMENT FUNDS
================================================================================
EXPENSE EXAMPLE
June 30, 2018 (unaudited)
--------------------------------------------------------------------------------
EXAMPLE
As a shareholder of the Funds, you incur two types of costs: direct costs, such
as wire fees, redemption fees, and low balance fees; and indirect costs,
including Fund operating expenses. This example is intended to help you
understand your indirect costs, also referred to as "ongoing costs" (in
dollars), of investing in the Funds and to compare these costs with the ongoing
costs of investing in other mutual funds. Each Fund also indirectly bears its
pro-rata share of the expenses of the underlying USAA funds in which it invests
(acquired funds). These acquired fund fees and expenses are not included in the
Funds' annualized expense ratios used to calculate the expense estimates in the
table on the next page.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire six-month period of January 1, 2018, through
June 30, 2018.
ACTUAL EXPENSES
The line labeled "actual" in the table provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested at the beginning of the period, to estimate the
expenses that you paid over the period. Simply divide your account value by
$1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number in the "actual" line under the heading
"Expenses Paid During Period" to estimate the expenses you paid on your account
during this period. The actual expenses of each Fund, net of reimbursements, are
zero.
================================================================================
EXPENSE EXAMPLE | 57
================================================================================
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The line labeled "hypothetical" in the table provides information about
hypothetical account values and hypothetical expenses based on the Funds' actual
expense ratios and an assumed rate of return of 5% per year before expenses,
which is not the Funds' 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 Funds 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. If these direct costs were
included, your costs would have been higher. Acquired fund fees and expenses are
not included in the Funds' annualized expense ratio used to calculate the
expenses paid in the table below.
================================================================================
58 | USAA TARGET RETIREMENT FUNDS
================================================================================
EXPENSES PAID
BEGINNING ENDING DURING PERIOD**
ACCOUNT VALUE ACCOUNT VALUE JANUARY 1, 2018 -
JANUARY 1, 2018 JUNE 30, 2018 JUNE 30, 2018
-------------------------------------------------------------
TARGET INCOME
Actual $1,000.00 $ 989.70 $0.30
Hypothetical * 1,000.00 1,024.50 0.30
TARGET 2020
Actual 1,000.00 989.90 0.20
Hypothetical * 1,000.00 1,024.60 0.20
TARGET 2030
Actual 1,000.00 989.20 0.10
Hypothetical * 1,000.00 1,024.70 0.10
TARGET 2040
Actual 1,000.00 988.80 0.10
Hypothetical * 1,000.00 1,024.70 0.10
TARGET 2050
Actual 1,000.00 988.90 0.15
Hypothetical * 1,000.00 1,024.65 0.15
TARGET 2060
Actual 1,000.00 987.40 0.49
Hypothetical * 1,000.00 1,024.30 0.50
* 5% return per year before expenses
** Expenses equal each Fund's annualized expense ratio of 0.06% for Target
Income, 0.04% for Target 2020, 0.02% for Target 2030, 0.02% for Target 2040,
0.03% for Target 2050, and 0.10% for Target 2060, which is net of any
reimbursements and expenses paid indirectly and excludes expenses of the
acquired funds, multiplied by 181 days/365 days (to reflect the one-half year
period). Each Funds' actual ending account value is based on its actual total
return for the current period of January 1, 2018, through June 30, 2018.
These total returns equaled (1.03)%, (1.01)%, (1.08)%, (1.12)%, (1.11)%, and
(1.26)% for the Target Income, Target 2020, Target 2030, Target 2040, Target
2050, and Target 2060 Funds, respectively.
================================================================================
EXPENSE EXAMPLE | 59
================================================================================
ADVISORY AGREEMENT(S)
June 30, 2018 (unaudited)
--------------------------------------------------------------------------------
At an in-person meeting of the Board of Trustees (the Board) held on April 18,
2018, the Board, including the Trustees who are not "interested persons" (as
that term is defined in the Investment Company Act of 1940, as amended) of the
Trust (the Independent Trustees), approved for an annual period the continuance
of the Advisory Agreement between the Trust and the Manager with respect to each
of Target Retirement Income Fund, Target Retirement 2020 Fund, Target Retirement
2030 Fund, Target Retirement 2040 Fund, Target Retirement 2050 Fund, and Target
Retirement 2060 Fund (together, the Funds).
In advance of the meeting, the Trustees received and considered a variety of
information relating to the Advisory Agreement and the Manager and were given
the opportunity to ask questions and request additional information from
management. The information provided to the Board included, among other things:
(i) a separate report prepared by an independent third party, which provided a
statistical analysis comparing the Funds' investment performance, expenses, and
fees to comparable investment companies; (ii) information concerning the
services rendered to the Funds, as well as information regarding the Manager's
revenues and costs of providing services to the Funds and compensation paid to
affiliates of the Manager; and (iii) information about the Manager's operations
and personnel. Prior to voting, the Independent Trustees reviewed the proposed
continuance of the Advisory Agreement with management and with experienced
counsel retained by the Independent Trustees (Independent Counsel) and received
materials from such Independent Counsel discussing the legal standards for their
consideration of the proposed continuance of the Advisory Agreement with respect
to the Funds. The Independent Trustees also reviewed the proposed continuation
of the Advisory Agreement with respect to the Funds in private sessions with
their counsel at which no representatives of management were present.
================================================================================
60 | USAA TARGET RETIREMENT FUNDS
================================================================================
At each regularly scheduled meeting of the Board and its committees, the Board
receives and reviews, among other things, information concerning the Funds'
performance and related services provided by the Manager. At the meeting at
which the renewal of the Advisory Agreement is considered, particular focus is
given to information concerning Fund performance, fees and total expenses as
compared to comparable investment companies, and the Manager's profitability
with respect to the Funds. However, the Board noted that the evaluation process
with respect to the Manager is an ongoing one. In this regard, the Board's and
its committees' consideration of the Advisory Agreement included certain
information previously received at such meetings.
ADVISORY AGREEMENT
After full consideration of a variety of factors, the Board, including the
Independent Trustees, voted to approve the Advisory Agreement. In approving the
Advisory Agreement, the Trustees did not identify any single factor as
controlling, and each Trustee may have attributed different weights to various
factors. Throughout their deliberations, the Independent Trustees were
represented and assisted by Independent Counsel.
NATURE, EXTENT, AND QUALITY OF SERVICES - In considering the nature, extent, and
quality of the services provided by the Manager under the Advisory Agreement,
the Board reviewed information provided by the Manager relating to its
operations and personnel. The Board also took into account its knowledge of the
Manager's management and the quality of the performance of the Manager's duties
through Board meetings, discussions, and reports during the preceding year. The
Board considered the services provided to the Funds by the Manager under the
Advisory Agreement, as well as other services provided by the Manager and its
affiliates under other agreements, and the personnel who provide these services.
In addition to the investment advisory services provided to the Funds, the
Manager and its affiliates provide administrative services, shareholder
services, oversight of the Funds' accounting, marketing services, assistance in
meeting legal and regulatory requirements, and other services necessary for the
operation of the Funds and the Trust. The Board also considered the significant
risks assumed by the Manager in connection with the services provided to the
================================================================================
ADVISORY AGREEMENT(S) | 61
================================================================================
Funds, including investment, operational, enterprise, litigation, regulatory and
compliance risks.
The Board considered the Manager's management style and the performance of the
Manager's duties under the Advisory Agreement. The Board considered the level
and depth of knowledge of the Manager, including the professional experience and
qualifications of its senior and investment personnel, as well as current
staffing levels. The Manager's role in coordinating the activities of the Funds'
other service providers also was considered. The Board also considered the
Manager's risk management processes. The Board considered the Manager's
financial condition and that it had the financial wherewithal to continue to
provide the same scope and high quality of services under the Advisory
Agreement. In reviewing the Advisory Agreement, the Board focused on the
experience, resources, and strengths of the Manager and its affiliates in
managing the Funds, as well as the other funds in the Trust.
The Board also reviewed the compliance and administrative services provided to
the Funds by the Manager and its affiliates, including the Manager's oversight
of the Funds' day-to-day operations and oversight of Fund accounting. The
Trustees, guided also by information obtained from their experiences as trustees
of the Trust, also focused on the quality of the Manager's compliance and
administrative staff.
EXPENSES AND PERFORMANCE - In connection with its consideration of the Advisory
Agreement, the Board evaluated the Funds' advisory fees and total expense ratios
as compared to other open-end investment companies deemed to be comparable to
the Funds as determined by the independent third party in its report. The Funds'
expenses were compared to (i) a group of investment companies chosen by the
independent third party to be comparable to the Funds based upon certain
factors, including fund type, comparability of investment objective and
classification, sales load type (in this case, retail investment companies with
front-end loads and no sales loads), asset size, and expense components (the
"expense group") and (ii) a larger group of investment companies that includes
all front-end load and no-load retail open end investment companies with the
same investment classifications/objectives as the Funds regardless of asset
size, excluding outliers (the "expense
================================================================================
62 | USAA TARGET RETIREMENT FUNDS
================================================================================
universe"). The Board noted that the Manager does not receive a management fee
from the Funds. The data indicated that the total expense ratio for each Fund,
which included underlying fund expenses and any reimbursements, was below the
median of its respective expense group and its respective expense universe. The
Board took into account the various services provided to the Funds by the
Manager and its affiliates. The Board also took into account the high quality of
services provided by the Manager.
In considering the Funds' performance, the Board noted that it reviews at its
regularly scheduled meetings information about the Funds' performance results.
The Trustees also reviewed various comparative data provided to them in
connection with their consideration of the renewal of the Advisory Agreement,
including, among other information, a comparison of the Funds' average annual
total returns with their Lipper indexes and with that of other mutual funds
deemed to be in their peer group by the independent third party in its report
(the "performance universe"). Each Fund's performance universe consisted of the
Fund and all retail and institutional open-end investment companies with the
same classification/objective as the Fund regardless of asset size or primary
channel of distribution. This comparison indicated that, among other data, the
performance of the Target Retirement Income Fund was below the average of its
performance universe and its Lipper index for the one-year period ended December
31, 2017, was above the average of its performance universe and below its Lipper
index for the three-year period ended December 31, 2017, and was equal to the
average of its performance universe and below its Lipper index for the five-year
period ended December 31, 2017; the performance of the Target Retirement 2020
Fund was above the average of its performance universe and below its Lipper
index for the one-year period ended December 31, 2017, was above the average of
its performance universe and its Lipper index for the three-year period ended
December 31, 2017, and was below the average of its performance universe and its
Lipper index for the five-year period ended December 31, 2017; the performance
of the Target Retirement 2030 Fund was below the average of its performance
universe and its Lipper index for the one- and five-year periods ended December
31, 2017, and was above the average of its performance universe and below its
Lipper index for the three-year period ended December 31, 2017; the performance
of each of the Target
================================================================================
ADVISORY AGREEMENT(S) | 63
================================================================================
Retirement 2040 Fund and Target Retirement 2050 Fund was below the average of
its respective performance universe and its Lipper index for the one-, three-
and five-year periods ended December 31, 2017; and the performance of the Target
Retirement 2060 Fund was below the average of its performance universe and its
Lipper index for the one- and three-year periods ended December 31, 2017. The
Board also noted that the Target Retirement Income Fund's percentile performance
ranking was in the bottom 50% of its performance universe for the one-year
period ended December 31, 2017, and was in the top 50% of its performance
universe for the three- and five-year periods ended December 31, 2017; the
Target Retirement 2020 Fund's percentile performance information was in the top
50% of its performance universe for the one- and three-year periods ended
December 31, 2017, and was in the bottom 50% of its performance universe for the
five-year period ended December 31, 2017; the Target Retirement 2030 Fund's,
Target Retirement 2040 Fund's and Target Retirement 2050 Fund's percentile
performance information was each in the bottom 50% of its performance universe
for the one-, three- and five-year periods ended December 31, 2017; and the
Target Retirement 2060 Fund's percentile performance information was in the
bottom 50% of its performance universe for the one- and three-year periods ended
December 31, 2017 and the Board took into account management's discussion of the
Funds' performance, including the Funds' investment approaches and the impact of
market conditions on the Funds' performance relative to their peers.
COMPENSATION AND PROFITABILITY - The Board took into consideration that the
Manager does not collect a management fee from the Funds. The information
considered by the Board included operating profit margin information for the
Manager's business as a whole. This information included a review of the
methodology used in the allocation of certain costs to the Funds. The Trustees
reviewed the profitability of the Manager's relationship with the Funds before
tax expenses. The Board also considered the fact that affiliates provide
shareholder servicing and administrative services to the Funds for which they
receive no compensation. The Board also took into account the Manager's receipt
of fees from the underlying funds. The Board also noted that the manager
reimburses certain expenses
================================================================================
64 | USAA TARGET RETIREMENT FUNDS
================================================================================
for each Fund. The Board also considered the possible direct and indirect
benefits to the Manager from its relationship with the Trust, including that the
Manager may derive reputational and other benefits from its association with the
Funds. The Board also took into account the high quality of services received by
the Funds from the Manager. The Trustees recognized that the Manager should be
entitled to earn a reasonable level of profits in exchange for the level of
services it provides to the Funds and the entrepreneurial risk that it assumes
as Manager.
ECONOMIES OF SCALE - With respect to the consideration of any economies of scale
to be realized by the Funds, the Board took into account that the Manager does
not receive any advisory fees under the Advisory Agreement. The Board took into
account management's discussion of the Fund's current advisory fee structure.
The Board also considered the effects of the Funds' growth and size on the
Funds' performance and fees, noting that if the Funds' assets increase over
time, the Funds may realize other economies of scale if assets increase
proportionally more than some expenses. The Board determined that the current
fee structure was reasonable.
CONCLUSIONS - The Board reached the following conclusions regarding the Advisory
Agreement with the Manager with respect to each Fund, among others: (i) the
Manager has demonstrated that it possesses the capability and resources to
perform the duties required of it under the Advisory Agreement; (ii) the Manager
maintains an appropriate compliance program; (iii) the performance of each of
the Funds is reasonable in relation to the performance of funds with similar
investment objectives and to relevant indices in view of the Fund's investment
approach and management is appropriately monitoring the Fund's performance; (iv)
each Fund's advisory expenses are reasonable in relation to those of similar
funds and to the services to be provided by the Manager; and (v) the Manager's
and its affiliates level of profitability from their relationship with each
Fund, if any, is reasonable in light of the nature and high quality of services
provided by the Manager and the type of Funds. Based on its conclusions, the
Board determined that the continuation of the Advisory Agreement would be in the
best interests of the Funds and its shareholders.
================================================================================
ADVISORY AGREEMENT(S) | 65
================================================================================
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
--------------------------------------------------------------------------------
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
--------------
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================================================================================
88219-0818 (C)2018, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA TOTAL RETURN STRATEGY FUND]
==============================================================
SEMIANNUAL REPORT
USAA TOTAL RETURN STRATEGY FUND
FUND SHARES (USTRX) o INSTITUTIONAL SHARES (UTRIX)
JUNE 30, 2018
==============================================================
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
INVESTMENT OVERVIEW 1
FINANCIAL INFORMATION
Portfolio of Investments 2
Notes to Portfolio of Investments 5
Financial Statements 7
Notes to Financial Statements 10
Financial Highlights 29
EXPENSE EXAMPLE 32
ADVISORY AGREEMENT(S) 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.
IRA DISTRIBUTION WITHHOLDING DISCLOSURE
We generally must withhold federal income tax at a rate of 10% of the taxable
portion of your distribution and, if you live in a state that requires state
income tax withholding, at your state's tax rate. However, you may elect not to
have withholding apply or to have income tax withheld at a higher rate. Any
withholding election that you make will apply to any subsequent distribution
unless and until you change or revoke the election. If you wish to make a
withholding election or change or revoke a prior withholding election, call
(800) 531-USAA (8722) or (210) 531-8722.
If you do not have a withholding election in place by the date of a
distribution, federal income tax will be withheld from the taxable portion of
your distribution at a rate of 10%. If you must pay estimated taxes, you may be
subject to estimated tax penalties if your estimated tax payments are not
sufficient and sufficient tax is not withheld from your distribution.
For more specific information, please consult your tax adviser.
(C)2018, USAA. All rights reserved.
================================================================================
================================================================================
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
o TOP 10 HOLDINGS* - 6/30/18 o
(% of Net Assets)
iShares 20+ Year Treasury Bond ETF ...................................... 42.0%
Invesco FTSE RAFI Emerging Markets ETF .................................. 10.6%
iShares Gold Trust ...................................................... 6.6%
SPDR Gold Shares ........................................................ 6.6%
WisdomTree India Earnings Fund .......................................... 5.0%
VanEck Vectors Gold Miners ETF .......................................... 4.0%
iShares MSCI Emerging Markets ETF ....................................... 2.9%
iShares 7-10 Year Treasury Bond ETF "B" ................................. 2.1%
U.S. Treasury Note, 1.88%, 4/30/2022 .................................... 1.3%
Agnico Eagle Mines Ltd. ................................................. 1.1%
o ASSET ALLOCATION* - 6/30/18 o
(% of Net Assets)
[PIE CHART OF ASSET ALLOCATION]
FIXED-INCOME EXCHANGE-TRADED FUNDS 44.1%
EXCHANGE-TRADED FUNDS 37.1%
COMMON STOCKS 10.0%
MONEY MARKET INSTRUMENTS 6.9%
U.S. TREASURY SECURITIES 1.3%
CONVERTIBLE SECURITIES 0.2%
[END PIE CHART]
*Does not include purchased options, futures and money market instruments.
Refer to the Portfolio of Investments for a complete list of securities.
Percentages are of net assets of the Fund and may not equal 100%.
================================================================================
INVESTMENT OVERVIEW | 1
================================================================================
PORTFOLIO OF INVESTMENTS
June 30, 2018 (unaudited)
--------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (47.1%)
COMMON STOCKS (10.0%)
MATERIALS (10.0%)
-----------------
PRECIOUS METALS & MINERALS (10.0%)
17,500 Agnico Eagle Mines Ltd. $ 802
20,000 AngloGold Ashanti Ltd. ADR 164
100,000 B2Gold Corp.(a) 259
20,000 Barrick Gold Corp. 263
60,000 Centerra Gold, Inc.(a) 334
43,000 Cia de Minas Buenaventura S.A.A. ADR 586
100,000 Dundee Precious Metals, Inc.(a) 239
160,000 Eldorado Gold Corp.(a) 159
41,000 Goldcorp, Inc. 562
45,902 Hycroft Mining Corp.(a),(b),(c),(d),(e) 1
105,000 Kinross Gold Corp.(a) 395
75,000 New Gold, Inc.(a) 156
20,000 Newmont Mining Corp. 754
26,000 Pan American Silver Corp. 465
7,000 Randgold Resources Ltd. ADR(f) 540
8,500 Royal Gold, Inc. 789
41,000 Tahoe Resources, Inc. 202
24,000 Wheaton Precious Metals Corp. 529
-------
Total Materials 7,199
-------
Total Common Stocks (cost: $11,751) 7,199
-------
EXCHANGE-TRADED FUNDS (37.1%)
370,000 Invesco FTSE RAFI Emerging Markets ETF 7,648
400,000 iShares Gold Trust(a) 4,808
48,000 iShares MSCI Emerging Markets ETF 2,080
40,000 iShares Silver Trust(a) 606
40,000 SPDR Gold Shares(a) 4,746
130,000 VanEck Vectors Gold Miners ETF 2,900
14,000 VanEck Vectors Junior Gold Miners ETF 458
145,000 WisdomTree India Earnings Fund 3,649
-------
Total Exchange-Traded Funds (cost: $27,173) 26,895
-------
Total Equity Securities (cost: $38,924) 34,094
-------
================================================================================
2 | USAA TOTAL RETURN STRATEGY FUND
================================================================================
--------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------------
BONDS (45.6%)
CONVERTIBLE SECURITIES (0.2%)
MATERIALS (0.2%)
----------------
GOLD (0.2%)
$ 675 Hycroft Mining Corp.(b),(c),(d),(g) (cost: $663) 15.00%(h) 10/22/2020 $ 108
-------
--------------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES
--------------------------------------------------------------------------------------------------------------
FIXED-INCOME EXCHANGE-TRADED FUNDS (44.1%)
250,000 iShares 20+ Year Treasury Bond ETF 30,430
15,000 iShares 7-10 Year Treasury Bond ETF "B" 1,538
-------
Total Fixed-Income Exchange-Traded Funds (cost: $32,263) 31,968
-------
--------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT
(000)
--------------------------------------------------------------------------------------------------------------
U.S. TREASURY SECURITIES (1.3%)
NOTES (1.3%)(i)
$ 1,000 1.88%, 04/30/2022(f),(j) (cost: $975) 970
-------
Total Bonds (cost: $33,901) 33,046
-------
--------------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES
--------------------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS (6.9%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (6.9%)
5,033,715 State Street Institutional Treasury Money Market Fund
Premier Class, 1.74%(k),(f) (cost: $5,034) 5,034
-------
TOTAL INVESTMENTS (COST: $77,859) $72,174
=======
--------------------------------------------------------------------------------------------------------------
MARKET
NUMBER OF EXERCISE EXPIRATION NOTIONAL VALUE
CONTRACTS DESCRIPTION PRICE DATE AMOUNT (000) (000)
--------------------------------------------------------------------------------------------------------------
PURCHASED OPTIONS (0.4%)
8,000 Call - VanEck Vectors
Gold Miners ETF $35 1/18/2019 USD 17,840 $ 44
5,000 Call - VanEck Vectors
Gold Miners ETF 34 1/17/2020 USD 11,150 275
----
TOTAL PURCHASED OPTIONS
(COST: $902) $319
====
================================================================================
PORTFOLIO OF INVESTMENTS | 3
================================================================================
-------------------------------------------------------------------------------------------------------------------
UNREALIZED
APPRECIATION/
NUMBER OF EXPIRATION NOTIONAL CONTRACT (DEPRECIATION)
CONTRACTS DESCRIPTION DATE AMOUNT (000) VALUE (000) (000)
-------------------------------------------------------------------------------------------------------------------
FUTURES (2.7%)
LONG FUTURES
INTEREST RATE CONTRACTS
15 U.S. Treasury Bond 9/19/2018 USD 2,181 $ 2,175 $(6)
------- ---
TOTAL LONG FUTURES $ 2,175 $(6)
------- ---
SHORT FUTURES
EQUITY CONTRACTS
50 Russell 2000 Mini 9/21/2018 USD (4,191) $(4,119) $72
------- ---
TOTAL SHORT FUTURES $(4,119) $72
------- ---
TOTAL FUTURES $(1,944) $66
======= ===
-------------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
-------------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
-------------------------------------------------------------------------------------------------------------------
Equity Securities:
Common Stocks $ 7,198 $- $ 1 $ 7,199
Exchange-Traded Funds 26,895 - - 26,895
Bonds:
Convertible Securities - - 108 108
Fixed-Income Exchange-Traded Funds 31,968 - - 31,968
U.S. Treasury Securities 970 - - 970
Money Market Instruments:
Government & U.S. Treasury Money
Market Funds 5,034 - - 5,034
Options:
Call Options Purchased 319 - - 319
Futures(1) 72 - - 72
-------------------------------------------------------------------------------------------------------------------
Total $72,456 $- $109 $72,565
-------------------------------------------------------------------------------------------------------------------
LIABILITIES LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
-------------------------------------------------------------------------------------------------------------------
Futures(1) $ (6) $- $ - $ (6)
-------------------------------------------------------------------------------------------------------------------
Total $ (6) $- $ - $ (6)
-------------------------------------------------------------------------------------------------------------------
(1)Futures are valued at the unrealized appreciation/(depreciation) on the
investment.
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
For the period of January 1, 2018, through June 30, 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.
================================================================================
4 | USAA TOTAL RETURN STRATEGY FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
June 30, 2018 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
Market values of securities are determined by procedures and practices
discussed in Note 1A to the financial statements.
The Portfolio of Investments category percentages shown represent the
percentages of the investments to net assets, and, in total, may not equal
100%. A category percentage of 0.0% represents less than 0.1% of net assets.
Investments in foreign securities were 44.6% of net assets at June 30, 2018.
The Fund may rely on certain Securities and Exchange Commission (SEC)
exemptive orders or rules that permit funds meeting various conditions to
invest in an exchange-traded fund (ETF) in amounts exceeding limits set
forth in the Investment Company Act of 1940, as amended, that would
otherwise be applicable.
o 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) Non-income-producing security.
(b) Security was fair valued at June 30, 2018, by USAA Asset Management
Company in accordance with valuation procedures approved by USAA Mutual
Funds Trust's Board of Trustees. The total value of all such securities
was $109,000, which represented 0.2% of the Fund's net assets.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 5
================================================================================
(c) Security deemed illiquid by USAA Asset Management Company, under
liquidity guidelines approved by USAA Mutual Funds Trust's Board of
Trustees. The aggregate market value of these securities at June 30,
2018, was $109,000, which represented 0.2% of the Fund's net assets.
(d) Security was classified at Level 3.
(e) Restricted security that is not registered under the Securities Act of
1933.
(f) The security, or a portion thereof, is segregated to cover the value of
open futures contracts at June 30, 2018.
(g) Payment-in-kind (PIK) - security in which the issuer has or will have the
option to make all or a portion of the interest or dividend payments in
additional securities in lieu of cash.
(h) All of the coupon is PIK.
(i) Rates for U.S. Treasury notes or bonds represent the stated coupon
payment rate at time of issuance.
(j) Securities with a value of $970,000 are segregated as collateral for
initial margin requirements on open futures contracts.
(k) Rate represents the money market fund annualized seven-day yield at June
30, 2018.
See accompanying notes to financial statements.
================================================================================
6 | USAA TOTAL RETURN STRATEGY FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
June 30, 2018 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $77,859) $ 72,174
Purchased options, at market value (cost of $902) 319
Cash denominated in foreign currencies (identified cost of $2) 2
Receivables:
Capital shares sold 28
Dividends and interest 46
Variation margin on futures contracts 65
--------
Total assets 72,634
--------
LIABILITIES
Payables:
Securities purchased 24
Capital shares redeemed 15
Payable to broker 57
Accrued management fees 35
Accrued transfer agent's fees 3
Other accrued expenses and payables 42
--------
Total liabilities 176
--------
Net assets applicable to capital shares outstanding $ 72,458
========
NET ASSETS CONSIST OF:
Paid-in capital $ 99,267
Accumulated undistributed net investment income 562
Accumulated net realized loss on investments, options, and
futures transactions (21,162)
Net unrealized depreciation of investments, options, and
futures contracts (6,202)
Net unrealized depreciation of foreign capital gains tax (7)
--------
Net assets applicable to capital shares outstanding $ 72,458
========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $59,050/7,326 capital shares
outstanding, no par value) $ 8.06
========
Institutional Shares (net assets of $13,408/1,653 capital shares
outstanding, no par value) $ 8.11
========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 7
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended June 30, 2018 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $5) $ 469
Interest 48
Non-cash interest 48
-------
Total income 565
-------
EXPENSES
Management fees 218
Administration and servicing fees:
Fund Shares 47
Institutional Shares 7
Transfer agent's fees:
Fund Shares 101
Institutional Shares 7
Custody and accounting fees:
Fund Shares 29
Institutional Shares 8
Postage:
Fund Shares 5
Shareholder reporting fees:
Fund Shares 8
Trustees' fees 16
Registration fees:
Fund Shares 11
Institutional Shares 10
Professional fees 12
Other 7
-------
Total expenses 486
-------
NET INVESTMENT INCOME 79
-------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
FOREIGN CURRENCY, OPTIONS, AND FUTURES CONTRACTS
Net realized loss on:
Investments (136)
Foreign currency transactions (14)
Options (1,545)
Futures transactions (452)
Change in net unrealized appreciation/(depreciation) of:
Investments (3,536)
Foreign capital gains tax 4
Foreign currency translations (9)
Options 860
Futures contracts 103
-------
Net realized and unrealized loss (4,725)
-------
Decrease in net assets resulting from operations $(4,646)
=======
See accompanying notes to financial statements.
================================================================================
8 | USAA TOTAL RETURN STRATEGY FUND
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended June 30, 2018 (unaudited), and year ended
December 31, 2017
--------------------------------------------------------------------------------------------------
6/30/2018 12/31/2017
--------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 79 $ 373
Net realized gain (loss) on investments (136) 1,506
Net realized loss on foreign currency transactions (14) -
Net realized loss on options (1,545) (2,354)
Net realized loss on futures transactions (452) (210)
Change in net unrealized appreciation/(depreciation) of:
Investments (3,536) 5,368
Foreign capital gains tax 4 (11)
Foreign currency translations (9) (96)
Options 860 842
Futures contracts 103 (93)
------------------------
Increase (decrease) in net assets resulting from operations (4,646) 5,325
------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares - (2)
Institutional Shares - (30)
------------------------
Distributions to shareholders - (32)
------------------------
NET DECREASE IN NET ASSETS FROM
CAPITAL SHARE TRANSACTIONS (NOTE 6)
Fund Shares (3,827) (7,139)
Institutional Shares 1 (573)
------------------------
Total net decrease in net assets from capital share
transactions (3,826) (7,712)
------------------------
Net decrease in net assets (8,472) (2,419)
NET ASSETS
Beginning of period 80,930 83,349
------------------------
End of period $72,458 $80,930
========================
Accumulated undistributed net investment income:
End of period $ 562 $ 483
========================
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 9
================================================================================
NOTES TO FINANCIAL STATEMENTS
June 30, 2018 (unaudited)
--------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company Act
of 1940, as amended (the 1940 Act), is an open-end management investment
company organized as a Delaware statutory trust consisting of 50 separate funds.
The USAA Total Return Strategy Fund (the Fund) qualifies as a registered
investment company under Accounting Standards Codification Topic 946. The
information presented in this semiannual report pertains only to the Fund, which
is classified as diversified under the 1940 Act. The Fund's investment objective
is to seek capital appreciation through the use of a dynamic allocation
strategy, across stocks, bonds, and cash instruments.
On June 14, 2018, the Trust's Board of Trustees (the Board) approved a Plan of
Liquidation and Dissolution for the Fund pursuant to which the Fund will be
liquidated on or about August 17, 2018. In approving the liquidation, the Board
determined that the liquidation of the Fund is in the best interest of the Fund
and its shareholders. Effective the close of business on June 15, 2018, the Fund
was closed to new investors.
The Fund's assets are invested pursuant to a dynamic asset allocation strategy,
which allows the Fund's investment adviser to invest at any given time a portion
or substantially all of the Fund's assets allocated to it in stocks or bonds,
either directly or through the use of exchange-traded funds (ETFs), and/or cash
equivalents, through direct investment in short-term, high-quality money market
instruments or money market funds.
The Fund consists of two classes of shares: Total Return Strategy Fund Shares
(Fund Shares) and Total Return Strategy Fund Institutional Shares (Institutional
Shares). Each class of shares has equal rights to assets and
================================================================================
10 | USAA TOTAL RETURN STRATEGY FUND
================================================================================
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 both 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).
A. SECURITY VALUATION - The Board has established the Valuation and
Liquidity Committee (the Committee), and subject to Board oversight, the
Committee administers and oversees the Fund's valuation policies and
procedures, which are approved by the Board. Among other things, these
policies and procedures allow the Fund to utilize independent pricing
services, quotations from securities dealers, and a wide variety of sources
and information to establish and adjust the fair value of securities as
events occur and circumstances warrant.
The Committee reports to the Board on a quarterly basis and makes
recommendations to the Board as to pricing methodologies and services used
by the Fund and presents additional information to the Board regarding
application of the pricing and fair valuation policies and procedures
during the preceding quarter.
The Committee meets as often as necessary to make pricing and fair value
determinations. In addition, the Committee holds regular monthly meetings
to review prior actions taken by the Committee and USAA Asset Management
Company (the Manager), an affiliate of the Fund.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 11
================================================================================
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
================================================================================
12 | USAA TOTAL RETURN STRATEGY FUND
================================================================================
securities and the Committee will consider such available information
that it deems relevant and will determine a fair value for the affected
foreign securities in accordance with valuation procedures. In
addition, information from an external vendor or other sources may be
used to adjust the foreign market closing prices of foreign equity
securities to reflect what the Committee believes to be the fair value
of the securities as of the close of the NYSE. Fair valuation of
affected foreign equity securities may occur frequently based on an
assessment that events which occur on a fairly regular basis (such as
U.S. market movements) are significant. Such securities are categorized
in Level 2 of the fair value hierarchy.
3. Investments in open-end investment companies, commingled, or other
funds, other than ETFs, are valued at their NAV at the end of each
business day and are categorized in Level 1 of the fair value hierarchy.
4. Short-term debt securities with original or remaining maturities of
60 days or less may be valued at amortized cost, provided that
amortized cost represents the fair value of such securities.
5. Debt securities with maturities greater than 60 days are valued each
business day by a pricing service (the Service) approved by the Board.
The Service uses an evaluated mean between quoted bid and ask prices or
the last sales price to value a security when, in the Service's
judgment, these prices are readily available and are representative of
the security's market value. For many securities, such prices are not
readily available. The Service generally prices those securities based
on methods which include consideration of yields or prices of
securities of comparable quality, coupon, maturity, and type;
indications as to values from dealers in securities; and general market
conditions. Generally, debt securities are categorized in Level 2 of
the fair value hierarchy; however, to the extent the valuations include
significant unobservable inputs, the securities would be categorized in
Level 3.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 13
================================================================================
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. 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
================================================================================
14 | USAA TOTAL RETURN STRATEGY FUND
================================================================================
transaction between market participants at the measurement date. The
three-level valuation hierarchy disclosed in the Portfolio of Investments
is based upon the transparency of inputs to the valuation of an asset or
liability as of the measurement date. The three levels are defined as
follows:
Level 1 - inputs to the valuation methodology are quoted prices
(unadjusted) in active markets for identical securities.
Level 2 - inputs to the valuation methodology are other significant
observable inputs, including quoted prices for similar securities, inputs
that are observable for the securities, either directly or indirectly, and
market-corroborated inputs such as market indexes.
Level 3 - inputs to the valuation methodology are unobservable and
significant to the fair value measurement, including the Manager's own
assumptions in determining the fair value.
The inputs or methodologies used for valuing securities are not necessarily
an indication of the risks associated with investing in those securities.
C. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - The Fund may buy, sell,
and enter into certain types of derivatives, including, but not limited to,
futures contracts, options, and options on futures contracts, under
circumstances in which such instruments are expected by the portfolio
manager to aid in achieving the Fund's investment objective. The Fund also
may use derivatives in circumstances where the portfolio manager believes
they offer an economical means of gaining exposure to a particular asset
class or securities market or to keep cash on hand to meet shareholder
redemptions or other needs while maintaining exposure to the market. With
exchange-listed futures contracts and options, counterparty credit risk to
the Fund is limited to the exchange's clearinghouse which, as counterparty
to all exchange-traded futures contracts and options, guarantees the
transactions against default from the actual counterparty to the
transaction. The Fund's derivative agreements held at June 30, 2018, did
not include master netting provisions.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 15
================================================================================
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.
OPTIONS TRANSACTIONS - The Fund is subject to equity price risk in the
normal course of pursuing its investment objectives. The Fund may use
options on underlying instruments, namely, equity securities, ETFs, and
equity indexes, to gain exposure to, or hedge against, changes in the value
of equity securities, ETFs, or equity indexes. A call option gives the
purchaser the right to buy, and the writer the obligation to sell, the
underlying instrument at a specified price during a specified period.
Conversely, a put option gives the purchaser the right to sell, and the
writer the obligation to buy, the underlying instrument at a specified
price during a specified period. The purchaser of the option pays a premium
to the writer of the option.
Premiums paid for purchased options are included in the Fund's Statement of
Assets and Liabilities as an investment. If a purchased
================================================================================
16 | USAA TOTAL RETURN STRATEGY FUND
================================================================================
option expires unexercised, the premium paid is recognized as a realized
loss. If a purchased call option on a security is exercised, the cost of
the security acquired includes the exercise price and the premium paid. If
a purchased put option on a security is exercised, the realized gain or
loss on the security sold is determined from the exercise price, the
original cost of the security, and the premium paid. The risk associated
with purchasing a call or put option is limited to the premium paid.
Premiums received from writing options are included in the Fund's Statement
of Assets and Liabilities as a liability. If a written option expires
unexercised, the premium received is recognized as a realized gain. If a
written call option on a security is exercised, the realized gain or loss
on the security sold is determined from the exercise price, the original
cost of the security, and the premium received. If a written put option on
a security is exercised, the cost of the security acquired is the exercise
price paid less the premium received. The Fund, as a writer of an option,
bears the market risk of an unfavorable change in the price of the security
underlying the written option.
In an attempt to reduce the Fund's volatility over time, the Fund may
implement a strategy that involves purchasing and selling options on indexes
or ETFs that represent the Fund's exposure against a highly correlated stock
portfolio. The combination of the diversified stock portfolio with index or
ETF options is designed to provide the Fund with consistent returns over a
wide range of equity market environments. This strategy may not fully
protect the Fund against declines in the portfolio's value, and the Fund
could experience a loss. Options on ETFs are similar to options on
individual securities in that the holder of the ETF call (or put) has the
right to receive (or sell) shares of the underlying ETF at the strike price
on or before exercise date. Options on securities indexes are different from
options on individual securities in that the holder of the index option has
the right to receive an amount of cash equal to the difference between the
exercise price and the settlement value of the underlying index as defined
by the exchange. If an index
================================================================================
NOTES TO FINANCIAL STATEMENTS | 17
================================================================================
option is exercised, the realized gain or loss is determined by the exercise
price, the settlement value, and the premium amount paid or received.
FAIR VALUES OF DERIVATIVE INSTRUMENTS AS OF JUNE 30, 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
----------------------------------------------------------------------------------------------------
Interest rate $ - Net unrealized $6**
contracts depreciation of
investments, options,
and futures contracts
----------------------------------------------------------------------------------------------------
Equity contracts Purchased options; 391** -
Net unrealized
appreciation of
investments, options,
and futures contracts
----------------------------------------------------------------------------------------------------
Total $391 $6
----------------------------------------------------------------------------------------------------
*For open derivative instruments as of June 30, 2018, see the Portfolio of
Investments.
**Includes cumulative appreciation/(depreciation) of futures as reported on
the Portfolio of Investments. Only the variation margin from the last
business day of the reporting period is reported within the Statement of
Assets and Liabilities.
THE EFFECT OF DERIVATIVE INSTRUMENTS ON THE STATEMENT OF OPERATIONS
FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 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
-------------------------------------------------------------------------------------------------
Interest rate contracts Net realized gain (loss) $ (93) $ -
on Futures transactions/
Change in net unrealized
appreciation/(depreciation)
of Futures contracts
-------------------------------------------------------------------------------------------------
Equity contracts Net realized gain (loss) on (1,904) 963
Options and Futures
transactions/Change in
net unrealized appreciation/
(depreciation) of Options
and Futures contracts
-------------------------------------------------------------------------------------------------
Total $(1,997) $963
-------------------------------------------------------------------------------------------------
================================================================================
18 | USAA TOTAL RETURN STRATEGY FUND
================================================================================
D. 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.
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
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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 19
================================================================================
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. 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 June 30, 2018, the Fund did not incur any
income tax, interest, or penalties, and has recorded no liability for net
unrecognized tax benefits relating to uncertain income tax positions. On
an ongoing basis, the Manager will monitor the Fund's tax basis to
determine if adjustments to this conclusion are necessary. The statute of
limitations on the Fund's tax return filings generally remain open for the
three preceding fiscal reporting year ends and remain subject to
examination by the Internal Revenue Service and state taxing authorities.
G. 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.
H. INVESTMENTS IN SECURITIES - Securities transactions are accounted for as
of the date the securities are purchased or sold (trade date). Gains or
losses from sales of investment securities are computed on the identified
cost basis. Dividend income, less foreign taxes, if any, is recorded on the
ex-dividend date. If the ex-dividend date has passed, certain dividends
from foreign securities are recorded upon notification. Interest income is
recorded daily on the accrual basis. Premiums and discounts 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.
================================================================================
20 | USAA TOTAL RETURN STRATEGY FUND
================================================================================
I. INDEMNIFICATIONS - Under the Trust's organizational documents, its officers
and trustees are indemnified against certain liabilities arising out of the
performance of their duties to the Trust. In addition, in the normal course
of business, the Trust enters into contracts that contain a variety of
representations and warranties that provide general indemnifications. The
Trust's maximum exposure under these arrangements is unknown, as this would
involve future claims that may be made against the Trust that have not yet
occurred. However, the Trust expects the risk of loss to be remote.
J. USE OF ESTIMATES - The preparation of financial statements in
conformity with U.S. generally accepted accounting principles requires
management to make estimates and assumptions that may affect the reported
amounts in the financial statements.
(2) LINE OF CREDIT
The Fund participates, along with other funds of the Trust and USAA ETF Trust
(together, the Trusts), in a joint, short-term, revolving, committed loan
agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate of
the Manager. The purpose of the agreement is to provide temporary or emergency
cash needs, including redemption requests that might otherwise require the
untimely disposition of securities. Subject to availability (including usage of
the facility by other funds of the Trusts), the Fund may borrow from CAPCO an
amount up to 5% of the Fund's total assets at an interest rate based on the
London Interbank Offered Rate (LIBOR), plus 100.0 basis points.
The Trusts are also assessed facility fees by CAPCO in the amount of 13.0 basis
points of the amount of the committed loan agreement. Prior to September 30,
2017, the maximum annual facility fee was 12.0 basis points of the amount of the
committed loan agreement. The facility fees are allocated among the funds of the
Trusts based on their respective average net assets for the period.
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 | 21
================================================================================
For the six-month period ended June 30, 2018, the Fund paid CAPCO facility fees
of less than $500, which represents 0.1% of the total fees paid to CAPCO by the
funds of the Trusts. The Fund had no borrowings under this agreement during the
six-month period ended June 30, 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 December 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.
At December 31, 2017, the Fund had both pre-enactment capital loss carryforwards
and post-enactment capital loss carryforwards for federal income tax purposes,
as shown in the table below. If not offset by subsequent capital gains, the
pre-enactment capital loss carryforwards will expire in 2018, as shown below. It
is unlikely that the Board will authorize a distribution of capital gains
realized in the future until the capital loss carryforwards have been used or
expire.
CAPITAL LOSS CARRYFORWARDS
------------------------------------------------
EXPIRES SHORT-TERM LONG-TERM
------- ----------- ----------
2018 $ 7,811,000 $ -
No Expiration 9,262,000 1,806,000
----------- ----------
Total $17,073,000 $1,806,000
=========== ==========
As of June 30, 2018, the cost of securities, including short-term securities,
for federal income tax purposes, was approximately the same as the cost reported
in the financial statements.
================================================================================
22 | USAA TOTAL RETURN STRATEGY FUND
================================================================================
Gross unrealized appreciation and depreciation of investments as of June 30,
2018, were $2,635,000 and $8,320,000, respectively, resulting in net unrealized
depreciation of $5,685,000.
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities, excluding
short-term securities, for the six-month period ended June 30, 2018, were
$12,442,000 and $15,730,000, 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, net of income retained by
Citibank. 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. Loans are terminable
upon demand and the borrower must return the loaned securities within the lesser
of one standard settlement period or five business days. 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 June 30,
2018, the Fund had no securities on loan.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 23
================================================================================
(6) CAPITAL SHARE TRANSACTIONS
At June 30, 2018, there were an unlimited number of shares of capital stock at
no par value authorized for the Fund.
Capital share transactions for the Institutional Shares resulted from purchases
and sales by the affiliated USAA fund-of-funds as well as other persons or legal
entities that the Fund may approve from time to time. Capital share transactions
for all classes were as follows, in thousands:
SIX-MONTH PERIOD ENDED YEAR ENDED
JUNE 30, 2018 DECEMBER 31, 2017
----------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------
FUND SHARES:
Shares sold 204 $ 1,711 511 $ 4,296
Shares issued from
reinvested dividends - - 1 2
Shares redeemed (663) (5,538) (1,360) (11,437)
-----------------------------------------------
Net decrease from capital
share transactions (459) $(3,827) (848) $ (7,139)
===============================================
INSTITUTIONAL SHARES:
Shares sold 43 $ 366 85 $ 720
Shares issued from reinvested
dividends - - 3 30
Shares redeemed (43) (365) (156) (1,323)
-----------------------------------------------
Net increase (decrease) from
capital share transactions -* $ 1 (68) $ (573)
===============================================
*Represents less than 500 shares.
(7) TRANSACTIONS WITH MANAGER
MANAGEMENT FEES - The Manager provides investment management services to the
Fund pursuant to an Advisory Agreement. Under this agreement, the Manager is
responsible for managing the business and affairs of the Fund, and for directly
managing the day-to-day investment of the Fund's assets, subject to the
authority of and supervision by the Board. The Manager 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
================================================================================
24 | USAA TOTAL RETURN STRATEGY FUND
================================================================================
all or a portion of the Fund's assets. For the six-month period ended June 30,
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 0.65% 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's performance over the performance period
to that of the Lipper Flexible Portfolio Funds Index, which tracks the total
return performance of the largest funds within this 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 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's 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 June 30, 2018, the Fund incurred total management
fees, paid or payable to the Manager, of $218,000, which
================================================================================
NOTES TO FINANCIAL STATEMENTS | 25
================================================================================
included a performance adjustment for the Fund Shares and Institutional Shares
of $(23,000) and $(8,000), respectively. For the Fund Shares and Institutional
Shares, the performance adjustments were (0.07)% and (0.12)%, respectively.
ADMINISTRATION AND SERVICING FEES - The Manager provides certain administration
and servicing functions for the Fund. For such services, the Manager receives a
fee accrued daily and paid monthly at an annualized rate of 0.15% and 0.10% of
average net assets of the Funds Shares and Institutional Shares, respectively.
For the six-month period ended June 30, 2018, the Fund Shares and Institutional
Shares incurred administration and servicing fees, paid or payable to the
Manager, of $47,000 and $7,000, respectively.
In addition to the services provided under its Administration and Servicing
Agreement with the Fund, the Manager also provides certain 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 June 30, 2018, the Fund reimbursed the Manager $1,000 for these compliance
and legal services. These expenses are included in the professional fees on the
Fund's Statement of Operations.
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 June 30, 2018, the Fund Shares and Institutional Shares
incurred transfer agent's fees, paid or payable to SAS, of $101,000 and $7,000,
respectively.
UNDERWRITING SERVICES - USAA Investment Management Company provides exclusive
underwriting and distribution of the Fund's shares on a continuing best-efforts
basis and receives no fee or other compensation for these services.
================================================================================
26 | USAA TOTAL RETURN STRATEGY FUND
================================================================================
(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 June 30, 2018, the USAA
fund-of-funds owned the following percentages of the total outstanding shares of
the Fund:
AFFILIATED USAA FUND OWNERSHIP %
---------------------------------------------------------------------------------
Target Retirement Income 0.5
Target Retirement 2020 2.3
Target Retirement 2030 6.7
Target Retirement 2040 5.5
Target Retirement 2050 3.3
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.
(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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 27
================================================================================
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) UPCOMING 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 statements
and other disclosures.
================================================================================
28 | USAA TOTAL RETURN STRATEGY FUND
================================================================================
FINANCIAL HIGHLIGHTS
FUND SHARES (UNAUDITED)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------
2018 2017 2016 2015 2014 2013
------------------------------------------------------------------------------
Net asset value at
beginning of period $ 8.57 $ 8.05 $ 7.96 $ 9.08 $ 8.95 $ 9.05
------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .01 .04 .03 .05 .06 .08
Net realized and
unrealized gain (loss) (.52) .48 .10 (1.11) .14(a) (.14)
------------------------------------------------------------------------------
Total from investment
operations (.51) .52 .13 (1.06) .20 (.06)
------------------------------------------------------------------------------
Less distributions from:
Net investment income - (.00)(b) (.03) (.06) (.07) (.04)
Tax return of capital - - (.01) - - -
------------------------------------------------------------------------------
Total distributions - (.00)(b) (.04) (.06) (.07) (.04)
------------------------------------------------------------------------------
Net asset value at
end of period $ 8.06 $ 8.57 $ 8.05 $ 7.96 $ 9.08 $ 8.95
==============================================================================
Total return (%)* (5.95) 6.46 1.53 (11.69) 2.26(a) (.62)
Net assets at
end of period (000) $59,050 $66,695 $69,463 $76,165 $97,658 $105,313
Ratios to average
net assets:**
Expenses (%)(d) 1.31(e) 1.45 1.40 1.26 1.22 1.24(c)
Net investment
income (%) .16(e) .38 .24 .54 .66 .87
Portfolio turnover (%) 17 15 26(g) 123(f) 88 105
* 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 June 30, 2018, average net assets were
$63,195,000.
(a) For the year ended December 31, 2014, the Manager reimbursed the Fund Shares
$3,000 for a loss incurred due to a trading error. The effect of this
reimbursement on the Fund Shares' net realized loss and total return was
less than $0.01/0.01% per share.
================================================================================
FINANCIAL HIGHLIGHTS | 29
================================================================================
(b) Represents less than $0.01 per share.
(c) Reflects total annual operating expenses of the Fund Shares before
reductions of any expenses paid indirectly. The Fund Shares' expenses paid
indirectly decreased the expense ratio by less than 0.01%.
(d) Does not include acquired fund fees, if any.
(e) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(f) The Fund's various investment strategies will create a large volume of
purchase and sales transactions relative to the market value of portfolio
investments, which results in portfolio turnover rates exceeding 100%.
(g) Reflects overall decrease in purchases and sales of securities.
================================================================================
30 | USAA TOTAL RETURN STRATEGY FUND
================================================================================
INSTITUTIONAL SHARES (UNAUDITED)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED PERIOD ENDED
JUNE 30, YEAR ENDED DECEMBER 31, DECEMBER 31,
--------------------------------------------------------------------------------
2018 2017 2016 2015 2014 2013***
--------------------------------------------------------------------------------
Net asset value at
beginning of period $ 8.61 $ 8.07 $ 7.97 $ 9.08 $ 8.95 $ 8.78
-----------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .02 .07 .05 .06 .08 .06
Net realized and
unrealized gain (loss) (.52) .49 .11 (1.09) .15(a) .15
-----------------------------------------------------------------------------
Total from investment
operations (.50) .56 .16 (1.03) .23 .21
-----------------------------------------------------------------------------
Less distributions from:
Net investment income - (.02) (.05) (.08) (.10) (.04)
Tax return of capital - - (.01) - - -
-----------------------------------------------------------------------------
Total distributions - (.02) (.06) (.08) (.10) (.04)
-----------------------------------------------------------------------------
Net asset value at
end of period $ 8.11 $ 8.61 $ 8.07 $ 7.97 $ 9.08 $ 8.95
=============================================================================
Total return (%)* (5.81) 6.92 1.91 (11.42) 2.53(a) 2.37
Net assets at end
of period (000) $13,408 $14,235 $13,886 $26,207 $93,564 $85,301
Ratios to average
net assets:**
Expenses (%)(c) 1.08(b) 1.05 1.02 .98 .98 1.02(b),(d)
Net investment income (%) .40(b) .79 .55 .80 .91 1.69(b)
Portfolio turnover (%) 17 15 26(f) 123(e) 88 105
* 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 June 30, 2018, average net assets were
$13,886,000.
*** Institutional Shares commenced operations on July 12, 2013.
(a) For the year ended December 31, 2014, the Manager reimbursed the
Institutional Shares $2,000 for a loss incurred due to a trading error. The
effect of this reimbursement on the Institutional Shares' net realized loss
and total return was less than $0.01/0.01% per share.
(b) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(c) Does not include acquired fund fees, if any.
(d) 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 ratio by less than 0.01%.
(e) The Fund's various investment strategies will create a large volume of
purchase and sales transactions relative to the market value of portfolio
investments, which results in portfolio turnover rates exceeding 100%.
(f) Reflects overall decrease in purchases and sales of securities.
================================================================================
FINANCIAL HIGHLIGHTS | 31
================================================================================
EXPENSE EXAMPLE
June 30, 2018 (unaudited)
--------------------------------------------------------------------------------
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: direct costs, such
as wire fees, redemption fees, and low balance fees; and indirect costs,
including management fees, transfer agency fees, and other Fund operating
expenses. This example is intended to help you understand your indirect costs,
also referred to as "ongoing costs" (in dollars), of investing in the Fund and
to compare these costs with the ongoing costs of investing in other mutual
funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire six-month period of January 1, 2018, through June
30, 2018.
ACTUAL EXPENSES
The line labeled "actual" under each share class in the table provides
information about actual account values and actual expenses. You may use the
information in this line, together with the amount you invested at the beginning
of the period, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number for your share
class in the "actual" line under the heading "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The line labeled "hypothetical" under each share class in the table provides
information about hypothetical account values and hypothetical expenses based on
the Fund's actual expense ratios for each class and an assumed rate of return of
5% per year before expenses, which is not the Fund's actual return. The
hypothetical account values and expenses may not be used to
================================================================================
32 | USAA TOTAL RETURN STRATEGY 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 JANUARY 1, 2018 -
JANUARY 1, 2018 JUNE 30, 2018 JUNE 30, 2018
--------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $ 940.50 $6.30
Hypothetical
(5% return before expenses) 1,000.00 1,018.30 6.56
INSTITUTIONAL SHARES
Actual 1,000.00 941.90 5.20
Hypothetical
(5% return before expenses) 1,000.00 1,019.44 5.41
*Expenses are equal to the annualized expense ratio of 1.31% for Fund Shares and
1.08% for Institutional Shares, which are net of any reimbursements and
expenses paid indirectly, multiplied by the average account value over the
period, multiplied by 181 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 (5.95)% for Fund Shares and (5.81)% for Institutional Shares for the
six-month period of January 1, 2018, through June 30, 2018.
================================================================================
EXPENSE EXAMPLE | 33
================================================================================
ADVISORY AGREEMENT(S)
June 30, 2018 (unaudited)
--------------------------------------------------------------------------------
At an in-person meeting of the Board of Trustees (the Board) held on April 18,
2018, the Board, including the Trustees who are not "interested persons" (as
that term is defined in the Investment Company Act of 1940, as amended) of the
Trust (the Independent Trustees), approved for an annual period the continuance
of the Advisory Agreement between the Trust and the Manager with respect to the
Fund.
In advance of the meeting, the Trustees received and considered a variety of
information relating to the Advisory Agreement and the Manager, and were given
the opportunity to ask questions and request additional information from
management. The information provided to the Board included, among other things:
(i) a separate report prepared by an independent third party, which provided a
statistical analysis comparing the Fund's investment performance, expenses, and
fees to comparable investment companies; (ii) information concerning the
services rendered to the Fund, as well as information regarding the Manager's
revenues and costs of providing services to the Fund and compensation paid to
affiliates of the Manager; and (iii) information about the Manager's operations
and personnel. Prior to voting, the Independent Trustees reviewed the proposed
continuance of the Advisory Agreement with management and with experienced
counsel retained by the Independent Trustees (Independent Counsel) and received
materials from such Independent Counsel discussing the legal standards for their
consideration of the proposed continuance of the Advisory Agreement with respect
to the Fund. The Independent Trustees also reviewed the proposed continuance of
the Advisory Agreement with respect to the Fund in private sessions with
Independent Counsel at which no representatives of management were present.
At each regularly scheduled meeting of the Board and its committees, the Board
receives and reviews, among other things, information concerning
================================================================================
34 | USAA TOTAL RETURN STRATEGY FUND
================================================================================
the Fund's performance and related services provided by the Manager. At the
meeting at which the renewal of the Advisory Agreement is considered, particular
focus is given to information concerning Fund performance, fees and total
expenses as compared to comparable investment companies, and the Manager's
profitability with respect to the Fund. However, the Board noted that the
evaluation process with respect to the Manager is an ongoing one. In this
regard, the Board and its committees' consideration of the Advisory Agreement
included certain information previously received at such meetings.
ADVISORY AGREEMENT
After full consideration of a variety of factors, the Board, including the
Independent Trustees, voted to approve the Advisory Agreement. In approving the
Advisory Agreement, the Trustees did not identify any single factor as
controlling, and each Trustee may have attributed different weights to various
factors. Throughout their deliberations, the Independent Trustees were
represented and assisted by Independent Counsel.
NATURE, EXTENT, AND QUALITY OF SERVICES - In considering the nature, extent, and
quality of the services provided by the Manager under the Advisory Agreement,
the Board reviewed information provided by the Manager relating to its
operations and personnel. The Board also took into account its knowledge of the
Manager's management and the quality of the performance of the Manager's duties
through Board meetings, discussions, and reports during the preceding year. The
Board considered the fees paid to the Manager and the services provided to the
Fund by the Manager under the Advisory Agreement, as well as other services
provided by the Manager and its affiliates under other agreements, and the
personnel who provide these services. In addition to the investment advisory
services provided to the Fund, the Manager and its affiliates provide
administrative services, shareholder services, oversight of Fund accounting,
marketing services, assistance in meeting legal and regulatory requirements, and
other services necessary for the operation of the Fund and the Trust.
================================================================================
ADVISORY AGREEMENT(S) | 35
================================================================================
The Board also considered the significant risks assumed by the Manager in
connection with the services provided to the Fund, including investment,
operational, enterprise, litigation, regulatory and compliance risks.
The Board considered the Manager's management style and the performance of the
Manager's duties under the Advisory Agreement. The Board considered the level
and depth of knowledge of the Manager, including the professional experience and
qualifications of senior personnel and investment personnel, as well as current
staffing levels. The allocation of the Fund's brokerage, including the Manager's
process for monitoring "best execution," was also considered. The Manager's role
in coordinating the activities of the Fund's other service providers also was
considered. The Board also considered the Manager's risk management processes.
The Board considered the Manager's financial condition and that it had the
financial wherewithal to continue to provide the same scope and high quality of
services under the Advisory Agreement. In reviewing the Advisory Agreement, the
Board focused on the experience, resources, and strengths of the Manager and its
affiliates in managing the Fund, as well as the other funds in the Trust.
The Board also reviewed the compliance and administrative services provided to
the Fund by the Manager and its affiliates, including the Manager's oversight of
the Fund's day-to-day operations and oversight of Fund accounting. The Trustees,
guided also by information obtained from their experiences as trustees of the
Trust, also focused on the quality of the Manager's compliance and
administrative staff.
EXPENSES AND PERFORMANCE - In connection with its consideration of the Advisory
Agreement, the Board evaluated the Fund's advisory fees and total expense ratio
as compared to other open-end investment companies deemed to be comparable to
the Fund as determined by the independent third party in its report. The Fund's
expenses were compared to (i) a group of investment companies chosen by the
independent third party to be comparable to the Fund based upon certain factors,
including fund type, comparability of investment objective and classification,
sales load type (in this case, retail investment companies with front-end loads
and no sales loads), asset size, and expense components (the "expense group")
================================================================================
36 | USAA TOTAL RETURN STRATEGY FUND
================================================================================
and (ii) a larger group of investment companies that includes front-end load and
no-load retail open-end investment companies with the same investment
classification/objective as the Fund regardless of asset size, excluding
outliers (the "expense universe"). Among other data, the Board noted that the
Fund's management fee rate - which includes advisory and administrative services
and the effects of any performance adjustment - was below the median of its
expense group and its expense universe. The data indicated that the Fund's total
expenses were below the median of its expense group and above the median of its
expense universe. The Board took into account the various services provided to
the Fund by the Manager and its affiliates, including the high quality of
services received by the Fund from the Manager. The Board also noted the level
and method of computing the management fee, including any performance adjustment
to such fee.
In considering the Fund's performance, the Board noted that it reviews at its
regularly scheduled meetings information about the Fund's performance results.
The Trustees also reviewed various comparative data provided to them in
connection with their consideration of the renewal of the Advisory Agreement,
including, among other information, a comparison of the Fund's average annual
total returns with its Lipper index and with that of other mutual funds deemed
to be in its peer group by the independent third party in its report (the
"performance universe"). The Fund's performance universe consisted of the Fund
and all retail and institutional open-end investment companies with the same
classification/objective as the Fund regardless of asset size or primary channel
of distribution. This comparison indicated that, among other data, the Fund's
performance was lower than the average of its performance universe and its
Lipper index for the one-, three-, five-, and ten-year periods ended December
31, 2017. The Board also noted that the Fund was in the bottom 50% of its
performance universe for the one-, three-, five-, and ten-year periods ended
December 31, 2017. The Board took into account management's discussion of the
Fund's performance, as well as management's continued monitoring of the Fund's
performance. The Board also took into account potential actions that management
was considering taking with respect to the Fund.
================================================================================
ADVISORY AGREEMENT(S) | 37
================================================================================
COMPENSATION AND PROFITABILITY - The Board took into consideration the level and
method of computing the Fund's management fee. The information considered by the
Board included operating profit margin information for the Manager's business as
a whole. The Board also received and considered profitability information
related to the management revenues from the Fund. This information included a
review of the methodology used in the allocation of certain costs to the Fund.
The Trustees reviewed the profitability of the Manager's relationship with the
Fund before tax expenses. In reviewing the overall profitability of the
management fee to the Manager, the Board also considered the fact that the
Manager and its affiliates provide shareholder servicing and administrative
services to the Fund for which they receive compensation. The Board also
considered the possible direct and indirect benefits to the Manager from its
relationship with the Trust, including that the Manager may derive reputational
and other benefits from its association with the Fund. The Trustees recognized
that the Manager should be entitled to earn a reasonable level of profits in
exchange for the level of services it provides to the Fund and the
entrepreneurial and other risks that it assumes as Manager.
ECONOMIES OF SCALE - The Board considered whether there should be changes in the
management fee rate or structure in order to enable the Fund to participate in
any economies of scale. The Board took into account management's discussion of
the Fund's current advisory fee structure. The Board also considered the effect
of the Fund's growth and size on its performance and fees, noting that if the
Fund's assets increase over time, the Fund may realize other economies of scale
if assets increase proportionally more than some expenses. The Board determined
that the current investment management fee structure was reasonable.
CONCLUSIONS - The Board reached the following conclusions regarding the Fund's
Advisory Agreement with the Manager, among others: (i) the Manager has
demonstrated that it possesses the capability and resources to perform the
duties required of it under the Advisory Agreement; (ii) the Manager maintains
an appropriate compliance program; (iii) the performance of the Fund is being
addressed; (iv) the Fund's advisory
================================================================================
38 | USAA TOTAL RETURN STRATEGY FUND
================================================================================
expenses are reasonable in relation to those of similar funds and to the
services to be provided by the Manager; and (v) the Manager and its affiliates'
level of profitability from their relationship with the Fund is reasonable in
light of the nature and high quality of services provided by the Manager and the
type of fund. Based on its conclusions, the Board determined that the
continuation of the Advisory Agreement would be in the interests of the Fund and
its shareholders.
================================================================================
ADVISORY AGREEMENT(S) | 39
================================================================================
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Jefferson C. Boyce
Dawn M. Hawley
Paul L. McNamara
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
--------------------------------------------------------------------------------
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
--------------
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================================================================================
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[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA ULTRA SHORT-TERM BOND FUND]
==============================================================
SEMIANNUAL REPORT
USAA ULTRA SHORT-TERM BOND FUND
FUND SHARES (UUSTX) o INSTITUTIONAL SHARES (UUSIX)
o R6 SHARES (URUSX)
JUNE 30, 2018
==============================================================
================================================================================
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
INVESTMENT OVERVIEW 1
FINANCIAL INFORMATION
Portfolio of Investments 3
Notes to Portfolio of Investments 15
Financial Statements 19
Notes to Financial Statements 22
Financial Highlights 35
EXPENSE EXAMPLE 38
ADVISORY AGREEMENT(S) 40
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE
RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY
USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN
PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS
ABOUT THE FUND.
IRA DISTRIBUTION WITHHOLDING DISCLOSURE
We generally must withhold federal income tax at a rate of 10% of the taxable
portion of your distribution and, if you live in a state that requires state
income tax withholding, at your state's tax rate. However, you may elect not to
have withholding apply or to have income tax withheld at a higher rate. Any
withholding election that you make will apply to any subsequent distribution
unless and until you change or revoke the election. If you wish to make a
withholding election, or change or revoke a prior withholding election, call
(800) 531-USAA (8722) or (210) 531-8722.
If you do not have a withholding election in place by the date of a
distribution, federal income tax will be withheld from the taxable portion of
your distribution at a rate of 10%. If you must pay estimated taxes, you may be
subject to estimated tax penalties if your estimated tax payments are not
sufficient and sufficient tax is not withheld from your distribution.
For more specific information, please consult your tax adviser.
(C)2018, USAA. All rights reserved.
================================================================================
================================================================================
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
o ASSET ALLOCATION - 6/30/18 o
(% of Net Assets)
[PIE CHART OF ASSET ALLOCATION]
CORPORATE OBLIGATIONS 49.2%
EURODOLLAR AND YANKEE OBLIGATIONS 23.2%
ASSET-BACKED SECURITIES 15.2%
COMMERCIAL MORTGAGE SECURITIES 5.5%
COLLATERALIZED LOAN OBLIGATIONS 3.7%
MONEY MARKET INSTRUMENTS 3.0%
MUNICIPAL OBLIGATIONS 1.9%
[END PIE CHART]
Percentages are of net assets of the Fund, and may not equal 100%.
================================================================================
INVESTMENT OVERVIEW | 1
================================================================================
o PORTFOLIO RATINGS MIX - 6/30/18 o
[PIE CHART OF PORTFOLIO RATINGS MIX]
AAA 19.6%
AA 15.2%
A 24.2%
BBB 33.3%
BELOW INVESTMENT-GRADE 4.6%
UNRATED 3.1%
[END PIE CHART]
These charts reflect the highest long-term rating from a Nationally Recognized
Statistical Rating Organization (NRSRO), with the four highest long-term credit
ratings labeled, in descending order of credit quality, AAA, AA, A, and BBB.
These categories represent investment-grade quality. NRSRO ratings are shown
because they provide independent analysis of the credit quality of the Fund's
investments. USAA Asset Management Company (the Manager) also performs its own
fundamental credit analysis of each security. As part of its fundamental credit
analysis, the Manager considers various criteria, including industry specific
actions, peer comparisons, payment ranking, and structure specific
characteristics. Any of the Fund's securities that are not rated by an NRSRO
appear in the chart above as "Unrated," but these securities are analyzed and
monitored by the Manager on an ongoing basis. Government securities that are
issued or guaranteed as to principal and interest by the U.S. government and
pre-refunded and escrowed-to-maturity municipal bonds that are not rated are
treated as AAA for credit quality purposes.
Percentages are of the total market value of the Fund's investments.
Refer to the Portfolio of Investments for a complete list of securities.
================================================================================
2 | USAA ULTRA SHORT-TERM BOND FUND
================================================================================
PORTFOLIO OF INVESTMENTS
June 30, 2018 (unaudited)
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
BONDS (98.7%)
ASSET-BACKED SECURITIES (15.2%)
FINANCIALS (15.2%)
------------------
ASSET-BACKED FINANCING (14.2%)
$ 2,600 AmeriCredit Automobile Receivables Trust 3.13% 10/08/2020 $ 2,606
860 ARI Fleet Lease Trust(a) 1.91 4/15/2026 855
1,000 ARI Fleet Lease Trust(a) 2.28 4/15/2026 986
1,000 Avis Budget Rental Car Funding AESOP, LLC(a) 3.75 7/20/2020 1,003
676 Avis Budget Rental Car Funding AESOP, LLC(a) 2.50 2/20/2021 670
101 California Republic Auto Receivables Trust 1.57 12/16/2019 101
991 California Republic Auto Receivables Trust 2.30 12/16/2019 991
1,000 California Republic Auto Receivables Trust 2.34 4/15/2020 1,000
2,000 Canadian Pacer Auto Receivables Trust(a) 2.05 3/19/2021 1,983
1,350 CarMax Auto Owner Trust 2.17 10/15/2020 1,344
356 CNH Equipment Trust 1.61 5/17/2021 356
1,000 Credit Acceptance Auto Loan Trust(a) 2.65 6/15/2026 988
2,000 Dell Equipment Finance Trust(a) 3.24 7/22/2022 2,004
2,000 Enterprise Fleet Financing, LLC(a) 2.04 2/22/2022 1,971
1,000 Great America Leasing Receivables Funding, LLC(a) 2.06 6/22/2020 994
1,000 Great America Leasing Receivables Funding, LLC(a) 2.36 1/20/2023 986
2,000 Holmes Master Issuer plc (3 mo. LIBOR + 0.36%)(a) 2.71(b) 10/15/2054 2,002
1,500 Huntington Auto Trust "B" 1.95 6/15/2021 1,498
1,420 Huntington Auto Trust "C" 2.15 6/15/2021 1,418
2,000 Master Credit Card Trust "A"(a) 2.26 7/21/2021 1,978
281 NP SPE II, LLC(a) 3.37 10/21/2047 275
2,000 Prestige Auto Receivables Trust(a) 2.40 4/15/2021 1,999
1,000 Prestige Auto Receivables Trust(a) 3.05 4/15/2021 999
1,540 Santander Drive Auto Receivables Trust 2.91 4/15/2020 1,540
819 Santander Drive Auto Receivables Trust 2.74 12/15/2021 820
2,000 Santander Retail Auto Lease Trust(a) 2.22 1/20/2021 1,979
1,584 SCF Equipment Leasing, LLC(a) 3.41 12/20/2023 1,568
1,335 Securitized Term Auto Receivables Trust(a) 1.52 3/25/2020 1,329
1,000 Securitized Term Auto Receivables Trust(a) 1.89 8/25/2020 995
2,000 Synchrony Credit Card Master Note Trust "C" 2.56 6/15/2023 1,970
1,798 TCF Auto Receivables Owner Trust(a) 2.55 4/15/2021 1,795
1,000 Volvo Financial Equipment, LLC(a) 1.92 3/15/2021 990
================================================================================
PORTFOLIO OF INVESTMENTS | 3
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 388 Wheels SPV, LLC(a) 1.59% 5/20/2025 $ 386
2,000 Wheels SPV, LLC(a) 1.87 5/20/2025 1,979
--------
44,358
--------
OTHER ASSET-BACKED SECURITIES (1.0%)
1,950 BCC Funding XIII, LLC(a) 4.78 8/20/2022 1,992
1,153 BCC Funding XIV, LLC(a) 2.20 2/20/2019 1,154
--------
3,146
--------
Total Financials 47,504
--------
Total Asset-Backed Securities (cost: $47,763) 47,504
--------
COLLATERALIZED LOAN OBLIGATIONS (3.7%)
FINANCIALS (3.7%)
-----------------
1,000 Annisa Ltd. (3 mo. LIBOR + 1.55%)(a) 3.91(b) 7/20/2028 1,001
2,000 CIFC Funding Ltd. (3 mo. LIBOR + 0.86%)(a) 3.22(b) 10/25/2027 1,997
1,000 CIFC Funding Ltd. (3 mo. LIBOR + 0.8%)(a) 3.16(b) 1/20/2028 998
2,000 Madison Park Funding XI Ltd.
(3 mo. LIBOR + 1.16%)(a) 3.52(b) 7/23/2029 2,001
1,500 Octagon Investment Partners 25 Ltd.
(3 mo. LIBOR + 0.8%)(a) 3.16(b) 10/20/2026 1,497
1,500 Palmer Square Loan Funding 2018-2 Ltd.
(3 mo. LIBOR + 0.65%)(a) 3.01(b) 7/15/2026 1,494
500 Palmer Square Loan Funding 2018-2 Ltd.
(3 mo. LIBOR + 1.05%)(a) 3.41(b) 7/15/2026 496
2,000 Sound Point X Ltd. (3 mo. LIBOR + 0.89%)(a) 3.25(b) 1/20/2028 2,000
--------
Total Financials 11,484
--------
Total Collateralized Loan Obligations (cost: $11,491) 11,484
--------
COMMERCIAL MORTGAGE SECURITIES (5.5%)
FINANCIALS (5.5%)
-----------------
COMMERCIAL MORTGAGE-BACKED SECURITIES (5.3%)
1,545 CGBAM Commercial Mortgage Trust 3.21 4/10/2028 1,539
1,700 Commercial Mortgage Trust (1 mo. LIBOR + 1.60%)(a) 3.65(b) 2/13/2032 1,703
660 Commercial Mortgage Trust 5.95(c) 7/10/2038 660
2,800 FREMF Mortgage Trust(a) 5.54(c) 12/25/2046 2,887
1,575 FREMF Mortgage Trust(a) 3.07(c) 10/25/2047 1,566
526 GS Mortgage Securities Trust 1.51 9/10/2047 523
2,000 J.P. Morgan Chase Commercial Mortgage Securities
Trust (1 mo. LIBOR + 0.90%)(a) 2.97(b) 10/15/2029 2,002
3,000 J.P. Morgan Chase Commercial Mortgage Securities
Trust (1 mo. LIBOR + 1.40%)(a) 3.47(b) 10/15/2029 3,002
================================================================================
4 | USAA ULTRA SHORT-TERM BOND FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 3 J.P. Morgan Chase Commercial Mortgage Securities
Trust(a) 4.39% 2/15/2046 $ 3
416 LSTAR Commercial Mortgage Trust(a) 2.42 3/10/2050 409
117 Morgan Stanley Bank of America Merrill Lynch Trust 1.55 8/15/2047 116
2,000 Morgan Stanley Capital Trust "A"(3 mo. LIBOR + 0.7%)(a) 2.77(b) 11/15/2034 1,999
--------
16,409
--------
INTEREST-ONLY COMMERCIAL MORTGAGE BACKED SECURITIES (0.2%)
25,338 GS Mortgage Securities Trust(a),(d),(e) 0.82(c) 3/10/2044 371
11,034 JPMBB Commercial Mortgage Securities Trust(d),(e) 1.29(c) 4/15/2047 237
--------
608
--------
Total Financials 17,017
--------
Total Commercial Mortgage Securities (cost: $16,767) 17,017
--------
CORPORATE OBLIGATIONS (49.2%)
CONSUMER DISCRETIONARY (4.2%)
-----------------------------
APPAREL, ACCESSORIES & LUXURY GOODS (0.2%)
420 Phillips-Van Heusen Corp. (1 mo. LIBOR + 1.50%)(f) 3.59 5/19/2021 420
--------
AUTOMOBILE MANUFACTURERS (2.3%)
2,000 Ford Motor Credit Co., LLC (3 mo. LIBOR + 0.43%) 2.79(b) 11/02/2020 1,993
2,000 General Motors Co. (3 mo. LIBOR + 0.80%) 3.16(b) 8/07/2020 2,007
2,000 Hyundai Capital America(a) 2.75 9/18/2020 1,968
1,000 Nissan Motor Acceptance Corp.(a) 2.55 3/08/2021 978
6,946
AUTOMOTIVE RETAIL (0.3%)
1,000 AutoZone, Inc. 4.00 11/15/2020 1,017
--------
BROADCASTING (0.8%)
500 Discovery Communications, LLC 2.20 9/20/2019 495
2,000 Discovery Communications, LLC(f),(g) -(h) 3/05/2021 2,002
--------
2,497
--------
CABLE & SATELLITE (0.3%)
1,000 Time Warner Cable, LLC 5.00 2/01/2020 1,021
--------
CASINOS & GAMING (0.3%)
1,000 International Game Technology plc(a),(i) 5.63 2/15/2020 1,018
--------
Total Consumer Discretionary 12,919
--------
CONSUMER STAPLES (1.4%)
-----------------------
FOOD RETAIL (0.3%)
1,000 Kraft Heinz Foods Co. (3 mo. LIBOR + 0.57%) 2.92(b) 2/10/2021 1,002
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 5
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
PACKAGED FOODS & MEATS (1.1%)
$ 2,000 Tyson Foods, Inc. 2.65% 8/15/2019 $ 1,993
1,320 Tyson Foods, Inc. (3 mo. LIBOR + 0.45%) 2.78(b) 8/21/2020 1,320
--------
3,313
--------
Total Consumer Staples 4,315
--------
ENERGY (9.4%)
-------------
OIL & GAS EXPLORATION & PRODUCTION (1.6%)
2,795 Anadarko Petroleum Corp. 4.85 3/15/2021 2,878
2,000 Devon Energy Corp. 4.00 7/15/2021 2,027
--------
4,905
--------
OIL & GAS REFINING & MARKETING (0.8%)
2,480 EnLink Midstream Partners, LP 2.70 4/01/2019 2,456
--------
OIL & GAS STORAGE & TRANSPORTATION (7.0%)
1,500 Andeavor Logistics, LP / Tesoro Logistics
Finance Corp. 5.50 10/15/2019 1,539
2,138 Andeavor Logistics, LP / Tesoro Logistics
Finance Corp. 3.50 12/01/2022 2,091
1,000 Cheniere Energy Partners, LP
(1 mo. LIBOR + 2.25%)(f) 4.34 2/25/2020 999
780 Columbia Pipeline Group, Inc. 3.30 6/01/2020 777
580 DCP Midstream Operating, LP 2.70 4/01/2019 576
1,899 DCP Midstream Operating, LP(a) 5.35 3/15/2020 1,939
1,000 Enable Midstream Partners, LP 2.40 5/15/2019 994
2,000 Enable Oklahoma Intrastate Transmission, LLC(a) 6.25 3/15/2020 2,078
1,000 Enbridge Energy Partners, LP 5.20 3/15/2020 1,029
1,285 Energy Transfer Equity, LP 7.50 10/15/2020 1,373
2,000 Enterprise Products Operating, LLC 6.50 1/31/2019 2,042
2,000 NuStar Logistics, LP 4.80 9/01/2020 2,010
2,000 Rockies Express Pipeline, LLC(a) 5.63 4/15/2020 2,058
2,500 Western Gas Partners, LP 2.60 8/15/2018 2,499
--------
22,004
--------
Total Energy 29,365
--------
FINANCIALS (15.0%)
------------------
ASSET MANAGEMENT & CUSTODY BANKS (0.8%)
2,500 FS Investment Corp. 4.00 7/15/2019 2,503
--------
CONSUMER FINANCE (1.3%)
3,000 Ally Financial, Inc. 3.50 1/27/2019 3,000
720 Capital One Financial Corp. (3 mo. LIBOR + 0.45%)(i) 2.81(b) 10/30/2020 717
500 Navient Corp. 5.50 1/15/2019 505
--------
4,222
--------
================================================================================
6 | USAA ULTRA SHORT-TERM BOND FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
DIVERSIFIED BANKS (3.5%)
$ 2,000 Bank of America Corp. (3 mo. LIBOR + 0.66%) 3.02%(b) 7/21/2021 $ 2,008
1,000 Citigroup, Inc. 2.50 7/29/2019 996
1,000 Citigroup, Inc. (3 mo. LIBOR + 1.38%) 3.71(b) 3/30/2021 1,022
2,000 Citizens Bank, N.A. 2.20 5/26/2020 1,959
2,000 J.P. Morgan Chase & Co. (3 mo. LIBOR + 0.68%) 2.98(b) 6/01/2021 2,010
3,000 Wells Fargo & Co. 2.55 12/07/2020 2,954
--------
10,949
--------
INVESTMENT BANKING & BROKERAGE (1.3%)
1,000 Goldman Sachs Group, Inc. (3 mo. LIBOR + 0.78%)(i) 3.14(b) 10/31/2022 1,001
3,000 Morgan Stanley (3 mo. LIBOR + 0.55%) 2.90(b) 2/10/2021 3,006
--------
4,007
--------
LIFE & HEALTH INSURANCE (0.9%)
1,350 Jackson National Life Global Funding(a) 2.60 12/09/2020 1,330
535 Protective Life Global Funding(a) 2.70 11/25/2020 528
1,000 Protective Life Global Funding
(3 mo. LIBOR + 0.52%)(a),(i) 2.86(b) 6/28/2021 1,000
--------
2,858
--------
MULTI-LINE INSURANCE (1.3%)
3,000 Assurant, Inc. (3 mo. LIBOR + 1.25%) 3.59(b) 3/26/2021 3,008
1,000 MassMutual Global Funding II(a) 2.10 8/02/2018 1,000
--------
4,008
--------
REGIONAL BANKS (5.9%)
2,000 BB&T Corp. 5.25 11/01/2019 2,056
1,000 CIT Group, Inc. 5.38 5/15/2020 1,029
1,000 CIT Group, Inc. 4.13 3/09/2021 996
2,470 Compass Bank 2.75 9/29/2019 2,457
2,740 Huntington National Bank 2.40 4/01/2020 2,703
2,075 KeyCorp 2.90 9/15/2020 2,059
3,000 Manufacturers & Traders Trust Co.
(3 mo. LIBOR + 0.64%) 2.94(b) 12/01/2021 2,993
1,000 MUFG Americas Holdings Corp. 2.25 2/10/2020 985
1,000 MUFG Union Bank N.A. 2.63 9/26/2018 1,000
2,000 SunTrust Banks, Inc. (3 mo. LIBOR + 0.80%) 3.12(b) 5/29/2019 2,009
--------
18,287
--------
Total Financials 46,834
--------
HEALTH CARE (4.6%)
------------------
BIOTECHNOLOGY (0.7%)
2,000 Amgen, Inc. 3.45 10/01/2020 2,017
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 7
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT (0.8%)
$ 1,700 Becton Dickinson & Co. 2.40% 6/05/2020 $ 1,670
787 Zimmer Holdings, Inc. (1 mo. LIBOR + 1.38%)(f) 3.47 5/29/2019 787
--------
2,457
--------
HEALTH CARE FACILITIES (1.1%)
2,389 HCA Inc. (1 mo. LIBOR + 1.50%)(f) 3.59 6/10/2020 2,394
1,000 HCA, Inc. 6.50 2/15/2020 1,040
--------
3,434
--------
HEALTH CARE SERVICES (1.4%)
2,000 CVS Health Corp. (3 mo. LIBOR + 0.72%) 3.05(b) 3/09/2021 2,011
2,275 Express Scripts, Inc. (1 mo. LIBOR + 1.13%)(f) 3.22 4/28/2020 2,269
--------
4,280
--------
PHARMACEUTICALS (0.6%)
2,000 Shire Acquisitions Investments Ireland
Designated Activity Co. 1.90 9/23/2019 1,969
--------
Total Health Care 14,157
--------
INDUSTRIALS (2.1%)
------------------
AEROSPACE & DEFENSE (0.6%)
1,000 Arconic, Inc. 5.40 4/15/2021 1,031
802 Rockwell Collins, Inc. (1 mo. LIBOR + 1.25%)(f) 3.30 12/16/2019 800
--------
1,831
--------
AGRICULTURE & FARM MACHINERY (0.2%)
500 CNH Industrial Capital, LLC 3.38 7/15/2019 502
--------
AIRLINES (0.2%)
567 Continental Airlines, Inc. Pass-Through Trust "B" 6.25 10/11/2021 583
--------
TRADING COMPANIES & DISTRIBUTORS (0.3%)
1,000 International Lease Finance Corp. 6.25 5/15/2019 1,025
--------
TRUCKING (0.8%)
640 Penske Truck Leasing Co., LP / PTL Finance Corp.(a) 3.20 7/15/2020 639
2,000 Ryder System, Inc. 2.50 5/11/2020 1,977
--------
2,616
--------
Total Industrials 6,557
--------
INFORMATION TECHNOLOGY (2.5%)
-----------------------------
DATA PROCESSING & OUTSOURCED SERVICES (0.7%)
2,000 First Data Corp.(f),(g) -(h) 6/02/2020 2,001
--------
ELECTRONIC EQUIPMENT & INSTRUMENTS (0.3%)
1,000 FLIR Systems, Inc. 3.13 6/15/2021 990
--------
================================================================================
8 | USAA ULTRA SHORT-TERM BOND FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
SEMICONDUCTORS (0.6%)
$ 2,000 QUALCOMM, Inc. 2.10% 5/20/2020 $ 1,999
--------
SYSTEMS SOFTWARE (0.5%)
1,500 Symantec Corp. (3 mo. LIBOR + 1.50%)(f) 3.88 7/28/2019 1,496
--------
TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (0.4%)
1,348 Dell, Inc. (1 mo. LIBOR + 1.50%)(f) 3.60 12/31/2018 1,346
--------
Total Information Technology 7,832
--------
MATERIALS (2.9%)
----------------
CONSTRUCTION MATERIALS (1.0%)
2,000 Vulcan Materials Co. (3 mo. LIBOR + 0.60%) 2.94(b) 6/15/2020 1,998
1,000 Vulcan Materials Co. (3 mo. LIBOR + 0.65%) 2.95(b) 3/01/2021 1,002
--------
3,000
--------
DIVERSIFIED CHEMICALS (0.7%)
2,065 Ei Du Pont De Nemours 2.20 5/01/2020 2,036
--------
FERTILIZERS & AGRICULTURAL CHEMICALS (0.6%)
1,000 Monsanto Co. 2.13 7/15/2019 991
1,000 Mosaic Co. 3.25 11/15/2022 972
--------
1,963
--------
SPECIALTY CHEMICALS (0.6%)
2,000 Sherwin-Williams Co. 2.25 5/15/2020 1,968
--------
Total Materials 8,967
--------
REAL ESTATE (5.2%)
------------------
REAL ESTATE OPERATING COMPANIES (1.2%)
3,650 MOBR-04, LLC 3.10 9/01/2024 3,650
--------
REITs - DIVERSIFIED (0.6%)
2,000 Select Income 3.60 2/01/2020 1,990
--------
REITs - HEALTH CARE (2.2%)
3,000 Sabra Health Care Ltd. (1 mo. LIBOR + 1.45%)(f) 3.54 8/17/2020 2,985
2,340 Senior Housing Properties Trust 3.25 5/01/2019 2,339
500 Senior Housing Properties Trust 6.75 4/15/2020 518
765 Ventas Realty, LP / Ventas Capital Corp. 2.70 4/01/2020 757
--------
6,599
--------
REITs - OFFICE (0.4%)
1,333 SL Green Operating Partnership, LP 3.25 10/15/2022 1,297
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 9
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
REITs - RETAIL (0.8%)
$ 2,000 National Retail Properties, Inc. 5.50% 7/15/2021 $ 2,104
500 Regency Centers, LP 4.80 4/15/2021 514
--------
2,618
--------
Total Real Estate 16,154
--------
TELECOMMUNICATION SERVICES (0.6%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (0.6%)
2,000 AT&T Inc.(f),(g) -(h) 5/15/2019 1,999
--------
UTILITIES (1.3%)
----------------
ELECTRIC UTILITIES (1.0%)
990 DPL, Inc. 6.75 10/01/2019 1,026
1,167 Mississippi Power Co. (3 mo. LIBOR + 0.65%) 2.99(b) 3/27/2020 1,167
1,000 NextEra Energy Capital Holdings, Inc. 2.70 9/15/2019 995
--------
3,188
--------
MULTI-UTILITIES (0.3%)
1,000 Dominion Energy, Inc. 2.96 7/01/2019 998
--------
Total Utilities 4,186
--------
Total Corporate Obligations (cost: $154,275) 153,285
--------
EURODOLLAR AND YANKEE OBLIGATIONS (23.2%)
CONSUMER DISCRETIONARY (0.8%)
-----------------------------
AUTOMOBILE MANUFACTURERS (0.8%)
1,390 Daimler Finance, N.A., LLC (3 mo. LIBOR + 0.45%)(a) 2.78(b) 2/22/2021 1,391
1,000 Nissan Motor Acceptance Corp.(a) 2.35 3/04/2019 997
--------
Total Consumer Discretionary 2,388
--------
ENERGY (1.0%)
-------------
INTEGRATED OIL & GAS (0.3%)
1,000 Petrobras Global Finance B.V.
(3 mo. LIBOR + 2.14%)(i) 4.49(b) 1/15/2019 997
--------
OIL & GAS EQUIPMENT & SERVICES (0.7%)
2,000 Schlumberger Finance Canada Ltd.(a) 2.20 11/20/2020 1,952
--------
Total Energy 2,949
--------
FINANCIALS (15.1%)
------------------
DIVERSIFIED BANKS (11.1%)
2,000 ABN AMRO Bank N.V. (3 mo. LIBOR + 0.41%)(a) 2.77(b) 1/19/2021 2,000
800 ANZ New Zealand International Ltd.
(3 mo. LIBOR + 1.01%)(a) 3.37(b) 7/28/2021 811
================================================================================
10 | USAA ULTRA SHORT-TERM BOND FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 1,000 Australia & New Zealand Banking Group Ltd.
(3 mo. LIBOR + 0.40%) 2.72%(b) 12/03/2019 $ 997
1,250 Australia & New Zealand Banking Group Ltd.
(3 mo. LIBOR + 0.46%)(i) 2.78(b) 5/17/2021 1,248
1,700 Bank of Nova Scotia 2.05 6/05/2019 1,689
3,000 Commonwealth Bank of Australia
(3 mo. LIBOR + 0.83%)(a) 3.14(b) 9/06/2021 3,034
1,500 Cooperatieve Rabobank U.A.
(3 mo. LIBOR + 0.48%)(i) 2.82(b) 1/10/2023 1,500
2,000 Credit Agricole S.A. (3 mo. LIBOR + 1.02%)(a),(i) 3.38(b) 4/24/2023 1,996
1,000 Credit Suisse Group Funding Guernsey Ltd. 2.75 3/26/2020 990
700 Credit Suisse Group Funding Guernsey Ltd.
(3 mo. LIBOR + 2.29%) 4.65(b) 4/16/2021 735
2,000 HSBC Holdings plc (3 mo. LIBOR + 0.6%)(i) 2.93(b) 5/18/2021 2,003
1,000 ING Bank N.V. (3 mo. LIBOR + 0.69%)(a) 3.03(b) 10/01/2019 1,005
1,000 National Australia Bank Ltd.
(3 mo. LIBOR + 0.6%)(a),(i) 2.94(b) 4/12/2023 999
3,000 Royal Bank of Canada 1.88 2/05/2020 2,953
2,000 Santander UK plc (3 mo. LIBOR + 0.62%)(i) 2.92(b) 6/01/2021 2,000
2,000 Skandinaviska Enskilda Banken AB
(3 mo. LIBOR + 0.43%)(a),(i) 2.75(b) 5/17/2021 1,999
2,000 Stadshypotek AB 1.88 10/02/2019 1,977
1,000 Standard Chartered PLC(a) 3.05 1/15/2021 987
1,500 Svenska Handelsbanken AB (3 mo. LIBOR + 1.15%) 3.49(b) 3/30/2021 1,528
2,000 Toronto-Dominion Bank(a) 2.25 3/15/2021 1,957
2,000 Westpac Banking Corp. (3 mo. LIBOR + 0.85%) 3.18(b) 8/19/2021 2,023
--------
34,431
--------
DIVERSIFIED CAPITAL MARKETS (2.1%)
3,000 Deutsche Bank AG (3 mo. LIBOR + 0.97%) 3.31(b) 7/13/2020 2,982
2,000 UBS Group Funding Switzerland AG
(3 mo. LIBOR + 1.78%)(a) 4.13(b) 4/14/2021 2,065
1,425 UBS Group Funding Switzerland AG(a) 3.00 4/15/2021 1,404
--------
6,451
--------
OTHER DIVERSIFIED FINANCIAL SERVICES (0.6%)
2,000 ING Bank N.V. (3 mo. LIBOR + 0.88%)(a) 3.22(b) 8/15/2021 2,025
--------
PROPERTY & CASUALTY INSURANCE (0.6%)
2,000 Suncorp-Metway Ltd.(a) 2.38 11/09/2020 1,953
--------
REAL ESTATE SERVICES (0.7%)
2,000 Prologis International Funding II S.A.(a) 4.88 2/15/2020 2,043
--------
Total Financials 46,903
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 11
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
HEALTH CARE (0.3%)
------------------
PHARMACEUTICALS (0.3%)
$ 1,000 Bayer U.S. Finance II, LLC
(3 mo. LIBOR + 0.63%)(a),(i) 2.97%(b) 6/25/2021 $ 1,002
--------
INDUSTRIALS (2.7%)
------------------
AEROSPACE & DEFENSE (0.8%)
1,400 BAE Systems Holdings, Inc.(a) 6.38 6/01/2019 1,443
1,000 BAE Systems Holdings, Inc.(a) 2.85 12/15/2020 988
--------
2,431
--------
INDUSTRIAL CONGLOMERATES (1.3%)
2,000 CK Hutchison International II Ltd.(a) 2.25 9/29/2020 1,957
2,000 Hutchison Whampoa International 11 Ltd.(a) 4.63 1/13/2022 2,056
--------
4,013
--------
MARINE (0.3%)
1,000 A.P. Moller - Maersk A/S(a) 2.55 9/22/2019 990
--------
TRADING COMPANIES & DISTRIBUTORS (0.3%)
1,000 AerCap Ireland Capital DAC / AerCap
Global Aviation Trust 5.00 10/01/2021 1,031
--------
Total Industrials 8,465
--------
INFORMATION TECHNOLOGY (0.6%)
-----------------------------
ELECTRONIC MANUFACTURING SERVICES (0.6%)
2,000 Tyco Electronics Group S.A. 2.35 8/01/2019 1,990
--------
MATERIALS (2.1%)
----------------
COMMODITY CHEMICALS (0.6%)
1,000 Braskem Finance Ltd.(a) 5.75 4/15/2021 1,038
1,000 Braskem Netherlands Finance B.V.(a) 3.50 1/10/2023 945
--------
1,983
--------
DIVERSIFIED METALS & MINING (0.7%)
1,000 Glencore Funding, LLC (3 mo. LIBOR + 1.36%)(a) 3.71(b) 1/15/2019 1,004
1,000 Glencore Funding, LLC(a) 3.13 4/29/2019 999
--------
2,003
--------
FERTILIZERS & AGRICULTURAL CHEMICALS (0.6%)
2,000 Syngenta Finance N.V.(a) 3.70 4/24/2020 1,994
--------
STEEL (0.2%)
500 ArcelorMittal 5.13 6/01/2020 515
--------
Total Materials 6,495
--------
================================================================================
12 | USAA ULTRA SHORT-TERM BOND FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
REAL ESTATE (0.6%)
------------------
REITs - RETAIL (0.6%)
$ 1,000 Scentre Group Trust(a) 2.38% 11/05/2019 $ 988
1,000 Scentre Group Trust(a) 2.38 4/28/2021 967
--------
Total Real Estate 1,955
--------
Total Eurodollar and Yankee Obligations (cost: $72,676) 72,147
--------
MUNICIPAL OBLIGATIONS (1.9%)
MICHIGAN (0.6%)
2,000 Clintondale Community Schools 2.61 5/01/2021 1,972
--------
TENNESSEE (1.0%)
3,010 Metropolitan Nashville Airport Auth.
(Put Date 7/6/2018) (LOC - Regions Bank)(j) 2.61 4/01/2030 3,010
--------
WISCONSIN (0.3%)
1,000 Public Finance Auth. (LOC - Citizens Financial Group) 2.75 6/01/2020 981
--------
Total Municipal Obligations (cost: $6,010) 5,963
--------
Total Bonds (cost: $308,982) 307,400
--------
MONEY MARKET INSTRUMENTS (3.0%)
COMMERCIAL PAPER (2.6%)
2,000 Catholic Health Initiatives 2.55 7/05/2018 1,999
3,000 Ei Du Pont De Nemours(a) 2.17 7/03/2018 3,000
2,000 Enbridge Energy Partners, LP(a) 3.02 7/26/2018 1,996
1,200 Energy Transfer Partners(a) 2.65 7/02/2018 1,200
--------
Total Commercial Paper (cost: $8,195) 8,195
--------
------------------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES
------------------------------------------------------------------------------------------------------------------
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (0.4%)
1,144,145 State Street Institutional Treasury Money Market Fund
Premier Class, 1.74%(k) (cost: $1,144) 1,144
--------
Total Money Market Instruments (cost: $9,339) 9,339
--------
TOTAL INVESTMENTS (COST: $318,321) $316,739
========
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
------------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
------------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------------------------------------------------------------------------------------------------------------------
Bonds:
Asset-Backed Securities $ - $ 47,504 $- $ 47,504
Collateralized Loan Obligations - 11,484 - 11,484
Commercial Mortgage Securities - 17,017 - 17,017
Corporate Obligations - 153,285 - 153,285
Eurodollar and Yankee Obligations - 72,147 - 72,147
Municipal Obligations - 5,963 - 5,963
Money Market Instruments:
Commercial Paper - 8,195 - 8,195
Government & U.S. Treasury
Money Market Funds 1,144 - - 1,144
------------------------------------------------------------------------------------------------------------------
Total $1,144 $315,595 $- $316,739
------------------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
For the period of January 1, 2018, through June 30, 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.
================================================================================
14 | USAA ULTRA SHORT-TERM BOND FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
June 30, 2018 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
Market values of securities are determined by procedures and practices
discussed in Note 1A to the financial statements.
The Portfolio of Investments category percentages shown represent the
percentages of the investments to net assets, and, in total, may not equal
100%. A category percentage of 0.0% represents less than 0.1% of net assets.
Investments in foreign securities were 29.5% of net assets at June 30, 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 | 15
================================================================================
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.
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.
o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS
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.
================================================================================
16 | USAA ULTRA SHORT-TERM BOND FUND
================================================================================
CREDIT ENHANCEMENTS - Adds the financial strength of the provider of the
enhancement to support the issuer's ability to repay the principal and
interest payments when due. The enhancement may be provided by a
high-quality bank, insurance company or other corporation, or a collateral
trust. The enhancements do not guarantee the market values of the
securities.
LOC Principal and interest payments are guaranteed by a bank letter of
credit or other bank credit agreement.
o SPECIFIC NOTES
(a) Restricted security that is not registered under the Securities Act
of 1933. A resale of this security in the United States may occur in an
exempt transaction to a qualified institutional buyer as defined by
Rule 144A, and as such has been deemed liquid by USAA Asset Management
Company under liquidity guidelines approved by USAA Mutual Funds
Trust's Board of Trustees, unless otherwise noted as illiquid.
(b) Variable-rate security - interest rate is adjusted periodically. The
interest rate disclosed represents the rate at June 30, 2018.
(c) Stated interest rates may change slightly over time as underlying
mortgages paydown.
(d) 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.
(e) Security deemed illiquid by USAA Asset Management Company, under
liquidity guidelines approved by USAA Mutual Funds Trust's Board of
Trustees. The aggregate market value of these securities at June 30,
2018, was $608,000, which represented 0.2% of the Fund's net assets.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 17
================================================================================
(f) Senior loan (loan) - is not registered under the Securities Act of
1933. The loan contains certain restrictions on resale and cannot be
sold publicly. The stated interest rate represents the 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 June 30, 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 USAA Asset
Management Company, under liquidity guidelines approved by USAA Mutual
Funds Trust's Board of Trustees, unless otherwise noted as illiquid.
(g) Security or a portion of the security purchased on a delayed-delivery
or when-issued basis.
(h) The senior loan will settle after June 30, 2018, at which time the
interest rate will be determined.
(i) At June 30, 2018, the security, or a portion thereof, was segregated to
cover delayed-delivery and/or when-issued purchases.
(j) Variable-rate demand notes (VRDNs) - Provide the right to sell the
security at face value on either that day or within the rate-reset
period. VRDNs will normally trade as if the maturity is the earlier put
date, even though stated maturity is longer. The interest rate is reset
on the put date at a stipulated daily, weekly, monthly, quarterly, or
other specified time interval to reflect current market conditions.
These securities do not indicate a reference rate and spread in their
description.
(k) Rate represents the money market fund annualized seven-day yield at
June 30, 2018.
See accompanying notes to financial statements.
================================================================================
18 | USAA ULTRA SHORT-TERM BOND FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
June 30, 2018 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $318,321) $316,739
Cash 29
Receivables:
Capital shares sold 253
USAA Asset Management Company (Note 7) 2
Interest 1,793
Securities sold 1,061
--------
Total assets 319,877
--------
LIABILITIES
Payables:
Securities purchased 8,014
Capital shares redeemed 292
Dividends on capital shares 24
Accrued management fees 75
Accrued transfer agent's fees 11
Other accrued expenses and payables 79
--------
Total liabilities 8,495
--------
Net assets applicable to capital shares outstanding $311,382
--------
NET ASSETS CONSIST OF:
Paid-in capital $316,682
Undistributed net investment income 9
Accumulated net realized loss on investments (3,727)
Net unrealized depreciation of investments (1,582)
--------
Net assets applicable to capital shares outstanding $311,382
========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $300,573/30,316
capital shares outstanding, no par value) $ 9.91
========
Institutional Shares (net assets of $5,829/588
capital shares outstanding, no par value) $ 9.92
========
R6 Shares (net assets of $4,980/503
capital shares outstanding, no par value) $ 9.91
========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 19
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended June 30, 2018 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Interest income $ 4,201
-------
EXPENSES
Management fees 396
Administration and servicing fees:
Fund Shares 232
Institutional Shares 3
R6 Shares 1
Transfer agent's fees:
Fund Shares 149
Institutional Shares 3
Custody and accounting fees:
Fund Shares 36
Institutional Shares 1
R6 Shares 1
Postage:
Fund Shares 15
Shareholder reporting fees:
Fund Shares 15
Trustees' fees 16
Registration fees:
Fund Shares 12
Institutional Shares 12
R6 Shares 12
Professional fees 46
Other 9
-------
Total expenses 959
Expenses reimbursed:
Institutional Shares (10)
R6 Shares (12)
-------
Net expenses 937
-------
NET INVESTMENT INCOME 3,264
-------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain 127
Change in net unrealized appreciation/(depreciation) (1,950)
-------
Net realized and unrealized loss (1,823)
-------
Increase in net assets resulting from operations $ 1,441
=======
See accompanying notes to financial statements.
================================================================================
20 | USAA ULTRA SHORT-TERM BOND FUND
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended June 30, 2018 (unaudited), and year ended December 31,
2017
--------------------------------------------------------------------------------------------------------
6/30/2018 12/31/2017
--------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 3,264 $ 5,911
Net realized gain on investments 127 747
Change in net unrealized appreciation/(depreciation)
of investments (1,950) (1,077)
-------------------------------
Increase in net assets resulting from operations 1,441 5,581
-------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares (3,135) (5,735)
Institutional Shares (64) (99)
R6 Shares* (56) (77)
-------------------------------
Distributions to shareholders (3,255) (5,911)
-------------------------------
NET DECREASE IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS (NOTE 6)
Fund Shares (28,121) (41,391)
Institutional Shares (1,248) (11,594)
R6 Shares* (83) 5,098
-------------------------------
Total net decrease in net assets from
capital share transactions (29,452) (47,887)
-------------------------------
Net decrease in net assets (31,266) (48,217)
NET ASSETS
Beginning of period 342,648 390,865
-------------------------------
End of period $311,382 $342,648
===============================
Undistributed net investment income:
End of period $ 9 $ -
===============================
*R6 Shares commenced operations on March 1, 2017.
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 21
================================================================================
NOTES TO FINANCIAL STATEMENTS
June 30, 2018 (unaudited)
--------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company Act
of 1940, as amended (the 1940 Act), is an open-end management investment
company organized as a Delaware statutory trust consisting of 50 separate funds.
The USAA Ultra 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 three classes of shares: Ultra Short-Term Bond Fund Shares
(Fund Shares), Ultra Short-Term Bond Fund Institutional Shares (Institutional
Shares), and Ultra 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, 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's 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 both 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
================================================================================
22 | USAA ULTRA SHORT-TERM BOND FUND
================================================================================
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 and Liquidity Committee (the Committee), and
subject to Board oversight, the Committee administers and oversees the
Fund's valuation policies and procedures, which are approved by the Board.
Among other things, these policies and procedures allow the Fund to utilize
independent pricing services, quotations from securities dealers, and a wide
variety of sources and information to establish and adjust the fair value of
securities as events occur and circumstances warrant.
The Committee reports to the Board on a quarterly basis and makes
recommendations to the Board as to pricing methodologies and services used
by the Fund and presents additional information to the Board regarding
application of the pricing and fair valuation policies and procedures during
the preceding quarter.
The Committee meets as often as necessary to make pricing and fair value
determinations. In addition, the Committee holds regular monthly meetings to
review prior actions taken by the Committee and USAA Asset Management
Company (the Manager), an affiliate of the Fund. Among other things, these
monthly meetings include a review and analysis of backtesting reports,
pricing service quotation comparisons, illiquid securities and fair value
determinations, pricing movements, and daily stale price monitoring.
The value of each security is determined (as of the close of trading on the
New York Stock Exchange (NYSE) on each business day the NYSE is open) as set
forth below:
1. Debt securities with maturities greater than 60 days are valued each
business day by a pricing service (the Service) approved by the
================================================================================
NOTES TO FINANCIAL STATEMENTS | 23
================================================================================
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. Investments in open-end investment companies, commingled, or other
funds, other than exchange-traded funds (ETFs), are valued at their net
asset value (NAV) at the end of each business day and are categorized
in Level 1 of the fair value hierarchy.
3. Short-term debt securities with original or remaining maturities of 60
days or less may be valued at amortized cost, provided that amortized
cost represents the fair value of such securities.
4. 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.
================================================================================
24 | USAA ULTRA SHORT-TERM BOND FUND
================================================================================
General factors considered in determining the fair value of securities
include fundamental analytical data, the nature and duration of any
restrictions on disposition of the securities, evaluation of credit
quality, and an evaluation of the forces that influenced the market in
which the securities are purchased and sold.
B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The
three-level valuation hierarchy disclosed in the Portfolio of Investments is
based upon the transparency of inputs to the valuation of an asset or
liability as of the measurement date. The three levels are defined as
follows:
Level 1 - inputs to the valuation methodology are quoted prices (unadjusted)
in active markets for identical securities.
Level 2 - inputs to the valuation methodology are other significant
observable inputs, including quoted prices for similar securities, inputs
that are observable for the securities, either directly or indirectly, and
market-corroborated inputs such as market indexes.
Level 3 - inputs to the valuation methodology are unobservable and
significant to the fair value measurement, including the Manager's own
assumptions in determining the fair value.
The inputs or methodologies used for valuing securities are not necessarily
an indication of the risks associated with investing in those securities.
C. FEDERAL TAXES - The Fund's policy is to comply with the requirements of the
Internal Revenue Code of 1986, as amended, applicable to regulated
investment companies and to distribute substantially all of its taxable
income and net capital gains, if any, to its shareholders. Therefore, no
federal income tax provision is required.
For the six-month period ended June 30, 2018, the Fund did not incur any
income tax, interest, or penalties, and has recorded no liability for net
unrecognized tax benefits relating to uncertain income tax positions.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 25
================================================================================
On an ongoing basis, the Manager will monitor the Fund's tax basis to
determine if adjustments to this conclusion are necessary. The statute of
limitations on the Fund's tax return filings generally remain open for the
three preceding fiscal reporting year ends and remain subject to examination
by the Internal Revenue Service and state taxing authorities.
D. INVESTMENTS IN SECURITIES - Securities transactions are accounted for as of
the date the securities are purchased or sold (trade date). Gains or losses
from sales of investment securities are computed on the identified cost
basis. Interest income is recorded daily on the accrual basis. Premiums and
discounts are amortized over the life of the respective securities, using
the effective yield method for long-term securities and the straight-line
method for short-term securities.
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.
F. INDEMNIFICATIONS - Under the Trust's organizational documents, its officers
and trustees are indemnified against certain liabilities arising out of the
performance of their duties to the Trust. In addition, in the normal course
of business, the Trust enters into contracts that contain a variety of
representations and warranties that provide general indemnifications. The
Trust's maximum exposure under these arrangements is unknown, as this would
involve future claims that may
================================================================================
26 | USAA ULTRA SHORT-TERM BOND FUND
================================================================================
be made against the Trust that have not yet occurred. However, the Trust
expects the risk of loss to be remote.
G. USE OF ESTIMATES - The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts in the
financial statements.
(2) LINE OF CREDIT
The Fund participates, along with other funds of the Trust and USAA ETF Trust
(together, the Trusts), in a joint, short-term, revolving, committed loan
agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate of
the Manager. The purpose of the agreement is to provide temporary or emergency
cash needs, including redemption requests that might otherwise require the
untimely disposition of securities. Subject to availability (including usage of
the facility by other funds of the Trusts), the Fund may borrow from CAPCO an
amount up to 5% of the Fund's total assets at an interest rate based on the
London Interbank Offered Rate (LIBOR), plus 100.0 basis points.
The Trusts are also assessed facility fees by CAPCO in the amount of 13.0 basis
points of the amount of the committed loan agreement. Prior to September 30,
2017, the maximum annual facility fee was 12.0 basis points of the amount of the
committed loan agreement. The facility fees are allocated among the funds of the
Trusts based on their respective average net assets for the period.
The Trusts may request an optional increase of the committed loan agreement from
$500 million up to $750 million. If the Trusts increase the committed loan
agreement, the assessed facility fee on the amount of the additional commitment
will be 14.0 basis points.
For the six-month period ended June 30, 2018, the Fund paid CAPCO facility fees
of $1,000, which represents 0.4% of the total fees paid to CAPCO by the funds of
the Trusts. The Fund had no borrowings under this agreement during the six-month
period ended June 30, 2018.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 27
================================================================================
(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 December 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 December 31, 2017, the Fund had net capital loss carryforwards of $3,854,000,
for federal income tax purposes as shown in the table below. It is unlikely that
the Board will authorize a distribution of capital gains realized in the future
until the capital loss carryforwards have been used.
CAPITAL LOSS CARRYFORWARDS
--------------------------------
TAX CHARACTER
--------------------------------
(NO EXPIRATION) BALANCE
--------------- ----------
Short-Term $2,753,000
Long-Term 1,101,000
----------
Total $3,854,000
==========
As of June 30, 2018, the cost of securities, including short-term securities,
for federal income tax purposes, was approximately the same as the cost reported
in the financial statements.
Gross unrealized appreciation and depreciation of investments as of June 30,
2018, were $565,000 and $2,147,000, respectively, resulting in net realized
depreciation of $1,582,000.
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities, excluding
short-term securities, for the six-month period ended June 30, 2018, were
$87,239,000 and $78,574,000, respectively.
================================================================================
28 | USAA ULTRA 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, net of income retained by Citibank.
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. Loans are terminable upon demand
and the borrower must return the loaned securities within the lesser of one
standard settlement period or five business days. 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 June 30,
2018, the Fund had no securities on loan.
(6) CAPITAL SHARE TRANSACTIONS
At June 30, 2018, there were an unlimited number of shares of capital stock at
no par value authorized for the Fund.
Capital share transactions for the Institutional Shares resulted from purchases
and sales by the affiliated USAA fund-of-funds as well as other
================================================================================
NOTES TO FINANCIAL STATEMENTS | 29
================================================================================
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
JUNE 30, 2018 DECEMBER 31, 2017
-------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------
FUND SHARES:
Shares sold 4,729 $ 46,976 10,099 $ 100,885
Shares issued from reinvested
dividends 308 3,057 565 5,650
Shares redeemed (7,867) (78,154) (14,810) (147,926)
----------------------------------------------------------
Net decrease from capital
share transactions (2,830) $(28,121) (4,146) $ (41,391)
==========================================================
INSTITUTIONAL SHARES:
Shares sold 363 $ 3,603 1,082 $ 10,805
Shares issued from reinvested
dividends 6 56 8 82
Shares redeemed (494) (4,907) (2,251) (22,481)
----------------------------------------------------------
Net decrease from capital
share transactions (125) $ (1,248) (1,161) $ (11,594)
==========================================================
R6 SHARES (COMMENCED ON
MARCH 1, 2017):
Shares sold -* $ -* 511 $ 5,098
Shares issued from reinvested
dividends -* -* -* 1
Shares redeemed (8) (83) -* (1)
----------------------------------------------------------
Net increase (decrease) from capital
share transactions (8) $ (83) 511 $ 5,098
==========================================================
*Represents less than 500 shares or $500.
(7) TRANSACTIONS WITH MANAGER
MANAGEMENT FEES - The Manager provides investment management services to the
Fund pursuant to an Advisory Agreement. Under this agreement, the Manager is
responsible for managing the business and affairs of the Fund, and for directly
managing the day-to-day investment of the Fund's assets, subject to the
authority of and supervision by the Board. The Manager is
================================================================================
30 | USAA ULTRA SHORT-TERM BOND FUND
================================================================================
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 June 30, 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 Ultra Short Obligations Funds Index. The Lipper Ultra
Short Obligations Funds Index, which measures the performance of funds tracked
by Lipper that invest at least 65% of their assets in investment-grade debt
issues, or better, and maintain a portfolio dollar-weighted average maturity
between 91 days and 365 days.
The performance period for each class consists of the current month plus the
previous 35 months. The performance period for the R6 Shares includes the
performance of the Fund Shares for periods prior to March 1, 2017. The
following table is utilized to determine the extent of the performance
adjustment:
OVER/UNDER PERFORMANCE
RELATIVE TO INDEX ANNUAL ADJUSTMENT RATE
(IN BASIS POINTS)(1) (IN BASIS POINTS)(1)
----------------------------------------------------------------------
+/- 20 to 50 +/- 4
+/- 51 to 100 +/- 5
+/- 101 and greater +/- 6
(1)Based on the difference between average annual performance of the
relevant share class of the Fund and its relevant index, rounded to the
nearest basis point. Average net assets are calculated over a rolling
36-month period.
Each class' annual performance adjustment rate is multiplied by the average net
assets of each respective class over the entire performance period, which is
then multiplied by a fraction, the numerator of which is the number of days in
the month and the denominator of which is 365 (366 in leap years). The
resulting amount is then added to (in the case of overperformance), or
subtracted from (in the case of underperformance) the base fee.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 31
================================================================================
Under the performance fee arrangement, each class will pay a positive
performance fee adjustment for a performance period whenever the Fund
outperforms the Lipper Ultra Short Obligations Funds Index over that period,
even if the Fund had overall negative returns during the performance period.
For the six-month period ended June 30, 2018, the Fund incurred total management
fees, paid or payable to the Manager, of $396,000, which included a performance
adjustment for the Fund Shares, Institutional Shares, and R6 Shares of $12,000,
$(1,000), and less than $(500), respectively. For the Fund Shares, Institutional
Shares, and R6 Shares, the performance adjustments were 0.01%, (0.02)%, and less
than (0.01)%, respectively.
ADMINISTRATION AND SERVICING FEES - The Manager provides certain administration
and servicing functions for the Fund. For such services, the Manager receives a
fee accrued daily and paid monthly at an annualized rate of 0.15% of average net
assets of the Fund 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 June 30, 2018 , the Fund Shares, Institutional Shares, and R6
Shares incurred administration and servicing fees, paid or payable to the
Manager, of $232,000, $3,000, 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 June 30, 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.
EXPENSE LIMITATION - The Manager agreed, through April 30, 2019, to limit the
total annual operating expenses of the Institutional Shares and R6 Shares to
0.55% and 0.39%, respectively, of their average net assets, excluding
extraordinary expenses and before reductions of any expenses paid indirectly,
and will reimburse the Institutional Shares and R6 Shares for all expenses in
excess of those amounts. This expense limitation arrangement may not be changed
or terminated through April 30, 2019, without approval of the Board, and may be
changed or terminated by the Manager at any time after that date. For the
six-month period ended June 30, 2018, the Fund incurred
================================================================================
32 | USAA ULTRA SHORT-TERM BOND FUND
================================================================================
reimbursable expenses from the Manager for the Institutional Shares and R6
Shares of $10,000 and $12,000, respectively, of which $2,000 was receivable from
the Manager.
TRANSFER AGENT'S FEES - USAA Transfer Agency Company, d/b/a USAA Shareholder
Account Services (SAS), an affiliate of the Manager, provides transfer agent
services to the Fund Shares based on an annual charge of $25.50 per shareholder
account plus out-of-pocket expenses. SAS pays a portion of these fees to certain
intermediaries for the administration and servicing of accounts that are held
with such intermediaries. 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 June 30,
2018, the Fund Shares, Institutional Shares, and R6 Shares incurred transfer
agent's fees, paid or payable to SAS, of $149,000, $3,000, and less than $500,
respectively.
UNDERWRITING SERVICES - USAA Investment Management Company provides exclusive
underwriting and distribution of the Fund's shares on a continuing best-efforts
basis and receives no fee or other compensation for these services.
(8) TRANSACTIONS WITH AFFILIATES
The Manager is indirectly wholly owned by United Services Automobile Association
(USAA), a large, diversified financial services institution. At June 30, 2018,
USAA and its affiliates owned 501,000 R6 Shares, which represents 99.7% of the
R6 Shares outstanding and 1.6% 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 33
================================================================================
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) UPCOMING 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 statements
and other disclosures.
================================================================================
34 | USAA ULTRA SHORT-TERM BOND FUND
================================================================================
FINANCIAL HIGHLIGHTS
FUND SHARES (UNAUDITED)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------------
2018 2017 2016 2015 2014 2013
-----------------------------------------------------------------------------------
Net asset value at
beginning of period $ 9.97 $ 9.98 $ 9.94 $ 10.07 $ 10.10 $ 10.12
-----------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .10 .16 .13 .13 .13 .14
Net realized and
unrealized gain (loss) (.06) (.01) .04 (.13) (.02) (.01)
-----------------------------------------------------------------------------------
Total from investment
operations .04 .15 .17 (.00)(a) .11 .13
-----------------------------------------------------------------------------------
Less distributions from:
Net investment income (.10) (.16) (.13) (.13) (.13) (.14)
Realized capital gains - - (.00)(a) (.00)(a) (.01) (.01)
-----------------------------------------------------------------------------------
Total distributions (.10) (.16) (.13) (.13) (.14) (.15)
-----------------------------------------------------------------------------------
Net asset value at
end of period $ 9.91 $ 9.97 $ 9.98 $ 9.94 $ 10.07 $ 10.10
===================================================================================
Total return (%)* .41 1.51 1.73 .01 1.05 1.22
Net assets at end of
period (000) $300,573 $330,442 $372,155 $426,994 $470,933 $492,875
Ratios to average
net assets:**
Expenses (%)(e) .59(d) .58 .61 .59 .58 .58(b)
Net investment income (%) 2.04(d) 1.60 1.30 1.28 1.27 1.34
Portfolio turnover (%) 27 58(c) 28 20 31 39
* 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 June 30, 2018, average net assets were
$311,279,000.
(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 ratio by less than 0.01%.
(c) Reflects increased trading activity due to large shareholder outflows.
(d) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(e) Does not include acquired fund fees, if any.
================================================================================
FINANCIAL HIGHLIGHTS | 35
================================================================================
INSTITUTIONAL SHARES (UNAUDITED)
-------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------
2018 2017 2016 2015 2014 2013
--------------------------------------------------------------------------------
Net asset value at
beginning of period $ 9.97 $ 9.98 $ 9.94 $ 10.07 $ 10.10 $ 10.08
--------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .10 .15 .13 .13 .13 .06
Net realized and
unrealized gain (loss) (.05) (.01) .04 (.13) (.02) .03
--------------------------------------------------------------------------------
Total from investment
operations .05 .14 .17 .00(a) .11 .09
--------------------------------------------------------------------------------
Less distributions from:
Net investment income (.10) (.15) .13 (.13) (.13) (.06)
Realized capital gains - - (.00)(a) (.00)(a) (.01) (.01)
--------------------------------------------------------------------------------
Total distributions (.10) (.15) (.13) (.13) (.14) (.07)
--------------------------------------------------------------------------------
Net asset value at
end of period $ 9.92 $ 9.97 $ 9.98 $ 9.94 $ 10.07 $ 10.10
================================================================================
Total return (%)* .53 1.44 1.69 .04 1.10 .81
Net assets at end of
period (000) $5,829 $7,115 $18,710 $22,454 $69,297 $53,457
Ratios to average
net assets:**
Expenses (%)(f) .55(b) .64(d) .66 .57 .53 .56(b),(c)
Expenses, excluding
reimbursements (%)(f) .87(b) .75 .66 .57 .53 .56(b),(c)
Net investment income (%) 2.07(b) 1.51 1.25 1.32 1.33 1.19(b)
Portfolio turnover (%) 27 58(e) 28 20 31 39
* 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 June 30, 2018, average net assets were
$6,264,000.
*** Institutional Shares commenced operations on July 12, 2013.
(a) Represents less than $0.01 per share.
(b) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(c) Reflects total annual operating expenses of the Institutional Shares before
reductions of any expenses paid indirectly. The Institutional Shares'
expenses paid indirectly decreased the expense ratio by less than 0.01%.
(d) Effective May, 1, 2017, the Manager has voluntarily agreed to limit the
annual expenses of the Institutional Shares to 0.55% of the Institutional
Shares' average net assets.
(e) Reflects increased trading activity due to large shareholder outflows.
(f) Does not include acquired fund fees, if any.
================================================================================
36 | USAA ULTRA SHORT-TERM BOND FUND
================================================================================
R6 SHARES (UNAUDITED)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED PERIOD ENDED
JUNE 30, DECEMBER 31,
-----------------------------------------
2018 2017***
-----------------------------------------
Net asset value at beginning of period $ 9.97 $ 9.98
-----------------------------------
Income (loss) from investment operations:
Net investment income .11 .15
Net realized and unrealized loss (.06) (.01)
-----------------------------------
Total from investment operations .05 .14
-----------------------------------
Less distributions from:
Net investment income (.11) (.15)
-----------------------------------
Net asset value at end of period $ 9.91 $ 9.97
===================================
Total return (%)* .51 1.42
Net assets at end of period (000) $4,980 $5,091
Ratios to average net assets:**
Expenses (%)(a),(b) .39 .39
Expenses, excluding reimbursements (%)(a),(b) .88 1.05
Net investment income (%)(a) 2.24 1.81
Portfolio turnover (%) 27 58
* 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 June 30, 2018, average net assets were
$4,993,000.
*** R6 Shares commenced operations on March 1, 2017.
(a) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(b) Does not include acquired fund fees, if any.
================================================================================
FINANCIAL HIGHLIGHTS | 37
================================================================================
EXPENSE EXAMPLE
June 30, 2018 (unaudited)
--------------------------------------------------------------------------------
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: direct costs, such
as wire fees, redemption fees, and low balance fees; and indirect costs,
including management fees, transfer agency fees, and other Fund operating
expenses. This example is intended to help you understand your indirect costs,
also referred to as "ongoing costs" (in dollars), of investing in the Fund and
to compare these costs with the ongoing costs of investing in other mutual
funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire six-month period of January 1, 2018, through June
30, 2018.
ACTUAL EXPENSES
The line labeled "actual" under each share class in the table provides
information about actual account values and actual expenses. You may use the
information in this line, together with the amount you invested at the beginning
of the period, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number for your share
class in the "actual" line under the heading "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The line labeled "hypothetical" under each share class in the table provides
information about hypothetical account values and hypothetical expenses based on
the Fund's actual expense ratios for each class and an assumed rate of return of
5% per year before expenses, which is not the Fund's actual return. The
hypothetical account values and expenses may not be used to
================================================================================
38 | USAA ULTRA SHORT-TERM BOND FUND
================================================================================
estimate the actual ending account balance or expenses you paid for the period.
You may use this information to compare the ongoing costs of investing in the
Fund and other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any direct costs, such as wire fees,
redemption fees, or low balance fees. Therefore, the line labeled "hypothetical"
is useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if these direct
costs were included, your costs would have been higher.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE JANUARY 1, 2018 -
JANUARY 1, 2018 JUNE 30, 2018 JUNE 30, 2018
---------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $1,004.10 $2.93
Hypothetical
(5% return before expenses) 1,000.00 1,021.87 2.96
INSTITUTIONAL SHARES
Actual 1,000.00 1,005.30 2.73
Hypothetical
(5% return before expenses) 1,000.00 1,022.07 2.76
R6 SHARES
Actual 1,000.00 1,005.10 4.03
Hypothetical
(5% return before expenses) 1,000.00 1,021.17 4.08
*Expenses are equal to the annualized expense ratio of 0.59% for Fund Shares,
0.55% for Institutional 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 181 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 0.41% for Fund Shares, 0.53% for Institutional Shares,
and 0.51% for R6 Shares for the six-month period of January 1, 2018, through
June 30, 2018.
================================================================================
EXPENSE EXAMPLE | 39
================================================================================
ADVISORY AGREEMENT(S)
June 30, 2018 (unaudited)
--------------------------------------------------------------------------------
At an in-person meeting of the Board of Trustees (the Board) held on April 18,
2018, the Board, including the Trustees who are not "interested persons" (as
that term is defined in the Investment Company Act of 1940, as amended) of the
Trust (the Independent Trustees), approved for an annual period the continuance
of the Advisory Agreement between the Trust and the Manager with respect to the
Fund.
In advance of the meeting, the Trustees received and considered a variety of
information relating to the Advisory Agreement and the Manager, and were given
the opportunity to ask questions and request additional information from
management. The information provided to the Board included, among other things:
(i) a separate report prepared by an independent third party, which provided a
statistical analysis comparing the Fund's investment performance, expenses, and
fees to comparable investment companies; (ii) information concerning the
services rendered to the Fund, as well as information regarding the Manager's
revenues and costs of providing services to the Fund and compensation paid to
affiliates of the Manager; and (iii) information about the Manager's operations
and personnel. Prior to voting, the Independent Trustees reviewed the proposed
continuance of the Advisory Agreement with management and with experienced
counsel retained by the Independent Trustees (Independent Counsel) and received
materials from such Independent Counsel discussing the legal standards for their
consideration of the proposed continuance of the Advisory Agreement with respect
to the Fund. The Independent Trustees also reviewed the proposed continuance of
the Advisory Agreement with respect to the Fund in private sessions with
Independent Counsel at which no representatives of management were present.
At each regularly scheduled meeting of the Board and its committees, the Board
receives and reviews, among other things, information concerning the Fund's
performance and related services provided by the Manager. At the
================================================================================
40 | USAA ULTRA SHORT-TERM BOND FUND
================================================================================
meeting at which the renewal of the Advisory Agreement is considered, particular
focus is given to information concerning Fund performance, fees and total
expenses as compared to comparable investment companies, and the Manager's
profitability with respect to the Fund. However, the Board noted that the
evaluation process with respect to the Manager is an ongoing one. In this
regard, the Board and its committees' consideration of the Advisory Agreement
included certain information previously received at such meetings.
ADVISORY AGREEMENT
After full consideration of a variety of factors, the Board, including the
Independent Trustees, voted to approve the Advisory Agreement. In approving the
Advisory Agreement, the Trustees did not identify any single factor as
controlling, and each Trustee may have attributed different weights to various
factors. Throughout their deliberations, the Independent Trustees were
represented and assisted by Independent Counsel.
NATURE, EXTENT, AND QUALITY OF SERVICES - In considering the nature, extent, and
quality of the services provided by the Manager under the Advisory Agreement,
the Board reviewed information provided by the Manager relating to its
operations and personnel. The Board also took into account its knowledge of the
Manager's management and the quality of the performance of the Manager's duties
through Board meetings, discussions, and reports during the preceding year. The
Board considered the fees paid to the Manager and the services provided to the
Fund by the Manager under the Advisory Agreement, as well as other services
provided by the Manager and its affiliates under other agreements, and the
personnel who provide these services. In addition to the investment advisory
services provided to the Fund, the Manager and its affiliates provide
administrative services, shareholder services, oversight of Fund accounting,
marketing services, assistance in meeting legal and regulatory requirements, and
other services necessary for the operation of the Fund and the Trust.
The Board also considered the significant risks assumed by the Manager in
connection with the services provided to the Fund, including investment,
operational, enterprise, litigation, regulatory and compliance risks.
================================================================================
ADVISORY AGREEMENT(S) | 41
================================================================================
The Board considered the Manager's management style and the performance of the
Manager's duties under the Advisory Agreement. The Board considered the level
and depth of knowledge of the Manager, including the professional experience and
qualifications of its senior and investment personnel, as well as current
staffing levels. The allocation of the Fund's brokerage, including the Manager's
process for monitoring "best execution," was also considered. The Manager's
role in coordinating the activities of the Fund's other service providers also
was considered. The Board also considered the Manager's risk management
processes. The Board considered the Manager's financial condition and that it
had the financial wherewithal to continue to provide the same scope and high
quality of services under the Advisory Agreement. In reviewing the Advisory
Agreement, the Board focused on the experience, resources, and strengths of the
Manager and its affiliates in managing the Fund, as well as the other funds in
the Trust.
The Board also reviewed the compliance and administrative services provided to
the Fund by the Manager and its affiliates, including oversight of the Fund's
day-to-day operations and oversight of Fund accounting. The Trustees, guided
also by information obtained from their experiences as trustees of the Trust,
also focused on the quality of the Manager's compliance and administrative
staff.
EXPENSES AND PERFORMANCE - In connection with its consideration of the Advisory
Agreement, the Board evaluated the Fund's advisory fees and total expense ratio
as compared to other open-end investment companies deemed to be comparable to
the Fund as determined by the independent third party in its report. The Fund's
expenses were compared to (i) a group of investment companies chosen by the
independent third party to be comparable to the Fund based upon certain factors,
including fund type, comparability of investment objective and classification,
sales load type (in this case, retail investment companies with front-end loads
and no sales loads), asset size, and expense components (the "expense group")
and (ii) a larger group of investment companies that includes all front-end load
and no-load retail open-end investment companies with the same investment
classification/objective as the Fund regardless of asset size, excluding
outliers (the "expense universe"). Among other data, the Board noted that the
================================================================================
42 | USAA ULTRA SHORT-TERM BOND FUND
================================================================================
Fund's management fee rate - which includes advisory and administrative services
and the effects of any performance adjustment - was above the median of its
expense group and its expense universe. The data indicated that the Fund's total
expenses were below the median of its expense group and its expense universe.
The Board took into account management's discussion of the Fund's expenses. The
Board took into account the various services provided to the Fund by the Manager
and its affiliates, including the high quality of services received by the Fund
from the Manager. The Board also noted the level and method of computing the
management fee, including any performance adjustment to such fee.
In considering the Fund's performance, the Board noted that it reviews at its
regularly scheduled meetings information about the Fund's performance results.
The Trustees also reviewed various comparative data provided to them in
connection with their consideration of the renewal of the Advisory Agreement,
including, among other information, a comparison of the Fund's average annual
total return with its Lipper index and with that of other mutual funds deemed to
be in its peer group by the independent third party in its report (the
"performance universe"). The Fund's performance universe consisted of the Fund
and all retail and institutional open-end investment companies with the same
classification/objective as the Fund regardless of asset size or primary channel
of distribution. This comparison indicated that, among other data, the Fund's
performance was above the average of its performance universe and its Lipper
index for the one-, three-, and five-year periods ended December 31, 2017. The
Board also noted that the Fund's percentile performance ranking was in the top
35% of its performance universe for the one- and three-year periods ended
December 31, 2017 and was in the top 20% of its performance universe for the
five-year period ended December 31, 2017.
COMPENSATION AND PROFITABILITY - The Board took into consideration the level and
method of computing the Fund's management fee. The information considered by the
Board included operating profit margin for the Manager's business as a whole.
The Board also considered profitability information related to the management
revenues from the Fund. This information included a review of the methodology
used in the allocation of certain costs to the Fund. The Trustees reviewed the
profitability of the Manager's relationship
================================================================================
ADVISORY AGREEMENT(S) | 43
================================================================================
with the Fund before tax expenses. In reviewing the overall profitability of the
management fee to the Manager, the Board also considered the fact that
affiliates provide shareholder servicing and administrative services to the Fund
for which they receive compensation. The Board also considered the possible
direct and indirect benefits to the Manager from its relationship with the
Trust, including that the Manager may derive reputational and other benefits
from its association with the Fund. The Trustees recognized that the Manager
should be entitled to earn a reasonable level of profits in exchange for the
level of services it provides to the Fund and the entrepreneurial risk that it
assumes as Manager.
ECONOMIES OF SCALE - The Board considered whether there should be changes in the
management fee rate or structure in order to enable the Fund to participate in
any economies of scale. The Board took into account management's discussions of
the Fund's current advisory fee structure.
The Board also considered the effect of the Fund's growth and size on its
performance and fees, noting that if the Fund's assets increase over time, the
Fund may realize other economies of scale if assets increase proportionally more
than some expenses. The Board determined that the current investment management
fee structure was reasonable.
CONCLUSIONS - The Board reached the following conclusions regarding the Fund's
current Advisory Agreement with the Manager, among others: (i) the Manager has
demonstrated that it possesses the capability and resources to perform the
duties required of it under the Advisory Agreement; (ii) the Manager maintains
an appropriate compliance program; (iii) the performance of the Fund is
reasonable in relation to the performance of funds with a similar investment
strategy and to relevant indices; (iv) the Fund's advisory expenses are
reasonable in relation to the services to be provided by the Manager; and (v)
the Manager and its affiliates' level of profitability from their relationship
with the Fund is reasonable in light of the nature and high quality of services
provided by the Manager and the type of fund. Based on its conclusions, the
Board determined that the continuation of the Advisory Agreement would be in the
best interests of the Fund and its shareholders.
================================================================================
44 | USAA ULTRA SHORT-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
--------------------------------------------------------------------------------
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
--------------
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94422-0818 (C)2018, USAA. All rights reserved.
ITEM 2. CODE OF ETHICS.
NOT APPLICABLE. This item is only required in annual reports.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
NOT APPLICABLE. This item is only required annual reports.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
NOT APPLICABLE. This item is only required in annual reports.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
NOT APPLICABLE.
ITEM 6. SCHEDULE OF INVESTMENTS.
Included as part of the Report to Stockholders filed under Item 1 of this form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not Applicable to open-end management investment companies.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not Applicable to open-end management investment companies.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not Applicable to open-end management investment companies.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Corporate Governance Committee selects and nominates candidates for
membership on the Board as independent trustees. The Corporate Governance
Committee has adopted procedures to consider Board candidates suggested by
shareholders. The procedures are initiated by the receipt of nominations
submitted by a fund shareholder sent to Board member(s) at the address specified
in fund disclosure documents or as received by AMCO or a fund officer. Any
recommendations for a nomination by a shareholder, to be considered by the
Board, must include at least the following information: name; date of birth;
contact information; education; business profession and other expertise;
affiliations; experience relating to serving on the Board; and references. The
Corporate Governance Committee gives shareholder recommendations the same
consideration as any other candidate.
ITEM 11. CONTROLS AND PROCEDURES
The principal executive officer and principal financial officer of USAA Mutual
Funds Trust (Trust) have concluded that the Trust's disclosure controls and
procedures are sufficient to ensure that information required to be disclosed by
the Trust in this Form N-CSR/S was recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission's
rules and forms, based upon such officers' evaluation of these controls and
procedures as of a date within 90 days of the filing date of the report.
There were no changes in the Trust's internal controls over financial
reporting (as defined in rule 30a-3(d)under the 1940 Act) that occurred
during the period covered by this report that have materially affected,
or are reasonably likely to materially affect, the Trust's internal control
over financial reporting.
ITEM 12. DISCLOSURE OF SECURITIES LENDING ACTIVITIES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not Applicable to open-end management investment companies.
ITEM 13. EXHIBITS.
(a)(1). NOT APPLICABLE. This item is only required in annual reports.
(a)(2). Certification pursuant to Rule 30a-2(a) under the Investment Company Act
of 1940 (17 CFR 270.30a-2(a)) is filed and attached hereto as Exhibit
99.CERT.
(a)(3). Not Applicable.
(a)(4). Not Applicable.
(b). Certification pursuant to Rule 30a-2(b) under the Investment Company Act
of 1940 (17 CFR 270.30a-2(b))is filed and attached hereto as Exhibit
99.906CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Registrant: USAA MUTUAL FUNDS TRUST, Period Ended June 30, 2018
By:* /S/ KRISTEN MILLAN
-----------------------------------------------------------
Signature and Title: Kristen Millan, Assistant Secretary
Date: 08/24/2018
------------------------------
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: 08/27/2018
------------------------------
By:* /S/ JAMES K. DE VRIES
-----------------------------------------------------
Signature and Title: James K. De Vries, Treasurer
Date: 08/27/2018
------------------------------
*Print the name and title of each signing officer under his or her signature.